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Should Your iTunes Library Go In a Trust?

Ever wondered who will inherit your digital library? Unless the laws are changed, your MP3s and e-books may go to the grave with you.

Today MarketWatch reported on this growing problem and offered a couple of solutions.

Many of us will accumulate vast libraries of digital books and music over the course of our lifetimes. But when we die, our collections of words and music may expire with us.

Someone who owned 10,000 hardcover books and the same number of vinyl records could bequeath them to descendants, but legal experts say passing on iTunes and Kindle libraries would be much more complicated.

And one’s heirs stand to lose huge sums of money. “I find it hard to imagine a situation where a family would be OK with losing a collection of 10,000 books and songs,” says Evan Carroll, co-author of “Your Digital Afterlife.” “Legally dividing one account among several heirs would also be extremely difficult.”

Part of the problem is that with digital content, one doesn’t have the same rights as with print books and CDs. Customers own a license to use the digital files—but they don’t actually own them.

Imagine all those 99 cent Kindle novels being vaporized in the Cloud when you die. Let’s look at a possible solution:

There are still few legal and practical ways to inherit e-books and digital music, experts say. And at least one lawyer has a plan to capitalize on what may become be a burgeoning market. David Goldman, a lawyer in Jacksonville, says he will next month launch software, DapTrust, to help estate planners create a legal trust for their clients’ online accounts that hold music, e-books and movies. “With traditional estate planning and wills, there’s no way to give the right to someone to access this kind of information after you’re gone,” he says.

Here’s how it works: Goldman will sell his software for $150 directly to estate planners to store and manage digital accounts and passwords. And, while there are other online safe-deposit boxes like AssetLock and ExecutorSource that already do that, Goldman says his software contains instructions to create a legal trust for accounts. “Having access to digital content and having the legal right to use it are two totally different things,” he says.

The simpler approach is to pass down your devices to an heir when you die…and give them your userid and password at the same time.

Source: http://www.marketwatch.com/story/who-inherits-your-itunes-library-2012-08-23

Are you a financial advisor interested in using Estate Planning Seminars to grow your practice? Take a look here: MyLivingTrustSeminar.com

 

Zsa Zsa Gabor Never Said, “Dahling Husband, Let’s Get a Living Trust”

The Los Angeles Times reported today that “Zsa Zsa Gabor’s husband scored a legal victory on Wednesday when a Los Angeles judge approved an agreement naming him the ailing actress’ conservator for the next six months.”

Zsa Zsa’s daughter filed a lawsuit in March seeking to put her mother in a conservatorship. The daughter lost and so did her mother because the process was in the court system and in the public eye.

Attorneys announced the settlement between Gabor’s ninth husband, Frederic von Anhalt, and her only child, daughter Constance Francesca Hilton, who in March had asked to be named her 95-year-old mother’s conservator after saying she didn’t believe Gabor was being properly cared for medically or financially.

When she filed the suit seeking conservatorship, Hilton contended Von Anhalt was keeping her mother “increasingly isolated” and “heavily sedated.”

In addition to being public, conservatorships are also expensive and time consuming. Attorneys and accounts need to be hire and paid to provide oversight. The process is set up to protect Zsa Zsa and the court will not trust her husband of 25-years to look out for her best interest.

Von Anhalt, 68, will continue to make medical decisions for his wife of 25 years, but several attorneys will provide financial oversight and Hilton will be allowed weekly visits. Superior Court Judge Reva Goetz approved the conditions and set another hearing for January to evaluate how the agreement is working. http://latimesblogs.latimes.com/lanow/2012/07/zsa-zsa-gabor-husband-conservatorship-.html

A living trust would have avoided conservatorship and  kept this sad tale out of the public eye. Let’s hope Zsa Zsa gets a living trust set up so she can avoid a probate when she dies. This will keep her financial situation private and help her minimize estate taxes.

Financial advisors and estate planning attorneys can help couples like Frederic and Zsa Zsa set up living trusts and avoid this embarrassment and expense. For information on using estate planning seminars to build your practice, go to MyLivingTrustSeminar.com.

 

Endless Deficit Spending and Advisor Marketing to Seniors

You might see the near record federal deficits as a good news-bad news story for financial advisors.

The good news is might skinny with this story. Maybe it will lead seniors to take a second look at their government pensions. Maybe they’ll choose to save more money for retirement. Perhaps they’ll decide to seek out an advisor with some sound ideas on how to live off their retirement accounts.

The bad news is that government spending is totally out of control. The Federal Reserve Bank can’t raise interest rates without causing the interest expense on the debt to balloon even higher than it is today. So seniors get very little on their short term money. It takes a lot more money in the bank to get a livable income.

This article from today’s The Wall Street Journal lays it all out. The picture ain’t pretty.

Deficit in July Totals $165.04 Billion

The U.S. government spent itself deeper into the red last month, paying nearly $20 billion in interest on debt and an additional $9.8 billion to help unemployed Americans.

Federal spending eclipsed revenue for the 22nd straight time, the Treasury Department said Wednesday. The $165.04 billion deficit, while a bit smaller than the $169.5 billion shortfall expected by economists polled by Dow Jones Newswires, was the second highest for the month on record. The highest was $180.68 billion in July 2009.

The government usually runs a deficit during July, which is the 10th month of the fiscal year. So far in fiscal 2010, the government spent $1.169 trillion more than it made. That figure is about $98 billion lower than during the comparable period a year earlier.

For all of fiscal 2009, the U.S. ran a record $1.42 trillion deficit. Fiscal 2010 might run a little higher—the Obama administration sees $1.47 trillion.

Wednesday’s monthly Treasury statement said U.S. government revenues in July totaled $155.55 billion, compared with $151.48 billion in July 2009.

Spending was higher, totaling $320.59 billion. July 2009 spending amounted to $332.16 billion.

Year-to-date revenues were $1.75 trillion, compared with $1.74 trillion in the first 10 months of fiscal 2009. Spending so far in this fiscal year is $2.92 trillion, versus $3.01 trillion in the prior period.

Spending for benefits for the unemployed year to date totaled $121.4 billion; for July, the tab was $9.8 billion, the Treasury statement said.

Years of deficit spending by Washington have led to a mounting national debt. Interest payments so far in fiscal 2010 amount to $185.25 billion; by contrast, corporate taxes collected by the government during the same 10 months were $139.71 billion. Interest payments in July alone were $19.9 billion.

Source: http://online.wsj.com/article/SB10001424052748704901104575423601722830706.html?mod=WSJ_hp_mostpop_read

With interest rates near zero for short-term money, interest expense is $19,900,000,000 for July. So retirees depending on bank CD’s shouldn’t get their hopes up. You need to tell them about better ways to provide for their day-to-day retirement income.

Estate Tax Confusion Keeps Advisors Busy & Wealthy Gifting

WASHINGTON - JANUARY 29:  Internal Revenue Ser...
Image by Getty Images via @daylife

Summer approaches and Congress has yet to pass any estate tax legislation. Will they extend 2009 45% tax rate and $3.5 million exemption? Will they try to make it retroactive? Can they pass legislation after the Summer recess when the November election approaches? Or wait for the lame duck Congress to pass something after the election?

Does anyone know what Congress can or will do? Certainly not financial advisors and families with substantial assets. As this New York Times article points out, the resulting confusion has kept advisors busy this year. And wealthy families are taking advantage of the current law. I am not speaking of the Texas Billionaire who just escaped paying any estate tax!

June 11, 2010

Confusion Over the Dormant Estate Tax Keeps Advisers Busy

By PAUL SULLIVAN

THE disappearance of the federal estate tax this year has created confusion and frustration among the wealthy, even among those who stand to benefit from it. And this has sent them in droves to amend documents that they may have to change again next year.

Steven H. Goodman, an accountant and financial planner in Melville, N.Y., says he has not had a meeting recently without clients asking him what they need to do this year and for 2011, when the tax is set to return at a higher rate than when it expired. Yet for all the business this has brought his firm, the SHG Financial Group, Mr. Goodman says he is not happy. “It’s a pain in the neck,” he said. “Even though I do this for a living, no one likes to do this.”

This part of the story points one reason why the estate tax has been called the “optional tax” for a long time.

Those who work with the extremely rich say they, too, have been exceedingly busy, but for a different reason. The wealthiest are looking to take advantage of a short-term trust that allows people to pass money to heirs tax-free — what’s known as a grantor retained annuity trust — out of fear that the federal government could change the terms of these trusts. Cheryl E. Hader, a partner in the individual clients group at Kramer Levin Naftalis & Frankel, said she set up 30 of these trusts last month, up from six in a normal month. Daniel L. Kesten, a partner in the private client group at Davis & Gilbert, a law firm in New York, said he was working nights and weekends last month setting up the same type of trusts.

How this boon to tax advisers happened is yet another chapter in the partisan gridlock common to Washington these days. At the end of 2009, Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee, tried to extend for three months the existing estate tax laws, put in place in 2001. But when that motion failed, the estate tax expired for the first time since 1916.

What this has meant is that the heirs of wealthy people who die this year will owe no taxes. An extreme case, as detailed in an article in The New York Times on Tuesday, is that of Dan L. Duncan, who died two months ago with an estimated wealth of $9 billion. His heirs will inherit his estate without paying the 45 percent tax that was in effect in 2009, billions that would have gone to the Treasury.

But it is possible that next year will bring cases of the other extreme, when the amount exempt from the federal estate tax falls to $1 million, its 2001 level, from $3.5 million in 2009, and the rate rises to 55 percent, from 45 percent.

“Dan Duncan dies and pays nothing, but the guy who dies with his house worth $2 million next year and his estate is going to pay $550,000,” said Lance S. Hall, president of FMV Opinions, a firm that values estates. “Is that fair?”

While there were rumblings at the beginning of the year that Congress might reinstate the estate tax and make it retroactive to Jan. 1, it has made no progress on the issue. And the death of someone as wealthy as Mr. Duncan makes a retroactive tax unlikely.

“Now we’re way beyond that consideration,” Mr. Kesten said. “This single family could outspend the I.R.S. in litigating this.”

If you have ultra wealthy clients you should schedule meetings to find out if this is the year to gift money to heirs.

So what will happen? If Congress does not reinstate the estate tax this year, 2010 could be a bonanza for the nation’s richest. The short-term grantor retained annuity trust, whose possible end is separate from the fate of the estate tax, is one option. But other families are simply taking advantage of the lowest gift tax rate since 1933, 35 percent, to pass millions to their heirs.

The real problem comes for the merely rich — individuals worth more than $1 million and less than $3.5 million and couples with net worths of $2 million to $7 million who previously did not have to worry about the estate tax. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001, and that could snare a host of people who set up the estate plans on the assumption that there would be no tax when they died.

What’s the likelihood of Congress doing nothing? Based on the past six months of inaction on the estate tax, January 1 arrive with an estate tax rate of 55% on the first million in assets. Imagine what that will do to the popularity of living trusts?

“If Congress does nothing, there would be a sevenfold increase in the number of estates subject to the tax than if the exemption stayed at $3.5 million,” said John Dadakis, partner at the Holland & Knight law firm.

As the law stands, the heirs of a single person who dies next year with more than $1 million would be subject to a 55 percent tax. (For couples, it is $2 million.) Heirs of that same person, with a $3.5 million estate, would have paid nothing in 2009 but could pay as much as $1.375 million in 2011, depending on the level of planning. And while this wealth may seem high in many parts of the country, it has professionals on the coasts grumbling.

“In the Northeast, where people own their own homes and have owned them for decades and have money in their retirements, there tend to be a lot of millionaires,” Mr. Kesten said. “It would sweep a whole chunk of the upper-middle class into what used to be a fairly elite group.”

The only upside to the return to the 2001 level is clarity. Having no estate tax this year is saving wealthier people a lot of money, but at the cost of an added layer of complexity for both them and for many people who would not have had to worry about the estate tax.

That’s because the assets of people who died under the old estate tax regime were valued at the date of their death for tax purposes. Any capital gains on, for example, stocks purchased decades earlier — which would have been subject to tax if sold — were erased. That is no longer the case, and figuring out what is owed requires determining the original purchase price — however long ago that was.

Without an estate tax this year, the Internal Revenue Code grants an artificial step-up in basis, as it is called, of $1.3 million to be used at the executor’s discretion and $3 million on assets passed to a spouse. The only glitch is the Internal Revenue Service has yet to issue documents to record how this exemption has been applied.

Looks like the IRS is playing catch up on the estate tax laws as well.

“The absurdity of it all is there is not even an I.R.S. form yet to do this,” Ms. Hader said. “My client who died on Jan. 2. Even if we wanted to comply with the law as it exists now, we can’t.”

“We are aware of the increasing need for direction from the I.R.S. on this issue,” the agency said in a statement. “We will be working closely with the Treasury Department to provide answers as quickly as possible, and, if necessary, to develop a new form.”

While the tax would not be due until April 15, 2011, the problem comes when heirs need to sell something. If they received a long-held position of stock, they might want to sell part of it to diversify their holdings or raise cash. But they would incur a 15 percent capital gains tax on the appreciated amount.It is trickier for property. John Nuckolls, national director of the private client tax services practice at the accounting firm BDO, said a friend in Iowa inherited a farm from his mother that he wanted to sell. With a basis near zero, it was worth more than the $1.3 million that the I.R.S. step-up in basis would exempt but less than the $3.5 million exemption in 2009. If he sells it this year, he will incur capital gains tax.

But that is little compared with what heirs to a moderately wealthy person may pay if Congress does not act.

Source:  http://www.nytimes.com/2010/06/12/your-money/estate-planning/12wealth.html?src=me

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“Legacy for One Billionaire: Death, but No Taxes” Really?

Brett Coomer/Houston Chronicle, via Associated Press

Is the headline of this  6/9/2010 New York Times article misleading? Yes, 2010 is a great year to die, especially if you have lots of money. This Texas Billionaire was ranked 74 on the Forbes 400 with an estimated estate of $9 billion. Yes, that’s a number 9 with 9 zeros after it. So did he really escape paying taxes on his estate?

Texas is one of many states which tie its state estate tax to the federal estate tax. No federal estate tax in 2010 means no Texas state estate tax either. So far, so good. The family escaped the estate tax and saves billions of dollars in estate tax.

Let’s not forget that the failure of Congress to extend the 2009 federal estate tax rate and exemption levels dramatically increased capital gains taxes on families inheriting appreciated assets. Many families would be better off under 2009 tax laws.

This billionaire’s family would be better off in any case even if the $9 billion was entirely subject to capital gains tax at 15%. Texas has no personal capital gains tax because it has no personal income tax.

This billionaire’s timely death may change history in two ways. First, the publicity might push Congress into bringing back the “death tax” in this election year. Second, Congress might not make the resulting estate tax rates and exemptions retro-active to January 1, 2010. This man’s family has billions of reasons to fight the constitutionality of any retro-active estate tax in the courts. We’ll see what happens.

You can read the article below to learn more.

Legacy for One Billionaire: Death, but No Taxes

By DAVID KOCIENIEWSKI

A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.

Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.

Had his life ended three months earlier, Mr. Duncan’s riches — Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world — would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher — 55 percent.

Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.

The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.

Perhaps Congress will ask the executors of the 5500 estates which paid estate taxes if they are “unsettled” about the demise of the federal estate tax.

The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth — until Jan. 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.

Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment — or worse, resist life-prolonging measures to hasten a relative’s demise before the end of 2010.

The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is now trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.

Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.

Many advisors call the estate tax the “optional tax” because it can be avoided with proper estate planning.

The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.

It sounds like this billionaire used a trust to minimize estate taxes. And avoid the expense, delays and hassles of probate. Plus keep things private. Not to mention avoiding conservatorship in case of disability. This article raise awareness of living trusts as an important part of estate planning.

Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.

Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.

If the estate tax is the “optional tax” then the capital gains tax is the “pay it when you want to tax.” Just sell the asset and pay the tax. At 15% rather than the 45% estate tax.

Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.

During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.

Like Bill Gates and Warren Buffet, this billionaire avoids estate tax by contributing money to nonprofit groups and foundations.

Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.

Ironically, this big-game hunter made his biggest kill by avoiding the federal estate tax.

An avid big game hunter — Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants — he made a $1 million donation in his will to the Shikar Safari Club International Foundation.

Read the rest of the story.

Don’t Forget About State Estate & Inheritance Taxes

The federal “death tax” may or may not rise from the dead in 2010. However, Washington State may double its state estate tax to 38% for estates at or above $9 million. Will other states follow this year?

Washington state proposes ‘shocking’ estate tax changes

The Washington state Legislature has proposed a bill that would double the estate taxes for residents.

Currently, there is a $2 million exemption in that state, with a 10% tax that climbs up to 19% at $9 million and above. Under the proposed law, the range would jump to a 20% estate tax for more than $2 million, up to 38% at the $9 million mark.

If the latest proposal is enacted, 2011 could be a costly year for some Washington residents: Assuming that the federal estate tax, which lapsed at the end of 2009, comes back next year with a $1 million exemption at 55% as scheduled, Washington residents could be paying in excess of 75% in estate taxes, experts said.

“This is shocking and disturbing, and has very significant ramifications for the majority of our clients,” said Tom Gores, a partner in Perkins Coie LLP, a law firm with offices in Seattle and Bellevue, Wash. “We are contacting our state representatives to make sure they understand this.”

Already, a number of wealthy clients are discussing leaving the state due to the high estate taxes, and this number will only increase, said Dean Butler, an attorney at Carney Badley Spellman PS. The bill, HB 3184, was proposed Feb. 13 and has not yet been scheduled for a hearing, said Rick Person, a coordinator for the House Finance Services Committee. The legislative session ends March 11.

Small businesses already are planning to lobby against the bill. “Our greatest concern is that this bill is another threat to small businesses at a time when so many of them are still just holding on,” said Jocelyn McCabe, a spokeswoman for the Association of Washington Business, which represents 6,900 state businesses.

Experts predict that given the number of states with growing deficits, Washington won’t be alone in proposing such legislation this year.

For financial advisers, this means that it’s more important than ever to pay attention to what’s going on locally, said Gail Cohen, head of global wealth management at Fiduciary Trust Company International. “Don’t assume that just because there is no federal estate tax, there won’t be any estate tax at all,” she said.

Source: http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20100216/FREE/100219915

There are currently 14 states and the District of Columbia which have state estate taxes. You can click here to see a chart of the states and the exemption amounts. Did you know that 7 states have an inheritance tax? Click here for a chart and be glad your state is not listed!

White House Sets New Rules on Retirement Accounts

Ronald Reagan once said “the nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’  Yesterday, Vice President Biden issued the “Middle Class Task Force Annual Report” which included planned rule changes aimed at ensuring workers receive objective investment advice for their 401(k)s and IRAs.

Will the new rules really help employees? Only time will tell. Let’s start with what the White House announcement:

Also at today’s event, the Vice President announced that the Department of Labor is proposing new protections for workers with 401(k)s and IRAs. These new protections are an important step in the Administration’s efforts to make the retirement system more secure for middle class workers and families. The regulations will protect workers from conflicts of interest and expand the opportunities for employers to offer workers the expert investment advice they need to make the best possible decisions about how to save their hard-earned wages.

“A secure retirement is essential to workers and the nation’s economy. Along with Social Security and personal savings, secure retirement allows Americans to remain in the middle class when their working days are done. And, the money in the retirement system brings tremendous pools of investment capital, creating jobs and expanding our economy,” said U.S. Deputy Secretary of Labor Seth Harris. “These rules will strengthen America’s private retirement system by ensuring workers get good, objective information. When that happens, workers make the kind of decisions that are good for their families and the nation as the whole.” Source: http://www.whitehouse.gov/the-press-office/vice-president-biden-issues-middle-class-task-force-annual-report

So how will this affect financial advisors? Here’s what the Financial Times had to say:

The new rules would require retirement investment advisers and money managers to either base their advice on computer models that have been certified as independent, or they would prohibit them from suggesting workers to invest in funds with which they are affiliated or from which they receive commissions. Source: http://www.ft.com/cms/s/0/d81ac69a-22f3-11df-a25f-00144feab49a.html?nclick_check=1

This sounds ominous because financial advisors will either need to use independently certified computer models or no longer suggest funds for which they receive commissions. Remember that the rules have been proposed and could change. And they don’t affect all investors. Yet.

The Department of Labor issued a related press release which partly clarifies who would be covered by these proposed rules:

The first of the two rules would ensure workers receive unbiased advice about how to invest in their individual retirement accounts or 401(k) plans. If the rule is adopted, it would put in place safeguards preventing investment advisors from slanting their advice for their own financial benefit. Investment advisors also would be required to disclose their fees, and computer models used to offer advice would have to be certified as objective and unbiased. The department estimates that 2 million workers and 13 million IRA holders would benefit from this rule to the tune of $6 billion.

The second rule announced today establishes new guidelines on the disclosure of funding and other financial information to workers participating in multiemployer retirement plans — those collectively bargained by unions and groups of employers. It will ensure transparency by guaranteeing workers can better monitor the financial condition and day-to-day operations of their retirement investments. The rule will go into effect in April 2010. Source: http://www.prnewswire.com/news-releases/us-labor-department-rules-to-improve-retirement-security-announced-as-part-of-white-house-middle-class-task-forces-year-end-report-85499197.html

These rules stem from the Obama Administration’s goal of helping the middle class. Many 401(k)s became 201(k)s and with the stock market bounce might be back to 301(k) level now. Will these rules help? Only time will tell. Are the proposed rules realistic? Let’s end with a quote from a Reuters story:

“Expert advice can be helpful, but that advice must be unbiased and there must be no risk that the adviser will benefit from steering workers to particular investments,” Deputy Labor Secretary Seth Harris said at the event. Source: http://www.reuters.com/article/idUSTRE61P26O20100226

You can watch the 29 minute White House announcement here. The part dealing with retirement account protection is the first 10 minutes.

Advisor Marketing Success with a “Sales Lead Machine”

If you’re a financial advisor getting ready to retire, this post is definitely not for you. Or if you have so many long-time and new clients you can’t imagine squeezing one more client into your crowded schedule, then please ignore this message. Now let me talk to the rest of you out there!

There are lots ways to get more sales leads:

  • Yellow page ad
  • Radio show
  • Walk-in traffic
  • Asking clients for referrals

Yet these sources are unpredictable and not really repeatable. Sometimes you get leads when you’re crazy busy. And other times your appointment schedule is getting light and the telephone just won’t ring.

What you need to develop is a “sales lead machine.” You want to create a marketing program which generates a consistent and ongoing stream of prospective clients.

You need to find what works well and what works for you. This can take some testing. Or you can take an existing marketing system and adapt it to your particular practice. Let me give you a few ways I’ve helped clients create a lead machine.

One way is to create a free report and offer it in your advertising. The report can be in the form of a written report such as the “7 Most Common Retirement Planning Mistakes…and How To Avoid Them.” Better yet, you can create an “expert audio CD” which your prospects can listen to in their car. The trick is to offer a physical report so interested parties need to give you call you and provide their mailing address. Get their phone number and email to follow-up to find out if they have any questions about the report. Your report should generate questions in their minds as well as establish you as the expert to provide the answers. When you want to turn on your lead machine, just mail some postcards or run a display ad in your newspaper or a weekly paper directed at senior citizens. You’ll be able to test your ad based on the number of people who call and ask for the report.

My favorite “sales lead machine” is to help advisors put on living trust seminars. Yes, getting your first seminar involves a lot of work including getting your newspaper ads designed and past compliance, choosing a restaurant, and establishing a relationship with an estate planning attorney. Yet the key advantage of buying a sales lead machine is that you avoid all the trial and error of designing ads and creating the tools to make it a system. Yesterday, one advisor held his first 2 seminars and had 14 attendees in the mid-day seminar and another 16 in the evening. Future seminars build on prior seminars because the ads establish the advisor as an estate planning expert. Plus his presentation skills will improve as he commits the presentation to memory and weaves in more of his own war stories.

Let’s break down his sales lead machine and see how it turns leads into clients:

  1. Schedule the seminar and confirm the date with the estate planning attorney
  2. Book the facility and update the newspaper advertisement
  3. Notify your mailing list of the upcoming seminar and run your newspaper ads
  4. Hold the seminar and establish yourself as an estate planning expert by educating the attendees.
  5. Schedule attendees for initial consultations and assist the attorney through the trust process
  6. Assist trust clients through estate planning and gently turn them into financial planning clients….

Now this advisor has scheduled seminars monthly so he’ll generate a steady stream of new clients during the year. Advisor/CPA’s who focus on taxes during the tax season would schedule seminars after April 15th.

Other clients hold elaborate client appreciation dinners in December. Clients get wined and dined and educated by a noted speaker. Of course, they are encouraged to invite a neighboring couple. Get this formula down and you’ll have a very busy January and February!

“Random acts of kindness” might make this world a better place. However, “random acts of marketing” usually waste money and don’t generate consistent leads. For that you need a sales lead machine.

New Federal Estate Tax: Who it hurts and who it helps

Let’s remember what Milton Friedman said about tax cuts, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” Is this always true? Not when Congress eliminates the federal estate tax while limiting the step up in basis. Some families will be helped and many others will be hurt.

Read this Wall Street Journal article and learn who is hurt by this change. It could be some of your best clients.

Why No Estate Tax Could Be a Killer

By Laura Saunders, The Wall Street Journal, 2/13/2010

Congress shocked everyone by letting the estate tax lapse on Jan. 1.

Now, here is the real stunner: For many, the lapse actually will raise taxes.

Under last year’s law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year, according to the Tax Policy Center.

“The new system is far worse for many people who have assets between $1.3 million and $3.5 million,” says veteran estate lawyer Ronald Aucutt, of McGuire Woods.

This little-understood facet of the current law was enacted as part of a deal brokered in 2001 with the expectation Congress would never let the estate tax actually expire. It isn’t clear when, or even if, a badly polarized Congress will take up the estate tax this year.

Legal Challenges

If lawmakers do bring back the estate tax, that would bring another set of problems. Reinstatement of the tax retroactive to Jan. 1, which many advocate, will bring legal challenges from wealthy estates that could take years to resolve. But if some version of the old system isn’t reinstated, heirs of smaller estates will suffer.

To see what is at stake, consider how differently this year’s and last year’s regimes treat the same asset held by two fictional widows: Ms. Bentley has total assets of $20 million, while Ms. Subaru’s total is $2 million. Each owns a $110,000 block of the same stock bought for $10,000 years ago. This simplified example uses a block of stock, but its logic applies to all appreciated assets, including houses and land.

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Under current law Ms. Bentley and her heirs prosper. If she dies this year and the stock is sold, her heirs will owe only a $15,000 capital-gains tax, whereas last year the same move would have incurred nearly $50,000 in estate tax. By contrast, Ms. Subaru’s heirs would have owed nothing last year because the estate was below the $3.5 million exemption. This year they would owe the same $15,000 capital-gains tax Ms. Bentley’s heirs do.

The reason: Under the old estate tax, assets could be written up to their full value at the death of the owner, and neither widow had to pay capital-gains tax on the $100,000 increase in the stock last year. But current law fully taxes gains while imposing no tax on estates. Quite simply, the demise of the 45% estate tax helps Ms. Bentley and her heirs more than the 15% tax on appreciation hurts them. For Ms. Subaru, the reverse is true.

Winners and Losers

Beth Shapiro Kaufman, an attorney with Caplin & Drysdale, made estimates showing who is better off under last year’s versus this year’s system. She found that heirs of estates with assets totaling between $1.3 and $4.3 million would often have been better off last year, while those with bigger estates will do better this year.

Current law does give some relief to heirs of smaller estates. All estates receive at least $1.3 million of exemption from the tax on appreciation. The executor can “cherry-pick” assets after death and assign the exemption to maximize its value.

But the law is full of traps and demands detailed record keeping. Experts are telling those affected to avoid irrevocable actions, like distributing or selling assets, while the situation remains unresolved.

Some hope that Congress will wind up doing what it did when a similar tax regime was tried in the late 1970s. It was repealed after an uproar, but the estates of those who died while the law was in flux got to choose which system to use.

Such an approach could avoid some ugly family situations. Last December, some wealthy people were kept alive until the estate tax lapsed in January. “But if the tax comes back,” says Mr. Aucutt, “Relatives might be tempted to pull the plug.”

Source: http://online.wsj.com/article/SB10001424052748703630404575053430667449198.html?mod=WSJ_article_RecentColumns

How can Congress solve this problem? I like the solution proposed in the article: let families choose between estate tax systems.

You better keep your clients up to date on what’s happening with the estate tax. Don’t wait for the annual review. And don’t let one of your competitors tell them about it first. You might lose a client.

On the other hand, you’d be doing your competitors’ clients a favor if YOU let them know what’s going on. One way would be to put on free public seminars on estate planning. Establish yourself as your city’s expert on estate planning. Take a look at my estate seminar system and you could be giving your first seminar in 30 days!

Retirement Planning and Price Inflation

In a recent post, I warned advisors to be ready with answers to difficult questions. Here’s another one.

“If I follow your investment advice, will my retirement income keep up with inflation?

In the past year, the Federal Reserve Bank has doubled the money supply. Will this cause higher retail prices? Imagine playing a game of Monopoly and starting the game with $3000 instead of the $1500 called out in the rules since the 1930’s. If you had twice the money, wouldn’t that make it easier to bid on Boardwalk and Park Place? Prices would rise because you’d have more money to spend.

When the Federal Reserve Bank pumps up the money supply, it causes prices to rise and bubbles to form. Bursting bubbles hurt owners of bubble-inflated assets such as tech stocks, mortgage backed securities, and real estate. Rising prices hurts families and especially hurts retirees.

Watch this short video to see how rising prices would affect a 92 year old who retired in 1973 at age 55.