Robert M. Slutsky Associates
Elder Law Newsletter
Newsletter 7: June 2006
We hope that you are enjoying your summer and have some time for family and relaxation. Read on. . . .
Transferring of Wealth to the Next Generation
The July, 2006 issue of Money Magazine has many articles of interest germane to getting older, planning ahead and passing on assets to the next generation.
Some points are:
1. Communicate: Ask mom and dad to make a list of accounts, insurance policies and assets. It will help them and help you if you need to help them;
2. We have beat this to death, but make sure mom and dad have up to date and accessible Wills, Powers of Attorney (Medical and Financial) and Living Wills;
3. Today people are living longer. This is not news. The news is that with a possible retirement of 30-40 years and the fact that most companies have abandoned defined benefit plans (that is where the company pays you X per month for the rest of your life) you need to plan better because the risk is all on you. Many people simply are not prepared for dealing with these issues. Unlike your parents you will need to own more stock and less bonds (and cash) so that your assets continue to grow while you are retired. Many people will have to work longer and will benefit significantly from working in retirement to avoid using up their assets in their early retirement (where the continued compounding can help their later retirement).
This issue has a lot of excellent points. We recommend it.
Federal Estate Tax Repeal Efforts
Clearly one of the big issues in the Bush Administration has been the repeal of the Federal Estate Tax. Called the death tax by Republican law makers, the Estate Tax taxes an estate when the value exceeds $2,000,000.00 per person or $4,000,000.00 per couple in 2006. This rises to $3,500,000.00 per person and $7,000,000.00 per couple exemption from taxes in 2009 but drops again to the 2001 limit of $1,000,000.00 exemption per person in 2011. The tax rates above those exemptions can reach 50%.
The opponents of the tax suggest that it is a disincentive to working hard and creating a legacy for your family if the government is going to get a big chunk when you die. They also suggest that small business owners (admittedly the backbone of job creation in this country), get hurt and the next generation is forced to sell the business to pay the taxes.
While we have generally been critical of the short term thinking of the Bush administration, the abolishment of the estate tax does not necessarily offend us in concept. As the saying goes, timing is everything. This concept might have a better reception were the government not currently paying for several wars and on the cusp of the largest potential increase in entitlement costs (i.e. the retirement of the baby boomers) in the nation's history. Also, less than 1% of the population is actually affected by the Estate Tax in its current form. Were the federal budget not in the red by close to $400,000,000,000.00 the idea may make some sense. At the current time in history the loss of an estimated $60,000,000,000.00+ per year in revenue seems like an imprudent use of everyone's money to benefit a wealthy few.
America is the most capitalistic society with the hardest working people in the world. Our capital markets are the best for risk taking, our laws are the most flexible and our residents the most entrepreneurial. We doubt the estate tax (having been reduced substantially since 2001) in its current form is going to cripple the entrepreneurial spirit of us hardworking Americans. It has not thus far.
An interesting survey is available at http://www.coalition4americaspriorities.com/. There needs to be a disclaimer, however. This is a coalition of charities. Since charitable donations are deductible on the Federal Estate Tax return, charities benefit enormously under the current law. They are projected to lose a great deal if there is a full repeal of the estate tax. So take what you can from the facts of the surveys but understand that the organization's members are likely to benefit if the law stays the same.
New Rules on Roth IRAs
With a conventional IRA the contribution is made with pre-tax dollars (money that has not been taxed by the IRS) and the assets in the IRA grow tax free until you start to withdraw the money in retirement (quite often at a lower rate than when you were employed full-time). With a Roth IRA the contribution is made with after tax dollars and the growth is tax free and the withdrawals (after age 59½) are tax free.
Over the last 5 years many have taken advantage of the Roth IRA by paying the tax and keeping the money growing tax free until they need it for retirement income. The problem has been that to take a full conversion or contribute to a Roth IRA, household income had to be below $150,000.00 ($100,000.00 for singles). Under a new law that restriction is likely to be removed in 2010. As a result some planners are suggesting that clients maximize their current tax deferred planning options (401(k), 403(b), etc) so they can convert down the road and enjoy the benefits.
Poor Health Can Make You Richer in Retirement
If you have poor health, it can actually increase your retirement income. For example if you have an immediate annuity (an annuity where you make a single payment and receive a fixed sum monthly for the rest of your life or for a minimum guaranteed period) and can show that you suffer from a condition or poor health which is likely to shorten your life, the annuity company may raise the monthly payment amount. If you plan on using an immediate annuity as a retirement income tool be aware that you can use a medically underwritten policy to increase the monthly payment by as much as 10%.
In addition some companies are willing to purchase life insurance policies while you are alive. This is called a Life Settlement. You do not need to be in poor health to receive a life settlement, you simply need life insurance policies that you do not want to pay for that either are currently permanent policies (such as whole life or variable life but not standard term) or can be converted into permanent policies (some term policies). This is a simple transaction where the Life Settlement company buys the policy from you and pays the premiums until you expire.
Interest Rates and the Housing Market
Steady as she goes. Rates are the highest they have been in 4 years but historically are still pretty good. The housing market has softened but is far from crashing. Because the economy in this area is well diversified, we neither had a boom as in some areas nor are we likely to see a bust like in those areas that have seen 30%+ year over year appreciation. 0 point 30 year fixed rates are in the mid to upper 6% range.
People who have seen their adjustable rate and negative amortization loans adjust upwards should consider refinancing now.
In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.
How to Avoid Getting Fired
1. Play to Your Strengths: When negotiating your job description try to emphasize and develop a job description that works to your strengths. You are more likely to succeed in such a job.
2. Focus on Your Employer's Priorities: If your boss makes a demand that interferes with your current work ask: "Do you want me to defer X to do Y". This also emphasizes the need for communication and clear expectations.
3. Make Friends: Anyone who says the best will always prosper is lying. Often people who are well liked are kept when more skilled but less popular people are asked to leave.
4. Know Your Boss: Does she like to get all the details or the high points? Does she like calls, emails, faxes or face to face communication? Knowing this can help with #3.
5. Pick Your Battles: Know when to press your point and know when to back off.
6. Damage Control: If you make a mistake, admit it early, apologize, promise to avoid repeating the mistake and move on.
7. Promote Yourself: Do not be obnoxious but remind higher ups of your achievements and ask for feedback.
*WE WANT TO HEAR FROM YOU. TELL US WHAT YOU THINK, GOOD OR BAD*
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Robert Slutsky, Esq. has been practicing Elder Law for 14 years. He helps families in Montgomery, Delaware, Philadelphia, Chester and Bucks Counties. Mr. Slutsky has represented local Area Agencies on Aging, long term care facilities and was a member and officer on the CAPS Board of Directors for over 10 years. Home visits are available. You may reach him at (610) 940-0650, robslutsk@comcast.net or the website at www.slutskyelderlaw.com.
DISCLAIMER: The content of this Newsletter is for general information only. It is not intended to be legal, tax, financial, medical or other advice. The reader should obtain legal, tax, medical or other advice from a competent professional to address his or her specific needs. We do not endorse any particular service provider. If a service provider is mentioned in an article it is simply because we may have come across them in our travels and cannot speak to their quality of service or integrity.
