Archives for October 2013

Payable Unto Death: Halloween Etymology

All Hallows Eve is an unofficial kickoff to the Fall holiday season, and one of the more ghoulish refrains I have heard this season is from financial advisers. Their endless refrain is that mortgages are bad, and if you have a mortgage, you should pay it off. Their endless cacophony is like the wail of a Banshee, or the howling of a wolf:  “All debt is bad. It is ungodly to have debt.” It sounds as if they are trying to scare children or to manipulate their clients through fear. Obviously, they have never considered the needs of a business owner.

I would like to begin this posting with a little etymology. Mortgage, like many of the words we use in finance, is from the French language. And yes, its root meaning will bring a chill to your bones: mortgage means payable unto death.  The presumption is that the borrower will be servicing the debt until they die.

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Don’t Let the Bogeyman Get You!

An adviser forwarded the following email string along to me—you can’t make this stuff up!  Only in America. . . .

The adviser’s clients had landscaping work accomplished at their home. After the work was completed a final bill was sent by the landscaping firm.  At the bottom of the invoice was the following handwritten note:

“P.S.  I know I quoted you $635.00 for the project. However, being a business owner I don’t mind asking if you can pay in cash, or write a check out to me in my name. If you do so, I will reduce the price for my services to $600.00.  My taxes are horrible.  If you don’t want to, I will not be upset at all and will understand 100%.  Please let me know.  I can stop by and pick up the check at your convenience.”

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Should You Retitle Your Cemetery Plots?

For today’s posting I thought I would pursue a holiday theme. All Hallows’ Eve is just around the corner. It is the night which precedes All Saints Day. All Saints Day is a Christian holiday in which Christian Saints, martyrs and departed family and friends are remembered. Also, to reinforce the interactive nature of the blog postings I thought I would include an adviser’s question. Here is what came across my desk on Monday:

Tom,
Ok, I had to ask you this because I thought it might be a question you have never considered before.  I have a client who has pre-paid cemetery plots, and she wonders if they should be retitled into the name of the RLT. Is that possible and have you ever heard of such a thing? Thanks for thinking this over.

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Social Security Benefits for Same-sex Couples – Officially, still un-official

The bureaucracy continues to move slowly in regards to Social Security benefits for same-sex couples. The various government agencies and departments continue in a state of chaos as they try to understand the implications of the Supreme Court’s ruling on the Defense of Marriage Act (DOMA). Presently, the Social Security Administration is studying the ruling in light of applicable law with the Justice Department.

The Social Security Administration’s response to the DOMA decision falls into two broad categories. Category A individuals are same-sex couples, who were married in a jurisdiction which recognizes same-sex marriage. The jurisdiction may be in another country, like Canada, or in one of the 13 states which recognize same-sex marriage.  Additionally, Category A individuals must also reside in one of the 13 states which recognize same-sex marriage.  If both of these criteria are met, than the spouse is eligible for Social Security survivor and retirement benefits.

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DOMA Update & The Department of Defense

I have selected to review the Department of Defense (DoD) and the Department of Veterans Affairs (DoVA) response to the Supreme Court’s (SCOTUS) ruling (June 26, 2013) on the Defense of Marriage Act (DOMA) first, because the DoD was an early riser and was the first department with a response to the DOMA ruling. As a matter of fact, it was on February 11, 2013, that the then Secretary Defense, Leon E. Panetta, first issued a memorandum on extending benefits to same-sex domestic partners of military members—predating the SCOTUS ruling.

The memorandum reviewed 20 programs available to military members in which they could designate benefits to someone other than a spouse. These programs cover education, survivor, travel and transportation benefits. The memorandum then identified additional benefits that would be provided “to same-sex domestic partners of Military Service members and their children through changes in Department of Defense policies and regulations.” The memorandum ended with a list of benefits which could not be made available to same-sex spouses because of statute. Health care and housing allowances are examples of two of those benefits.

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Updates on DOMA and the Government Shutdown

Recent events, the Supreme Court’s Decision on DOMA and the government shutdown, make me mindful of a quote, by a French writer Jean-Baptiste Alphonse Karr.  Many of you may not know his name, but you do know this quote: the more things change, the more they stay the same.

As I have grown older my perspective has lengthened to accommodate my march through time. So what things have remained the same? The government shutdown is the result of recalcitrant members of congress, this is obviously nothing new. Next up, and partially the result of a recalcitrant congress, is the DOMA decision by the Supreme Court.

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“To ‘Fee,’ or not to ‘Fee:” Existential Angst and the CFP Board’s latest misstep.

On rare occasion, I will go off script. I have avoided commenting on the “fee-only” controversy. However, the cacophony has reached such clamor I feel the need to opine.

I selected my homage to Shakespeare’s play, Hamlet because it is most appropriate to the matter at hand. In his soliloquy Hamlet questions the meaning of life, and whether or not it is worthwhile to continue his existence when life contains so many hardships. His conclusion is that the main reason individuals choose to live is that they fear death and the uncertainty, which lies beyond life.

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IDGT: The Multi-purpose Tool for an Integrated Financial Plan

In my previous post I provided a brief history of IDGTs, the applicable exclusion amount and the need for a trust to be the owner and beneficiary of a life insurance policy on the life of the grantor. The primary reason for trust ownership was to remove the death benefit from the taxable estate. However, as a result of American Taxpayer Relief Act (ATRA) of 2013, this reason was eliminated due to the applicable exclusion amount being raised to $5,250,000. An additional benefit of a properly drafted IDGT is asset protection for the trust corpus.

The trust may hold assets used to pay the insurance premiums on a life insurance policy, which insures the life of the grantor. This is one of the requirements necessary for a trust to be considered intentionally defective. A properly drafted IDGT allows the grantor access to the trust assets either through themselves or a non-donor spouse (spousal lifetime access). Having these assets inside of the IDGT trust provide asset protection for the beneficiaries and the grantor!

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Wrapping Up Loose Ends with an IDGT

This week I am finishing my review of the applications of an Intentionally Defective Grantor Trust (IDGT) in an integrated financial plan. The last application on my ‘punch list’ is the use of an IDGT with life insurance in financial planning. For decades an IDGT has been used to exclude the life insurance death benefit from the grantor/insured’s taxable estate. If an IDGT were the owner of a life insurance policy on the grantor, and all of the mandated formalities were observed, the proceeds of the insurance policy are not included in the grantor’s estate.

However, the use of an IDGT as the owner of a life insurance policy has fallen out of favor as a result of the American Taxpayer Relief Act (ATRA) which was signed into law on January 2, 2013. This new law makes permanent the changes enacted by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act which was enacted in December 2010. Some of the areas of tax law affected were federal estate taxes, gift taxes and generation skipping transfer taxes.

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