Wednesday, September 26, 2012

Tips for Selecting a Financial Advisor - from the SEC!

From the SEC Office of Investor Education and Advocacy

Top Tips are as follows:

  1. Do your homework and ask questions
  2. Find out whether  the products and services available are right for you
  3. Understand how you will pay for services and products and how your financial professional gets paid as well
  4. Ask about the financial professional's experience and credentials
  5. Ask the financial professional if he or she has had a disciplinary history with a government regulator or had customer complaints
Make a checklist with key questions to ask before hiring a financial professional. For a lot more information go to http://www.investor.gov/ 

CBlakely CFP®, CTFA             09/2012

Source: SEC

Monday, September 24, 2012

Wealth Planning Opportunities for 2012

Ieas I recieved which must be shared.

The Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2011 (2010 Tax Act) increased the lifetime gift tax exemption to $5 million in the year 2011, and, with an inflationary adjustment, to $5.12 million in 2012. By its terms, the 2010 Tax Act will sunset after Dec. 31, 2012, and under current law, the gift tax exemption is scheduled to revert to $1 million on Jan. 1, 2013. Thus, spouses who have not previously made substantial gifts have the ability to transfer up to $10.24 million to friends and family or to trusts for them if the gift is made before Jan. 1, 2013, with maximum rate schedules at 35 percent.

This alert is a reminder of the opportunities that continue to be available through the remainder of this year. It is impossible to predict whether Congress will act to prevent the scheduled exemption reduction to $1 million in 2013, so the amount of the gift tax exemption after Dec. 31, 2012, remains unclear. Due to the uncertainty, it may be prudent to consider certain planning vehicles to effectively utilize the benefits of the current exemption of $5.12 million while it remains in the law for the next few months, even if total assets are currently below the $5.12 million and $10.24 million thresholds.

Some of the benefits and opportunities of a gifting program using all or a part of the lifetime exemption are as follows:

1. Reduction in Estate Tax: If the exemption is reduced in future years, a current lifetime gift can substantially reduce the estate tax burden to a family on the death of the donor. In many cases, a current gift of $5 million can reduce the estate tax burden by 40 percent of the gifted amount, or $2 million, thereby increasing by that amount assets ultimately available to the family, all assuming the exemption is reduced to $1 million as scheduled. Gifts can also reduce the state estate tax burden that exists in many states.

2. Removal of Future Appreciation From Tax: A current gift removes any appreciation on the gifted asset from the estate. Thus, if $5 million is given today of an asset likely to appreciate (say real estate or traded stock interest) and the gifted asset increases to $10 million, the $5 million of appreciation is not includible in the donor’s taxable estate.

3. Retention of Control and Income from Gifted Assets: Some donors are concerned over the loss of control and loss of the income of gifted assets. It is possible to design a gift-giving program between spouses so both spouses continue to retain significant control over the gifted assets and simultaneously retain the economic benefits of the gifted assets. For instance, spouses may establish trusts for each other for their joint lives, and thereafter for family members, utilizing their available gift tax exemptions, ultimately permitting up to $10.24 million plus appreciation to pass to family members without estate tax consequences. The design of such trusts must carefully conform with case law and IRS rulings to achieve the intended result.

4. Retention of Control and Annuity Stream for Designated Period: Gifts can also be made to Grantor Retained Annuity Trusts (GRATs) in which the grantor retains control over the gifted asset and retains an annuity stream for a designated period of time, which may be many years or as short as two years. At the end of the designated period, the asset may pass to family members without gift or estate tax consequences, depending upon the duration of the trust and the amount of the annuity stream passing to the grantor. To be successful, the grantor must survive the trust term.

5. Leveraging Gifts With Personal Residence: In the case of a personal residence, a gift tax can be leveraged so that more than the reduced gift tax value can be removed from the estate. This can be accomplished through an approved technique known as a Qualified Personal Residence Trust (QPRT) in which the residence is placed in trust for a designated period of years. During the designated period, the donor reserves the right to continue to live in the residence. As trustee, the donor may determine when and if to sell the residence and reinvest into a smaller residence or retain the proceeds in the trust. At the end of the trust term, the residence or the proceeds of sale can pass, without gift or estate tax consequences, to family members. As in the case of the GRAT, the grantor must survive the trust period to be successful. For example, a residence worth $1 million could be gifted to a QPRT and the value of the gift might be only $300,000, depending upon the donor’s age and duration of the trust, thereby removing $700,000 from the estate, plus all future appreciation.

6. Protection From Creditors and Spousal Claims: Gifts can be directed to pass to trusts for family members in a manner that protects the assets from the potential creditors of the donees and from matrimonial claims of spouses of donees.

7. Charitably Minded Gifts: Charitably minded donors can benefit by making gifts to Charitable Lead Trusts, which accomplish the following:

a. Providing an annual stream of payments to favored charities,
b. Assuring the underlying principal of the trust will eventually pass to family members,
c. Avoiding gift and estate tax consequences associated with the gift, and
d. Creating current or future income tax benefit to the grantor by reason of the gift


8. Grantor Trusts – Tax-Free Gift of Income Tax to Donee: Trusts can be designed to benefit both children and grandchildren, all without gift or estate tax consequences or income tax consequences to the donee. The grantor of the trust incurs the income tax generated by the transferred assets, thereby creating an additional tax-free gift to the trust. If the grantor sells assets to the trust, the grantor could retain a stream of payments, income tax free, while heirs enjoy the gift and estate tax benefits. This type of trust is a grantor trust.

9. Life Insurance and Leverage: Life insurance is a method to leverage your gift tax exemption. If single premium life insurance policy is purchased for (say) $5 million, depending upon the age and health of the insured, multiples of $5 million (in the form of insurance proceeds) can pass to trusts for children and grandchildren by utilizing the $5 million lifetime exemption and avoiding estate and generation-skipping transfer (GST) tax on the enhanced insurance proceeds.

Check with your CPA, tax Attorney or Financial Advisor more information.

CBlakely CFP®  CTFA      Sept. 2012


Source: Fox Rothschild, LP.

Wednesday, September 12, 2012

Stocks are Dead; Long live Stocks!


The S&P 500 is setting multiyear highs right now. It’s the economy right? Not really, the U.S. economy grew 1.7 percent in the second quarter, creating about 140,000 jobs a month on average this year. That is less than half of the monthly hires needed to bring the unemployment rate back to pre-crisis levels by 2015. Well then, it’s due to our government averting the so-called fiscal cliff—the spending cuts and tax hikes that could stall the economy next year. Not so fasr, our government has not addressed that issue yet – hey, they still have 100 days. Europe’s financial crisis is resolved! That’s not it, Europe’s problems, while getting better, remain unresolved.

So how is it that the Standard & Poor’s 500-stock index is up 25 percent over the past 12 months? Stocks have reached levels not seen since Lehman Brothers and Bear Stearns existed.

Over the long term, through all the noise, stock prices actually move relative to corporate earnings. S&P 500 profits estimates (Bloomberg) suggest earnings growth of 11 percent next year, and 12 percent in 2014; this may send the S&P 500 to record levels if earnings come in at or near expected.
Corporate America is lean and mean - think of great comapnies like Apple and Wells Fargo. We are also counting on help from the Federal Reserve, which is widely expected to start a third round of bond purchases to boost the economy.

With that said, the threats to the market remain (actually they never quite go away). Chief among them is the fiscal cliff. Under a law passed last year the failure of lawmakers to agree on some combination of spending cuts and tax increases would result in $1.2 trillion of automatic cuts and accompanying tax hikes in January 2013. That combination could shave 2.9 percent off economic activity in the first half of 2013, according to the Congressional Budget Office. While many economists believe the impact to be good for the economy long-term, in the short-term the market would likely hiccup, frankly creating a chance to buy on the dips.

Europe also remains a potent threat, Greece has yet to ratify the spending cuts necessary to receive life saving bailout funds and there is no guarantee that Spain, which is suffering through an economic depression, will agree to more austerity in exchange for the European Central Bank’s financial aid.

Individual investors could also decide to get with the program. While prudent managers have been suggesting to add equities to portfolios where appropriate, do it yourself investors have pulled money from U.S. equity mutual funds for a fifth straight year in 2011, moving $75 billion out of stocks this year alone. If these dollars come back to stocks it could raise stock prices even further – as individual investors usually buy high.

As always, talk things over with an accreditied investment manager or financial planner to see what proportion of high-quality equities make sense for you.

CBlakely CFP®, CTFA     Sept. 2012

Sources: Bloomberg LP.