Did you know that there's a wealth-transfer technique you can
use to reduce your taxable estate and keep more of your assets for your heirs?
You can make annual gifts of up to $13,000 ($26,000 per married couple) to as
many people as you wish without incurring federal gift taxes.

An example: A married couple with three children could reduce
their estate by $78,000 each year if $26,000 were given to each of their
children.

Gifting can be used in a number of unique ways. You can use
annual gifts to help build a college fund for a child, grandchild, relative, or
even a friend -- by contributing to a 529 plan account, a Coverdell Education
Savings Account, or a UGMA/UGTA account. In fact, 529 plans have special rules
that allow you to make five years' worth of contributions in one year without
incurring any gift taxes -- that's $65,000 for individuals and $130,000 for
married couples!

Gifts can also be used to build wealth for future generations
as well as help a child, relative, or friend fund a down payment on a home, buy
a car, or start a business. Your financial advisor can help you determine how
annual gifts might fit into your overall financial plan.

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January 2012 — This column is provided through the Financial
Planning Association, the membership organization for the financial planning
community, and is brought to you by Ronald J VanSurksum, CFP®, a local member
of FPA.

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© 2011 McGraw-Hill Financial Communications. All rights reserved.

Some of our clients are young parents. Often times as they start out in life they have a small home or condominium and a large mortgage to go with it. They have not yet had time to accumulate a large pool of assets. But most have life insurance in place to create an instant estate in case they die. The insurance can be used to pay down debt (like a mortgage) and to provide a pool of money to pay ongoing lifestyle expenses, educational expenses or for other legitimate reasons.

Often, these clients ask whether they should use a living trust, even though life insurance is their only major asset.

Most think the answer is no when in fact it may more correctly be yes. Here is why.

A life insurance policy will pass to a designated beneficiary without going through the probate process. 

However, if you have minor children who are the beneficiaries of that life insurance policy, the life insurance company will generally not distribute those policy proceeds to a minor. 

Instead, someone usually has to go to court and set up a guardianship on behalf of that minor.  If you fail to plan properly, you may end up with a guardian appointed by the court, and that guardian may be someone you would rather not have controlling that minor’s money. 

Once the guardianship is set up, the court will often try to protect the money in a closed account that can only be accessed by court order.  Whenever that minor needs that money for things like braces or medical care or education, the Guardian must petition the court to access the money.  Plus, there is a cost for ongoing attorney’s fees and court costs.  Then when the minor reaches the age of majority (18 in most states), the law goes to the other extreme.  The money is then given outright to the minor with no instructions and no control. 

When you have a living trust, you can name the trust as the beneficiary of the insurance policy.  The trustee then uses the money to provide for the beneficiaries of the trust according to your instructions.  No guardianship or court intervention is required. And if there is money left over when the child turns 18, it can be released to the child or held in trust to pay for things like college, weddings, etc, all as per your wishes and instructions.

In most cases, a living trust will be the best way to plan for your minor children. It also will serve as a great foundational estate planning vehicle as you start to build your other estate assets.

Contributed By Tim Alles of Alles Law
616-450-7203
www.alleslaw.com

Essential Financial Planning for Returning or Deploying Military Personnel and their Families

As the United States goes into its ninth year of military action in Afghanistan and Iraq, financial planning for military personnel and their families has taken on unprecedented importance. Multiple deployments during the longest wartime period of U.S. history has added considerable strain to military family budgets already shaken by the worst economic downturn in 70 years.

One of the smartest moves military personnel can make is a visit to a qualified financial, tax or estate planner before or after a deployment -- no matter how small their assets or how deep their current financial problems are. To find a qualified financial planner familiar with military personal finance, individuals can type in where they live and check the box marked “Government and Military” at the FPA’s PlannerSearch website.

Here are some personal finance starting points for military personnel and their families:

Important laws and programs to know: After the 9/11 attacks, the federal government acted to boost benefits and protections for military families. One of the first was the Servicemembers Civil Relief Act of 2003, an update of longstanding financial protections for active military and their families. The act provides stays on civil litigation including bankruptcy and divorce and prevents wage attachments while military personnel are away. Coverage requires active duty confirmation from a commanding officer but expires 90 days after that status has been terminated. The law also makes it tougher – but not impossible – for landlords to evict military families for nonpayment of rent. A second major source of assistance for military families came in 2008 with changes to the Servicemen’s Group Life Insurance plan, raising the total death benefit limit from $250,000 to $400,000. And the Caregivers and Veterans Omnibus Health Services Act of 2010 provides families of severely wounded veterans of Iraq and Afghanistan with coordinated financial and caregiving support.

Special safeguards needed against identity theft: Single military personnel need to keep a special lookout for identity theft that can happen while they’re deployed. It’s important to register an “active duty alert” with the three major credit reporting companies (Transunion, Experian and Equifax) every year. The alerts automatically stop all credit offers from being mailed to their homes. A call to any one of the credit bureaus will automatically put an alert on an individual’s file with all three agencies. It’s also a good idea to authorize a spouse or other trusted friend or family member to access credit reporting data to check for fraud during the service person’s deployment or in case of injury or death.

Note credit protections: The 2003 act also freezes credit card, mortgage and some student loan interest at 6 percent if military personnel were approved for the loans before they were called to active duty. On student loans, reservists and active duty members of the military assigned away from their permanent-duty stations may receive a deferment for up to three years on student-loan payments as well as a break on accruing interest on missed payments. Finally, deployed military away for at least six months can terminate a car, truck or other vehicle lease without penalty.

Understand tax issues: Activated and deployed military personnel receive special tax breaks at the federal and sometimes state level. Military income earned by soldiers in combat zones is tax-free and they don’t have to file taxes until 180 days after their return. Activated military personnel also are entitled to an extension on the period of time allowed for a tax break on the profits from the sale of a home. They’re also entitled to tax breaks on childcare assistance and certain travel. Nontaxable combat pay can also be considered for the Earned Income Credit.

Plan ahead for lump-sum earnings: For returning military receiving accumulated military pay or compensation from civilian employment, it’s good to sit down with financial and tax planners before the money is frittered away.

Don’t forget retirement: Military service counts toward vesting for all civilian retirement plans -- even though employers may not always be required to give you your job back when you return.  Also, the Heroes Earned Retirement Opportunities (HERO) Act allows tax-free combat pay to be considered as earned income for determining the contribution amount for traditional and Roth IRAs.

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January 2011 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Ronald J. VanSurksum, CFP® , a local member of FPA.