MAKING CENTS: Estate plans do more than avoid tax hit

Many people equate estate planning to death tax savings or avoidance, and because most people have less than $5.25 million in assets, they assume that estate planning isn’t for them. Nothing could be further than the truth.

An estate plan is a plan that takes care of you, your family and your assets, both money and stuff when you are either incapacitated or dead. It centers on legal documents, the core of which may not be your will. A will for example, doesn’t help if you are severely disabled or incapable of making your own financial decisions. For incapacity, a durable power of attorney or owning your assets in a trust where a co- or successor-trustee is appointed at the time you sign the trust may serve you better than a will.

For most people, the core of their estate plan should be a living trust. This means that you would own most of your assets in your trust now, with you in control as trustee and beneficiary. Beyond the living trust, a pour over will which would then direct anything that you forgot to title in the trust over to the trust after your passing. The pour over will works, but it will also cause your estate to go through the probate process.

Two other necessary documents include a durable power of attorney and a living will or health care proxy. The durable power of attorney allows your appointee to act on your behalf for everything financial. A live and potentially risky document; only give this power to someone in whom you have immense faith and trust. Everyone over age 18 should have a separate document for selecting an agent to direct health care decisions in the event you are unable to decide for yourself.

Even if your estate is less than $5.25 million, other taxes can clip the value of your inheritance. Depending on where you live, a state death tax may be involved. Any estates larger than $1 million in Massachusetts will pay approximately 10 percent in state tax on the amounts over $1 million.

There may also be income taxes due from a retirement account, such as a 401K or IRA, and from the inheritance of any annuities.

Other significant reasons for an estate plan are: provisions to prevent a 22-year-old beneficiary from blowing it all, provisions for divorce-proofing assets for future generations and protecting assets from health care, creditors or other unforeseen problems.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: Think twice before declining long-term care coverage

Many times over the years I’ve written about long-term care insurance, and it still blows me away how many people say that this coverage is a waste of money. 

Pic courtesy of avamere.com

The only ones who want LTC coverage are the families who have been squeezed by very difficult decisions in providing long-term care for a loved one or the agents who sell the policies.

The issues surrounding caring and paying for long-term illnesses are far more significant than issues that we think about when evaluating the purchase decision. The factors surrounding the purchase decision are frequently the odds of needing the coverage, fear of the cost and alternative ways to get care if needed. When you are feeling great and healthy, purchasing long term care insurance is an easy decision to put off until next year.

Consider forecasting your retirement under two scenarios. First is with the cost of paying for coverage and the second would be the consequences of a full-blown long-term health emergency. More likely than not, the later forecast will be gloomier and cause you to investigate further.

Statistics show that family caregivers on average hit the wall after about six months of playing nurse. At the same time, their lives and everything else that they do takes a back seat. That may sound acceptable to your daughter today. But she may to have a different opinion after she sees how challenging that caregiver’s role can be.

Regarding the costs of providing care, there are direct costs such as doctors, nurses and therapists, but also the indirect costs of lost wages for family caregivers.

In recent years, I thought that LTC insurance will be as ubiquitous as health insurance is today. But for seniors, that is not true. Premiums have been rising materially throughout the past decade and underwriting has become more stringent. Most policies leave the door open for future rate increases, which scares buyers.

Options to contain the cost of LTC coverage are quickly dissipating. Limited pay policies have become very rare in the marketplace with only a few companies still willing to underwrite that risk. Return of premium policies still exist, but require a much larger premium outlay in order to generate the cash to fund the guarantee.

Insurance markets are constantly changing and evolving. The outlook for LTC insurance still calls for rising premiums, and should cause anyone concerned about the impact of long term illnesses to take another look.

 

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.
Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: Cliff realities in plain English

You can debate and argue all you want over whether the cliff situation was resolved or the can was just kicked down the road. But your reality is that there are new provisions in the tax code that will impact your cash flow starting with this week’s paycheck that you need to understand.

The first change is an increase of 2 percent in the amount of taxes that every wage earner shall pay toward FICA, or basically the entitlement systems under the Social Security umbrella. It is estimated that this increase for all Americans will raise approximately $125 million in revenue for the feds. This cost will be most felt by those who earn less than the 2013 FICA maximum of $113,700.

The most talked-about provisions are those impacting high-wage earners. For single wage earners earning over $400,000 and married taxpayers earning over $450,000, the top tax rates will rise to 39.6 percent for earnings above those threshold amounts. These same taxpayers will also experience an increase in the basic capital gains tax rate from 15 percent to 20 percent. But wait, there’s more. If you are lucky enough to earn more than those amounts and have a capital gain in 2013, you get to pay a special 3.8 percent surcharge to fund the Affordable Care Act, bringing your total rate for the gain to 23.8 percent. For wage earners under the new limits, the rate for capitals gains has been permanently set at 15 percent.

The silver lining for equity investors may be the new tax rate on dividend income. There had been fears that the rate could rise as high as 43.4 percent, but it has gone to a base rate of 20 percent plus the 3.8 percent surcharge, for a total of 23.8 percent.

Another change is the restoration of limits on deductions for higher-earning Americans. For this phase-out, however, Congress wasn’t too generous. For single wage earners making more than $250,000 and married couples earning more than $300,000, deductions for home mortgage interest, charitable contributions and state income taxes and personal exemptions for children and other dependents will be phased out. The significance of reopening these Clinton-era limitations on deductions may rear its head during the next two months of spending negotiations. Keep an eye out for future limits placed on deductions as the spending battle looms.

The estate-tax exemption has been made permanent at the $5 million level, indexed for future inflation, but the top rate has increased from 35 percent to 40 percent. Counting your home state, it is possible that you are once again in the 50 percent estate-tax bracket. The good news is that there are still ways to plan for mitigation or complete elimination of the estate tax for the wealthiest taxpayers interested in planning their affairs to maximize the inheritance for their heirs or charities instead of the federal taxing authorities.

The next shoe to drop, of course, is the spending battle. In this agreement, some $100 million in planned spending cuts were postponed until Feb. 29. Keep an eye on the ball, as the possible outcomes are sure to keep markets volatile.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

Key Provisions of H.R. 8: American Taxpayer Relief Act of 2012

(“Fiscal Cliff Agreement”)

SUMMARY:

The 112^th Congress was recently dubbed the “Do Nothing Congress” for the minimal amount of legislation enacted during the two-year session. Two hours after going over the Fiscal Cliff at midnight on January 1, the Senate voted 89-8, and the House of Representatives voted 257-167 to pass the American Taxpayer Relief Act of 2012 to reverse some of the measures which may have had a severe negative impact upon the economy.

The Congressional Budget Office projects the legislation will add $4 trillion to the U.S. deficit over the next 10 years compared to a scenario where the Bush tax cuts had been allowed to expire.

The Senate bill also sets up what is likely to be an even more heated fight in late February when the Treasury Department must come to Congress to seek an increase in the government's borrowing limit.

KEY PROVISIONS:

o   Tax rates will be allowed to rise on individual incomes over $400,000 per year, and household incomes over $450,000 per year to a maximum rate of 39.6%.

o   The tax on estates would rise to a 40% maximum rate, with a permanent exemption of $5 million, indexed for inflation. 

o   Permanently sets maximum long-term capital gain and dividend tax rates at 20% for households making more than $450,000.

o   Phases out itemized deductions and personal exemptions for those making more than $250,000, $300,000 joint.

o   Permanently sets maximum long-term capital gain and dividend tax rates at 15% for households making less than $450,000.

o   The 2% temporary decrease in FICA payroll taxes relief was allowed to expire. This provision has a disproportionate impact on those making less than $113,700 (the FICA limit in 2013). This is expected to take $125 billion out of consumer income.

o   Extends the tuition tax credit and child and dependent care tax credits for five years.

o   Workers will be allowed to rollover 401k funds to a Roth IRA while still actively participating in a 401k plan. Think of it as an ‘In-Service’ distribution.

·        Pay income tax currently.

·        Not subject to Required Minimum Distributions at age 70½.

·        Future earnings are tax-free.

o   Permanent adoption of the Alternative Minimum Tax exemption amounts. Impacts 32 million Americans who may have been subjected to AMT in 2012 and indexes AMT for inflation.

o   Postpones $109 billion sequester for two months.

o   Extends unemployment insurance for two million long-term unemployed Americans.

o   Extension of the 2008 Farm Bill through the end of this fiscal year (September 30, 2013). Keeps the price of milk from potentially doubling.

o   Prevents a 27% reduction in Medicare payments to doctors and other health care providers treating patients on Medicare.

* We do not provide tax advice or services.  Please consult your tax advisor regarding your specific situation.

* The above material was prepared by Peak Advisor Alliance. (approval #1-129110)

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.