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Wills and Living Trusts

Posted by Mike Bonacorsi CFP®   |  Posted in June 13, 2013   |  Comments Off

Living TrustsMany myths surround these popular estate planning tools.  

Provided by Mike Bonacorsi, CFP®

Living trusts are created with a clearly defined objective: to avoid probate. Misconceptions about living trusts have spread to the point where people think they can accomplish much more than they really do. Here is a realistic assessment of living trusts.

If you fear probate, consider a living trust. If you worry about your will being contested or your heirs fighting over your assets, a revocable living trust may be your best option.

You fund a revocable living trust with all, or largely all, of your assets during your lifetime. The trust owns the assets, yet you can still use these assets while you live. Once you die, the revocable living trust becomes irrevocable and the trust assets are distributed according to your wishes by designated successor trustees, exempt from probate.1,2,3

In addition to giving you more control and privacy, a living trust may save your heirs time and money. An AARP survey finds that it takes roughly 18 months to distribute the typical estate because of probate. Settlement costs from probate may eat up as much as 5% of an estate.1,2

Living trusts do not reduce taxes. Assets within a living trust are fully taxable at the federal and (generally) state level. Unless someone has drafted the trust to include tax-saving provisions, it will offer no particular estate or income tax advantages to the grantor or the beneficiaries.4

Living trusts lead to a lot of paperwork. As the trust has to become the legal owner of your assets to be effective, the title needs to be changed on those assets. That means filling out myriad forms and revising others. Expenses may be incurred along the way.4

Living trusts do not relieve trustees of their duties. When a grantor of a living trust passes away, the language in the trust document will not magically “do all the work” for the successor trustee. While a successor trustee will usually not have to deal with probate, other responsibilities remain. Titles will need to be changed and appraisals may be necessary.5

A living trust is not necessarily inexpensive. A lawyer may charge you $1,500 or more to create one. If you have significant assets and fear a dispute over your will, it may be worth it.2,6

There are living trust solutions available on the Internet, or via books or software. However, when cutting and pasting boilerplate language and filling in some names here and there, what kinds of legal and financial risks are you taking?6

While having a living trust drawn up with the help of an attorney is certainly advisable, paying a fee is no guarantee of competence; amending simple errors could cost you another $300-500.7

A living trust is not a will. You still need a will when you have a living trust. In fact, you are probably going to need a “pour-over” will down the road, assuming you will keep accumulating assets after the trust is drawn up. A pour-over will place these stray assets into the trust.4

Additionally, you will want a will if you wish to make charitable bequests or gifts to friends or relatives upon your passing, as a living trust may not carry out these gifts on your behalf. A will is also the way to name a guardian for any minor children.4

A living trust is not a living will, either. A living trust does not function as a health care directive or a power of attorney. These are separate estate planning documents. While some families ask attorneys to create them concurrently with a living trust, a living trust won’t stand in for them.8

While living trusts are highly touted and can be highly useful, that does not mean every family should get one.

You may not need a living trust to begin with. If your financial life has been largely free of “creditors and predators” and your estate isn’t complex, a thoughtfully drafted, well-executed will could prove sufficient when the time comes. For some middle-class families, a living trust can be like a fifth wheel on a car, seemingly providing added stability but hardly necessary.

After all, not all assets are subject to probate when someone passes away: IRA, Keogh and pension plan savings, life insurance death benefits, checking and savings accounts that have POD beneficiaries, Treasury bonds, and property owned jointly with the right of survivorship.4

In terms of time, often there isn’t much difference between distributing assets via probate and through a living trust. In terms of savings, the filing and court fees that come with a probated will may not be that onerous. While the fees may total a small percentage of the value of the estate, the executor may decline a commission if he or she is a family member and require only hourly legal advice.

A living trust isn’t the only type of trust out there. Some families opt for the testamentary trust. Assets move into this basic, irrevocable trust as directed in a grantor’s will. As the grantor’s will directs the assets, the estate still proceeds through probate but more expediently than usual. Other families opt for more complex and specialized trusts.2

As a reminder, this article is intended as an overview of living trusts, and not any kind of legal advice. Keep in mind that laws and other particulars may vary depending on your location and the firm you are working with. If you are considering a living trust or another kind of estate planning vehicle, the best “first step” is to talk to an attorney before you proceed further.

Mike Bonacorsi may be reached at (603)769-3111 or Mike.Bonacorsi@lpl.com www.MikeBonacorsi.com

Mike Bonacorsi is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Mike Bonacorsi LLC, a registered investment advisor and a separate entity from LPL Financial.

* LPL Financial Representatives offer access to Trust Services through The Private Trust Company, N.A., an affiliate of LPL Financial.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Understanding the Gift Tax Exclusion

Posted by Mike Bonacorsi CFP®   |  Posted in June 10, 2013   |  Comments Off

Gift TaxMost of us will never face taxes related to money or assets we give away.

Provided by Mike Bonacorsi, CFP®

“How can I avoid the federal gift tax?” If this question is on your mind, you aren’t alone. The good news is that few taxpayers or estates will ever have to pay it.

Misconceptions surround this tax. The IRS sets annual and lifetime gift tax exclusion amounts, and this is where the confusion develops.

Here’s what you have to remember: practically speaking, the federal gift tax is a tax on estates. If it wasn’t in place, the rich could simply give away the bulk of their money or property while living to spare their heirs from inheritance taxes.

Now that you know the reason the federal government established the gift tax, you can see that the lifetime gift tax exclusion matters more than the annual one.

“What percentage of my gifts will be taxed this year?” Many people wrongly assume that if they give a gift exceeding the annual gift tax exclusion, their tax bill will go up next year as a result. Unless the gift is huge, that won’t likely occur.

The IRS has set the annual gift tax exclusion at $14,000 this year. What this means is that you can gift up to $14,000 each to as many individuals as you like in 2013 without having to pay any gift taxes. A married couple may gift up to $28,000 each to an unlimited number of individuals tax-free this year. The gifts may be made in cash, or they can be made in stock, contributions to 529 plans, collectibles, real estate – just about any form of property with value, as long as you cede ownership and control of it.1,2,3

So how are amounts over the $14,000 annual exclusion handled? The excess amounts count against the $5.25 million lifetime gift tax exclusion. While you have to file a gift tax return if you make a gift larger than $14,000 in 2013, you owe no gift tax until your total gifts exceed the lifetime exclusion.2,3

“What happens if I go over the lifetime exclusion?” If that occurs, then you will pay a 40% gift tax on gifts above the $5.25 million lifetime exclusion amount. One exception, though: all gifts that you make to your spouse are tax-free provided he or she is a U.S. citizen. This is known as the marital deduction.1,2,3

“But aren’t the gift tax and the estate tax unified?” They are. The gift tax exclusion and the estate tax exclusion are sometimes called the unified credit. So if you have already made taxable lifetime gifts that have used up $3 million of the current $5.25 million unified credit, then only $2.25 million of your estate will be exempt from inheritance taxes if you die in 2013.3

However, the $5.25 million unified credit given to each of us is portable. That means that if you don’t use all of it up during your lifetime, the unused portion of the credit can pass to your spouse at your death. So if you only use up $1.25 million of your unified credit during your lifetime and your spouse has the full $5.25 million credit remaining, your spouse would have the chance to transfer as much as $9.25 million tax-free, either through gifts made during your life or after your death.3

In sum, most estates can make larger gifts during life without any estate, gift or income tax consequences. If you have estate planning questions in mind, turn to a legal or financial professional well versed in these matters for answers.

Mike Bonacorsi may be reached at (603) 769-3111 or Mike.Bonacorsi@lpl.com
www.MikeBonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.chron.com/news/article/New-act-clears-up-estate-gift-tax-confusion-4301217.php [2/22/13]
2 – www.nolo.com/legal-encyclopedia/changes-gift-tax-laws-coming.html [1/13]
3 – www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-estate-and-gift-tax-explained/ [1/11/13]

UTMA Unhappiness

Posted by Mike Bonacorsi CFP®   |  Posted in June 5, 2013   |  No Comments

UTMA

Irrevocable gifts to minors don’t always work out.

Provided by Mike Bonacorsi, CFP®

Think twice before creating an UTMA account. Custodial investment accounts permitted under the Uniform Transfers to Minors Act (UTMA) allow families to gift assets to a child without having to set up a trust. In addition to that convenience, an UTMA can offer a distinct tax advantage to parents. While such perks are nice in the present, the bigger question is what will happen to those assets down the road.1

What potential benefits do UTMA accounts offer to families? Assets in an UTMA account (or UGMA account, the earlier version still used in a few states) are owned by the child, not the parents. As a result, UTMA investment income is generally taxed at the child’s tax rate instead of the parents’ tax rate. That can mean big savings – unless the “kiddie tax” strikes.1,2

In 2013, the first $1,000 earned by an UTMA account is tax-free, providing that child has no other income and is younger than 19 (or younger than 24 and a full-time student whose unearned income does not provide 50% of his/her support). The next $1,000 of investment income from the UTMA is taxed at the child’s tax rate. The kiddie tax kicks in at the $2,000 threshold: account earnings above $2,000 are taxed at the parents’ top marginal tax rate and become part of the parents’ taxable income. (One asterisk: all income will be reported on the child’s tax return if he or she is age 19 and not a student, or age 24 regardless of student status.) Practically speaking, wealthy families can potentially see tax savings via an UTMA account by shifting ownership of some fixed-income securities in a portfolio to a child. As capital gains and dividends aren’t taxed as ordinary income, there is a little less merit in passing such investment income off to a minor.1,3

College keeps growing more expensive, and certain families are just too wealthy to be eligible for financial aid. Some parents create UTMA accounts in response to this dilemma.3

What are the potential drawbacks of UTMA accounts? First of all, the gifts and transfers you make to the minor via the account are irrevocable. The adult custodian only has control over those assets until the minor turns 18 (though UTMA custodianships can last up to age 21 or age 25 in some states).1

Once the UTMA custodianship ends, the young adult now in control of the assets can use those assets for any purpose. Anything. What was once seen as a college savings fund may potentially “go to waste” on trivial pursuits.4

Many affluent families assume that their children can’t qualify for college loans, and that their kids are out of the running for need-based scholarships and grants. This often proves inaccurate. So if you aren’t yet a multimillionaire, there may not be much reason to have an UTMA account as a college savings fund – it may reduce your student’s eligibility for aid. College financial aid formulas usually demand that students contribute more of their total assets to college costs each academic year (in the neighborhood of 20-25%, sometimes as much as 35%). Parents are typically asked to contribute a much lower percentage of their total assets per year. While there may be a silver lining in proceeding through college with less financial aid (i.e., lower student loan debt for the future), it still amounts to “good debt”.1,2,4

UTMA accounts are hardly the only option. If you want to make a gift to a child or help a child save for college, in the end you may determine that a trust, a 529 plan, a Coverdell ESA or a Roth IRA represents a more appropriate choice.

Mike Bonacorsi may be reached at (603) 769-3111 or Mike.Bonacorsi@lpl.com
www.MikeBonacorsi.com

Mike Bonacorsi is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Mike Bonacorsi LLC, a registered investment advisor and a separate entity from LPL Financial.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – individual.troweprice.com/public/Retail/Products-&-Services/College-Savings-Plans/Gifts-&-Transfers-to-Minors [5/16/13]
2 – forbes.com/sites/baldwin/2013/02/28/using-utma-and-ugma-accounts-for-college/ [2/28/13]
3 – cbsnews.com/8301-505123_162-57581648/investment-accounts-for-kids/ [4/26/13]
4 – smithbarney.com/products_services/planning_services/education_planning/custodial_accounts.html [5/16/13]
5 – individual.troweprice.com/public/Retail/Planning-&-Research/College-Planning/Which-Option-is-Right-for-Me [5/16/13]

Filial Support Laws

Posted by Mike Bonacorsi CFP®   |  Posted in May 31, 2013   |  No Comments

FilialCould you end up paying for your parents’ nursing home care?

Provided by Mike Bonacorsi, CFP®

Ever hear of “filial piety”? How about “filial support”? You may be unfamiliar with these phrases – and the laws based on them. A recent, notable court ruling has brought filial support laws back into the spotlight. Some attorneys and retirement planners are wondering if more nursing homes will use these laws to force adult children to pay their parents’ long term care bills.

“Filial piety” is a centuries-old moral principle. It is the belief that adult children have a duty to respect, obey and personally care for elderly parents and relatives. Confucius (Kong Qui) made xiao or “filial piety” a moral precept of his philosophy, which entered into many Asian cultures. In many societies around the world, it is disgraceful to ignore this responsibility.1

While the American dream of retirement glorifies independence (and even freedom from family to some degree), the essence of filial piety isn’t lost here – in 29 states, nursing homes can still potentially use filial support laws to demand that adult children pay for their parents’ eldercare bills if Medicaid doesn’t.2,3

Aren’t these laws antiquated, though? While many of them were written prior to the advent of Medicaid, filial piety statues – as musty as they may be – represent a creative way for eldercare facilities to collect outstanding payments. Long term care providers in Pennsylvania, New Jersey and South Dakota are taking advantage of these laws, a Penn State University study notes; the worry is that facilities in other states will follow suit.2,3

In 2012, a Pennsylvania superior court upheld a lower court ruling (Health Care & Retirement Corp. of America v. Pittas) allowing a nursing home to demand a lump sum of $93,000 from the son of a woman who relocated to Greece with her bill unpaid. (She had turned to Medicaid for help, but the ruling came before her Medicaid claim could be resolved.)2,3

In New Jersey, a man decided to pay a nursing home more than $30,000 when it went after him citing a need for filial support. The circumstances were unusual here to say the least. The nursing home had failed to monitor the bank account in which his uncle’s Social Security payments had collected, and it went over the Medicaid assets limit. The uncle was now disqualified for Medicaid, and Medicaid refused to pick up the tab for the nursing care costs amassed during the months in which the nursing home had dropped the ball. So the facility turned to his nephew, who was regarded to be his closest living relative. The nephew could have sued in response, but instead he wrote a check, electing to avoid continued “aggravation.”3

Filial support laws differ from state to state. In Nevada, for example, adult children aren’t responsible for supporting their parents unless a written promise has been made. In Connecticut, the legal duty of filial support only extends to parents younger than 65. In Arkansas, the only filial piety requirement is for mental health services for parents.2

Will more nursing homes seek to collect overdue payments via these old laws? It could happen.

Mike Bonacorsi may be reached at (603) 769-3111 or Mike.Bonacorsi@lpl.com
www.MikeBonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.britannica.com/EBchecked/topic/273807/xiao [4/22/13]
2 – www.foxbusiness.com/personal-finance/2012/11/15/are-responsible-for-mom-nursing-home-bill/ [11/15/12]
3 – www.forbes.com/sites/feeonlyplanner/2012/08/13/new-financial-burden-for-boomers-forced-to-pay-parents-long-term-care-bill/ [8/13/12]

When Will the Easing End?

Posted by Mike Bonacorsi CFP®   |  Posted in May 28, 2013   |  No Comments

EasingHow will the Fed taper off its bond buying program?

Provided by Mike Bonacorsi, CFP®

In its May 1 policy announcement, the Federal Reserve reaffirmed its commitment to its current stimulus campaign, or Quantitative Easing (QE3) – its monthly purchase of $85 billion in bonds.1

QE3 has undeniably boosted the stock market and assisted the real estate recovery. Yet at some point, the Fed will decide to let the economy stand on its own and stop its aggressive easing of monetary policy. Wall Street is beginning to wonder how and when that will occur.

Will the Fed wind down QE3 in early 2014? Quite possibly – but it could happen sooner. Bloomberg recently polled 47 economists for their opinions, and 61% of them felt that the Fed would wrap up QE3 in the first half of 2014. Another 11% thought the central bank would halt its bond purchases in the fourth quarter.2

What will the Fed’s first step be? Abruptly ending QE3 could be foolhardy. The median estimate in Bloomberg’s poll was for an initial cut to $50 billion in purchases per month, evenly split between mortgage-linked securities and Treasuries.2

Does anyone think the Fed might increase its bond buying? That possibility is on the table. On May 1, the Fed said that it “is prepared to increase or reduce the pace of its purchases” depending on how “the outlook for the labor market or inflation changes.”1

As the New York Times notes, Fed officials don’t see a whole lot of merit in increasing bond purchases. In the first quarter, the central bank already bought an amount of securities roughly equivalent to the volume of new mortgage bond issuance.1

The latest indicators haven’t been great by any means: the jobless rate is still closer to 8% than 6.5% (the point at which the Fed would consider raising interest rates), the pace of manufacturing seems to have slowed this spring (the Institute for Supply Management’s factory index came in at 50.7 for March), and Q1 GDP was estimated at 2.5%. Is all this just another spring swoon, or should the Fed buy more assets in response to these indicators?2

If the sequester truly damages the recovery and the Fed elects to buy more bonds instead of less, it certainly has the leeway to pull it off. The annual core inflation rate, as measured by the Commerce Department’s personal consumption expenditures (PCE) index, was just 1.1% in March. The central bank has an inflation target of 2.0%.1

The status quo may prevail into winter. The Fed has no compelling reason to stop buying securities in the near term. By gradually reducing its asset purchases, it could try to engineer a soft landing for the stock and real estate markets – and considering that the Dow pulled back about 2,000 points shortly after the end of both QE1 and QE2, there is every reason to strive for that outcome.3

As JPMorgan Chase’s chief U.S. economist Michael Feroli noted last week, “In effect, the Fed signaled that the pace of asset purchases would be data-dependent in both directions, but that right now the data gives them little reason to change in either direction.”1

Mike Bonacorsi may be reached at (603) 769-3111 or Mike.Bonacorsi@lpl.com
www.MikeBonacorsi.com

Mike Bonacorsi is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Mike Bonacorsi LLC, a registered investment advisor and a separate entity from LPL Financial.

*Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.

Mortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, and interest rate risk.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – nytimes.com/2013/05/02/business/economy/federal-reserve-to-continue-stimulus-efforts.html [5/1/13]
2 – bloomberg.com/news/2013-05-01/fed-seen-slowing-stimulus-with-qe-cut-by-end-of-this-year.html [5/1/13]
3 – usnews.com/news/articles/2013/05/01/why-the-fedsqe3-is-great-for-the-rich [5/1/13]

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