Conversation Starters...
You need to talk. You need to talk money. You know it. But what you don't know is how to bring it up! How can you get your partner to listen to you and open up in turn? Here are a few tips not only on how to get a conversation started, but to also keep it going!
Choose Your Words Carefully
When approaching your partner for a conversation on an important issue, you must eliminate words such as "but", "always", and "never" as these words are inflammatory and will elicit defensive responses from your partner. People can't and won't listen when they feel attacked or when they feel badly about themselves! Rather use corrective language - reframe your words to be proactive and reflect your own feelings instead of accusing the other. Start conversations by using positive statements!
For example:
THE WRONG APPROACH...
"We'll Never be able to retire." "You Always dismiss my concerns. I'm not stupid, you know." "How do you expect me to stretch this money to buy holiday gifts?" "If you think your mother's coming to live with us, you've got another think coming." "I sure hope you've put some money away for Johnny's college."
THE RIGHT APPROACH...
"I'm concerned about our retirement." "I know I'm smart but I've avoided money matters. I need to become more informed." "I'd like to sit with you and figure out what we need for holiday gifts in addition to our basic expenses." "I'm concerned about how we can manage to have your mother live with us." "I'd like to know our financial plan for our children's education."
A good way to open conversation with your partner is to discuss what you know or hope to be mutual dreams and goals:
• "Do we want to travel?" • "Do we want to see the grandchildren on birthdays?" • "Do we want to join a country club?" • "Do we want to be more visible in the community, and invited to more prestigious social events?" • "Do we want to be more philanthropic?" • "Do we want to gift our grand kids money for college/start a business?" • "Do we want to start our own business?" • "Do we want to volunteer for our favorite charities?" • "Do we want to participate in house swaps around the world?" • "Do we want to plan singular events and also joint events as we retire?"
... "Then let's talk about how to work together to achieve that!
But, now that you are discussing it, what steps DO you take to achieve your goals?
1. Write down your goals on a timeline, 2. Gather a list of all your financial assets, 3. Re-align investments to goals, consolidating accounts when possible; i.e., IRAs, SEP IRAs, pre and post-tax IRAs, can be combined, 4. Ensure that your CFP, CPA and attorney are strategizing with each other on your behalf, 5. Review investment portfolio and financial plan at least annually.
Following these guidelines to open a conversation with your partner about your finances could have rewards that reach well beyond just the health of your bank account. Open dialogue leads to sharing of stresses and burdens, helps reestablish mutual respect, and empowers each member of the relationship to make changes for the better. So take control of your money and your life, and ask your partner "Can We Talk Money?"
http://EzineArticles.com/?expert=Debra_Morrison
When looking for a partner some people always want to look for the right person with the right assets instead of having the right thoughts about the person. This should free up the mind to have the right money talk with the person.
Monday, 23 February 2009
Giving Away your Asset- How To, The Smart Way
Giving away your financial assets can be more complicated than just writing a check. If you want to engage in lifetime gifting of some of your assets, you should be aware of certain rules. For instance, in 2008, the maximum annual gift tax exclusion amount is $12,000 per person. The lifetime federal gift tax exclusion amount is currently $1 million, and it will remain at that level through 2009.
The top federal gift tax rate is 45% for 2008(the maximum that your heir may need to pay on your gift). In 2010, the top gift tax rate will equal the top individual income tax rate (currently 35%). Any portion of the gift tax exclusion used will reduce dollar-for-dollar your estate tax exclusion available at death. In light of all this, you may want to consider some creative lifetime gifts. For one, charitable trusts can offer you several financial benefits, including the potential deferral of capital gains taxes, as well as possible gift and estate tax savings. They may also serve as effective vehicles for transferring wealth.
A. Charitable Remainder Trust is a tax-exempt way to distribute income from the trust to beneficiaries for a period of time after which remaining assets are distributed to charities of your choice. You determine the time frame of the trust-it can last a lifetime or for a fixed term of up to 20 years-as well as the amount of annual payouts. There are some requirements that you should know about. First off, the annual payout for the length of the trust or the life expectancies of the beneficiaries (which would be you or your spouse) cannot exceed 50% or be less than 5% of the value of the trust. And a private foundation or donor-advised fund may be named as the charitable remainder beneficiary.
Highly-appreciated assets owned by the trust can also be sold without an immediate capital gain, which may allow for an increase in current income as well as income tax deduction. However, the type of assets gifted and the type of charity receiving the gifts, as well as your adjusted gross income, are all taken into consideration in determining your charitable income tax deduction. What's more, there may be income tax due on your annual payouts from the trust.
B. Charitable Lead Trusts are funded with assets that are, preferably, expected to appreciate. The charity of your choice receives a fixed annual payout from the trust, and the remainder goes to your family members at the end of the charity's payout term.
Unlike charitable remainder trusts, charitable lead trusts are not tax-exempt. However, tax implications differ between a grantor CLT and a non-grantor CLT. With a grantor CLT, you are treated as the trust's owner for income tax purposes and are responsible for paying taxes on the income generated. However, there is the potential to receive an immediate charitable income tax deduction for a portion of your contribution to the CLT.
In the case of a non-grantor CLT, on the other hand, no upfront charitable deduction is allowed for income tax purposes. However, the CLT itself receives a charitable income tax deduction each year for the qualifying distribution it makes to charity. The primary benefit of a CLT lies in its potential gift-tax advantages. The value of the donor's initial gift to the trust is determined by three factors: a government-set interest rate, the length of the trust and the payout to charity. When the government-set interest rate is low, the value of the donor's gift is reduced for gift tax purposes. So CLTs are particularly attractive in periods of low interest rates.
C. The Grantor Retained Annuity Trust
A Grantor Retained Annuity Trust allows you to pass assets you believe will appreciate in value to family members at discounted levels. You contribute assets to a trust and receive a fixed annuity payment stream for a specified period of years. At the end of the trust term, the remaining assets and their appreciation (if any) are distributed to your beneficiaries. Since the value of the gift is reduced by the present value of the annuity payments, you could structure a payment schedule and payout amount that could result in a minimal gift-tax value. However, if you die before the end of the specified term, some or all of the remaining trust property would be included in your estate and subject to estate taxes.
D. Life Insurance
You could use life insurance to help replace your estate and gift tax liabilities. Life insurance often provides a substantial benefit for relatively small costs. A life insurance policy may be used by itself to increase the size of your estate, or it may be used for cost-effectively paying estate taxes. Plus, the proceeds of life insurance are typically income-tax free to the beneficiary. And with careful planning, these proceeds may also be received estate tax-free.
E. The Limited Liability Company or Family Limited Partnership
A Limited Liability Company or Family Limited Partnership may help reduce the size of your estate for transfer-tax purposes. The LLC or FLP is made up of managing or voting interests and nonvoting interests, and you could gift the nonvoting interests to your children and grandchildren . Since the non-voting interests gifted to your children and grandchildren lack voting rights and are not readily marketable, they might be discounted for gift tax valuation purposes .
F. The Dynasty Trust
A Dynasty Trust could allow you to establish a source of funds for multiple generations. Here's how it generally works: You would fund the trust with an amount up to your and your spouse's lifetime gift tax exclusions. The trust assets, including any growth, will remain free of federal transfer taxes (i.e., estate, gift and generation-skipping transfer taxes) for as long as they remain in the trust. In certain states, such as South Dakota, the trust may theoretically last forever. And the plan could be designed so that any distribution from the Dynasty Trust would be free of gift- and generation-skipping transfer taxes.
Income or principal from the trust may be distributed to your children, grandchildren and great grandchildren as specified in the trust document. The provisions could tie those distributions to incentives, such as maintaining gainful employment, and permit distributions for funding businesses or purchasing homes for the use of beneficiaries or other activities. There also may be provisions in the trust document to gift a percentage of the assets directly to a charity or family foundation. Assets remaining in the trust are protected from creditors and divorce judgments.
Create Your Estate Plan
Discuss your estate planning objectives and concerns with your Financial Advisor and your tax and legal advisors. Together, you can develop an estate plan that best addresses your financial and family situations.
Life insurance is medically underwritten. You should not cancel your current coverage until your new coverage is in force. A change in policy may be subject to additional insurance and investment-related fees as well as increased risks, and may also require a medical exam. New surrender charges may be imposed with a new contract or may increase the period of time for which the surrender charges apply. Surrenders may be taxable. You should consult your own tax advisors regarding tax liability on surrenders.
Citigroup Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor
http://EzineArticles.com/?expert=Graeme_Patey
The way i see it, is to ask yourself the simplest question before you buy any asset what will i do with this asset after it has delivered. Will i end up owing someone for the previledged of having owned this asset.
The top federal gift tax rate is 45% for 2008(the maximum that your heir may need to pay on your gift). In 2010, the top gift tax rate will equal the top individual income tax rate (currently 35%). Any portion of the gift tax exclusion used will reduce dollar-for-dollar your estate tax exclusion available at death. In light of all this, you may want to consider some creative lifetime gifts. For one, charitable trusts can offer you several financial benefits, including the potential deferral of capital gains taxes, as well as possible gift and estate tax savings. They may also serve as effective vehicles for transferring wealth.
A. Charitable Remainder Trust is a tax-exempt way to distribute income from the trust to beneficiaries for a period of time after which remaining assets are distributed to charities of your choice. You determine the time frame of the trust-it can last a lifetime or for a fixed term of up to 20 years-as well as the amount of annual payouts. There are some requirements that you should know about. First off, the annual payout for the length of the trust or the life expectancies of the beneficiaries (which would be you or your spouse) cannot exceed 50% or be less than 5% of the value of the trust. And a private foundation or donor-advised fund may be named as the charitable remainder beneficiary.
Highly-appreciated assets owned by the trust can also be sold without an immediate capital gain, which may allow for an increase in current income as well as income tax deduction. However, the type of assets gifted and the type of charity receiving the gifts, as well as your adjusted gross income, are all taken into consideration in determining your charitable income tax deduction. What's more, there may be income tax due on your annual payouts from the trust.
B. Charitable Lead Trusts are funded with assets that are, preferably, expected to appreciate. The charity of your choice receives a fixed annual payout from the trust, and the remainder goes to your family members at the end of the charity's payout term.
Unlike charitable remainder trusts, charitable lead trusts are not tax-exempt. However, tax implications differ between a grantor CLT and a non-grantor CLT. With a grantor CLT, you are treated as the trust's owner for income tax purposes and are responsible for paying taxes on the income generated. However, there is the potential to receive an immediate charitable income tax deduction for a portion of your contribution to the CLT.
In the case of a non-grantor CLT, on the other hand, no upfront charitable deduction is allowed for income tax purposes. However, the CLT itself receives a charitable income tax deduction each year for the qualifying distribution it makes to charity. The primary benefit of a CLT lies in its potential gift-tax advantages. The value of the donor's initial gift to the trust is determined by three factors: a government-set interest rate, the length of the trust and the payout to charity. When the government-set interest rate is low, the value of the donor's gift is reduced for gift tax purposes. So CLTs are particularly attractive in periods of low interest rates.
C. The Grantor Retained Annuity Trust
A Grantor Retained Annuity Trust allows you to pass assets you believe will appreciate in value to family members at discounted levels. You contribute assets to a trust and receive a fixed annuity payment stream for a specified period of years. At the end of the trust term, the remaining assets and their appreciation (if any) are distributed to your beneficiaries. Since the value of the gift is reduced by the present value of the annuity payments, you could structure a payment schedule and payout amount that could result in a minimal gift-tax value. However, if you die before the end of the specified term, some or all of the remaining trust property would be included in your estate and subject to estate taxes.
D. Life Insurance
You could use life insurance to help replace your estate and gift tax liabilities. Life insurance often provides a substantial benefit for relatively small costs. A life insurance policy may be used by itself to increase the size of your estate, or it may be used for cost-effectively paying estate taxes. Plus, the proceeds of life insurance are typically income-tax free to the beneficiary. And with careful planning, these proceeds may also be received estate tax-free.
E. The Limited Liability Company or Family Limited Partnership
A Limited Liability Company or Family Limited Partnership may help reduce the size of your estate for transfer-tax purposes. The LLC or FLP is made up of managing or voting interests and nonvoting interests, and you could gift the nonvoting interests to your children and grandchildren . Since the non-voting interests gifted to your children and grandchildren lack voting rights and are not readily marketable, they might be discounted for gift tax valuation purposes .
F. The Dynasty Trust
A Dynasty Trust could allow you to establish a source of funds for multiple generations. Here's how it generally works: You would fund the trust with an amount up to your and your spouse's lifetime gift tax exclusions. The trust assets, including any growth, will remain free of federal transfer taxes (i.e., estate, gift and generation-skipping transfer taxes) for as long as they remain in the trust. In certain states, such as South Dakota, the trust may theoretically last forever. And the plan could be designed so that any distribution from the Dynasty Trust would be free of gift- and generation-skipping transfer taxes.
Income or principal from the trust may be distributed to your children, grandchildren and great grandchildren as specified in the trust document. The provisions could tie those distributions to incentives, such as maintaining gainful employment, and permit distributions for funding businesses or purchasing homes for the use of beneficiaries or other activities. There also may be provisions in the trust document to gift a percentage of the assets directly to a charity or family foundation. Assets remaining in the trust are protected from creditors and divorce judgments.
Create Your Estate Plan
Discuss your estate planning objectives and concerns with your Financial Advisor and your tax and legal advisors. Together, you can develop an estate plan that best addresses your financial and family situations.
Life insurance is medically underwritten. You should not cancel your current coverage until your new coverage is in force. A change in policy may be subject to additional insurance and investment-related fees as well as increased risks, and may also require a medical exam. New surrender charges may be imposed with a new contract or may increase the period of time for which the surrender charges apply. Surrenders may be taxable. You should consult your own tax advisors regarding tax liability on surrenders.
Citigroup Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor
http://EzineArticles.com/?expert=Graeme_Patey
The way i see it, is to ask yourself the simplest question before you buy any asset what will i do with this asset after it has delivered. Will i end up owing someone for the previledged of having owned this asset.
Capital Gains on Retirement Investment
It is universally accepted that death and taxes are the only two certainties of life. However by designing a tax efficient strategy for investment and distribution, people who are retiring can keep majority of their assets for themselves and for their heirs. Here are four of them.
A. Selecting appropriate investments
Municipal bond is a choice of most of the retiring people for investments. These bonds enjoy exemption from Federal taxes on the interest. If your tax bracket is higher, then these bonds give you a real advantage.
You can also think of investing in mutual funds which are tax-managed. There are a lot of strategies employed by the managers of these funds to get the tax efficiency. Also from 2003 onwards, the maximum federal tax rate on many dividend producing investments is limited to 15%. So it is advisable to make an appropriate mix of municipal bonds, high yield bonds and growth stocks or value stocks to get maximum tax advantage.
B. Order of liquidating your securities
This is a very important decision to be taken by the retiring people. Generally it is advisable to hold on the tax deferred investments because they compound on a pre-tax basis and naturally have better earning potential as compared to taxable investments.
However, remember that the tax deferred investments ordinarily attract federal income tax rate of 35% while the rate is maximum 15% for taxable investments. This is because capital gains on these investments held for less than a year will be taxed at a regular rate.
So it isn't good to hold taxable securities for a longer time in order to get the tax rate of 15%. Long-term capital gains are most attractive from the point of view of estate planning because you get the 'basis' on appreciated assets.
C. Appropriate gifting strategies
There are many strategists to make the payment of taxes easier for your heirs. The option of transferring assets to an irrevocable trust is a good one if you are approaching the threshold of $2 million. In this arrangement assets are passed on without estate taxes, which save thousands of dollars to your heirs. A specific point is - keep in mind moving assets from your tax deferred account prior to 70 ½ years.
You can make a tax free gift of $12,000 for every individual ($24,000 for married couples) every year. This is a good distribution strategy from your taxable estate. Also making gifts to kids over fourteen years of age is a good strategy because the dividends which are gains will be charged at a lower rate than those charged to the adults.
D. Management of RMDs
It is necessary that you should start taking an annual RMD from your traditional IRAs after your age of 70½. The logic behind RMD rule is very simple -withdraw less every year if you're expected to live longer. The RMDs take into account the age of a participant, and they are based on a uniform table. If you are unable to take the RMD, then it can result into tax penalties which are 50 per cent of the required distribution amount. If you feel that you will be taken into a higher tax bracket at the age of 70 ½ due to RMD rules, you may start withdrawing when you are in sixties.
However if you are contributing to Roth IRA, there is no necessity to take distribution by age 70½. You will be never required to take distributions from such accounts and whenever you withdraw it is tax free. So you should liquidate your investments from a Roth IRA only after exhausting your other sources of income.
There will always be some complications when you plan your taxes for retirement. So it is better to plan well in advance and if necessary consult a tax adviser and a real estate expert to sort out your options.
http://EzineArticles.com/?expert=Chintamani_Abhyankar
This review has not considerd or compared the impact of compounding and the effects of capital gains tax on it. However the word on the street is to try to convert your asset from one ownership or rollover inother to keep your money moving with less tax penalties.
A. Selecting appropriate investments
Municipal bond is a choice of most of the retiring people for investments. These bonds enjoy exemption from Federal taxes on the interest. If your tax bracket is higher, then these bonds give you a real advantage.
You can also think of investing in mutual funds which are tax-managed. There are a lot of strategies employed by the managers of these funds to get the tax efficiency. Also from 2003 onwards, the maximum federal tax rate on many dividend producing investments is limited to 15%. So it is advisable to make an appropriate mix of municipal bonds, high yield bonds and growth stocks or value stocks to get maximum tax advantage.
B. Order of liquidating your securities
This is a very important decision to be taken by the retiring people. Generally it is advisable to hold on the tax deferred investments because they compound on a pre-tax basis and naturally have better earning potential as compared to taxable investments.
However, remember that the tax deferred investments ordinarily attract federal income tax rate of 35% while the rate is maximum 15% for taxable investments. This is because capital gains on these investments held for less than a year will be taxed at a regular rate.
So it isn't good to hold taxable securities for a longer time in order to get the tax rate of 15%. Long-term capital gains are most attractive from the point of view of estate planning because you get the 'basis' on appreciated assets.
C. Appropriate gifting strategies
There are many strategists to make the payment of taxes easier for your heirs. The option of transferring assets to an irrevocable trust is a good one if you are approaching the threshold of $2 million. In this arrangement assets are passed on without estate taxes, which save thousands of dollars to your heirs. A specific point is - keep in mind moving assets from your tax deferred account prior to 70 ½ years.
You can make a tax free gift of $12,000 for every individual ($24,000 for married couples) every year. This is a good distribution strategy from your taxable estate. Also making gifts to kids over fourteen years of age is a good strategy because the dividends which are gains will be charged at a lower rate than those charged to the adults.
D. Management of RMDs
It is necessary that you should start taking an annual RMD from your traditional IRAs after your age of 70½. The logic behind RMD rule is very simple -withdraw less every year if you're expected to live longer. The RMDs take into account the age of a participant, and they are based on a uniform table. If you are unable to take the RMD, then it can result into tax penalties which are 50 per cent of the required distribution amount. If you feel that you will be taken into a higher tax bracket at the age of 70 ½ due to RMD rules, you may start withdrawing when you are in sixties.
However if you are contributing to Roth IRA, there is no necessity to take distribution by age 70½. You will be never required to take distributions from such accounts and whenever you withdraw it is tax free. So you should liquidate your investments from a Roth IRA only after exhausting your other sources of income.
There will always be some complications when you plan your taxes for retirement. So it is better to plan well in advance and if necessary consult a tax adviser and a real estate expert to sort out your options.
http://EzineArticles.com/?expert=Chintamani_Abhyankar
This review has not considerd or compared the impact of compounding and the effects of capital gains tax on it. However the word on the street is to try to convert your asset from one ownership or rollover inother to keep your money moving with less tax penalties.
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