PROOF. Many do. State Taxes and Estate Planning. It s About Life. What to Do. Two Taxes. High to Low

Transcription

1 VOL. 25, NO. 3 May/June 2018 State Taxes and Estate Planning Many do not realize that state inheritance and estate taxes can take a bite out of an inheritance windfall. Some states have estate taxes, others call them inheritance taxes and one state even has both taxes. Two Taxes Maryland is the state with both taxes. Its inheritance tax, however, exempts a number of family and non-family members, including a spouse, just as most tax jurisdictions will. For others, Maryland s estate tax kicks in on taxable estates over $4 million. High to Low A look at other estate taxes from coast to coast: Washington has a top rate of 20% that begins on estates over $2.1 million. Connecticut taxes estates worth as low as $2.6 million in 2018, but has a unique provision that caps gift and estate taxes at $15 million beginning in 2019, which primarily affects estates worth about $130 million. The majority of states, including Florida, Ohio and Texas, don t have an estate tax. What to Do If you haven t prepared for how your state handles estate and inheritance taxes, now is a good time to talk to an estate planning attorney. Even without a tax, you may want to create an instrument like a living trust or irrevocable trust to keep the settlement of your affairs private. A will, of course, is the first thing most people should draw up and keep current to help an estate transfer run smoothly. If taxes will be an issue, there are a variety of tools that can help you pass more of your assets estatetax-free to heirs. ABC Company and LTM Marketing Inc. are unrelated companies. This publication was prepared for the publication s provider by LTM Client Marketing Inc., an unrelated third party. Articles are not written or produced by the named It s About Life You probably know that life insurance provides financial protection for loved ones. But did you know that life insurance can also play a role in simple or complex estates? A Simple Legacy In its purest form, life insurance protects your beneficiaries financially when you die. With life insurance, you needn t own a multi-million-dollar estate to leave your family a financial legacy. While many retirees reduce the amount of life insurance they own, others keep some coverage to leave to loved ones. Remember, life insurance benefits to individual beneficiaries are exempt from federal income tax, too. Estate Tool Life insurance also provides a way to fund various stipulations in an estate strategy, whether they are for minor children or a special-needs relative. If you use an irrevocable life insurance trust, you won t owe estate taxes on the trust s assets, either, since the trust owns the estate. Talk to your financial professional to learn more. 5533

2 All Abroad! If you re a college student who will study abroad, there are a few things you should consider before starting out on this adventure. Studying abroad will cost more than tuition. Check to see what s included and if financial aid covers any extra expenses. Get a passport. If you already have one, make sure it won t expire for a year or two. Find out how much you will have to pay for cellphone service. Study up. Americans can experience culture shock, even in English-speaking countries. Research public transportation costs. Most European countries have passes of various length that include both rail and bus. Make sure you have a credit card and ATM card that don t have international surcharges. Or have a pay app on your phone but watch out for pickpockets. Notify your bank of the dates you will be gone. The Department of Labor s Bureau of Labor Statistics lists the highest concentration of occupations in each state. Are you graduating with a degree in organizational psychology? Virginia has more of these jobs than any other state, about 11 times the national rate. If you ll leave college with a biomedical engineering degree, Where the Jobs Are Massachusetts has 5.7 times more jobs in your field than the national rate. Political Science jobs? No surprise here: Washington D.C. has 119 times the national rate. Something for Everyone You don t need a college degree for many of the jobs. Alaska has mining machine operators, Nevada has gaming service workers and Wisconsin has floor sanders. Then there are jobs that may require advanced degrees, like astronomers in Arizona, physicists in New Mexico, and atmospheric and space scientists in Colorado. Still Thinking? If you haven t picked a career yet, location is obviously not the only consideration. Whether you re a college student who s contemplating what career to choose or you re in the workforce and thinking about switching careers, consider interning first. Performing the tasks of a particular job is usually much different than what you ve imagined from taking coursework. Ultimately, the best career won t feel like a job, but an extension of your life and passion. Students might work with career counselors to find their best fit. Money Smarts for College Grads You re pondering the start of student loan repayment and beginning a new career. So what do you do? Begin saving for retirement, of course. Never a Better Time Granted, your college loans will take a chunk of your beginner s salary, but there will never be another moment like this in your life where time has such a dramatic impact on your long-term savings. Learn this for yourself by going to the compound interest calculator at 2 Small Turns Big Try this on the calculator. Start out with a $0 balance, and save $100 monthly. That s only a few lattes or a couple of restaurant meals per month. By finding a few savings, you can juggle both this small monthly retirement contribution and pay your student loans. Back to the calculator, earn a hypothetical 7% interest compounded daily and input 40 years, your time until retirement. After 40 years, your $100 per month $48,000 in total contributions will have grown fivefold to $264,690. Time Matters If you wait 20 years to begin investing for retirement and double your contributions so that you still put away $48,000 using the same criteria, your money would grow to only $104,731. That s how much time means when you are saving for long-term goals. Yes, pay your student loans. But putting away even a little toward your retirement starting now will matter greatly.

3 Take Control of Your Future Most of us are familiar with an airline attendant grabbing a microphone to recite safety instructions while the plane taxis before takeoff. Toward the end, the attendant emphasizes that in an emergency, passengers with children must put oxygen masks on themselves before doing the same with children. Starting from Behind That short directive can serve as a life lesson for women in particular. Whether you work outside the home or not, whether you run a large company or a small household, you are probably a caretaker for someone, and you will probably earn less over a lifetime because of it. The Department of Labor found that median weekly income for women during the third quarter of 2017 was $767, or 81% of what men earned. Women also receive smaller Social Security checks. At age 65, their average annual benefit is about $4,000 less than men of the same age. Compounding matters, women at age 65 live an average of 21.5 years more, which is 2.4 years longer than men. Even if women always earned the same as men in the workplace, many women have gaps in work experience because they are often the primary caretakers of loved ones. Some two-thirds of caretakers are women. So, it matters how you take care of yourself, from a savings, insurance and career standpoint. Insure Yourself Start by reviewing your insurance protection. You likely pay a great deal of attention to health insurance, but disability income insurance is also important if you are in the workplace. It shouldn t need saying that life insurance is also crucial financial protection. Build your insurance foundation through group insurance plans your employer may offer. Supplement this by working with a financial professional to learn where you may have gaps and fill them with individual insurance. Continue Education Because your career is entwined with your ability to earn a livable income (and build a decent Social Security benefit), take advantage of educational opportunities that can help you advance your career. Digital skills and data analytics are especially crucial in today s lightningspeed business climate, so take steps to stay up to date. Use continuing education reimbursement benefits if your employer offers them. Invest for the Future Social Security may comprise much of retirees income today, but it shouldn t. You are responsible for your financial future, so take it seriously. Start by taking advantage of any retirement plan your employer may offer. If you have a 401(k) plan and your employer matches a percentage of your contribution, put away at least enough to get the entire match offered. Explore traditional and Roth IRAs if your employer doesn t offer a retirement plan. Consider them as a way to save even more if your company does have a workplace plan. The Roth IRA, in particular, can add punch to your retirement investing efforts because qualified distributions are tax-free. Consult Professionals As life passes from one stage to the next, you will gain a greater understanding of the need to put your wishes into writing. A will should be the first document you consider. An estate planning attorney can help you with this and other necessary legal safeguards, such as powers of attorney for health and financial reasons. Ultimately, by preparing now, you can better help those who depend on you. 3 LTM Client Marketing Inc. 5533

4 Passing it On During the next two to three decades, baby boomers will pass potentially trillions of dollars on to their children and grandchildren. What would you do with a large inheritance? Take it Slow Even if you have dreams of fancy cars and large homes, slow it down and consider how to handle your inheritance so that it can do the most good. First, find an estate planning attorney and financial professional whom you can trust to help guide your fortunes. Make sure you draw up a will and any other required documents before deciding on a spending plan. Future Care Next, make sure you have an appropriate amount of life insurance to protect your new wealth. Consider putting the maximum amount of money away in tax-qualified plans for your retirement. Invest your money wisely, paying attention to future taxes. Pass It On While you will likely want to ensure future generations can benefit from your windfall, you may also want to leave a legacy to a favorite cause. There are various strategies that can help you help others (see Leaving a Legacy on this page). If you have considerable wealth and even if you don t you might wonder how to leave a financial legacy behind for a beloved organization or favorite charity. Giving USA found that giving by individuals grew at a higher rate than other sources of giving in Individuals gave an estimated $281.9 billion, a 3.9% increase from the prior year. With major fundraising efforts in 2017 for victims of the rash of natural disasters in North America, the pace of giving may not slow soon. How to Give When you decide to give away assets, it s a good idea to make sure you have current information regarding the rules. For example, on the federal level, individuals may give up to $15,000 to as many You may have heard the caution about investing according to your risk tolerance. But what is risk? If you invest in stock or bond mutual funds, you run the risk of losing the money you invested. It s as stark as that. Risk becomes relative, however, to the potential reward. For example, the risk of losing your money is usually greatest where the potential to earn the most Leaving a Legacy people as they want free of gift tax. If you re short on cash, gifts of appreciated assets like stocks can help organizations that accept them. Individuals can also name charitable organizations as beneficiaries of life insurance policies. Risk is Relative money is at its highest. Conversely, you may invest in a conservatively managed bond mutual fund that generally offers a low return. That s because risk is low, and its potential reward is relative. Do the Work Risk tolerance often works hand in hand with time horizons, goals and the need for liquidity. You can learn your risk tolerance by working with an advisor. Giving and Getting Even with the most altruistic intentions, you can structure a gift to benefit both your family and a charity. Gifts of assets and cash made to a charitable remainder trust (CRT) can provide lifetime income for you and a loved one, income tax advantages and eventually needed funds for a charity. The CRT can specify how long an income stream will last and when the trust s term will end, upon which assets will pass to the charitable organization named in the trust. One caveat: Make sure you are okay parting with any assets you intend to pass to a CRT, which is an irrevocable trust. Once you make the transfer, your decision is permanent. You should consider the fund s investment objectives, charges, expenses, and risks carefully before you invest. The fund s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost. 4

5 When economist Richard Thaler won the Nobel Prize in 2017, it triggered memories of his belief that retirement plan sponsors could use investors inertia to help them invest better for retirement. Today, companies use tools to do this all the time. Do you know what automatic tools your retirement plan has? You should, because they leverage that inertia on your behalf. Check them out, because you may want to do more. Automatic Enrollment To combat workers tendency to not get around When investors seek to provide some stability to their investment portfolios, they often look toward mutual funds that invest in highly rated corporate bonds. This type of fixed income investment isn t, however, the only type of corporate bond available. Bonds Explained Corporate bonds, like any other type of bond, are debt instruments. Essentially, a bond is a loan for which the bond issuer pays interest, with principal repaid at a later date. Bonds can guarantee principal, interest and principal, or neither. Investment-Grade Bonds Investment-grade bonds receive some of the highest ratings by the firms that Beyond Automatic to participating in a company 401(k) plan, some employers enroll them automatically. Contributions are usually around 3% of income, invested in a target-date mutual fund (usually with a timeframe according to your age) or in a balanced fund. You can change your defaults, and should if you can contribute more than the initial rate you were given. Additionally, look into investing for more growth, especially if your time horizon is long. Automatic Escalators Another tool employers may use to help you build More than Stocks judge companies and bonds creditworthiness. Think about some of the most popular brand names that have been around for years, and many of those names could have outstanding corporate bonds. They are often key holdings of mutual funds that offer fixed income to customers. a retirement portfolio is to automatically increase your contribution in line with any raises you receive. Contribution escalators are a good strategy that you may not want to change because a raise is money you never had. Automatic retirement plan tools can be important for employees who will one day depend on their company s 401(k) plans. Make sure their defaults are right for you. Depending on the terms of your plan and your budget, you may be able to contribute thousands of dollars more. And, if you re at least age 50, you are eligible to defer even more. Junk Bonds Also known as belowinvestment-grade bonds, junk bonds aren t necessarily junk, but bonds at or near the bottom of the ratings scales. Junk bonds, especially if contained in a respected bond mutual fund, may be suitable if you are an aggressive investor with a long-term horizon. You should consider the fund s investment objectives, charges, expenses, and risks carefully before you invest. The fund s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost. Notes, Bills and Bonds Bonds aren t the only type of fixed-income investing. In the world of debt instruments, bonds, bills and notes differ by their maturity, or when they pay interest. Bonds Bonds mature in one to 30 years. A long-term bond matures in 10 or more years, intermediate-term bonds go from four to 10 years and short-term bonds mature in one to four years. The longer the maturity, typically the higher the interest rate. Notes Notes maturity dates are similar to those of intermediate and short-term bonds. They typically mature in one to 10 years. Bills Bills mature in one year or less. They typically offer the lowest interest rate return. Interest Rates If you own any of these debt instruments and interest rates rise, your investment could be worth less because it has a lower interest rate. Bills, with their short terms, are considered less sensitive to interest rate changes. They turn over quickly. Conversely, long-term bonds are the most affected when rates change. 5 LTM Client Marketing Inc. 5533

6 Tough but Doable Summer Doldrums Summer is a time when retirement investing can have more risk than many things in our strategy. If your answer to you want. It can also lives slow down, the second question is yes, happen when you invest in Millennials have it including the stock market. put the extra money into a 401(k) at work and an harder than their During this lull, why not your retirement plan. IRA on your own and parents did when revisit how and why you re inadvertently double up on it comes to saving for investing, examine changes Is my asset allocation investments. Look at all of retirement. Your obstacles in your life and revisit your out of whack? your investments, including may seem insurmountable, investing approach? Ask A strong increase or individual ones, to gauge but they re not. It may be yourself these questions decrease in the value of a your total investment risk. difficult, but you can find and find the answers to particular asset class, such money to put away for them. as stocks, can throw your Is it time to dial down retirement. allocation out of whack. risk? Has anything in my life Make an appointment with It could be time to dial Multiple Obstacles changed? your financial professional down risk if you re nearing It s well-documented that Are marriage or children every six-12 months to look a goal, such as the down millennials aren t starting on the horizon? Am I at your asset allocation, payment for a new home or off with the same earning more money in my and rebalance when funds for a child who is advantages their parents career or by freelancing on necessary. near college age. You might had. College debt rises in the side? If the answer to also shift some of your lockstep with tuition prices. the first question is yes, Have I unconsciously assets to more conservative Salaries remain relatively work out a plan to save for taken on more risk than investments if you re stagnant, with beginner the new things that are I should? nearing retirement. salaries at the bottom rung. important in your life, but When you don t rebalance Rents are high, home prices don t forget about your your portfolio regularly, you have recovered and it s no wonder some millennials still live with mom and dad. There is Hope Despite these challenges, you have hope. The newest employer benefit is help paying off college debt. Also look for the best deal to consolidate your student loans. Create a budget and find the pennies for retirement that will add up over time. Know that you ll be responsible for your own retirement, so contribute to your employer plan at least the amount your employer may match. 6

7 Although health insurance deductibles and other out-of-pocket costs continue to rise, one good thing has come out of this recent turmoil: Health Savings Accounts (HSAs). A benefit that is similar to a 401(k) plan, HSAs are growing both in the number of accounts and average contributions made to them. Trending Up In 2016, HSAs covered between 20.2 million and 22.6 million people, according to research from the Employee Benefit Research Institute (EBRI). Counting employer and employee contributions, the average balance soared from $1,604 to $2,532 in This growth is an important statistic because HSAs allow account balances to roll over from one year to the next. It is just one of the features that is making this healthcare How Much to Invest in an HSA While more people are using Health Savings Accounts (HSAs) to help pay for rising healthcare costs, many of them are not familiar with the investing options they may have available to them. Should you put all your money into a cash option or into more aggressive 401(k)-plan types of investments? A lot depends on your health. ABC s of HSAs savings vehicle an attractive employee benefit. Triple Tax-Free The bold-faced headline about HSAs is they are triple tax-advantaged. Contributions are deducted from your pay pre-tax, earnings on your HSA balance grow tax-deferred and distributions for qualified medical expenses are tax-free. You can use your HSA to pay for copayments and deductibles, prescription drugs and lab work, and imaging and physical therapy today, next year and even in retirement. Extra Help The ability to roll over an HSA account balance from Invest the Max If you put away the maximum your employer s HSA allows, you could have money left over each year after satisfying health plan deductibles, coinsurance and copayments. In that case, you might consider investing the remainder. Health Matters If you consume little more healthcare than an annual year to year can be especially helpful. In retirement, healthcare expenses can consume more of your budget. If you don t need your HSA money for healthcare because you re exceptionally healthy, you can take distributions for non-health reasons beginning at age 65 and pay only income tax on the amount. However, you ll pay income tax and more if you take distributions for a non-medical reason before age 65. Distributions in this case would be subject to income tax and a 20% federal tax penalty on the amount taken. physical and occasional bloodwork and you contribute the max, you may take a more aggressive investing approach. If, however, you use whatever you contribute to an HSA in any given year due to poor health, you might want to stay with an approach where you don t risk your funds. 7 Too Conservative? Is there such a thing as investing too conservatively? Inflation Risk Having too conservative an investing approach, even if you re nearing retirement, presents a risk of a different type of your retirement money not keeping up with inflation. While inflation has been relatively tame in recent years, history shows that it can and will spike, as it did in the early 1980s when double-digit inflation ruled. Because the economy is cyclical, it is important to review your portfolio annually, at least. 1% Matters Having your retirement money in a bank savings account may be secure because it is federally insured up to certain limits, but you ll fall behind if you re earning just pennies even when inflation is as low as 2%. Other investments, such as those issued by the U.S. Treasury, are guaranteed by the United States government and can offer more. Make Up with Time If your time horizon is years away, you may want to revisit your investment strategy. While past performance won t predict future results, time has always smoothed out volatility in the stock market. Talk with your financial professional to ensure you invest in a way that s best for you and your goals. LTM Client Marketing Inc. 5533

8 Summer s around the corner and wind, rain and firestorms will follow. Even if you understand the need for protection like property and health insurance, you may find yourself uninsured or underinsured for certain events. Natural Disasters Start with flood insurance. If you live in a flood plain, this is a necessity. If you don t, you may still need the coverage. According to the Federal Emergency Management Agency (FEMA), more than 20% of flood claims come from properties outside the high-risk flood zone. If you live in an area prone to damaging windstorms like hurricanes and tornadoes, you may need coverage that s additional to property insurance. The same is true for earthquake zones, where you may have to buy separate insurance for this peril. Also consider carrying general liability and property insurance for general risks around your home, and use umbrella insurance to Time for an Insurance Audit fill coverage gaps. Talk to your agent to see if you re fully insured. Personal Insurance Next, consider your current personal insurance and learn if it is too little, too much or non-existent. Start with disability income (DI) insurance. The younger you are, the more likely it is that you ll become disabled for a period of time than that you ll die. If you couldn t live without your income, you probably need DI insurance. If DI is offered through work, consider buying it. Life Insurance If your family has grown or added goals, such as a child s college education, you may find you need more life insurance. Conversely, if your financial obligations have lessened as you age, you may learn you don t need all the life insurance you presently own. Talk to a financial professional to learn more by LTM Client Marketing Inc. The general information in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation. Great care has been taken to ensure the accuracy of the contents of this newsletter at press time; however, tax law and IRS guidance can change circumstances suddenly. Reproduction of this publication is forbidden without written permission of the publisher.

9 December 20, 2017 Reference: Org Id : Loose Change May-June FINRA Rule: FIN 2210 REVIEW LETTER The material submitted appears consistent with applicable standards. Reviewed by, Brian L. Finnell Associate Principal Analyst aec NOTE: This review is limited to the communication that was filed. We assume that the communication does not omit material facts, contain statements that are not factual, or offer opinions that do not have a reasonable basis. This communication may be described as Reviewed by FINRA or FINRA Reviewed ; however, there must be no statement or implication that this communication has been approved by FINRA. Please send any communications related to filing reviews to this Department through the Advertising Regulation Electronic Filing (AREF) system or by facsimile or hard copy mail service. We request that you do not send documents or other communications via .