Signs of Elder Abuse

Signs of Elder Abuse

Physical, mental & financial warning signals.

 

Provided by Terri Fassi, CPA, MBA, CDFA

  

Is someone taking advantage of someone you love? June 15 is World Elder Abuse Prevention Day, a day to call attention to a crisis that may become even more common as baby boomers enter the “third acts” of their lives.1

Every year, more than half a million American elders are abused or neglected. That estimate comes from the Centers for Disease Control, and the frequency of elder abuse may be greater as so many elders are afraid or simply unable to speak out about what is happening to them. In some cases, the abuse is limited to financial exploitation. In other cases, it may encompass neglect and physical or emotional cruelty.1

What should you watch out for? Different varieties of elder abuse have different signals, some less obvious than others.

Neglect. This is commonly defined as withholding or failing to supply necessities of daily living to an elder, from food, water and appropriate clothing to necessary hygiene and medicines. Signals are easily detectable and include physical signs such as bedsores, malnutrition and dehydration and flawed living conditions (i.e., faulty electrical wiring, fleas or cockroaches, inadequate heat or air conditioning).

Self-neglect also surfaces, stemming from the declining physical or mental capacity of an elder. If he or she foregoes proper hygiene, disdains needed medications or medical aids, or persists in living in an insect-ridden, filthy or fire-hazardous dwelling, intervene to try and change their environment for the better, for their health and safety.

Finally, neglect may also take financial form. If someone who has assumed a fiduciary duty to pay for assisted living, nursing home care or at-home health care fails to do so, that is a form of neglect which may be defined as elder abuse. The same goes for an in-home eldercare service provider that fails to provide an adequate degree or frequency of care.2

Abandonment. This occurs when a caregiver or responsible party flat-out deserts an elder – dropping him or her off at a nursing home, a hospital, or even a bus or train station with no plans to return. Hopefully, the elder has the presence of mind to call for help, but if not, a tragic situation will quickly worsen. When an elderly person seems to stay in one place for hours and appears confused or deserted, it is time to get to the bottom of what just happened for his or her safety.

Physical abuse. Bruises and lacerations are evident signals, but other indicators are less evident: sprains and dislocations, cracked eyeglass lenses, impressions on the arms or legs from restraints, too much or too little medication, or a strange reticence, silence or fearfulness or other behavioral changes in the individual.

Emotional or psychological abuse. How do you know if an elder has been verbally degraded, tormented, or threatened in your absence, or left in isolation? If the elder is not willing or able to let you know about such wrongdoing, watch for signals such as withdrawal from conversation or communication, agitation or distress, and repetitive or obsessive-compulsive actions linked to dementia such as rocking, biting or sucking.2

Financial abuse. When an unscrupulous relative, friend or other party uses an elder’s funds, property, or assets illegally or dishonestly, this is financial exploitation of the elderly. This runs all the way from withdrawing an elder’s savings with his or her ATM card to forgery to improperly assuming conservatorship or power of attorney.2

How do you spot it? Delve into the elder’s financial life and see if you detect things like strange ATM withdrawals or account activity, additional names on a bank signature card, changes to beneficiary forms, or the sudden absence of collectibles or valuables.

Examine signatures on financial transactions – on closer examination, do they appear to be authentic, or studied forgeries? Have assets been inexplicably transferred to long-uninvolved heirs or relatives, or worse yet apparent strangers? Have eldercare bills gone unpaid recently? Is the level of eldercare being provided oddly slipshod given the financial resources being devoted to it?

Respect your elders; protect your elders. Some people aim to exploit senior citizens. Others simply don’t recognize or respect the responsibilities that come with eldercare. Whether the abuse is intentional or not, the emotional, physical or financial harm done can be reprehensible. Talk to or check in on your parents, grandparents, siblings or other elders you know and care for to see that they are free from such abuse.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – cdc.gov/features/elderabuse/ [6/9/14]

2 – ncea.aoa.gov/FAQ/Type_Abuse/index.aspx [2/10/15]

Section 105 Plans

Section 105 Plans

Medical reimbursement plans to benefit the smallest businesses.

Provided by Terri Fassi, CPA, MBA, CDFA

Some businesses start small and stay small, by design. You may own such a business. Perhaps things begin and end with you, or maybe you employ one other person – your spouse. If this is the case, you should know about Section 105 plans.

Being self-employed, you already know that you can deduct 100% of your healthcare premiums from your federal and state taxes. The tax savings needn’t stop there. A properly structured Section 105 plan may let you deduct 100% of your family’s out-of-pocket medical expenses from federal, state and FICA/Medicare taxes.1,2

That’s right – all of them. TASC, a major provider of microbusiness employee benefits administration services, estimates that a Section 105 plan saves a family an average of $5,000 in taxes a year.2

How does this work? Section 105 of the Internal Revenue Code permits a self-employed person to set up a health reimbursement arrangement (HRA) for tax-free repayment of major qualified medical expenses not covered under a health plan. Alternately, that self-employed individual may hire a salaried employee (read: his/her spouse) and offer that employee an HRA.1,3

If the latter choice is made, the benefits offered will not only cover the employee, but also his/her spouse and dependents. So if the new hire is the business owner’s spouse, what results is effectively a family healthcare expense account.1

Most solopreneurs need to hire someone to get this perk. Can you set up a Section 105 plan without hiring an employee? Yes, if your business is a C-corp, an S-corp, or an LLC that files its federal tax return as a corporation. In a corporate structure, the corporation is defined as the employer and the business owner is defined as a salaried employee.1,3

Otherwise, hiring an employee is a precondition to implementing a Section 105 plan. You don’t necessarily have to hire your spouse – the new hire could be your son or daughter, a more distant relative, or even someone to whom you aren’t related.1

Did the Affordable Care Act restrict the implementation of these plans? Not for microbusinesses. When the IRS issued Notice 2013-54 as a follow-up to the Affordable Care Act, most businesses lost the chance to offer a discrete medical reimbursement plan. One-employee HRAs are still allowed under Section 105 using group or individual insurance coverage.2

Look at all you can potentially deduct. A properly designed Section 105 plan allows eligible employee(s) and their family/families to deduct all health and dental insurance premiums, all life and disability insurance premiums, all premiums for qualified long term care coverage, all Medicare Part A and Medigap premiums, all out-of-pocket medical, dental, and vision care expenses, psychiatric care, orthodontics … anything stipulated as a qualified medical expense in Section 213 of the Internal Revenue Code. Section 105 plans can even be structured so that if an employee doesn’t max out his/her yearly deduction, the unused portion can be carried over to subsequent years.1

To keep up the plan, keep the paper trail going. A business owner and a financial or tax professional should collaborate to put a Section 105 plan into play. The IRS does look closely at these plans to check that the other spouse is legitimately employed – salaried, working a set schedule of hours, and hired per a written agreement. In addition, appropriate tax forms must be filed with the IRS, including Form 940 if the employee is unrelated to the business owner.1

If you want to lessen your tax liability and create an expense account to meet unanticipated medical costs, do what other microbusiness owners have done: set up a Section 105 plan.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – tasconline.com/products/agriplan/section-105-plan-2/ [4/15/14]

2 – theihcc.com/en/communities/hsa_hra_fsa_admin_finance/hras-are-still-a-viable-tax-savings-device-for-sma_hsnc3u8t.html [3/10/14]

3 – smallbusiness.chron.com/can-business-owners-reimburse-themselves-taxfree-health-insurance-38718.html [4/15/14]

Setting Up Your Estate to Minimize Probate

Setting Up Your Estate to Minimize Probate

What can you do to lessen its impact for your heirs?

Provided by Terri Fassi, CPA, MBA, CDFA

 

Probate subtly reduces the value of many estates. It can take more than a year in some cases, and attorney’s fees, appraiser’s fees and court costs may eat up as much as 5% of a decedent’s accumulated assets. Think tens of thousands of dollars, perhaps more.1

What do those fees pay for? In many cases, routine clerical work. Few estates require more than that. Heirs of small, five-figure estates may be allowed to claim property through affidavit, but this convenience isn’t extended for larger estates.

So how you can exempt more of your assets from probate and its costs? Here are some ideas.

Joint accounts. Jointly titled property with the right of survivorship is not subject to probate. It simply goes to the surviving spouse when one spouse passes. There are a couple of variations on this. Some states allow tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship. A few states allow community property with right of survivorship; assets titled in this way also skip the probate process.2,3,4

Joint accounts may be exempt from probate, but they can still face legal challenges – especially bank accounts when the title is modified by a bank employee rather than a lawyer. The signature card may not contain survivorship language, for example. Or, a joint account with rights of survivorship may be found inconsistent with language in a will.5

POD & TOD accounts. Payable-on-death and transfer-on-death forms are used to permit easy transfer of bank accounts and securities (and even motor vehicles in a few states). As long as you live, the named beneficiary has no rights to claim the account funds or the security. When you pass away, all that the named beneficiary has to do is bring his or her I.D. and valid proof of the original owner’s death to claim the assets or securities.3

Gifts. For 2013, the IRS allows you to give up to $14,000 each to as many different people as you like, tax-free. By doing so, you reduce the size of your taxable estate. Please note that gifts over the $14,000 limit may be subject to federal gift tax of up to 40% and count against the lifetime gift tax exclusion, now at $5.25 million.6

Revocable living trusts. In a sense, these estate planning vehicles allow people to do much of their own probate while living. The grantor – the person who establishes the trust – funds it while alive with up to 100% of his or her assets, designating the beneficiaries of those assets at his or her death. (A pour-over will can be used to add subsequently accumulated assets; it will be probated, however.)2,7,8

The trust owns assets that the grantor once did, yet the grantor can use these assets while alive. When the grantor dies, the trust becomes irrevocable and its assets are distributed by a successor trustee without having to be probated. The distribution is private (as opposed to the completely public process of probate) and it can save heirs court costs and time.7

Are there assets probate doesn’t touch? Yes. In addition to property held in joint tenancy, retirement savings accounts (such as IRAs), life insurance death benefits and Treasury bonds are exempt. Speaking of retirement savings accounts…2

Make sure to list/update retirement account beneficiaries. When you open a retirement savings account (such as an IRA), you are asked to designate eventual beneficiaries of that account on a form. This beneficiary form stipulates where these assets will go when you pass away. A beneficiary form commonly takes precedence over a will, because retirement accounts are not considered part of an estate.8

Your beneficiary designations need to be reviewed, and they may need to be updated. You don’t want your IRA assets, for example, going to someone you no longer trust or love.

If for some reason you leave the beneficiary form for your life insurance policy blank, it could be subject to probate when you die. If you leave the beneficiary form for your IRA blank, then the IRA assets may be distributed according to the default provision set by the IRA custodian (the brokerage firm hosting the IRA account). These instances are rare, but they do happen.9,10

To learn more about strategies to avoid probate, consult an attorney or a financial professional with solid knowledge of estate planning.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [4/17/13]

2 – www.kiplinger.com/article/retirement/T021-C000-S001-four-facts-of-living-trusts.html#iwrC4LSHbmjf9emt.99 [4/4/13]

3 – www.inc.com/articles/1999/11/15611.html [11/99]

4 – www.law.cornell.edu/wex/tenancy_by_the_entirety [8/19/10]

5 – www.newyorklawjournal.com/PubArticleNY.jsp?id=1202585770799 [1/28/13]

6 – www.chron.com/news/article/New-act-clears-up-estate-gift-tax-confusion-4301217.php [2/22/13]

7 – blog.nolo.com/estateplanning/2011/08/24/trusts-revocable-v-irrevocable/ [8/24/11]

8 – www.nytimes.com/2011/02/10/business/10ESTATE.html [2/10/11]

9 – www.investopedia.com/articles/retirement/03/031803.asp [11/8/09]

10 – www.smartmoney.com/taxes/estate/how-to-choose-a-beneficiary-1304670957977/ [6/10/11]

 

Ways the Middle Class Can Make a Difference for Charity

Ways the Middle Class Can Make a Difference for Charity

You don’t need to be wealthy to make an impact and get a win-win.

Provided by Terri Fassi, CPA, MBA, CDFA

Do you have to make a multimillion-dollar gift to a charity to receive immediate or future financial benefits? No. If you’re not yet a millionaire or simply a “millionaire next door,” yet want to give, consider the following options which may bring you immediate or future tax deductions.

Partnership gifts. These gifts are made via long-term arrangements between donors and recipient charities or non-profits, usually with income resulting for the donor and an eventual transfer of the principal to the charity at the donor’s death.

For example, a charitable remainder trust also allows you to pay yourself a dependable income (typically for life) and then distribute the remaining trust principal to charity. A charitable lead trust offers you the potential to reduce gift and estate taxes on assets passing to your heirs by making annual charitable gifts; your beneficiaries get the leftover trust assets at the end of your life or the specified trust term. You could even name a charitable life income arrangement as the beneficiary of your IRA.1,2

If you don’t have enough funds to start one of these, you might opt to invest some of your assets in a pooled income fund offered by a university or charity. Your gifted assets go into a “pool” of assets invested by a fund manager; you get a pro rata share of the income of the fund for life, and when your last income beneficiary passes away, the principal of your gift goes to the school or charity.

If you like the idea of a family foundation but don’t quite have the money and don’t want the bureaucracy, you could consider setting up a donor-advised fund. You make an irrevocable contribution to a third-party fund, realizing an immediate tax deduction; the fund invests the money in an account you create. You advise the fund where the money goes and how it grows, but the fund makes the actual grants to nonprofits.

Lifetime gifts. These are charitable gifts in which the donor retains no powers or other controls over the gift once it is made. A lifetime gift of this sort is not included in what the IRS calls your Gross Estate (but taxable gifts are used in calculation of estate tax).3

Lifetime gifts also include outright gifts of cash or appreciated assets such as stocks or real estate. A gift of appreciated stock could bring you a charitable deduction to lower your income tax, and help you avoid capital gains tax linked to the sale of the appreciated shares.

Through a gift of appreciated property, you can transfer a real estate deed to a school or charity and get around capital gains taxes that may result from a property’s sale. If you have held the appreciated property for at least a year, the gift is deductible up to 30% of adjusted gross income with no capital gains tax on the appreciation. You could even arrange a retained life estate, in which you deed your home to a charity or non-profit while retaining the right to live in it as your primary residence for the rest of your life.4

Estate gifts. These are deferred gifts you make after your lifetime, without impact on your current lifestyle. You can make a bequest to a charity through your will or a living trust without generally incurring estate taxes on the gift amount. A gift of life insurance to a university or charity can give you an immediate income tax deduction for the cash surrender value of a paid-up policy, and possible future deductions. You can also make an IRA gift or retirement plan gift effective upon your death, with the non-profit organization receiving some or all of the assets as you wish.5,6

The caveats. As your income increases, you may face limits on the amount of charitable gifts you can deduct. If you are retired, an increase in income can also cause more of your Social Security benefits to be taxed. The IRS says that your charitable deductions for any tax year cannot be more than more than 50% or your adjusted gross income (possibly 30% or 20% depending on the specifics of your gifts). But if you exceed such limits, the IRS lets you carry forward excess contributions for up to five years.4

Would you like to learn more? Okay, so they may not name a hospital wing or a library after you. But your charitable gifting can have real effect even if you don’t have a fortune. Keep in mind that your unique circumstances need to be weighed before making any decision. As with all tax and estate planning, please consult your financial advisor, attorney or tax advisor to affirm that you are in a position to fully benefit from charitable deductions.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 www.wellsfargoadvisors.com/financial-services/estate-planning/trusts/charitable-trusts.htm [3/6/13]

2 giving.unc.edu/ccm/groups/public/@giving/@main/documents/content/ccm3_033150.pdf [3/6/13]

3 irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [3/4/13]

4 www.purdue.edu/giving/fed_tax.html [3/6/13]

5 www.irs.gov/publications/p950/ar01.html [3/6/13]

6 redcrosslegacy.org/GIFTinsurance.php [4/23/12]

 

Avoiding Family Squabbles Over Your Estate

Avoiding Family Squabbles Over Your Estate

What steps may help assets transfer without a fight?

Provided by Terri Fassi, CPA, MBA, CDFA

Should you rely on “will power” to bequeath assets? The more complex your estate, the more ill-advised that choice becomes. Having only a will in place when you die may not be enough. As MarketWatch noted recently, research from the Williams Group (a major estate planning firm) indicates that estate fights reduce inherited wealth for as many of 70% of families.1

Inheritance is no simple matter. In a simpler world, an individual with a $3 million estate could pass away and simply leave $1 million each to his or her children – enough said, over and done. But life isn’t so simple: one heir may deserve more money as a result of a disability or fate dealing out hardships, while another may truthfully deserve less due to his or her behavior, or his or her financial success.

If you feel one heir should receive more of your estate than another, that wish needs to be articulated in your estate planning. Stating these wishes before you pass away (the why, the how, the how much) and letting your heirs know how you feel isn’t cruel – candor now is preferable to confusion and in-fighting later.

Beyond money, what about possessions & real property? Homes, businesses, raw land, antiques, artwork, collectibles, heirlooms, and pets: your children and grandchildren may have different perceptions of their future value, and disagree on their destiny. Being clear about who is going to get what today (and why specific decisions are being made) may help defray potential legal challenges tomorrow.

Consider leaving some things up to the kids. You could call in appraisers to set values for your real and personal property, make a list of those assets and their values, and subsequently allow your heirs to take turns choosing the possessions or properties they want to inherit. If a squabble breaks out between heirs over this or that item, you can settle it with a family auction – that item goes to the highest bidder when you pass away.

Also, consider a revocable trust. More people should, as wills have basic shortcomings. If they have any imprecise language or lack in terrorem clauses (which threaten heirs that challenge them with disinheritance), they can invite lawsuits and other battles. If the author of a will is elderly, a spouse, ex-spouse or children could try to assert that the author had insufficient mental capacity at the time of authorship or wrote the will under undue influence.2

Wills are made public; they are probated. While there are many non-probate assets that pass directly to a designated beneficiary or a joint tenant (jointly held bank accounts with right of survivorship, jointly titled real property, POD accounts, most types of IRAs and workplace retirement accounts), other assets do not. The length of the probate process varies by state. It takes weeks in some states, months in others.3,4

Probate requires money as well as time: even if you have named the most capable executor around, the court costs and lawyer and appraiser fees involved may still eat up as much as 5% of your estate (if you’re a millionaire, that’s $50,000). Mostly, those fees go for basic clerical work.3,4

Assets within a revocable trust can avoid probate (assuming they have been properly transferred into the trust, of course). Upon the death of the grantor who established the trust, the grantor’s appointed trustee distributes the assets within the trust per the grantor’s wishes, no probate involved. The chance of a family fight over inherited assets lessens.5

Living wills? Those can prove quite valuable. You may not die suddenly, and you could be incapacitated for a period just prior to your death. Should that be the case, a living will (also called an advance directive) can articulate how you want to be treated. Additionally, a health care proxy document can appoint someone (known legally as a health care agent) to authorize doctors and nurses to carry out those directions. A health care proxy is also crucial in instances when a younger individual becomes severely disabled.5

Opt for more control. When you pass away, your money will have only three possible destinations. Percentages of it will go either to your heirs, to charity, or to the government. If your estate planning goes no further than a will, you could be inviting a dispute and things may not turn out quite the way you want. While creating a revocable trust can cost ten times as much as creating a simple will, it may be worth every penny in the end.6

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – blogs.marketwatch.com/encore/2014/09/29/how-to-prevent-family-feuds-when-it-comes-to-your-inheritance/ [9/29/14]

2 – nolo.com/dictionary/in-terrorem-clause-term.html [10/9/14]

3 – nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [10/9/14]

4 – nyparenting.com/stories/2013/5/fp_askattorney_2013_05.html [5/13]

5 – money.usnews.com/money/personal-finance/articles/2012/07/17/how-to-avoid-fights-over-inheritance [7/17/12]

6 – nhmagazine.com/July-2013-1/Wills-Trusts-and-Estate-Planning/ [7/13]

 

Understanding the Gift Tax

Understanding the Gift Tax

Most of us will never face taxes related to money or assets we give away.

Provided by Terri Fassi, CPA, MBA, CDFA

 

“How can I avoid the federal gift tax?” If this question is on your mind, you aren’t alone. The good news is that few taxpayers or estates will ever have to pay it.

Misconceptions surround this tax. The IRS sets both a yearly gift tax exclusion amount and a lifetime gift tax exemption amount, and this is where the confusion develops.

Here’s what you have to remember: practically speaking, the federal gift tax is a tax on estates. If it wasn’t in place, the rich could simply give away the bulk of their money or property while living to spare their heirs from inheritance taxes.

Now that you know the reason the federal government established the gift tax, you can see that the lifetime gift tax exclusion matters more than the annual one.

“What percentage of my gifts will be taxed this year?” Many people wrongly assume that if they give a gift exceeding the annual gift tax exclusion, their tax bill will go up next year as a result. Unless the gift is huge, that won’t likely occur.

The IRS has set the annual gift tax exclusion at $14,000 this year. What this means is that you can gift up to $14,000 each to as many individuals as you like in 2015 without having to pay any gift taxes. A married couple may gift up to $28,000 each to an unlimited number of individuals tax-free this year – this is known as a “split gift”. Gifts may be made in cash, stock, collectibles, real estate – just about any form of property with value, as long as you cede ownership and control of it.1

So how are amounts over the $14,000 annual exclusion handled? The excess amounts count against the $5.43 million lifetime gift tax exemption (which is periodically adjusted upward in response to inflation). While you have to file a gift tax return if you make a gift larger than $14,000 in 2015, you owe no gift tax until your total gifts exceed the lifetime exemption.1

“What happens if I go over the lifetime exemption?” If that occurs, then you will pay a 40% gift tax on gifts above the $5.43 million lifetime exemption amount. One exception, though: all gifts that you make to your spouse are tax-free provided he or she is a U.S. citizen. This is known as the marital deduction.1,2

“But aren’t the gift tax and estate tax exemptions linked?” They are. The gift tax exemption and the estate tax exemption are sometimes called the unified credit. So if you have already made taxable lifetime gifts that have used up $4 million of the current $5.43 million unified credit, then only $1.43 million of your estate will be exempt from inheritance taxes if you die in 2015.2

However, the $5.43 million unified credit extended to each of us is portable. That means that if you don’t use all of it up during your lifetime, the unused portion of the credit can pass to your spouse at your death.2

In sum, most estates can make larger gifts during the individual’s life without any estate, gift or income tax consequences. If you have estate planning questions in mind, turn to a legal or financial professional well versed in these matters for answers.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html [2/24/15]

2 – schwab.com/public/schwab/nn/articles/The-Estate-Tax-and-Lifetime-Gifting [1/28/15]

 

Special Needs Trusts

Special Needs Trusts

Estate planning vehicles created with disabled heirs in mind.

Provided by Terri Fassi, CPA, MBA, CDFA

If you have a child with special needs, you face long-run financial demands that cannot be fully met through federal and state assistance. What can you do to try and meet them?

A special needs trust may provide an answer to this dilemma. This is a trust designed to provide for assorted care and lifestyle needs not covered by public benefits – medical and dental needs, transportation needs, therapy and more. A trustee uses such a trust to make purchases of goods and services on behalf of a “permanently and totally disabled” person (as defined by the federal government’s Supplemental Social Income standards). In addition, a properly implemented special needs trust lets a disabled heir receive assets without the inherited funds reducing their chances of securing Medicaid, SSI or state benefits.1,2

There are two kinds of special needs trusts, defined by who funds them. A third-party special needs trust is funded by someone other than the beneficiary. Should the beneficiary of the trust die before the trust assets are exhausted, the remaining assets may be distributed to secondary beneficiaries. Third-party special needs trusts can be either living trusts (i.e., created during a grantor’s lifetime) or testamentary trusts established by a will.2

A first-person (or “self-settled”) special needs trust is funded by the beneficiary, often by assets received from a personal injury lawsuit or legal settlement. You have probably heard stories of lump sum cash settlements quickly evaporating; this trust is designed to guard against that. A trustee can oversee the distribution of the assets with an eye toward conserving them. The beneficiary maintains eligibility for public benefits. When the beneficiary of a first-person special needs trust dies, assets remaining in the trust go to the state to repay Medicaid benefits conferred to the disabled person during his or her life. Any assets left over after that may be distributed to secondary beneficiaries.1,2

In either special needs trust variation, a beneficiary cannot withdraw funds from the trust or directly receive distributions from it (distributions are overseen by the trustee). The beneficiary is also legally prohibited from revoking the trust.2

Informal arrangements have their drawbacks. It is still common for a sister or brother of a newly disabled person to hold assets that once belonged to that sibling. Too often, these assets became “easy pickings” in a bankruptcy or divorce. A special needs trust protects such assets from litigation and creditors.1

Standard estate planning efforts may fall short. Some families set up basic life insurance trusts for disabled heirs, but these trusts are often flawed. The trust language fails to specify that the life insurance proceeds should head directly into a special needs trust. If that next step never occurs, the beneficiary of the life insurance trust loses eligibility for Medicaid due to inheriting that large, tax-free insurance benefit.1

Anyone with more than $2,000 of countable assets ($3,000 for a married couple) loses Medicaid and SSI eligibility. So if you want to bequeath or gift assets to the beneficiary of a special needs trust, you have to name the special needs trust as the heir or beneficiary of those assets, rather than the individual named as beneficiary of the trust.1,3

How do these trusts function? The core principle is that the trust assets supplement government benefits, so they work according to a sliding needs scale; for example, should public benefits somehow be able to provide for 100% of the beneficiary’s needs, the trust will provide 0% and vice versa. Trust assets may be invested conservatively, with the resulting income stream paying expenses for the beneficiary.4

The trust language must express a goal to provide “supplemental and extra care” to the trust beneficiary in addition to public benefits (as opposed to basic financial support). The trust must also be without a Crummey clause (a proviso allowing future interest gifts to be treated as present interest gifts, thereby making them eligible for the annual gift tax exclusion).4

ABLE accounts are also emerging. The federal government has authorized a new tax-favored account to benefit disabled individuals, on track to appear in 2016. Distributions from an ABLE account will be tax-free if they are used to cover qualified disability expenses; individuals will be able to contribute up to $14,000 a year to these accounts. Even with this tax break, families may prefer the special needs trust as it has no limits on contributions and permits funds to be spent on a wider range of expenditures.5

The bottom line: if you wish for your loved one to have a good quality of life for years to come, a special needs trust may prove instrumental in allowing you to provide it.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 – tinyurl.com/meqw7va [4/8/15]

2 – getevolved.com/trust-fiduciary/special-needs-trusts [5/14/15]

3 – pacer.org/publications/possibilities/saving-for-your-childs-future-needs-part1.html [5/14/15]

4 – nsnn.com/frequently.htm [5/14/15]

5 – tinyurl.com/mbufwvy [2/2/15]

 

The Question Marks Surrounding Wall Street Trading

The Question Marks Surrounding Wall Street Trading

What don’t we know about the way the markets work?

Provided by Terri Fassi

 

In a perfect world, the financial markets would be entirely transparent and without mysteries. In this imperfect one, we have financial markets reliant on high-speed trading and dark pools, both of which are imperfectly understood. Thanks to the bestselling Flash Boys: A Wall Street Revolt and other journalistic efforts, the public is more aware of them.

While alternative trading platforms such as IEX (founded by Brad Katsuyama, the central figure of Flash Boys) have emerged, the anxieties remain. Reforms to U.S. market structure take time – often, too much time. At present, as Flash Boys notes, major U.S. exchanges such as the NYSE and NASDAQ have sold prime access to their premises to high-frequency trading networks, giving that software a clear competitive advantage over fund managers and individual investors.1

Q: Does high-speed trading hurt individual investors? Lewis (who used to work on Wall Street before becoming a journalist) contends that the machinations of high-frequency trading amount to “computerized scalping” with the small investor paying a “tax” of half a percent (or less) per trade. Some economists and consumer advocates have argued for a “Robin Hood” tax in response – a surcharge of 3 basis points on financial transactions, with revenue generated going to the Treasury and helping to whittle down the federal budget deficit. Other economists call that a lousy idea, saying that taxing trading would only amount to a tax on savings – any such levy would ding the small investor even more, they argue, and Wall Street firms would just hunt for ways to avoid the tax.2

Other stock market analysts feel high-speed trading helps investors more than it hurts them , citing what they see as improved market liquidity and referring to the reduction in bid-ask spreads (the differential between what buyers want to pay for a stock versus what sellers believe it is worth). Since the mid-1990s, bid-ask spreads have narrowed from the vicinity of 90 basis points to about 3 basis points as an effect of such trading networks.3

Q: How long will high-speed trading rule the markets? It doesn’t really “rule” them at the moment, but it does account for about half of all U.S. market volume right now. If it is any comfort, the percentage of market activity conducted via algorithmic trading platforms declined by 10% in the current bull market (according to The Atlantic, it went from 61% in 2009 to 51% in 2012).3

Q: What really goes on in dark pools? For the uninitiated, dark pools are the private trading platforms maintained by banks. We can’t see what goes on inside these private trading venues, as they aren’t public exchanges like the NYSE or NASDAQ. The SEC is finally investigating them – its current chair, Mary Jo White, thinks they “risk seriously undermining” the credibility and validity of stock prices.4

Dark pools account for about 40% of equities trading in America, and they aren’t policed nearly as much as the public exchanges. As there are 11 public stock exchanges in this country compared to 40+ dark pools, there seems to be a sizable amount of trading going on behind closed doors.4

Brad Katsuyama, the former Royal Bank of Canada trader who spearheaded the reform movement chronicled in Flash Boys, plans to introduce a pricing system that will let most banks and brokerages trade on the IEX platform for free – a move that might encourage them to get out of the dark pools (where they face no fees that they would ordinarily incur for trading on the public exchanges) and bring more of their trading into the light. But even IEX currently operates as a dark pool – though it plans to register with the Securities and Exchange Commission soon and become a full-fledged exchange – and its proposed pricing system would explicitly favor brokerages over individual investors.4

Will trading ever truly be transparent? It would be naïve to think so, but there is room for improvement. When even key players on Wall Street admit that they have been in the dark about trading mechanics (as Michael Lewis discovered in researching Flash Boys), something has to change and change soon. 1

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – tinyurl.com/kuah7pf [4/1/14]

2 – nytimes.com/2014/04/08/business/argument-for-financial-transaction-tax-regains-footing.html [4/8/14]

3 – theatlantic.com/business/archive/2014/04/everything-you-need-to-know-about-high-frequency-trading/360411/ [4/11/14]

4 – tinyurl.com/lac32yy [7/7/14]

Terri Fassi

GOOD FINANCIAL STEPS TO TAKE WHEN YOU GET MARRIED

 

If you’re going to say “I do”, here are some things you might want to do.

Provided by Terri Fassi, CPA, MBA, CDFA

Are you marrying soon? Have you recently married? As you begin your life together, it’s important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …

Plan for retirement. There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.

Consider this: according to current Social Security Administration projections, the average 63-year-old in 2010 is projected to live until age 84.1 So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.

This (strong) possibility means you may want to make saving for retirement NOW a higher priority.

In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.

Manage debt. Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.

Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.

Live within your means. An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Save for college. If you plan to raise children, it’s never too soon to start. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.

Insure yourself. If you are under 40, you may not have any kind of disability or life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who may be obese, diabetic, heavy smokers or drinkers.

Communicate to avoid surprises. No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)

Build an emergency fund. You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless.

Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

 

Citations

1 – chicagotribune.com/business/sc-cons-0819-journey-20100819,0,1141623.story [8/19/10]