Tim Barton

June 6, 2016 by Tim Barton 6 Comments

How to Find Lost Life Insurance & Annuity Policies

Some times life insurance policyholders forget to inform their beneficiaries that they have taken out life insurance that lists them as beneficiary. At other times the primary beneficiary knows about the life insurance policy but the contingent beneficiaries are not informed. Should there be an accident that kills the policyholder and primary beneficiary such as an auto crash involving husband and wife. The contingent beneficiaries are left in the dark about the existence of the policy.

Filing a claim is the beneficiary’s responsibility. Due to the lack of knowledge about the in force insurance beneficiaries leave millions of dollars in life insurance proceeds unclaimed. Insurance companies want to pay these claims that are rightfully due. If the claims are never filed eventually the funds of the policy reverts to insured’s home state’s lost property account.

There is no statewide database of insurance policies so the beneficiaries are on their own.

Check deceased’s

Safety Deposit Box
Financial Records for any payments made to an insurance company
Address Book for adviser, insurance agent, accountant or planner.

You can view a short video by the Insurance Information Institute here. http://www.incomesafety.com/?p=369

You may ask questions in the comments or contact me privately Tim Barton, ChFC

June 5, 2016 by Tim Barton Leave a Comment

Should a Retiree Sell or Stay in Their Home

This depends on many factors both financial and personal lifestyle. If the choice is to sell and move there are financial considerations. As it is with so many decisions today the tax implications must be considered. Whether you decide to stay or move on here is a quick checklist.

Homeowner’s Tax Checklist

Certain costs associated with acquiring and maintaining your principal residence, a second home or a residence you rent out are tax deductible, while others are added to your cost basis and used to reduce any taxable gain on the sale of the property.

Closing Costs

Most closing costs incurred in buying a home are added to cost basis (mortgage interest and real estate taxes paid at closing, however, are immediately deductible). Closing costs incurred in selling a home reduce the selling price.

Real Estate Property Taxes

Deductible in the year paid, assuming you itemize deductions on your federal income tax return.

Mortgage Interest

Interest is deductible on loans up to $1 million for buying, building or substantially improving your principal residence and one other home. Interest on home equity loans of up to $100,000 is also deductible.

Points

Points paid on loans to buy, build or substantially improve your principal residence are deductible in the year paid.

Improvement and Repairs

Repairs are nondeductible, unless allocatable to business or rental use of the property. The cost of permanent improvements that add to your home’s value or prolong its life are added to cost basis.

Casualty Losses

Unreimbursed damage to your home may be deductible if you itemize deductions (after a $100 reduction, deductible to the extent the loss exceeds 10% of adjusted gross income).

Home Office Expenses

If you are self-employed and use part of your home exclusively and on a regular basis as your principal place of business or as a place of business to meet customers or patients, certain expenses allocatable to the office may be deductible. A home office can qualify as the principal place of business if it is used exclusively and regularly by the taxpayer to conduct administrative or management activities of a trade or business and if there is no other fixed location of the business where the taxpayer conducts substantial administrative or management activities of the business.

Be aware when a home that has been depreciated for business purposes is sold a part or all of those deductions are added back into the gain side for tax purposes. Consult a qualified tax professional regarding the rules.

Rental Expenses

Certain expenses allocatable to a rental of part of your home may be deductible. Some retirees rent part of their homes for extra income. This is a business use and many of the tax rules applicable to a home office will also apply in this case.

Mortgage Insurance Deduction

Taxpayers with adjusted gross incomes of $100,000 or less who itemize can deduct the full cost of mortgage insurance on loans that were originated after December 31, 2006. The deductible amount quickly phases out above $100,000, so that no deduction is available to taxpayers with an adjusted gross income above $109,000. Under current law, the deduction is available only through 2011.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

May 26, 2016 by Tim Barton Leave a Comment

2016 Qualified Plan Contribution/Benefit Limitations

2016 Qualified Plan Contribution/Benefit Limitations:

Type of Plan	Maximum Deductible 2016 Contributions/Benefits (only the first $265,000 of compensation can be used in applying these limits)
Money Purchase Pension Plan	Annual additions cannot exceed the lesser of 100% of the participant’s compensation or $53,000.
Profit-Sharing Plan	Annual additions to individual plan participants cannot exceed the lesser of 100% of the participant’s compensation or $53,000.
401(k) Plan	Employer contributions: Up to 15% of covered payroll. Elective employee deferrals: $18,000 ($24,000 if age 50 or older) Allocation limits: Total of employer contributions and elective employee deferrals cannot exceed the lesser of 100% of a participant’s compensation or $53,000.
Simplified Employee Pension (SEP) Plan	Annual additions cannot exceed the lesser of 25% of the participant’s compensation or $53,000.
SIMPLE Plan (401(k) or IRA)	Maximum annual salary reduction deferral: $12,500 ($15,500 if age 50 or older)
Target Benefit Pension Plan	Annual additions cannot exceed the lesser of 100% of the participant’s compensation or $53,000.
Defined Benefit Pension Plan	Benefit provided cannot exceed the lesser of 100% of the average of the participant’s highest three consecutive years of compensation or $210,000.
Tax-Sheltered Annuity	Maximum annual salary reduction: $18,000 ($24,000 if age 50 or older)
Section 457 Plan	Maximum annual deferral: $18,000 ($24,000 if age 50 or older)
NOTE:	Withdrawals from a qualified plan prior to age 59-1/2 may be subject to a 10% early withdrawal penalty, as well as taxation.

Are you taking full advantage of the power of tax deductions and tax-deferred accumulations in your retirement planning?

May 25, 2016 by Tim Barton Leave a Comment

2016 Gross Income Adjustments

What Adjustments to 2016 Gross Income Are Available?

Once total or gross income from all sources has been determined, certain adjustments to income are available. These adjustments amount to a reduction in gross income and generally are granted to achieve tax fairness or in recognition of a desirable social objective. Adjustments to income are available regardless of whether a taxpayer itemizes deductions or takes the standard deduction.

The available adjustments to income include:

IRA Contributions	Eligible individuals can contribute and deduct up to $5,500 to an IRA; $11,000 for an eligible married couple, even if one spouse has no earned income. For workers age 50 and older, the IRA contribution limit is $6,500 for 2016.
Education Savings Account Contributions	Subject to income limitations, up to $2,000 per beneficiary (generally a child under age 18) per year may be contributed to an Education Savings Account and deducted; subject to income limitations.
Student Loan Interest Deduction	Up to $2,500 of the interest paid in 2016 on a loan for qualified higher education expenses may be deducted, subject to income limitations.
Health Savings Account Deduction	Contributions to a Health Savings Account, up to specified maximums, may be deducted.
One-Half of Self-Employment Tax	Self-employed taxpayers generally deduct one-half of their self-employment tax, as determined on Schedule SE.
Self-Employed Health Insurance Deduction	Self-employed taxpayers can deduct 100 percent of the health insurance premiums (including long-term care insurance premiums) they pay for themselves, their spouses and dependents.

May 19, 2016 by Tim Barton Leave a Comment

Capital Gains & Dividend Taxation

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) provided capital gains tax relief for long-term capital gains realized after May 5, 2003 and extended capital gains tax rates to qualified dividends, beginning with dividends paid by corporations to individuals in 2003, but only through December 31, 2008. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), signed into law in May 2006, extended the lower JGTRRA capital gains and dividend tax rates through December 31, 2010. The 2010 Tax Relief Act further extended the favorable tax treatment through December 31, 2012. The American Taxpayer Relief Act of 2012 made permanent the lower capital gains and dividend tax rates for all but higher-income taxpayers.

Long-Term Capital Gains and Dividend Tax Rates

A capital gain results when an asset is sold or exchanged for more than its cost basis. Capital gains realized on assets held for one year or less are short-term capital gains and are taxed at ordinary income tax rates. Long-term capital gains resulting from the sale or exchange or an asset held more than one year, however, receive more favorable tax treatment.

2015 Tax Brackets	2015 Tax Rate
10%, 15%	0%
25%, 28%, 33%, 35%	15%
39.6%	20%

Medicare Contribution Tax

Higher-income taxpayers are subject to a 3.8% Medicare contribution tax on unearned or net investment income, which includes interest, dividends, rents, royalties, gain from disposing of property, and income earned from a trade or business that is a passive activity. The tax applies to single taxpayers with modified adjusted gross income (MAGI) in excess of $200,000 and to married taxpayers filing jointly with a MAGI in excess of $250,000.

May 17, 2016 by Tim Barton Leave a Comment

Another Role for Life Insurance…

The Wealth Replacement Trust

The Problem:

There can be significant tax advantages in giving appreciated assets to a charity. Examples include real estate and securities. If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

For example, Donor A purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If she sells the stock, Donor A must pay capital gains tax on the $75,000 gain. Alternatively, Donor A can donate the stock to a qualified charity and, in turn, receive a $100,000 charitable income tax deduction. When the charity then sells the stock, no capital gains tax is due on the appreciation.

When a donor makes substantial gifts to charity, however, the donor’s family is deprived of those assets that they might otherwise have received.

A Potential Life Insurance Solution:

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift. Using the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

May 4, 2016 by Tim Barton Leave a Comment

About Advanced Directives

Advance Directives are a way to “have your say” about the type of care you receive (or don’t receive) in the event you suffer a catastrophic medical event, such as a stroke or an accident, that leaves you unable to communicate your wishes. Every adult should plan ahead by completing an Advance Directive that specifies his or her personal preferences in regard to acceptable and unacceptable medical treatments. There are two types of Advance Directives:

Living Will

A Living Will states your preferences regarding the type of medical care you want to receive (or don’t want to receive) if you are incapacitated and cannot communicate. You specify the treatment you want to receive or not receive in different scenarios.

Medical Power of Attorney

Also known as a durable power of attorney for health care or a health care proxy, a Medical Power of Attorney names another person, such as your spouse, daughter or son, to make medical decisions for you if you are no longer able to make medical decisions for yourself, or you are unable to communicate your preferences.

Note that a Medical Power of Attorney is not the same as a Power of Attorney, which gives another person the authority to act on your behalf on matters you specify, such as handling your financial affairs.

Important Points to Remember

Each state regulates Advance Directives differently. As a result, you may wish to involve an attorney in the preparation of your Advance Directive
You can modify, update or cancel an Advance Directive at any time, in accordance with state law.
If you spend a good deal of time in several states, you may want to have an Advance Directive for each state.
Make sure that the person you name to act for you – your health care proxy – has current copies of your Advance Directive.
Give a copy of your Advance Directive to your physician and, if appropriate, your long-term care facility.

May 2, 2016 by Tim Barton Leave a Comment

What’s the Problem with a Pile of 401(k) Money?

Smart retirement planning has become all about the income, as in how much and for how long. Last year the Journal of Financial Planning conducted extensive research into retirement portfolio withdrawal rates. They concluded the traditional 4% rule was too risky because it leaves a retiree with an 18% chance of portfolio failure; that’s about a one in five failure rate.

Retirement income failure (running out of money before you die) is disastrous. In the financial planning business they call it “portfolio failure”

Portfolio failure is another way saying “sorry your money is all gone”. Very bad news to someone in their 70’s potentially looking at many more years of life by surviving only on Social Security each month.

What is the problem with money in a 401 (k)?

It must be withdrawn and a safe withdrawal rate must be determined.

What is the new safe withdrawal rate?

2.52% According to the Journal of Financial Planning.

Retirement income money that is invested in equities; stock market, mutual funds, ETF, variable annuity etc. has an 18% chance of failure if the retiree withdraws more than 2.52% per year.

What is the solution?

With interest rates hovering around 1% certainly not bonds or certificates of deposit.

That leaves fixed annuities because they can insure a retirement income for life. But their rates are also low and the income is sometimes level with no chance of increase.

Enter the time tested fixed index annuity with income options. An indexed annuity can offer a guaranteed withdrawal percentage increase, meaning each year you own an indexed annuity the percentage you can withdraw goes up; some as high as 7%.

Let’s compare the recommended 2.52% equity withdrawal and 7% index annuity withdrawal using a nice round figure like $100,000.

2.52% of $100,000 provides a safe income of $2520 per year.

Whereas the annuity’s 7% withdrawal is $7000 per year guaranteed for life and this $7000 could go up each year if there is an index interest credit and once it goes up, it is guaranteed to stay up.

3 choices are:

Unsafe withdrawal using the antiquated 4% rule and risk running out of money 1 out of 5 times. ($4000 per year)
The new “safe” 2.52% rule ($2520 per year)
The insured, guaranteed 7% index annuity ($7000 per year)

Which choice do you prefer?

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

April 30, 2016 by Tim Barton Leave a Comment

Estate Planning Quiz

figuring an answer

	True	False
1. The unlimited marital deduction postpones the payment of federal estate taxes.	[__]	[__]
2. A married couple can give any individual up to $28,000 in gifts tax-free in 2016.	[__]	[__]
3. Federal estate taxes must be paid in cash, generally within nine months of death.	[__]	[__]
4. Federal estate tax rates are progressive, meaning that they increase with the size of the estate.	[__]	[__]
5. Your estate may have to pay state inheritance taxes.	[__]	[__]
6. If you die without a will, state intestacy laws will determine who inherits your property.	[__]	[__]
7. The federal estate tax is payable only if your taxable estate exceeds the unified credit equivalent, which is $5,450,000 in 2016.	[__]	[__]
8. The marital deduction does not apply to property you bequest to someone other than your spouse.	[__]	[__]
9. An estate can be taxed at a rate as high as 40%.	[__]	[__]
10. Various estate planning techniques and tools can be used to reduce estate taxes.	[__]	[__]

All of these statements are true.

If you answered seven or more correctly, you have a good foundation of knowledge upon which to build your estate plan. Regardless of how many you answered correctly, the time to begin planning your estate is today, before it is too late to make important decisions about the accumulation, preservation and distribution of your assets.

April 28, 2016 by Tim Barton Leave a Comment

Gifts of Life Insurance

Regardless of your reasons for giving, a gift of life insurance can represent a substantial future gift to a favorite charity at relatively little cost to you. You can:

Make a Charity the Beneficiary of an Existing Policy: If you have a life insurance policy you no longer need, you can name the charity as the beneficiary of the policy, meaning that the charity will receive the policy’s death benefit after you die. While there are no current tax benefits to this approach, the value of the policy will be removed from your estate for federal estate tax purposes.

Make a Charity the Owner and Beneficiary of an Existing Policy: Instead of simply naming the charity as beneficiary of an existing life insurance policy, you transfer full ownership of the policy to the charity. The charity will then receive the policy’s death benefit after you die. In addition to removing the value of the policy from your estate for federal estate tax purposes, this approach also provides you with current federal income tax deductions.

Help a Charity Purchase a New Insurance Policy on Your Life: If you wish to make a substantial future gift to a charity at a relatively low cost to you, another alternative is to consider purchasing a new life insurance policy and name the charity as the policy owner and beneficiary. You then arrange to pay the premiums through gifts to the charity. This approach provides federal income tax deductions and the policy proceeds are not included in your estate for federal estate tax purposes.

Important Note: Most states through their “insurable interest” laws allow a charity to be the owner and/or beneficiary of an insurance policy on a donor’s life. Since state laws do vary, however, it is important to consult with a professional advisor before making a gift of life insurance to a charity. Please contact my office if we can be of assistance.