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: Where do you get your financial education?

If you read this column regularly, you know that I have a low tolerance for financial procrastinators. Those who know that they need a will, more life insurance or to re-allocate their retirement plan frequently think that re-arranging their sock drawer is more important than getting to the important financial issues that may devastate their plans or survivors. Their creative avoidance of these significant personal responsibilities is often grounded in the same fears – the fear of not knowing what to do or who to trust.

There is no shortage of financial information available for free to those who are seeking knowledge. We have the libraries, the Internet and information published by financial companies and journalists. That too is a part of the problem; there is simply too much information available. So let’s break this knowledge down into categories that correlate to your own education experience.

Elementary financial education is where we all need to start. These are the basics from understanding checking accounts, credit cards and debit cards through a basic spending and savings plan. Earlier this week I attended an all-day meeting of the Massachusetts Financial Educational Collaborative. This not-for-profit agency was established to see that all residents of Massachusetts have access to quality financial education. There is no shortage of information available for free. Look at the masssaves.org web site, and see for yourself.

Intermediate-level knowledge or the high school equivalent is where you’ve mastered the basics and are ready to move into the specifics of portfolio management, evaluating risk management strategies or looking to do pro-active income tax or estate planning. This is where it starts to get impacted or slanted by opinions of the creators. To get the answer that may best fit you, you’ll have to examine all points of view and maybe supplement that with some textbook-like publications.

The university level may be where you are comparing specific strategies, and attempting to assess the possible outcomes of each choice. For this, you will need technology and advanced training such as CFP® or some other professional designation for your own benefit or hire a professional to be your personal professor.

John P. Napolitano is CEO of U.S. Wealth Managementin 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

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: Look over your deductions before it’s too late

As the fourth quarter rolls around, it may be your last chance to pro-actively improve your tax, and maybe even your overall financial situation in 2012.

Whether we see the extension of the Bush-era tax cuts or not still remains to be seen, but the first consideration may be to see how you are doing so far this year with 401(k) withholdings. It’s not too late to adjust your deposit amount to take advantage of the maximum amount allowable.

Also on the 401(k), if you find yourself in a low tax bracket this year yet still making traditional 401(k) contributions, consider switching these contributions to Roth 401(k) contributions. For the Roth 401(k) contribution you’ll receive no current deduction, but both the earnings and future withdrawals remain tax free under current law.

Consider a Roth conversion. This is a painful pill to swallow because you’d owe taxes for this year on the entire amount of the conversion. It can, however create lasting tax benefits if you don’t think you’ll need the money soon. If you don’t think you’ll ever spend this money, and have a desire to get it to the next generation or two, the Roth has tremendous legacy power due to the extended years of tax deferral.

If you are over age 71, make sure that you’ve taken your required minimum distribution from all qualified plans like 401(k), IRA, SEP. The penalty for missing the distribution or taking too little is 50 percent of the under-withdrawal. Also, if you have any room left in the lower tax brackets, consider upping your withdrawal beyond the minimum amount. This could be helpful if taxes rise throughout your lifetime of distributions.

Take a look at your charitable plans now. Too many people wait until December, and then it is simply too late to do anything creative such as gifting appreciated assets. If the gifted asset were a security or fund for that matter, you’d get a deduction for the full amount of the fair market value of that security on the date of the gift, even if your tax cost basis is zero. Maybe you’ve got some closets to clean out or some furniture to donate. Do it now and the deduction will find its way to your 2012 tax return if you itemize your deductions.

After you decide which course of action to pursue, prepare a forecast of your 2012 tax return and see if you’ve paid enough in estimates or have had enough tax withheld. Don’t forget your state taxes here, while the federal tax is often the larger of the two, don’t ignore your state tax obligations. Their penalties can be costly too.

Take a look through your portfolio as well. Are there opportunities to cash in losses to take advantage of the $3,000 maximum deduction against ordinary income? Conversely, this may be a good time to re-balance your holdings to take advantage of the current low capital gains tax rates.

Avoid last minute surprises, have a close look now before it is too late to make a difference for this year.

 

John P. Napolitano is CEO of U.S. Wealth Managementin 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

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: How much tax do you pay?

There seems to be a lot of confusion in the popular press about how much tax is paid by the wealthiest Americans versus the hard-working earners without much accumulated wealth.

 To truly understand this political football, there are a few basic issues that need to be discussed.

Marginal tax bracket and average tax rate are two completely different terms.

The easiest to understand is your average tax rate. That is simply your total taxes paid divided by your total gross income.

Yet even here the numbers can get fuzzy. Are we talking about gross income, adjusted gross income or next taxable income? This number, as you’ve been hearing in the popular press, gets pretty low for all Americans.

How does the average tax rate calculate to be lower for wealthy Americans versus those with modest or no wealth? That happens because of a few items, such as capital gains taxes, tax-free income and deductions from state income taxes to charitable contributions that are significantly larger than most taxpayers.

Long-term capital gains are currently federally taxed at 15 percent, and they may go to 20 percent on Jan. 1. This 33 percent increase will be painful for those who generate much of their income through capital gains.

Tax-free income comes from investments in municipal bonds. With today’s low rates in other guaranteed-income-driven holdings, muni bonds still hold a place in a high bracket taxpayer’s portfolio. But the wealthy are also smart enough to do a before and after tax comparison to evaluate whether they may be better off investing in muni’s or taxable bonds.

The last item that impacts an average tax bracket is deductions. Most high-income taxpayers own a home, pay state income taxes and make charitable contributions. All of these deductible items combine to reduce one’s overall federal tax burden and, therefore, lower the average tax rate. Some or all of these deductions may disappear in the future, which could cause its own set of ripple effects in the not-for-profit or mending communities.

Now let’s explore marginal tax bracket. We all have heard that the fiscal cliff of expiring Bush era tax cuts will cause top income tax rates to reach 39.6 percent in 2013. What this means is that once your income exceeds the highest taxable income limit of $372,950 for married taxpayers in 2012, your next dollar of ordinary income will be subjected to the highest marginal bracket.

Remember this: Much of the preferentially-taxed items on a personal tax form, such as gains and muni bond interest, came from ordinary income that may have been taxed at the highest marginal tax bracket in the first place. Even those who built major businesses that were eventually sold and taxed as a capital gain paid a lot of ordinary income tax both personally and corporately.

 

John P. Napolitano is CEO of U.S. Wealth Managementin 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
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: Will Fed’s move benefit you?

When Federal Reserve Chairman Ben Bernanke last week announced that the Fed will buy up to $40 billion per month in mortgaged back securities, markets rallied across the board. Speculating on the Fed’s moves is not a sound rational for investing in equity markets, but it may help you on the debt side of your balance sheet.



The moves also came with the Fed sending signals that it will intervene to keep interest rates low through 2015. In the past, moves like this gave optimism to borrowers about the possibilities of lowering their borrowing costs. But their dreams were shattered by underwriting standards that made it very difficult for many borrowers to qualify for a lower rate. While underwriting standards are still quite strict, loans are getting approved. Here are a few steps that you may take to dress yourself up for this rigorous process.


Know your credit score. Unfortunately, that little score, known as your FICO score is where it all starts. Lenders like to see a credit score above 700.

Get a copy of your credit report, and then take the steps that you can to improve that score. Clear up discrepancies, close out credit cards that you never use, and pay down your higher interest loans.

Begin pulling together all of your back up documentation.

You’ll need copies of tax returns, w-2’s or 1099’s, bank statements, investment statements, financial statements and tax returns of any businesses or entities that you own. Last year, we witnessed a client who had over $2.5 million in liquid assets, with a high FICO score get turned down for a mortgage on a vacation home because his business had losses for the last two years. The negative equity on the corporate balance sheet was enough for the lender to question the sustainability of the income he was taking from his closely held business, so he wrote a check for the vacation home.

Be prepared to discuss any loan guarantees. Your guaranty of a loan for a business or a child may make it more difficult to qualify. Attempt to get your guaranty released for that loan or it may become the impediment this time.

Start a discussion with a lender.

It is tempting to simply dial around and rate shop, but that may cause more harm than good. Shopping for rates by the phone is like trying to buy a car by the phone. Each time you make a loan application, your credit report is affected negatively. You may be better off working closely with one lender who can understand your situation and tell you what it will take to qualify you for the loan. Of course, be aware of the market rates and make sure that your new loan is competitive with what is being advertised by others.

And the last point is to determine if debt is right for you at all. If you have all of your savings in certificates of deposit, earning 1% or less, then even a 3% interest rate on a mortgage is expensive.

John P. Napolitano is CEO of U.S. Wealth Managementin 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
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: Right time for renters to begin buying?

Fears about property values and job security are deterrents

If you've looked for a nice apartment or home to rent, you've probably noticed that the monthly cost of renting has risen substantially over the past few years.

Even with low interest rates, borrowers are having a tough time qualifying for mortgages. Despite what you see and hear from lenders, underwriting decisions are still being made on very stringent criteria that many do not meet.

A second reason, however, is that of uncertainty –– uncertainty with respect to the pricing stability of owning versus renting, and uncertainty about job security. Too many prospective buyers are still reeling from prior real estate losses or are familiar with such losses endured by a friend or relative.

If you are a landlord, this is probably good news. Pricing power should remain in your hands for at least a few more years. And like all real estate, the more in demand your location is, the less pressure you'll receive regarding pricing.

I would also expect to see news of rising real estate values. Low rates are still an attractant, but more significant may be the declines in inventory. Inventories are down because buyers have, indeed, emerged in some of the hardest-hit areas, believing that they are buying at rock-bottom prices. Banks are slowly selling off their portfolios of real estate owned through the foreclosure process, and they are acting more swiftly to foreclose on loans in default, further reducing the inventory of available homes.

Does this mean that now is the time for some of the uncertain renters to change their stripes and begin to buy? Maybe. But that “maybe” is going to have to address all of their fears about employment stability and property values.

They must mentally commit to being in a specific location for a long time. They would also want to have a cash safety net to ride through any extended period of unemployment.

While we are seeing some price appreciation in certain locations at this very moment, a lot of it is neighborhood-specific based on demographics, supply and demand. For prices to rise across the board, inventory will have to drop substantially, and that may take a few more years.

John P. Napolitano is CEO of U.S. Wealth Managementin 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
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

 

Retirees ask, will I outlive my nest egg?

The most commonly asked question of folks nearing retirement is: "What is a safe rate of withdrawal from my nest egg?" Gone are the days of living on the interest while leaving the principal untouched. With low interest rates, conservative investors are forced to either limit spending or cut into principal every month.

Ask yourself how long your money will last if you continue to earn a low rate of return.

If your conclusion is that you'll be living on Social Security alone by age 80, then you have got to do something. The choices are the same for all: make more or spend less.

Financial experts have concluded that a safe draw down rate is about 4 or 5 percent of your nest egg. That means you are not likely to outlive your money if the amount you withdraw each year does not exceed 4 to 5 percent of the nest egg's total size.

It would take a nest egg valued at more than $2 million to safely provide between $80,000 and $100,000 of supplemental annual income.

Be aware, that when income experts make forecasts, they are talking about a diversified portfolio and not a conservative basket of low-yielding guaranteed accounts. Examples of asset classes could be as mainstream as U.S. stocks, or as far flung as emerging market debt instruments, with holdings like real estate, mortgage loans or tax free municipal debt in the middle. It's important to be sure that your withdrawal rate works for you and that you are realistic in forecasting total earnings from the nest egg.

Look at the other side of the coin - the debt side of your life. While a 3 percent mortgage rate may be the lowest in our lifetimes, it can feel like a high rate if you are only earning 1 percent on your savings. Serious consideration should be given to paying off the mortgage and saving the interest costs on the loan. The only way it would make sense to keep the mortgage unpaid is if you were willing to risk some principal to earn more than the cost of the loan.

Low rates could be with us for a while. Foreign investors are doing their part to help keep rates low by preferring our safe-haven currency over their own. This allows rates to drift lower as the demand for bonds exceeds the supply.

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

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.

Women may need to plan for long lives

The basics of financial planning are essentially the same for males and females. However, there are some aspects of financial planning that have greater impact on women than on men, regardless of marital status or profession.

The first is life expectancy. In general, women have a longer life expectancy than men. This natural longevity advantage, coupled with family history and lifestyle, could necessitate planning for an extended life expectancy. A woman's money may need to last longer than the money of a male counterpart. Should that influence how you invest or how much you spend, or both?
One could argue that there's a greater need for the types of longevity protection offered through insurance products.

Long-term-care insurance is one example. Living well past life expectancy creates a greater likelihood of being alone significantly longer. I do not recommend a spouse at home as the long-term care giver for a spouse, but many do end up in that role anyway. If the odds are that the woman will live longer, then perhaps long-term-care coverage is worth considering.
Annuities are another financial product created by insurers that are designed primarily to provide for retirement. Annuities are used to accumulate assets for retirement years and to produce an income stream that cannot be outlived.
Planning for Social Security may also present an entirely different opportunity for long-lived women. In general, the longer you wait to take Social Security benefit payments, the larger that amount gets, until age 70. For the person who lives 10 to 12 years past age 70, waiting frequently produces a larger total benefit than taking a reduced amount of Social Security any time between the ages of 62 and 70. For the woman who lives well beyond age 82, each month's payment just makes the benefit from waiting better.

Depending on the family, the loss of a spouse may cause other problems.
A common void for many women after the loss of a husband is in the area of home maintenance. The husband may have performed a long list of upkeep chores. It is wise to understand that your cost of living without your male spouse may not drop as much as you expect, because of the services you may now need to pay for.

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

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.

Financial planning more than investing

When I speak to people about financial planning, they most often want to talk about investing. I understand the fun and seductive nature of seeking higher returns for your money, but the financial planning process is far more important than any one investment or portfolio.

This should include a discussion of your goals and dreams, and fleshing out some goals that you've eliminated from memory because you didn't think they were achievable.

But beyond the life planning part of financial planning, a planner should take a close look at many quantitative issues. At a minimum, these issues should include a look at your cash flow, what you earn and how much you spend. It should also look at your assets and liabilities from many perspectives: what you own, how you own it, what you owe, what your assets are worth and the tax cost or basis for each asset.
The planning process should then include a detailed analysis of the following areas: risk management, investment analysis, tax planning, retirement planning and estate planning. A detailed analysis of your risk management program, for example, should include a review of each policy for insurance and any other plans for risk mitigation.
For a review of your estate plan, the planner should perform a rigorous review of your current plan including all relevant documents and legal agreements for applicability to your situation today and appropriateness given your goals, family situation and the current tax environment.

A financial plan can be done as a one-time engagement based on your current circumstances. It is better, however, due to the barriers that naturally occur in financial markets, tax codes and your personal life to be current at all times with no less than annual reviews with a qualified professional.

Now a newer term, "wealth management" is being bantered about. In my opinion wealth management is the same as financial planning. The problem is that many firms call themselves financial planners or wealth managers, and do not follow a process designed to deliver proactive and holistic financial counseling.
They use the terms as a lure for attention to get themselves in a position to manage your assets or sell you insurance.

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

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.

Your business can survive your death

No one lives forever, but in theory, a business organized as a corporation or LLC could survive beyond your lifetime. This is one area that business owners frequently ignore until there is a problem.
The first pitfall is either not having a written succession plan or having one that is so old that it is ineffective. A succession plan should involve all stakeholders. That may include family and surviving dependents, partners, clients or customers and employees.

For partners, make sure there is a written agreement that covers succession for a few contingencies. The first would be not waking up for breakfast. The death of an owner with no succession plan invites battles with remaining shareholders and family.
The second contingency would be the disability - temporary or permanent - of an owner, either a temporary or permanent one. In many ways, this could be more harmful to the business than the death of a shareholder.
The last contingency would be a partner wanting out of the business.
People get burnt out, want to retire or desire a major change in their lives. A written agreement with fellow shareholders must address this possibility.

Valuation of the business is another common pitfall. Many written agreements between owners are vague or poorly drafted when it comes to the pricing and payout of an owner's interest. The worst kind of valuation language asks that an outside accounting firm value the business or suggests that several valuations are obtained, with an average of them becoming the actual price. A better way is for the shareholders to agree each year on a current valuation should any contingencies occur during the coming year.
Beyond valuation, funding for the buyout is a sticky issue. Many have insurance policies to back up the agreement, which is a good thing. But frequently the policies are inadequate or owned in such a way as to trigger tax consequences that may differ from your understanding. The insurance obtained should cover both death and disability, and match up with the terms of the buyout.

Inadequate funding is frequently the kiss of death for the business, the survivors of the deceased and the remaining shareholders. Many businesses can't afford to stay in business following the death or disability of a key shareholder.

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

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.

Several tax increases loom in 2013

The Affordable Health Care Act, aka “Obamacare,” has been the news most read by Americans in the past week. But beyond the fact that the Supreme Court found it was not unconstitutional to levy a new tax to help pay for mandated health insurance, there are other taxes ready to be levied on Jan. 1.
An additional 3.8-percent tax will be levied on capital gains and investment income for high wage earners starting in 2013. For the same earners, there will be a 0.9-percent increase in the Medicare tax.
Flexible spending accounts will have a $2,500 cap and the threshold for the medical expense itemized deduction is going to be 10 percent of adjusted gross income.

There is concern among investors about the consequences of larger taxes on investment income and capital gains. This speculation includes thoughts that taxpayers may elect to sell appreciated assets in 2012 to lock in the lower tax rate in effect for 2012, adding downward selling pressure on your portfolio.

The second 2013 tax increase would be in the estate arena. Currently there is a $5 million dollar exemption for both gifts and estates.

Starting in January, the estate limits are set to revert to the previous $1 million level.
The problem with the scheduled estate tax increase is that many believe that the law will not regress to the limit of over 10 years ago, even though that is exactly how the law reads today. Many people simply feel that the government will pull another rabbit out of its hat and maintain the $5 million exemption. This has many holding off updating their estate plans on blind faith and crossed fingers. This is not something I would recommend, especially if your estate is substantial and taking advantage of the $5 million exemption makes good estate planning sense.
The last set of tax changes scheduled to take effect next January are from the expiring Bush-era tax cuts. These could raise the tax on dividend income from 15 percent to as high as 43.4 percent if you make more than $250,000.

Politics created these uncertainties and politics will likely determine if change. Your financial future, however, is too important to leave to politics. You may have to plan using two scenarios, but that may beat doing nothing and leaving it up to congress.
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

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.

Busting myths of financial service firm independence

Most financial services firms tout their independence and how they are always looking to do what is in the best interests of their clients. But the truth, of course, isn't so simple.
Let's start by busting a few myths about adviser independence. First may be the myth that because someone practices as a fee-only adviser that they are completely independent. In theory, of course that would be true. But in practice, I've seen independent fee-only advisers whose independence may be compromised because of limited product knowledge or using the same cast of characters for commission business or other services without offering a choice of others who may be equally or more competent.

Next is the myth that an adviser who earns commissions is not independent. This may or may not be true. The best way for an adviser compensated by commissions to be independent is to represent and evaluate every possible product or company for client solutions and to fully disclose any compensation from the use of that product.

There are a few different levels of independence. Beyond the whole issue of the commission itself, the next issue is what products or services are offered by an adviser's firm. For example, if an independent company only represents a few companies in any given area, is the adviser or that firm truly independent? I would argue not.

If the solutions presented to you always have the same brand name, there is a good possibility that your adviser is not acting independently. It is very difficult, if not impossible, for any one company to manufacture the best in class for the entire range of financial products. Ask to see some alternatives if you want to test this.

Many financial firms tout themselves as financial planners when in reality they are product salesman using a consultative selling process that mimics comprehensive financial planning.

This does not mean that all commission-based financial firms mask their true intentions behind the cloak of financial planning, but specifically ask if a written financial plan will be prepared for you. I don't mean pages of numbers and forecasts. I mean a document written in plain English that spells out your situation, goals and objectives, alternatives and specific recommendations. Be very direct and ask specifically if an adviser will put their advice in writing.

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

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.