Estate Planning

Sometimes NOT Having A Tax Can Actually Create A Problem for Taxpayers:

Insurance Trusts and Generation Skipping Taxes in 2010

No Generation Skipping Taxes.

Since January and through the end of December of 2010, there is no Generation Skipping Transfer (GST) Tax, unless Congress changes the law in the meantime. The GST tax was part of the temporary repeal for one year of the estate tax, which automatically expires at the end of 2010. Starting January 1, 2011, the estate tax and the GST tax come back in full fury with up to a 55% rate of tax. Your estate can suffer both an estate tax and a GST tax at 55% each.

Insurance Trusts.

Trusts which own life insurance are one of the most efficient ways to avoid estate and GST taxes. Over the lifetime of the life insurance policy, the taxpayer may pay $300,000 in premiums, but the taxpayer’s heirs receive $1,000,000 of the death benefit of the life insurance tax free if the insurance is owned by an Irrevocable Life Insurance Trust. If the taxpayer still owns or controls the life insurance (not owned by an independent trust), then the taxpayer may have to pay estate and GST taxes at rates up to 55% on the $1,000,000 in 2011 and thereafter. People are often confused by this because there is no capital gain tax on the difference between the $300,000 paid for the policy and the $1,000,000 death benefit to the heirs. But, there is an estate tax on life insurance proceeds you own which is not in a trust even though there is no capital gains tax on the “profit”.

Creating the Insurance Trust.

Fred creates a life insurance trust, transfers the initial premium payments to the trustee of the trust (his CPA) and the CPA as trustee purchases the life insurance policy on behalf of the trust. The result is that when Fred dies, the $1,000,000 death benefit is available to Fred’s heirs with no estate taxes. If the life insurance trust creates lifetime trusts for Fred’s two children, Ellen and Paul, then Ellen and Paul split the $1,000,000 in their lifetime trusts and Ellen and Paul pay no estate taxes in their estates on the life insurance proceeds. Fred loves his grandchildren and sets up this life insurance trust to say that when Ellen and Paul die, then the grandchildren can also receive the remaining money in the insurance trust without any estate taxes. This can go on for generations and create a “Dynasty Trust”.

Annual Gifts of Premiums.

Each year Fred sends the annual premium of $20,000 to Fred’s CPA and the CPA pays the $20,000 for the annual premium payments for the insurance owned by the trust. Each year, the CPA sends a notice to Ellen of her right to take out $10,000 each year for 30 days and sends the same notice to Paul for his $10,000. Each year, Ellen and Paul do not ask for their respective $10,000. As a result, if proper procedures are followed, the $20,000 paid each year is exempt from gift taxes (which could be due from Fred) and if Fred’s total gifts per year are less than the annual exemption per person, $13,000 this year, then there is no gift tax paid on the $20,000 and no decrease in the $1,000,000 gift tax exemption of Fred.

Generation Skipping Trust Gifts.

If Ellen has the ability to unilaterally decide when she dies who gets her accumulated annual $10,000 gifts to the insurance trust, then all of the $10,000 gifts are part of her taxable estate as well as her $500,000, her 50% share of the $1,000,000 life insurance death benefit. We want the benefit of excluding this $500,000 from the estate of Fred and also from the estate of Ellen. So, we do not give Ellen the right unilaterally to decide who may get her accumulated $10,000 annual premium payments. When we do this, two things occur: (1) It is not part of Ellen’s taxable estate and (2) the $10,000 annual gift for the benefit of Ellen to the insurance trust does not qualify as a gift exempt from GST taxes. Unless we do something, the $1,000,000 death benefit could be subject to the 55% GST tax. What normally is done is that the CPA files a gift tax return each year using $20,000 of Fred’s exemption from the GST tax. This is a highly leveraged beneficial use of the GST tax exemption. Many insurance trusts are set up this way.

No Tax, No Exemption.

In 2010, there is no GST tax and therefore no exemption from GST tax. In 2010, the CPA can not file a paper with the IRS claiming a $20,000 exemption from GST tax. Does this mean that part or all of the death benefits are in the taxable estate of Ellen or Paul or is subject to GST tax in the estate of Fred? For all of those who have such insurance trusts, it is necessary that you take action quickly to solve this problem.

Loan the Premium.

The solution that many advisors are recommending is that instead of gifting the $20,000 in 2010, Fred should loan the $20,000 to the CPA in 2010 to avoid this problem. The insurance trust, not the CPA, is the borrower. In future years, the loan can be paid back to Fred either from additional gifts by Fred to the trust or a loan from the insurance policy.

Action Necessary if You Have an Insurance Trust.

If you have an insurance trust, be sure to analyze whether your trust has this problem in 2010.  If so, we strongly suggest you seek the help of a seasoned Estate Planning Attorney as soon as possible.  The Estate Planning Attorney Preferred Provider we recommend is Roger McClure, President of Washington Wealth Counsellors.  He can be reached at roger@wealthcounsellors, or (571) 633-0330.

eBook Library

A Gift of Love – Create a Love Drawer

Many financial professionals believe that life insurance should be referred to as “love insurance”. As cliché as this may sound, it certainly has a tremendous amount of merit. What better gift is there to give your family and loved ones upon your death than a large sum of money to be used for such things as income replacement, college tuition, retirement, taxes or estate taxes, charitable gifts, and much more? And if you really think about it, the last thing you would want to add to your family at the time of their emotional loss and grieving is financial pressure.

Watch this brief 2-minute video on what a “love drawer” is…and why it is so important:

Most of us would agree, including financial professionals, that life insurance plays an large role in creating a sound comprehensive financial plan. So in keeping with this theme of love, here is an even better idea. How about also adding another layer of love…a love drawer.

What Exactly Is a “Love Drawer”?

Simply put, a love drawer is a place where the person (or people) you choose can turn to, should you pass unexpectedly, to find all of your important information. This includes complete and instructions for all of the aspects of your life including things like your last wishes, financial affairs, special instructions, personal messages, and even your end-of-life plans and preferences.

What Key Information Should be Kept in This “Love Drawer”?

Below you will find a list of most (but certainly not all) of your personal and money matters that should be needed and addressed:

1. The firm name, address, and phone number of your Estate Planning Attorney
2. Your actual Will or Trust
3.  Insurance Information
4.  IRA’s and Life Insurance Information
5.  Investment Information
6.  Employer Information
7.  Social Security Statements
8.  Debts and Corresponding Contact Information
9.  Deeds or Titles
10.  Burial Wishes
11.  Love Notes
12. Any Other Important Documents

A Few Other Ideas – Our recommendation is that you tell at least three people who you love and trust where they can find this love drawer. These people can be anyone such as your spouse, parent, child, friend, or even your financial advisor or attorney. In addition, even though it may seem obvious, I would ask them to please respect your privacy and never open this drawer until it is absolutely necessary. These entrusted loved ones will be the ones who help ensure that someone will be there to step up promptly and act upon the details and instructions you have carefully assembled in your love drawer.

We encourage you to update this love drawer at least every two years. One of the few things we can guarantee in life is that things will change. Given the fact that we have many things in our lives that are constantly changing like taxes, estate taxes, family, age, health, wealth, our final wishes, etc., we should regularly review and revise this love drawer. These updates help to reflect any financial or personal matters that should be added, revised, or removed.

Receive our Free eBook – How to Create a Love Drawer

Funeral Costs

Top 10 Reasons to Pre-Arrange Your Final Expenses

When You Die, Show Your Family How Much You Love Them

by Minimizing Their Emotional and Financial Pressures

When you die, it should be obvious that your family and loved ones will be emotionally devastated as they try to cope with this grief and loss, but adding the stress of funeral costs and funeral plans is a burden you can help relieve.  So knowing these facts, one of the greatest gifts of love is to minimize (or preferably eliminate) as much of the emotional and financial pressures as possible.

The sad reality is that more than 70% of those who die today fail to leave behind as much as a Will for their family and loved ones.  As unacceptable as that may sound, it gets even worse.  More than 85% of those who die today leave their family with no knowledge of their end-of-life plans, preferences, or expenses.

Top 10 Reasons to Preplan Your Funeral

1.  Upon your passing, most people don’t have any idea how to get started, what they should know, or who they can turn to. Preplanning your funeral or burial arrangements can significantly minimize the stress and pressure that can accompany such a difficult time of grief and loss.

2.  This advanced planning offers you the opportunity to decide and control just about every detail of your memorial service and how you will be remembered.

3.  By documenting your last wishes, you can ensure that you and your remains are handled, cared for, and placed somewhere that fits you and your preference.

4.  By creating a plan for your final affairs, this can also minimize or eliminate any uncertainties or disputes among your family members. For example, one of the small details that can actually cause serious family disagreements are special family heirlooms.

5.  Preplanning takes the guesswork out of the common questions of “what do we do next” or “what would you have wanted”? A properly structured preplan ensures that your loved ones know exactly what to do, as well as instructions on how to most efficiently implement your bequests.

6.  After suffering the loss of a loved one, some of the biggest challenges your family will face are thing like time constraints, little or no experience with these matters, and limited access to the best possible help and guidance.  Therefore, one of the biggest advantages of creating a sound end-of-life plan is that, if it is properly structured, it can reduce (or even eliminate) the large majority of these difficulties.

7.  Through preplanning your funeral, as well as paying for your burial and covering your final expenses in advance, this creates a much better overall experience and memorial service for you, your family, and even your Funeral Director.

8.  Since preplanning reduces or avoids a great deal of the obstacles involved in planning a funeral, this extra time allows your family to work through other important matters such as dealing with the grief and loss, planning your memorial service, notifying your loved ones, creating your obituary, writing a eulogy, etc.  The more free time your family has, the much more likely it is they can create a truly special celebration of your life and memories.

9.  After completing your preplanning preferences for your family, this actually ends up enhancing your future too. By having these details planned out in advance, you can now enjoy the “peace of mind” to live every day knowing that you have taken the time to leave behind one of the greatest gifts of love.

10.  By selflessly taking the time to create a comprehensive end-of-life plan, you will always be remembered in a special way. Your family and loved ones will never forget the fact that you sacrificed your time and resources to take care of these all-important details. In reality, what you’ve done is created an everlasting memory that shows just how much you truly love the ones you care most about.

Action Item – Give Your Family What They Deserve:

When it comes to the things that are important in our lives, proper planning and preparation are some of the key to a successful outcome.  In this situation, my sincere hope is that these 10 reasons serve as an inspiration and incentive to start this planning and preparation today, and become proactive about these all-important estate planning matters. 

Although most families never talk about these kinds of things, just about every family member and loved one would prefer to have these plans in place.  Quite frankly, I think they should demand this from you.  So at the very least, leave your family with two things they absolutely deserve:

1) A Last Will and Testament (or Living Trust)
2) A Comprehensive End-of-Life Plan, which includes pre-arranging your final plans, preferences, and also your expenses

I can assure you that your family will thank you, see how much you loved and cared about them, and also remember your efforts as being one of the greatest gifts you have ever given them.

End of Life Planning

Your Family-Focused Gift of Love

Like so many families, when we suffered the loss of my mother last year we faced the difficult decision of what to do next. Because we were never willing to accept this as a possible outcome, nor did we think about planning in advance for this incomprehensible loss, we had no idea where to begin or who we could turn to.

Most people tend to overlook one of the greatest gifts you will give your family, which is properly preparing them for the inevitable. At best, you might have started your estate planning process by creating a Will or Trust.

However, the harsh reality is that approximately over 70% of Americans have no form of estate plan. So by having a will or Trust, you have clearly taken a step in the right direction toward preplanning your future financial wishes. The problem is, this form of planning fails to accomplish the most important task, which is addressing your family’s immediate concerns.

The person, or in most cases people, responsible for taking care of your final arrangements are usually forced to make extremely important decisions, as well as major financial purchases, within a small time frame…usually within approximately 48 hours after your death. Of course, you cannot expect to fully alleviate the emotional and financial stresses of your loved ones during such a difficult time, but you can help them tremendously by having a plan that outlines your funeral wishes.

Most financial professionals are realizing that an integral part of a sound financial and estate plan is taking care of your funeral services ahead of time. Preplanning your funeral gives you the ability to choose your method of disposition, the exact type of services you want, and allows your family to focus more on things such as grieving and recovery. In addition, preplanning is also a good thing for you because it allows you to make extremely important decisions through a calm and clear thought process. Emotionally, it is much more likely that you will create a more rational and logical end-of-life plan.

When preplanning your funeral, here are several general guidelines to begin your preplanning process:
* Visit various funeral homes and interview multiple funeral directors
* Choose a funeral home and director where you think your family would be most comfortable
* Consider bringing family members with you during this selection process
* Be aware and informed of bereavement entitlements such as veterans, unions, fraternities, etc.
* Consider religious and moral convictions, and discuss them with your family
* Determine your method of disposition (burial, cemetery, entombment, cremation, etc.)
* Plan your ceremony considering things like casket viewing, religious aspects, who should be included, etc.
* Itemize your costs
* The Federal Trade Commission offers a free funeral planning guide titled “Caskets and Burial Vaults” (202-326-2222) which has made it easier for consumers to comparison shop.
* The FTC Funeral Rule requires funeral directors to give pricing information over the phone, as well as provide you with a readily available General Price List if you visit them in person. This FTC Funeral Rule also allows you to purchase caskets, which are the single largest funeral expense, from outside vendors without the threat of a carrying charge.

What About Paying For Funeral Expenses In Advance?

Although planning your funeral arrangements in advance may help alleviate many of the details, prepaying (also known as prearranging or Pre Need) for your funeral services is a way of taking care of the actual expenses.

Prepaying your funeral or cremation is one of the fastest growing, and most appreciated and accepted aspects of funeral planning. Similar to preplanning your funeral, paying your funeral expenses in advance is also becoming widely accepted by many financial professionals as a solid piece of a sound financial and estate plan.

When prepaying your funeral plan, the most common and widely used strategies are savings and life insurance, mainly because they tend to be deemed the most reliable and readily available. However, there are several other strategies to consider when prepaying your funeral costs or expenses:

Savings

Although many people choose to set aside savings to pay for funeral expenses, there are several reasons this does not always end up working out as originally planned. First, the savings can be depleted based on unexpected financial circumstances, such as health or financial issues. Second, these funds are not always readily available and liquid upon death due to the challenges and restrictions often found in estate planning. Third, the funds set aside can often be insufficient due to inflation and the rising cost of funeral expenses. Finally, it should be noted that savings are included in a part of one’s estate, and, thus, the taxable consequences can often come into play.

Life Insurance

Term Life Insurance is widely considered to be a flexible, simple, and affordable way to pay for your final funeral expenses. Although Term Life Insurance has a set term, or set number of years, it also has multiple uses in prepaying for your funeral. Because upon your death it becomes a liquid asset that is usually not part of your estate, it can be used for many things such as funeral, burial, cremation, liquidity, and many other things, including debts or obligations.

In addition, there are some types of life insurance that allow the funds contributed to these policies (either in lump sum, monthly, quarterly, semi-annually, or annually) to grow and accumulate as a cash value that can be accessed if necessary. Therefore, these policies can not only be used for funeral expenses, but also for other financial planning options that may arise such as financial emergencies, college, etc.

Funeral Insurance

Funeral insurance is an insurance policy which is specifically designed to cover any costs or expenses which are directly related to your funeral. If you purchase one of these policies, one of the options you have is to determine exactly which funeral costs or expenses are to be covered, such as flowers, burial plot, grave marker, and much more.

Another option you have is for the policy to be paid out in a single lump-sum, which can be used to cover your pre-determined costs or expenses, or simply help your loved ones financially as they plan for you. There are many insurance companies that offer funeral insurance packages, and certain funeral homes or funeral companies also offer policies.

Pre-Need Trust Agreements

Another alternative to prepaying your funeral is to consider a Pre-Need Trust Agreement to pay for your costs or expenses. Generally speaking, these Trust accounts are typically funded with monthly payments that are invested in a fund which is designed to grow over time. Although a Trust account is designed to provide the potential for protection against inflation, it is not guaranteed to do so.

Take the First Step Today

In summary, although nobody likes to think or talk about dying, it is one of the facts of life we all must eventually face. If you are trying to build a successful financial plan, the only way you can be sure your plan works smoothly and efficiently is to be proactive about your planning process. This is particularly true and necessary when creating a proper plan of succession, which I firmly believe should include an end-of-life plan.

Christopher P. Hill, Founder http://www.funeralresources.com

Special Needs Trusts

Food For Thought on the Government’s Role in the Future of Special Needs Trusts?

The need for care among those loved ones with physical or mental disabilities is increasing while the federal and state programs for them are being cut or unable to keep up with growing demand and expenses. No one wants a loved one to be forced to live in an unsanitary and abusive institution. There remain many excellent governmental programs that are only available to those who do not have money. You can’t buy your way into many of the better programs. Instead, parents and planners for those with special needs should realize they will have to set up their own social service safety net for their loved ones.

Families Today are Losing Valuable Government Benefits

For families and parents with children with mental or physical conditions which limit the ability of children or loved ones to earn a living, their greatest fear is what happens to their child when the parent dies and is no longer able to care for the special needs child. Often such children receive important government benefits for medicine, care or housing.

For example, If the parents leave an inheritance outright or in trust, the existence of such funds may cause the special needs child to lose their government benefits. Parents look to Special Needs Trusts to solve this problem.

Government Program Requirements.

Each county, state or federal governmental program can have different eligibility requirements for governmental programs for disabled persons.

For social security disability where the person has contributed a long time into the social security system, at the present time, there may be no limits on the assets or income a person may have to qualify for benefits.

In contrast, for Medicaid, which has a combination of federal and state eligibility requirements, the single person usually may not have more than $2,000 of countable assets (called “resources”) and nearly all of their income they have will first have to go to pay for the costs of their care. If a person has more than $2,000 in resources, the Medicaid program may require that person to exhaust all of their money for their care in a nursing home until they only have $2,000 left. Or worse, if there were any gifts during the five years prior to applying for Medicaid, they may be disqualified from Medicaid for a time period equal to what the gifts would have paid for their care. Each state and federal program can have complex eligibility rules which rival the US tax code in complexity and difficulty to understand.

Special Needs Trusts.

The concept of the Special Needs Trust is to have a trust which can supply limited needs of the special child without losing their governmental benefits. The traditional “Special Needs” often only provides for limited items such as vacation travel which the government would not pay for and often prohibit use of the funds in the trust for the food and housing of the special child.

In contrast to this focus on government welfare benefits, a properly drafted Special Needs Trust can be a very flexible document that can give the trustee the ability to pay for almost any need the beneficiary might have. The specific rules vary from state to state. Parents want to help their special child and still have the child qualify for a government program and these may be conflicting goals for many programs.

Preventing Abuse.

Stephen W. Dale, a California attorney specializes in working with families with children who have disabilities and who will require support from others for their entire lives. Stephen Dale was a psychiatric nurse for seventeen years and personally treated persons with psychiatric problems in institutions and elsewhere before becoming a lawyer. Many consider Dale a national expert. His passion is to serve as an advocate in the prevention of abuse and mistreatment of persons with mental health problems.

Growing Needs.

Dale points to the increase in needs for services and the decrease in the funding available for those needs. In 2006, there were nearly 225,000 cases of US children with autism ages 6-22. In 2006, there were an estimated 25 million adults aged older in the US with serious psychological distress. About 4.4% of US adults may have some form of bipolar disorder. In 2006, about 9.2% of the US population 12 or older had substance abuse problems.

Declining Funding.

State and county budgets are pressed. For years in the Virginia legislature, there has rarely been enough funding to meet the needs of persons with mental health issues. According to Dale, California counties have nearly eliminated their mental health programs and the state is dismantling its social service systems. Other states are or will follow the lead of California.

Federal Budget Deficits.

This year, there was a time when social security payments were less than the program’s income. Entitlement spending (social security, Medicaid and Medicare) will consume the entire federal budget by 2052, with no money available for defense, highways or parks.

In 2010, the Heritage Foundation estimates that Medicare, Medicaid and all other health costs will consume 17.2% of the US economy, up from 4.7% 50 years ago. The total national debt is $12.4 trillion, but the unfunded obligations for social security and Medicare are $45.6 trillion, almost four times the national debt.

In short, due to budget problems, the federal government will have to eliminate eligibility for government assistance for any person with a disability where that disabled person has any kind of Special Needs or other trust or money set aside for their benefit.

The Grim Prediction of the Future.

Many predict that a Special Needs Trust that qualifies a child today for continuing government benefits will not qualify for government benefits in the future. This is but one of the fundamental flaws in conventional planning for special needs children. A properly drafted and administered Special Needs Trust in reality is a private social system that should serve as the parent’s alter ego to provide quality of life and life long advocacy.

Need Help or Have Questions Regarding Estate Planning Matters?

If you would like to discuss any these details (or other estate planning matters) at no cost, contact our Preferred Provider for Funeral Estate Planning suppport.  Roger McClure, at (571) 633-0330 or visit  http://www.wealthcounsellors.com.  Roger can help you go over whether your plan is up to date, uses all of the new exemptions and how you can take advantage of current rules.  Here is some information about Roger:

Roger McClure is a practicing attorney with over thirty years experience. He maintains a business, estate and charitable planning law practice based in Virginia.  His undergraduate degree is in international Studies and he holds a Masters Degree in Political Science from Northwestern University and a Juris Doctorate with honors from the Ohio State University Law School.

McClure has conducted civil and criminal trials in local courts, represented creditors in bankruptcy proceedings, and litigated antitrust and trade regulation cases involving the largest corporations in America in federal regulatory proceedings. He served ten years in the Virginia legislature (House of Delegates), has been a radio talk show host, received a bronze star for service in Vietnam, and has written and published several books and numerous articles.

He is a sought after speaker nationally. Through the National Network of Estate Planning Attorneys and the Wealth Institute of Washington, McClure works with professionals in every state to assist their clients in solving problems and enhancing planning.

Christopher P. Hill, Founder of http://www.funeralresources.com

Find a Pre-Screened and Qualified™ Funeral Professional Near You

Funeral Planning is almost always an extremely difficult task, mainly because you are trying to cope with a combination of difficult decisions that usually involve your emotions, finances, religion, conflicting opinions, and time constraints. Therefore, when it comes to planning for something so important, we strongly encourage you to seek the help of one of our Funeral Professionals:

What to Look for in a Funeral Professional:

• Work through arrangements with the next of kin or responsible party
• Clearly explain all the services they can provide, as well as those services they cannot help you with
• Help coordinate the appropriate services and merchandise
• Provide informative, educational, and compassionate advice and support
• Assist in all forms of counseling with the family including planning, budget analysis, grief support, as well as legal services and connections
• Review all of your financial options, work within your budget, as well as review their General Price List (which is required to be disclosed and readily available by state regulations as well as the Federal Trade Commission)
• Discuss your options regarding transportation and your preferred funeral home or cemetery
• Help in your decision for burial or cremation options
• Provide assistance with funeral options such as preparation of remains, embalming, restorative art, etc.
• Help coordinate the use of their facilities to assist with memorial services, use of their chapel, hearse, etc.
• Conduct cemetery or graveside burial service
• Perform the funeral service
• Coordinate your funeral plans with religious affiliations such as your Church, Synagogue, Catholic Funeral Planning, etc.

Three Common Situations

There are three common situations where families need funeral information, guidance, and support:

1. A loved one has recently passed:

One of the best ways to reduce the stress and pressure involved in funeral planning is to make sure you’re well prepared. This involves being able to access helpful information, people, places, and resources…and it helps to start with a plan. This website is solely designed to help you find complete details regarding everything you will need to take care of when funeral planning. Our goal is to help you organize this process and ensure educated and clear decision-making, as well as provide access to pre-screened funeral homes and professionals.

2. A loved one has been diagnosed as terminally ill:

There is usually a tremendous amount of chaos surrounding funeral planning, especially when the loved one in question has been diagnosed as terminal. At such a time, you will likely be overcome with grief and need someone slightly more removed from your loved one to act objectively and handle the many options and responsibilities of planning a funeral in advance.

Key considerations when faced with a terminal illness:

a) Review the Will of your loved one to learn of any special or unique arrangements they might have in place. The goal here is to find any plans or wishes regarding their end-of-life plan, as well as to see if they might have accomplished any preplanning.

b) If established, be sure to review their Living Will and Advanced Medical Directives. These documents can become extremely important in the event certain difficult health circumstances arise. The goal of these documents is to ensure their last wishes are carried out by the people closest to them in the event they become physically or mentally incapable of making these choices on their own.

c) If everyone mutually agrees that the Will is not going to be discussed or reviewed until after death, we strongly suggest that you consult with a funeral estate planning attorney to review the Will and identify if there are any special instructions concerning their last wishes.

d) Inform certain key people of what likely lies ahead including immediate family, friends and relatives, co-workers, insurance companies, a family doctor, the Cemetery or other burial place, other organizations such as churches, social clubs, etc.

3. Preplanning your end-of-life plans and preferences

In the past, planning for your death in advance was considered to be taboo. Today, preplanning a funeral and the accompanying arrangements is a popular decision and should be considered an important part of planning for the future. There are many reasons to consider preplanning a funeral. The most important one is that it takes away from your survivors the emotional and financial pressure of making a decision under very difficult circumstances. In addition, prearrangements also let you choose exactly how you want to be memorialized and allows for personal preferences in all aspects of the funeral service. Not only is this becoming a widely accepted part of a sound comprehensive financial plan, but we firmly believe this is one of the greatest gifts you can leave your loved ones.

Considering a Reverse Mortgage For Your Retirement Plan?

Reverse Mortgages

10 Most Common Questions and Answers:

As the global financial and credit crisis worsens, many seniors today are turning to federally insured reverse mortgages to tap into their home equity and, in some cases, to prevent foreclosure.

As the name implies, reverse mortgages enables a person who is age 62 or older to convert their home equity into an income stream without selling their home or losing ownership. The older the person is, and the larger the value of the equity in the home, the more money they can borrow.

Even though this market is a small portion of the overall credit market, demand for these types of mortgages among seniors and retirees has been steadily increasing. Many seniors and retirees who thought their retirement plan was on auto-pilot are now finding out they might not have the resources to weather this “perfect financial storm”.

It should come as no surprise since the credit market has dried up, the economy is in a deep recession, unemployment is rapidly approaching 10%, inflation is on the rise, and the stock and bond markets have caused the large majority of retirement savings plans to drop 40-60%.

However, even more surprisingly, this strategy is becoming increasingly common among the wealthy homeowners…and often times for good reason. Instead of letting this equity sit in their home and provide no tangible value while the real estate market plunges, even the wealthy homeowners have found a variety of reasons to use this equity and cash. Sound and common strategies for the wealthy include using their home equity to pay the taxes due on converting a Traditional IRA into a Roth IRA, purchasing second homes, distributing assets for estate planning purposes, gifting, purchasing insurance policies, funding grandchildren’s college savings plans, or using the extra cash to travel, spend, and enjoy their retirement years more freely.

Although this can often be a sound strategy for many types of seniors and retirees, there are also some key issues to be aware of and possibly avoid. For example, because the fees are usually much higher than regular loans, this strategy should not be used unless there are plans to stay in the home for at least several years. Other big mistakes to avoid when using a reverse mortgage are spending the money too quickly or misusing the cash by investing the money into risky or illiquid investments.

Below are among the ten best things I believe financial professionals should know and consider before using a reverse mortgage strategy:

1. Who owns the home?

Even though you are taking out a loan and cash from your house, because you are still the homeowner you will continue to maintain ownership and full control of your home. In fact, the title will always remain in your name, and you can always choose to sell the home any time you wish.

2. Can you lose the home?

As the homeowner, you can never be forced to move out of your home simply because you have a reverse mortgage. Of course, you must still make sure your property taxes and homeowners insurance are satisfied, and the house must also be your primary residence at all times. However, you do not have to repay this loan as long as you live in it.

3. Can you get a reverse mortgage if there is an existing loan?

Provide the amount you can borrow is equal to or greater than the existing loan on your home, you can qualify for a reverse mortgage. In fact, using the equity or cash to pay off your existing mortgage is one of the most common uses of a reverse mortgage.

4. Can you end up owing more than the home is worth?

There are several safeguards for reverse mortgages, mainly the fact that these loans are always non-recourse loans. This means that a homeowner can never owe more than their home could sell for, and both FHA and Fannie Mae guarantee these reverse mortgage products.

5. Are there restrictions on how the money can be used?

Absolutely not! Many of the common strategies for using a reverse mortgage include:

• Paying off an existing mortgage

• Paying off credit card debt

• Paying for long-term care

• Paying for healthcare

• Providing a security cushion

• Home repairs and improvements

• Purchasing a new car, boat, or second home

• Living a more comfortable lifestyle

• Help your children with a down payment on their home

• Give to your church, university, or favorite charity

• Take more vacations

• Help children and grandchildren through gifting, college planning, etc.

6. What are the tax consequences?

One of the most attractive benefits of a reverse mortgage is that the proceeds are always received on a tax-free basis. The reason this is the case is simply because you are using the equity in your home to pay yourself now versus later.

7. Do you need a certain level of income or credit rating to qualify?

There are absolutely no income, asset, credit, or employment requirement qualifications when applying for a reverse mortgage. The reason this is the case is because there are never any repayments due on any portion of this loan as long as there is at least one homeowner, age 62 or older, living in the home.

8. How will this affect your spouse, family, and inheritance?

As long as both spouses are age 62 or older, listed on the deed of the home, and part of the reverse mortgage, there will never be a change in this program even if one spouse should pass. The reverse mortgage only becomes due one all borrowers permanently leave the home, sell the home, or pass. Your family and/or your heirs will receive 100% of the value of the home minus the value of the reverse mortgage balance at that time.

9. How much money can you receive?

The amount of money that is available to you depends on your age, the value of your home, and the current interest rate. Generally, the older you are, the lower the interest rate, and the higher the value of the home, the more money you can receive.

10. What options do I have to receive the cash?

A reverse mortgage provides many choices and options for receiving your money, such as a:

• Single lump sum cash payment

• Line of credit or a specific dollar amount

• Monthly payment for a specified period of time

• Monthly payment for as long as you live in your home

• Combination of these options above.

Also, payment options may also be changed upon request to reflect your changing needs. And remember, all of these options listed above provide you the cash on a tax-free basis.

Other advantage of a reverse mortgages include the fact that you cannot lose your home, you can always pay off this debt any time you want to, and it does not affect you Social Security or Medicare in any way.

Like any strategy, it is not right for everyone, and you must be very careful with your choices with the cash. Also, you required to discuss, either by phone or in person, a counselor from a government-approved non-profit counseling agency.

Assuming this is the right fit, and the money is used properly, this can be both an effective and safe strategy for seniors and retirees to consider. By using a reverse mortgage, you always remain the homeowner with full control of your home, as well as have the ability to protect yourself against potential future housing market declines. Also, it is safe because the Federal Government stands behind this program and guarantees that you will receive all of your scheduled payments on a tax-free basis. Certainly food for thought in my opinion.

As with any important financial decision you can make, we strongly encourage  you to speak with a licensed, qualified, and experienced Reverse Mortage Professional.  Therefore, we encourage you to visit this website of our Preferred Provider, Beth Paterson:  http://bethsreversemortgageblog.wordpress.com/

President Obama’s Tax Proposal, Expiration of the Bush Tax Cuts

Pay Lower Taxes Now…Higher Taxes Later

Obama’s Tax Proposals.

Many will pay lower taxes now and higher taxes later whether or not President Obama’s Fiscal Year 2011 Revenue Proposals (translated: tax changes) becomes law. Outlined in generalities in more than 150 pages, President Obama proposes tax increases and tax decreases for businesses and individuals and many complex provisions whose precise impact and details will not be known for years.

Increases for Higher Income Tax Payers.

Overall, the revenue changes produce a net increase in tax revenue to the federal government from 2011 to 2020 of $1,103,250,000,000 dollars. Of this, $969,467,000,000 or almost 88% of the new tax revenue comes from upper income individuals. This is done by exempting high income tax payers from the Bush tax cuts set to expire at the end of this year. The President proposes to reinstate the maximum rate of 39.6% on earned income from the Clinton administration as opposed to the 35% rate under the Bush tax cuts. This maximum rate would apply to taxable incomes over $373,650 for married persons filing jointly and single fliers. This 39.6% rate is projected to produce about a third of the new revenue to come from the increase of taxes on upper income people. There will be a top 36% rate, up from 33%, which will apply to married filed jointly with $250,000 of annual income (less the standard deduction and two personal deductions) and $200,000 for single filers, less the standard deduction and one personal exemption.

In addition, for the $250,000/$200,000 income and above group, there will limitations on itemized deductions, phase out of the personal exemption, a 20% capital gains rate and limitation of the value of a deduction to a maximum of 28%. These items raise $642 billion over the next ten years, the other two thirds of the new $970 billion of revenue from upper income tax payers. Many people who think that they will not be in the $250,000/$200,000 brackets will be shocked when they find that when they sell real estate or stocks at a profit that this could move them into these brackets in the year they make these sales.

Extension of the Bush Tax Cuts.

In a short paragraph on page 147 of the Revenue Proposals, President Obama proposes an extension of the Bush tax cuts for those below the $250,000/$200,000 and above brackets. As promised by him during his campaign, he said he would not raise taxes on the middle and lower classes. This extension of the Bush tax cuts, together with indexing of the Alternative Minimum Tax, will cost about $3.8 trillion of lost revenue over 2011-2020, or a loss of nearly four times the revenue increase from all of the other provisions in the 146 pages before the one page on the AMT and the Bush tax cuts. The largest item is a revenue loss of about $1.6 trillion resulting from the Bush tax cuts for middle and lower income tax payers. The Bush tax cuts took millions off of the tax roles and provided large tax rate reductions for lower and middle income earners; President Obama plans to continue these tax breaks. This results basically in an income transfer of about $970 billion from upper income taxpayers and $2.8 trillion from government deficits to middle and lower income taxpayers of about $3.8 trillion over ten years.

Will it Pass?

Congress will have their own ideas about tax changes and there is a lot of talk about an omnibus tax bill. Such a bill will have tax increases, tax loopholes, closing of tax loopholes and hundreds of pages of nearly indecipherable tax talk. Republicans will probably vote as a block against the bill as a “tax increase” and the Republicans who vote for it will fear a tea party challenger in their Republican primary. Many Democrats will worry about reelection if they vote for a large tax increase. Of course, the fear of voting for a tax increase ignores that the President’s proposal is really the continuation of the Bush tax cuts for most people and these large tax cuts contribute substantially to the increasing deficit.

Best Guess.

The bigger the tax bill, the more likely it will fail. From the standpoint of the budget deficit, if Congress is not able to agree on a tax bill in 2010, then the Bush tax cuts will expire at the end of 2010 and in 2011 and thereafter, there will be a huge increase in projected federal revenue. Unless there is a substantial decrease in the rate of increase in federal spending and a boom in the economy, the Bush tax cuts can not be sustained. Members of Congress can point out that they voted against the proposed tax increase bill. My best guess, based upon years in politics, is that no major tax bill will pass this year and the Bush tax cuts will expire at the end of the year.

Action Item.

Whether the President’s proposals pass or the Bush tax cuts expire, you will be paying a lot more taxes in the future. If you have capital gains or income over which you have the option to be taxed in 2010, it may be a good bet to pay taxes now, rather than later. This is completely different from the usual advice that it is best to postpone paying taxes. Contact us and we will assemble your team of advisors to implement a tax strategy designed around your needs.

Need Advice or Help at No Cost? 

If you would like to discuss any these details (or other estate planning matters) at no cost, contact our Preferred Provider for Funeral Estate Planning suppport.  Roger McClure, at (571) 633-0330 or visit  http://www.wealthcounsellors.com.  Roger can help you go over whether your plan is up to date, uses all of the new exemptions and how you can take advantage of current rules.  Here is some information about Roger:

Roger McClure is a practicing attorney with over thirty years experience. He maintains a business, estate and charitable planning law practice based in Virginia.  His undergraduate degree is in international Studies and he holds a Masters Degree in Political Science from Northwestern University and a Juris Doctorate with honors from the Ohio State University Law School.

McClure has conducted civil and criminal trials in local courts, represented creditors in bankruptcy proceedings, and litigated antitrust and trade regulation cases involving the largest corporations in America in federal regulatory proceedings. He served ten years in the Virginia legislature (House of Delegates), has been a radio talk show host, received a bronze star for service in Vietnam, and has written and published several books and numerous articles.

He is a sought after speaker nationally. Through the National Network of Estate Planning Attorneys and the Wealth Institute of Washington, McClure works with professionals in every state to assist their clients in solving problems and enhancing planning.

Christopher P. Hill, Founder of http://www.funeralresources.com