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October 2006 |
Capital Retirement Strategies, Inc.
Specializing in retirement plans
and personal investment management
In This Issue
Welcome to the Fall issue of Capital Concepts! I think we have a few stories that you'll find of interest. Fall is "Back-to-School" time, and for many people with young children, thoughts of expensive college tuitions may come to mind. Check out our Top 5 College Savings Ideas. Our guest contribution this issue is from local attorney, Randall Barron. Randy discusses an easy way to protect your home from creditors. While it is relatively simple, it is not automatic. Read all about Declarations of Homestead below. I've known Randy for a few years now, and his expertise in real estate law has been a valuable asset to many of my clients and colleagues. And finally, it's not too soon to be thinking about taxes... If you wait until the beginning of 2007, it's probably too late to make significant changes. If you are an investor, now is the time to review your accounts for possible tax-saving strategies. The story, "It's Tax Harvesting Time!" may give you some ideas. 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,
Back to School: Top 5 College Savings Ideas
Do I Need A Declaration of Homestead? By Randall S. Barron, Attorney At Law What is a Declaration of Homestead? Massachusetts law allows the owner of a principle residence to protect her home from the forced sale by creditors, but it is not automatic – the owner must file a Declaration of Homestead in the appropriate Registry of Deeds (along with the $35.00 recording fee). It is simply a piece of paper, signed, dated and notarized stating that the property is the owner’s principal residence and subjecting it to M.G.L. Chapter 188, Section 1, thereby protecting the owner and her family from the forced sale of her home for debts up to $500,000. What would happen if I don’t have a Declaration of Homestead? If you get sued, be it for a car accident where your insurance doesn’t cover all of the claims, or for debts owed to someone, or for a myriad of other reasons people sue, and the person (or company) you owe (the “creditor”) wins in a court of law, the first place they are going to look at to get paid is your home, generally because that is where most people have their greatest assets (in the equity). Certainly, if you willingly pay the creditor, then you’ll make the creditor quite happy, but most people aren’t going to willingly refinance or sell their home to pay the creditor. The creditor will get a judgment against you and attach your home through a Writ of Attachment or Execution and promptly proceed to foreclose on it, similar to a mortgage foreclosure but commonly called a Sheriff’s sale. How does it protect me? Is it insurance? No, a Homestead is not insurance and does not pay for or make any debts go away– you will have to pay the creditor when you either refinance your home or sell it. In the meantime though, you cannot be kicked out of your home. It is simply a protection allowed by law so that creditors cannot force the sale of your principle residence in order to get paid. With a previously recorded and properly executed Declaration of Homestead, the creditor cannot “foreclose” on your home for debts up to $500,000. What’s the catch? Are there exceptions? The catch is simply that you occupy or intend to occupy the home as your principal residence and is allowed on only one principal residence. There are exceptions – the Homestead does not protect you from tax liens, debts contracted prior to declaring the Homestead, debts contracted for the purchase of your home (think mortgage), alimony, child support, judgments against you for fraud, mistake, duress, undue influence or lack of capacity. It generally cannot be used against your mortgage holder as most mortgages contain an express release of any homestead rights you may have, otherwise they won’t give you the loan. How do I declare a Homestead? Your local real estate attorney or estate planning attorney can usually put together a Declaration of Homestead rather quickly and notarize and record it for you at the Registry of Deeds. Fees can range from just the $35.00 recording fee (if you are not being charged for their services) up to $175.00. But you can do it yourself by downloading the form from various Registry of Deeds websites, signing it before a Notary Public, and sending the notarized form to the Registry of Deeds for the county in which your home is located, along with a check made payable to “Registry of Deeds” for $35.00. Cambridgedeeds.com (the Middlesex County Southern District Registry of Deeds website) is a good place to find the form and answers to common questions. Lowelldeeds.com (the Middlesex County Northern District website) also has the form, answers and a draft of House Bill 648 which attempts to clarify and resolve some of the ambiguities in the current homestead law. Attorney Barron has twenty years of experience in real estate, dedicating the past eleven years to representing buyers and sellers in the purchase, sale and financing of real estate, estate planning for young families, and commercial leasing. He is a member of the Massachusetts Bar Association and the Massachusetts Real Estate Bar Association. Randy has offices in Concord and Groton, Massachusetts. He can be reached at (978) 369-2252 or rbarron@mcwalterlaw.com .
While many Americans associate this time of the year with pumpkins and leaves and Thanksgiving- traditional harvest themes- most don’t realize that another type of harvesting can benefit your financial bottom line. Tax harvesting, as it’s commonly known, is the practice of selling securities in your portfolio at a loss to offset other securities sold at a gain. When you sell a stock or mutual fund for more than you paid for it, the difference is subject to capital gains taxes. If you sold it within 12 months of when you bought it, this is considered a short-term capital gain. If you held the investment for more than a year, then it’s considered a long-term capital gain. Long-term gains are generally preferable to short-term ones because the tax rates are lower. Most investors will end up paying long-term capital gains at a rate of 15%, while short-term gains are taxed at whatever income tax bracket you fall into. Let’s look at a basic example: An investor buys 1,000 shares of ABC stock in January 2006 at $10 per share (total cost= $10,000). Later that year- let’s say in July- the stock is sold at $20 per share (total proceeds= $20,000). On his 2006 tax return the investor will have to report a short-term capital gain of $10,000. He will be taxed at his ordinary income tax rate. If he’s in the 25% bracket, that’s an additional $2,500 he owes Uncle Sam. How can our investor get out of paying that extra $2,500? Well, if he’s like most investors, he’s probably had some stocks that appreciated this year, but he probably also had some losers. Let’s identify the losers and consider selling them. If we can generate short-term investment losses equal to $10,000, that can be written off against the $10,000 gain from the ABC stock sale!
If the “loser” stocks still appear to be attractive investments for the long-term, then the investor can wait 30 days, then buy them back again. If these stocks no longer have a place in the investor’s portfolio then the proceeds can be used to invest in new stocks or other securities. Don’t misunderstand the strategy- we are not trying to make bad investment choices that lose money! But even the most talented money manager will have a handful of “loser” stocks at any given time. The strategy suggests using the losers to your advantage. It’s bad enough that they lost money- why not get some benefit from them? Between now and mid-December is the perfect time to review your tax situation and your portfolio for potential tax saving opportunities. This article should not be construed as tax advice and each individual situation is different. Please be sure to consult your CPA or other tax professional before considering any tax harvesting program.
- Chuck French has recently been named to the Arlington Friends of the Drama Board of Directors. In addition to offering discount packages to local Chamber of Commerce members, Chuck has offered to provide similar packages to my clients and readers of this newsletter. The 2006-07 season kicks off soon and features the following productions: Ken Ludwig's newest comedy, Shakespeare in Hollywood, Oct. 13-22; a musical send-up of modern "romance," I Love You, You're Perfect, Now Change, Dec. 8-17; Brian Friel's Tony Award-winning drama, Dancing at Lughnasa, Feb. 2-11; Rodgers and Hammerstein's Carousel, Apr. 13-29; and The Underpants by famous funnyman Steve Martin, June 8-17. Contact Chuck at chuckcfrench@comcast.net for more information. Congratulations Chuck and thank you! - Warren Fish, the owner of Pristine Home Solutions in Marlborough, MA, is coordinating the donation of two brand new bathrooms to Roland's House, a Marlborough homeless shelter. His contracting business, as well as local plumbing and electrical contractors, are donating all labor and permits to the project. They are still looking for a local plumbing supply company that may be willing to donate any fixtures or other materials. If you have any ideas, please call Warren at (508) 481-2666. - Amy & Margaret Cozzens are proud to be getting back to focusing on their specialty: Chocolate. Amy’s Hand Made Chocolates now has an e-commerce site featuring all of their hand made gourmet chocolates. Just in time for holiday gift-giving! Check out www.buychocolatenow.com . - Dawn Link, a local professional organizer, has launched a new website www.resolutionsorganizing.com . She offers a great service for busy professionals! - I am giving two free seminars in November that may be of interest to you or someone you know. On November 16th, I will be presenting Boom or Bust: Top 10 Roadblocks to a Successful Retirement. This is geared to- you guessed it- baby boomers! This will take place at 7:00 pm at the Harvey Wheeler Community Center in Concord, MA. On November 20th, I'll be presenting a workshop for senior citizens, also at the community center, at 1:00 pm entitled, Top 10 Tips for Avoiding Financial Scams. Feel free to give me a call at (978) 369-2255 for more information or to reserve a seat. 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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