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June 2006 |
Capital Retirement Strategies, Inc.
Specializing in retirement plans
and personal investment management
In This Issue
Changes! The theme this month is change! From a personal standpoint, I recently became a father for the second time. Ava Loring Chwalek was born on June 16th and joins big brother Landon, who is now 15 months old. Many experienced parents have told me that it will be a huge difference going from one baby to two... give me a few months and I'll let you know. My business is also going through a smaller change- a new address. As of July 1st, my office will be located at 18 Main Street in Concord, MA. I'll be overlooking the hustle and bustle of historic Concord Center from my third floor office. If you're ever in the neighborhood, I hope you'll stop in and say hello. While I'm very excited about the changes in my life, many people find change to be difficult. Whether the change is good or bad, the accompanying anxiety is never easy. Changes that require major financial decisions can be even more difficult. Over the years, many of my clients have come to me for help in dealing with the financial aspects of various life changes. Whether it's dealing with a new marriage, a growing family, retirement, job changes, real estate transactions, divorces or even death, I can often be a steady voice of reason in what is usually an extremely emotional time. If you know someone who's experiencing a major life change and needs to discuss the financial aspects of it, please have them call me. I can't say if I'll be able to take all their worries away, but I'm pretty good at giving my clients peace of mind. One of my clients once remarked to my wife, "Thanks to your husband, I can sleep at night..." My wife didn't skip a beat and said, "Thanks to you, my husband's up all night!" Leading off this issue is an article that attempts to give some basic answers to the question, "What should I do with my inheritance?" Our first guest contribution this month deals with estate taxes and should be especially of interest to Massachusetts residents who own homes in Florida. Perry Ganz, an attorney with Tarlow Breed Hart & Rodgers, P.C., wrote the article entitled, "Repeal. Sunset. Uncertainty." Perry is one of the brightest attorneys I have the pleasure to work with. Please feel free to contact him if you have any issues related to estate planning and taxation. Our second contribution is by Kim Takvorian, a Senior Mortgage Consultant with Gateway Funding. Kim's article deals with a question that we in the financial industry seem to be getting a lot lately... "What is a reverse mortgage?" If you have considered investigating reverse mortgages, I am confident that you would find Kim a pleasure to work with. She really knows her stuff when it comes to this often-misunderstood financial tool. Don't forget to check out Nickels and Dimes- please email me if you have an announcement or honor that you would like featured in a future Nickels and Dimes piece. If you read something you like, I hope you’ll consider forwarding my newsletter to someone who may also find it of value. Thanks for reading! Best regards,
While receiving an inheritance may lead to obvious mixed emotions, the potential financial ramifications can have effects for generations to come. Over the next 45 years, economists expect over $40 trillion to be passed from one generation to another. I have met many clients who receive an inheritance and simply sock the money in a savings account, or even worse, simply do nothing! While an inheritance presents many positive opportunities for planning, it also presents some potential pitfalls. What should you do if you inherit money? Start by asking yourself- or your financial advisor- these questions:
Receiving Your InheritanceAfter the passing of a loved one, it may take several months for the estate to be settled. Once you receive the inheritance, it is important not to make impulsive decisions. If you receive cash, consider putting the money in a money market account or short-term certificates of deposit (CD). This will allow you to earn interest while considering your long-term plan. If you inherit stocks or other securities, you should consider consulting a tax or financial advisor before deciding your next move. Spend or Invest?It may be tempting to spend your inheritance on luxury items such as vacations, new cars or vacation homes. Before going on a spending spree consider taking a look at your current financial situation. If you have debt- especially high interest debt such as credit cards- it may make sense to first pay that off. Next, examine your retirement plans and/or college savings. If you are not at the level that you should be, these would good areas to supplement. What About Inherited Stocks?These may present an excellent planning opportunity. I often find clients who inherit stock or other securities that the decedent had owned for many years. In many cases, they were never sold because the capital gains taxes would have been too high. When you inherit securities, they get a stepped-up cost basis; that is, when you sell them, you only pay taxes on the difference in value from the date the decedent passed away until the date you sell them. Managing Inherited IRAsWhen you inherit a retirement plan, there are several options for distribution. Generally the worst choice is to take the entire balance in cash as this would make the whole amount taxable to you all at one time. The best idea is to consider how to defer the taxes as long as possible, thus allowing the investments to continue to grow. The choices can be complicated and confusing, so consult a tax or financial advisor before selecting a distribution option. In conclusion, receiving an inheritance can be a wonderful opportunity as well as a lasting memory of a loved one. You should take care to ensure that the inheritance is managed in such a way to maximize your financial objectives and help realize your own dreams.
By Perry Ganz, Attorney At Law All of these terms can be said to accurately describe the current status of the federal estate tax laws and as such, it may be time to review your estate plan. In years 2006-2008, the federal exemption is $2 million per deceased individual. This means that an individual can leave, at death, $2 million free of federal estate taxes. There are two very significant exceptions to this rule – the unlimited marital deduction and the unlimited charitable deduction. The former exception allows a spouse to leave an unlimited amount to his or her spouse without the imposition of an estate tax, provided that the recipient spouse is a United States Citizen. (Note that as a result of The Defense of Marriage Act, the federal estate tax laws do not recognize same-sex marriages.) The latter exception allows an individual to leave an unlimited amount to one or more qualified charities. In 2009, the federal estate tax exemption is schedule to increase to $3.5 million. In 2010, the federal estate tax is scheduled to disappear, but in 2011, the estate tax is slated to return, but the exemption will drop back to $1 million. While there has been much recent discussion on Capitol Hill on raising the exemption, reducing the rates (the highest rate is 46% and will drop to 45% in years 2007-2009), or repealing the estate tax altogether, the discussion has been just that and thus far, the law is as described above. In response to the federal estate tax changes, Massachusetts adopted a new estate tax law effective for deaths after January 1, 2003, which "decouples" its estate tax from the federal estate tax. Under the new law, the Massachusetts estate tax exemption is $1 million and therefore significantly less than the federal exemption. The decoupling means that estate plans drafted prior to the change in the Massachusetts law that were structured to eliminate the federal estate tax at the first death should be reviewed; these plans may unexpectedly result in a Massachusetts estate tax at the first death. Massachusetts is looking for those Florida snowbirds... Another issue raised with the new Massachusetts estate tax is the impact of owning a home in a state that no longer has an estate tax. For a number of years, many states - including Massachusetts and Florida - imposed an estate tax based on the credit for state death taxes allowed on the federal estate tax return. These states began to see their estate tax get phased out when changes to the federal law gradually reduced, eventually to zero, the state death tax credit. While Massachusetts responded by "decoupling" from the federal system and effectively impose its own estate tax, Florida responded by taking no action and therefore, Florida no longer imposes a state estate tax. How might this impact a Massachusetts resident with a home in Florida? The Massachusetts estate tax allows a credit for "estate or inheritance taxes actually paid to other states.” Accordingly, if a decedent no longer pays an estate tax to Florida, the credit on the Massachusetts estate tax return effectively disappears, the practical effect of which is that Massachusetts is imposing an estate tax on real estate owned in another state. This raises constitutionality issues but until this issue is resolved, you may wish to consult your tax advisor on appropriate strategies. Perry Ganz is an Associate with the Boston firm of Tarlow Breed Hart & Rodgers, P.C. He is admitted to practice law in Massachusetts, Connecticut and New York. After earning a B.A. from the University of Michigan, Mr. Ganz graduated from Cornell Law School in 1993. He also graduated from Boston University with an LL.M. in Taxation. He focuses his practice in the areas of Estate Planning, Taxation and Business Law. He is the co-author of "Drafting Estate Plans" and has spoken before numerous groups on various estate planning topics. He can be reached at (617) 218-2048 or pganz@tbhr-law.com.
By Kim Takvorian, Gateway Funding If you are 62 years of age or older and own your own home, a Reverse Mortgage may provide the tax-free funds you need. Many people I have met with tell me:
Reverse mortgages allow people to maintain ownership of their home and pull funds on a monthly basis or on an as needed basis (home equity line) and with absolutely NO monthly payments for as long as you own the home. This is a huge relief to many people who simply need the cash flow without the payments. Reverse mortgages are a special type of loan overseen by FHA (Federal Housing Administration) and presently only available through a limited number of lenders. A homeowner first needs to take a course to become educated on these loans and their nuances. Gateway Funding is an approved HUD national lender of reverse mortgages and I am very happy to assist you in the process. Please call or email if you would like more information on “frequently asked questions” and the process of a reverse mortgage for you or a loved one. Kim Takvorian is a Senior Mortgage Consultant with Gateway Funding. Kim's business takes her wherever life is happening; whether she is cooking dinner for her family, running with her dog, or tucking her children into bed. It's not just about selling a mortgage; it's about creating lasting relationships. It's service from the heart. Kim can be reached at 781-416-1900 x215 or ktakvorian@gateway-funding.com .
- Congratulations to Christopher and Alison Kaiser of Littleton who had a baby boy, Cameron William, on May 2nd. He joins big sister Evelyn who is now two and a half years old. Good luck! - Tom Matthews, a client from Maynard and a leading realtor for Prudential Prime Properties, will be riding in his first Pan-Mass Challenge in August. The PMC is a two-day, 192 mile bike race from Sturbridge to Provincetown in which riders get sponsors to make donations which go to fund cancer research at the Dana-Farber Cancer Institute in Boston. If you'd like to sponsor Tom, please make checks payable to the PMC or simply The Jimmy Fund and mail them to Tom Matthews, Prudential Prime Properties, 58 Main Street, Maynard, MA 01754. Go to www.pmc.org for more information. - Congratulations to Jenny Beaudry of Putnam, Connecticut, who graduated from Hofstra University last month. She just got an apartment in New York City and will be starting her career with Morgan Stanley. Is the Big Apple ready for Ms. Beaudry? If you've recently had something great happen in your life or in your career, I'd love to recognize you for it! Send an email to dave@capretirement.com and I'll try to get it in an upcoming issue of Capital Concepts.
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