Tag Archives: Gainesville

America’s Perpetual War on Terror By Any Other Name

FT 11FEB13My Comments: This has nothing to do with financial planning. However, for me it has a lot to do with my perception of myself as a contributing member of society. I vote at every opportunity, which I think gives me the right to voice my opinions, which sometimes includes a lot of bitching and moaning.

Decaptitating American citizens in a mideastern desert, while appalling, does not in and of itself constitute a threat to these United States. But…

Like it or not we live and breathe, both physically and economically, in an increasingly integrated world. And like it or not, maybe by accident of birth, we are the lead dog in the human pack when it comes to sustaining civilized society. Which means we cannot sit on our side of the ocean and hope it all works out for everyone else.

By Edward Luce / September 14, 2014

If you embark on something with your eyes half-open, you are likely to lose sight of reality

Few have given as much thought as Barack Obama to the pitfalls of waging open-ended war on an abstract noun. On top of its impracticalities – how can you ever declare victory? – fighting a nebulous enemy exacts an insidious toll. Mr Obama built much of his presidential appeal on such a critique – the global war on terror was eroding America’s legal rights at home and its moral capital abroad. The term “GWOT” was purged the moment he took over from George W Bush. In his pledge last week to “degrade and ultimately destroy” the Islamic State in Iraq and the Levant, known as Isis, he has travelled almost full circle. It is precisely because Mr Obama is a reluctant warrior that his legacy will be enduring.

The reality is the US war on terror has succeeded where it was supposed to. Mr Bush’s biggest innovation was to set up the Department of Homeland Security. If you chart domestic terror attempts in the US since September 11 2001, they have become increasingly low-tech and ineffectual. From the foiled Detroit airliner attack in Mr Obama’s first year to the Boston marathon bombings in his fifth, each attempt has been more amateur than the last. The same is true of America’s allies. There has been no significant attack in Europe since London’s July 7 bombings nine years ago. Western publics have acclimatised to an era of tighter security.

If this is the balance sheet of the US war on terror, why lose sleep? Chiefly because it understates the costs. The biggest of these is the damage an undeclared war is doing to the west’s grasp on reality. Myopic thinking leads to bad decisions. Mr Obama pointedly avoided using the word “war” last week. Although there are more than 1,000 US military personnel in Iraq, and more than 160 US air strikes in the past month, he insisted on calling his plan to destroy Isis a “campaign”. Likewise, the US uniforms are those of “advisers” and “trainers”. These kinds of euphemism lead to mission creep. If you embark on something with your eyes half-open, you are likelier to lose your way.

In 2011 Mr Obama inadvertently helped to lay the ground for today’s vicious insurgency by withdrawing US forces from Iraq too soon. He left a vacuum and called it peace. Now he is tiptoeing back with his fingers crossed. The same reluctance to look down the road may well be repeating itself in Afghanistan. Mr Obama went out of his way last week to say that the Isis campaign would have no impact on his timetable to end the US combat mission in Afghanistan. The only difference between Iraq in 2011 and Afghanistan today is that you can see the Taliban coming. Nor does it take great insight to picture the destabilisation of Pakistan. In contrast to the Isis insurgency, which very few predicted, full-blown crises in Afghanistan and Pakistan are easy to imagine. So too is the gradual escalation of America’s re-engagement in Iraq.

Mr Obama’s detractors on both right and left want him to come clean – the US has declared war on Isis. Why else would his administration vow to follow it “to the gates of hell”, in the words of Joe Biden, the vice-president? Last year, Mr Obama called on Congress to repeal the law authorising military action against al-Qaeda that was passed just after 9/11. “Unless we discipline our thinking . . . we may be drawn into more wars we don’t need to fight,” he said. Mr Obama is already vulnerable to what he warned against. His administration is basing its authority to attack Isis on the same unrepealed 2001 law.

Why does America need to destroy Isis? The case for containment – as opposed to war – has received little airing. But it is persuasive. The main objection is that destroying Isis will be impossible without a far larger US land force, which would be a cure worse than the disease. Fewer than 1,000 Isis insurgents were able to banish an Iraqi army force of 30,000 from Mosul in June – and they were welcomed by its inhabitants. Last week Mr Obama hailed the formation of a more inclusive Iraqi government under Haider al-Abadi. But it has fewer Sunni members than the last one. Nouri al-Maliki, the former prime minister, has been kept on in government.

The task of conjuring a legitimate Iraqi government looks like child’s play against that of building up a friendly Syrian army. Mr Obama has asked Congress for money to train 3,000 Syrian rebels – a goal that will take months to bear fruit. Isis now commands at least 20,000 fighters. Then there are America’s reluctant allies. Turkey does not want to help in any serious way. Saudi Arabia’s support is lukewarm. Israel is sceptical. Iran, whose partnership Mr Obama has not sought, is waiting for whatever windfalls drop in its lap. The same applies to Bashar al-Assad, Syria’s president.

Whose army – if not America’s – will chase Isis to the “gates of hell”? Which takes us back to where we started. Mr Obama wants to destroy an entity he says does not yet pose a direct threat to the US. Mr Bush called that pre-emptive war. Mr Obama’s administration calls it a counterinsurgency campaign. Is it a distinction without a difference?

The US president’s aim is to stop Isis before it becomes a threat to the homeland. History suggests the bigger risk is the severe downside of another Middle Eastern adventure.

It is hard to doubt Mr Obama’s sincerity. It is his capacity to wade through the fog of war that is in question.

When It Comes to Claiming Spousal Benefits, Timing Is Everything

Family and fenceMy Comments: The questions surrounding Social Security are almost endless. It’s a complicated system and as more and more of us reach eligibility, it is clear that simply signing up as soon as you are eligible will cost you and your family lots of money and options over the years.

Philip Moeller / Sept. 9, 2014

Seemingly straightforward questions about claiming Social Security spousal benefits can wind up becoming complicated in a hurry. Here’s one answer.

Recently I received a question from a reader that opens up all sorts of concerns shared by many couples:

I am four years older than my husband. I have reached my full retirement age (66) in June 2014. My own benefit is very small ($289/month), since my husband is the bread earner. I have been mostly a stay-at-home mom.

Should I just claim my own benefit now and wait four more years for my husband to reach his full retirement age, then apply for spousal benefits? That means he will get about $3,000/month, and I will get half of his benefit.

Or should my husband apply for early retirement now, at age 62, so I can apply for my own spousal benefits? He can then suspend his benefit and wait four more years until his full retirement age to get more money.

Please advise.

First, your husband should not apply for early retirement at 62. If he does so, his benefit will be reduced by 25% from what he would get if he waits until age 66 to file, and a whopping 76% less than if he waits to age 70, when his benefit would hit its maximum.

Further, if he does file at 62, he cannot file and suspend, as you suggest. This ability is not enabled until he reaches his full retirement age of 66. So if he files early, he will be triggering reduced benefits for the rest of his life. And because his benefits are set to be relatively large, this reduction would involve a lot of money.

If your household absolutely needs the money now, or if your husband’s health makes his early retirement advisable, he could file early and then, at 66, suspend his benefits for up to four years. They would then grow by 8% a year from their reduced level at age 62 – better than no increase, but not nearly as large a monthly benefit as if he simply files at age 66 and then suspends.

I normally advise people to wait as long as possible to collect their own benefits. But this is probably not the best advice in your case. Here’s why:
When your husband turns 66 in four years, it’s clear that you should take spousal benefits based on his earnings record. You say he would be entitled to $3,000 a month at that point and that you stand to get half of that, or $1,500 a month. That $3,000 figure seems a little steep to me, so I’d first ask you to make sure that is his projected benefit when he turns 66 and not when he turns 70.

In either event, however, it’s clear that your spousal benefit based on his earnings record is going to be much, much higher than your own retirement benefit. Even if you waited to claim your own retirement benefit until you turned 70, your spousal benefit still would be much higher.

Thus, you’re only going to be collecting your own retirement benefit for four years, from now until your husband turns 66. Even though your own retirement benefits would rise by 8% a year for each of those four years, those deferred benefits would never rise enough to come close to equaling the benefits you will get by filing right away.

So, take the $289 a month for four years, and have your husband wait until he’s 66 to file for his own retirement benefit and enable you to file for a spousal benefit based on his earnings record. He may decide to actually begin his retirement benefits then or, by filing for his benefit and then suspending it, earn annual delayed retirement credits of 8% a year, boosting his benefit by as much as 32% if he suspends until age 70.

If he does wait until 70, he will get his maximum monthly benefit. But you also will benefit should he die before you. That’s because your widow’s benefit would not just be equal to your spousal benefit but would equal his maximum retirement benefit. So, the longer he waits to file, the larger your widow’s benefit will be.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Source file: http://time.com/money/3306319/social-security-spousal-benefits/

4 Reasons Why Not To Go Long The S&P

global investingMy Comments: Some of my responsibility as an investment advisor is to provide warning if I think there are pending changes in market direction. But since I have no idea what I may eat for lunch today, telling folks about the next crash will happen is pure speculation. But…

I compensate for this inability by having as much of their money as possible in accounts that have historically moved away from the markets and into cash and short positions when the signals are strong that a downturn is happening.

I’ve included only one chart from the article here. To the extent you want to see the rest, this link should take you to my source article: http://seekingalpha.com/article/2466765-4-reasons-why-not-to-go-long-the-s-and-p

Jack Foley, Sep. 3, 2014 2:43

• Many large cap stocks are not making new highs like the SPY. This is a worrying sign.
• Interest rates have to rise in the future which will put downward pressure on the stock market. Veteran trader Steve Jakobsen believes we could drop 30% from here.
• Oil seems to have bottomed and oil has the potential to make the whole commodity sector rally along with it.

The S&P 500 (NYSEARCA:SPY) has broken through the physiological number of 2000, and commentators and speculators alike are predicting higher highs from here. I am ultra short on this market but it is becoming increasingly hard to predict when this market will roll over in earnest. Investors who are short the market are really hurting right now, and it takes a brave investor to stay short in this environment. Nevertheless, the risk is all to the downside so an investor must stay extremely nimble if profits are to be made. Let’s explain why.

First of all, even though the market is making new highs, there are many large cap stocks that are not participating in this move. Look at the General Electric Company (NYSE:GE) to see how far it is below its all-time highs.
14-9-16 General ElectricAlso because we have extremely low interest rates, corporate earnings are inflated. Bonds and stocks have rallied hard for the last few years as these markets have been the benefactors of the US’s low interest rate environment.

Nevertheless, interest rates one day will have to rise. When they do, investors will start shifting their money back into fixed term savings accounts. Bonds trade inversely to interest rates so when rates rise, bonds will come under pressure. The problem with low interest rate environments is that they can create asset bubbles. I believe we have one forming in stocks, in bonds and in certain real estate markets globally. In London, for example, property prices may rise by 30% this year which is unprecedented in a struggling global economy we have nowadays.

Veteran trader Steve Jakobsen believes that we could see a 30% drop in the S&P 500 from these levels. Jakobsen believes that equities is the only asset class that hasn’t been really affected from this ongoing global financial crisis.

Therefore, he believes one day the S&P 500 will revert to the mean which could be as much as 30% lower than where we are now.

Finally, I like the movement oil is making at the moment and I think we have finally found a bottom. Tthe spot price of light crude oil has gone from $108 in June to a rising $95 at the moment. The bottom seems to be in and if oil can rally from here, I believe it will put pressure on the stock market as funds will start to leak into the commodity markets. Oil has the potential to take the whole commodity complex with it when it’s in bull mode, so depressed agricultural commodities such as Corn and Sugar should also benefit. As you can see from the chart below, commodities have struggled as a whole in the last few years as equities have rallied hard.

Yes, equities and oil can rally together and have done so up to January 2013 since 2008 (practically everything rallied once the Fed ran their printing presses) but since January 2013 oil has not participated in the move. Once the Federal Reserve eventually ends all stimulus programs (either voluntarily or by demand), I have no doubt capital will start leaking into the commodity markets and oil. Also if geopolitical tensions in Iraq and the Ukraine escalate, oil will spike and the world stock markets will decline sharply.

To sum up, there are enough warning signals to warrant not being long here in the US stock market. If you still think the rally is not finished, I would advise scaling down your position size.

Rural Hospitals Pressured to Close as Healthcare System Changes

healthcare reformMy Comments: Most of us have long since put ObamaCare in the rear view mirror. We’ve acknowledged there are flaws and there will be unintended consequences, but for the most part, it’s the law of the land.

Some of us have long since determined that it’s existence will be in our best interest over time. What caught my eye here is an example of evolving economics. And it has special interest for me since one of the financial niches I work is to help smaller non-profit hospitals retain and attract the best talent possible, given their limited resources.

To the extent any of my readers have a connection with not-for-profit hospitals, I’d really like to hear from you as I have found an extraordinary employee benefit idea that will make money for the hospital and help them keep their staff intact.

Robin Respaut of Reuters / 7 SEP 2014

In January, Linden, Texas native Richard Bowden suffered a mild stroke. Within minutes, medics had taken the 68-year-old to the local hospital emergency room, less than a block from his house.

“They checked me out real good,” said the former city councilor, whose East Texas community of nearly 2,000 has relied on the Linden hospital since the 1960s.

Shortly after returning home, Bowden learned he would outlast the hospital itself: the facility was about to close because there weren’t enough patients. “It blindsided me,” he said. “It’s 15 miles to the next hospital. Out in the country, that seems like a long way.”

Small, rural hospitals like Linden have always struggled to remain viable, but things are getting worse, fast. Rural communities are shrinking at a time when healthcare providers are being pressured to cut costs and release patients sooner.

Twenty-four rural hospitals have closed across the county since the start of 2013, double the pace of the previous 20 months, according to the North Carolina Rural Health Research Program. For graphic see: http://reut.rs/1lGqpBb.

“Even with community support, investment in quality personnel and equipment, patient activity was not at a sustainable level,” Steve Altmiller, president and chief executive of Linden hospital’s owner, Good Shepherd Health System, said in a statement announcing the closure. “The decision to close the Linden facility, while difficult, is one that is occurring across the country.”

Now the Affordable Care Act, better known as Obamacare, is bringing additional pressure. Obamacare is designed to fold the poor and uninsured into the healthcare system, but changes in how the federal government pays for the disadvantaged are already pressuring the hospitals that cater to them, such as rural ones.

Reformers are eager to see some hospitals close, including many out in the country. They argue that good care in the form of clinics and modern ambulances can tend to residents much better than decades ago, undercutting the need for local emergency rooms.

Investors are being warned of the change. Standard & Poor’s Ratings Service in August concluded that the nonprofit hospital sector is “at a tipping point” from the drop in the number of patients cared for. Moody’s Investors Service reported hospital revenue growth and operating margins are at all-time lows. Fitch Ratings wrote that the Affordable Care Act has accelerated the transition of patients out of the hospital and into clinics by tightening reimbursements and emphasizing technology.

“There is a big transition happening,” said Mark Claster, president of investment firm Carl Marks & Co and vice chairman of North Shore-Long Island Jewish Health System board of trustees. “I don’t think smaller hospitals are prepared, and I don’t think they can be. I don’t think they have the economic wherewithal.”

Good Shepherd acquired Linden from the city nine years ago and spent $6 million on renovations, including revamping the emergency room. “It was very modern,” said Linden Mayor Clarence Burns.

The hospital’s net revenues grew from almost $8 million in 2006, the year after the acquisition, to $13.3 million in 2010, according to Texas Department of State Health Services data.

But operating losses were constant and accelerated, along with bad debt, which grew to nearly $3 million in 2012 from $990,000 in 2006. By 2013, the little hospital had a cumulative $11 million in losses under Good Shepherd, according to the nonprofit’s financial statements.

Good Shepherd declined to discuss finances with Reuters. Public statements by the company, financial records in bond disclosures, and the state of Texas data describe changes over the years.

Two trends hurt the hospital: the number of patients shrank, as did hospital reimbursements from Medicare and Medicaid, two primary payment sources for rural facilities. Further issues lay ahead, including changes in federal funding for indigent patients and rural hospitals.

In the six years leading up to 2012, Linden’s admissions dropped to just over four patients a day on average, from about 10 patients in 2007, according to state data. Fewer than one person per hour came to the emergency room in 2014.

Linden had 1,988 residents in the 2010 census, down nearly 12 percent in a decade.

Good Shepherd blamed losses on a paucity of patients and federal cuts to reimbursement in Medicaid and Medicare. For example, Medicare payments were cut 2 percent as part of the sequestration federal budget battle in 2013.

Larger health systems with a variety of services and fewer Medicare patients can try to shift offerings, raising revenue by providing specialty surgeries, such as a hip replacement, or oncology services. But smaller hospitals with fewer resources have less flexibility.

Implementation of the Affordable Care Act may exacerbate the problem for small facilities. “Revenues are coming down and expenses are not coming down as quickly,” said George Huang, municipal securities research director at Wells Fargo Securities. “The smaller guys have fewer resources available to them.”

The federal government historically has supported rural hospitals. Since 1997 it designated many as “critical access” facilities, recognizing that their small size meant they could only focus on essential medical services. Such hospitals got extra federal funds.

Last year, the U.S. Department of Health and Human Services’ Office of Inspector General recommended the government tighten rules on critical access hospitals to save money. That would likely to cut the number of such facilities by two-thirds.

Funding for the poorest also is changing, as the Affordable Care Act cuts payments for indigent care, in the expectation that many impoverished and uninsured will move to Medicaid. But 23 states have not expanded Medicaid, fearing it could eventually leave them with financial burdens. So in those states, a gap in federal support for the poor has emerged.

Hospitals in states that don’t expand Medicaid will see their profit margins drop by a few percentage-points by 2021, reported research firm The Advisory Board Company. “For many, that could be the difference between being profitable, and being in the red,” the firm wrote on its website in July.

The majority of rural residents in the United States live in states which are not expanding Medicaid, reported the North Carolina Rural Health Research Program. A majority of the 24 hospitals closed since the start of 2013 are in those states.

“In states that are not expanding Medicaid, we’re seeing hospitals close. The finances are just not working out,” said Tim Jost, Washington and Lee University School of Law professor.

Making healthcare more affordable and efficient is a good thing, say analysts. As the dominant provider in the marketplace, hospitals have “become incredibly inefficient,” because there was less incentive to keep costs down, said Jason Hockenberry, health policy and management professor at Emory’s Rollins School of Public Health.

One in five hospitals, over 1,000 at least, will close by 2020, forecasted Ezekiel Emanuel, a White House health policy special advisor who helped shape the Affordable Care Act.

“Long live fewer hospitals. Welcome to the new age of digital medicine,” Emanuel wrote in his book, Reinventing American Health Care. Clinics can more efficiently take on many duties performed by hospitals, leaving hospitals to focus on the severely ill, he said.

Emanuel predicts the first hospitals to go will be smaller ones, which already operate with less than half of their beds filled. When Linden closed, less than 20 percent of its beds were occupied on any given night.

For Linden resident Bowden, the next trip to the hospital would certainly be longer, although it would be in an emergency vehicle that is a different technological breed from when the little hospital was built.

For decades he’s heard ambulances “ripping up to the hospital.” Now that it is closed, he says, it has been real quiet.

Being a Stock-Market Bull Just Got a Lot Harder

question-markMy Comments: For over a year now, I’ve been warning my clients that a reversal is coming in the stock market. As a result, we’ve slowly moved into investments that have reacted positively and made money during downturns. Only it hasn’t happened yet.

Consequently, some of them are frustrated and angry with me because while the market has grown considerably in the last eighteen months, their accounts have not kept up, and look rather anemic.

Having been through this kind of thing before, and somehow survived, I continue to promote ideas that have made money for clients, especially 2007-2009 when the last crash happened. While I don’t expect the next one to be as big, it will still be painful. Unless…

By Mark Hurlburt – September 9, 2014

London (MarketWatch) — Making the bullish case is getting a lot harder.

Let’s say that you want to wriggle out from underneath the bearish conclusions of the cyclically adjusted price-to-earnings ratio (CAPE), which for some time now has been very bearish. Sidestepping that conclusion turns out to be a lot harder than you think.

The CAPE is the version of the traditional P/E ratio that has been championed by Yale University finance professor (and recent Nobel laureate) Robert Shiller. Currently, for example, the CAPE stands at 25.69, which is 55% higher than its average back to the late 1800s of 16.55 and 61% higher than the ratio’s median level of 15.95. In fact, there have been only three times since the 1880s when the CAPE has been higher than where it stands today: 1929, 2000 and 2007 — all three of which, of course, coincided with major market highs.

The CAPE isn’t a perfect indicator, as Shiller himself will tell you. There are legitimate reasons to question its approach to market valuation. In addition, the bulls have shamelessly come up with myriad other “reasons” not to pay attention to it.

But Mebane Faber, chief investment officer at Cambria Investment Management, has this to say to all these so-called CAPE haters: “Fine, don’t use it. Let’s substitute in book and cash flows, two totally different metrics.”

Unfortunately for the bulls, the conclusion of looking at the market from those alternate perspectives is almost identically bearish.

Courtesy of data from Ned Davis Research, Faber ranked 43 countries’ stock markets around the world according to their relative valuations according to the CAPE as well as to cyclically adjusted ratios of price-to-book, price-to-cash flow, and price-to-dividend. When ranked according to the CAPE, for example, with top ranking going to the most undervalued country’s stock market, the U.S. is in 41st place. Only two countries are more overvalued according to this indicator.

CAPE = 41
Cyclically-adjusted price-to-book ratio = 37
Cyclically-adjusted price-to-dividend ratio = 39
Cycilcally-adjusted price-to-cash-flows ratio = 36

To argue that the U.S. stock market isn’t overvalued, in other words, the bulls not only have to dismiss the CAPE but also argue why the U.S. market should be priced so richly relative to book value, cash flows and dividends.

That’s not necessarily impossible. But it is clear that the bulls have a lot more work cut out for them.

Furthermore, even if the bearish conclusions of these diverse indicators turn out to be right, you should know that they are long-term indicators, telling you very little about the market’s near-term direction. My favorite analogy to describe the situation comes from Ben Inker, co-head of the asset-allocation team at Boston-based money management firm GMO.

He likens the market to a leaf in a hurricane: “You have no idea where the leaf will be a minute or an hour from now,” he says. “But eventually gravity will win out and it will land on the ground.”

Seven Trust-Based Asset Protections Strategies for Clients

wills and trustsMy Comments: This comes courtesy of a local friend and attorney who includes me among those with whom he shares insights. I’m unsure who should get credit for writing the actual text.

Over these many years I’ve had many clients with trusts of one kind or another and clients who needed trusts but didn’t have them. This is an excellent overview and may help you decide if a trust is right for you. If you need help finding an attorney, I have the first team on speed dial.

In this newsletter you will learn about seven trust-based asset protection strategies and how they can:

- Protect your client’s assets from creditors, lawsuits, and divorcing spouses.

- Protect client’s assets gifted to, or inherited by, a spouse, children, or other beneficiaries.

Lifetime Asset Protection Trusts – Having Your Cake and Eating it Too

A Lifetime Asset Protection Trust is an Irrevocable Trust created during the client’s lifetime that can be used to:

- Qualify the client for Medicaid, while preserving an income stream for the well spouse and protecting the trust assets from estate recovery after the client dies – Medicaid Planning Trusts

- Create a lifetime trust for the benefit of the client’s spouse, using the gift tax marital deduction – Lifetime QTIP Trusts

- Create a lifetime trust for the benefit of the client’s spouse, using annual exclusion gifts and the lifetime gift tax exemption – Family Bank Trusts, also known as Spousal Lifetime Access Trusts (“SLATs”)

- Create a lifetime, trust for the benefit of the client – Domestic Asset Protection Trusts (“DAPTs”)

Medicaid Planning Trusts

Medicaid Planning Trusts may help your clients:

- Qualify a married client for Medicaid (while protecting an income stream for the benefit of the well spouse).

- Avoid estate recovery. (Assets held in the trust will pass to the heirs protected from government estate recovery to pay back Medicaid benefits that were received during the client’s lifetime.)

Planning Tip: Although the federal and state governments jointly fund Medicaid, each state sets its own rules and guidelines for Medicaid eligibility and estate recovery. Therefore, a Medicaid Planning Trust must be tailored to the laws of the state where the married client lives. Trusts may also be subject to a look-back period (NOT “disqualification period”) of three or five years.

Lifetime QTIP Trusts
In marriages where one spouse is significantly wealthier than the other, a Lifetime QTIP Trust can be used to provide the following benefits:

- Make use of the less wealthy spouse’s federal estate tax exemption

- Provide a lifetime, asset-protected trust for the benefit of the wealthier spouse if the less wealthy spouse dies first. (Subject to state law.)

- Insure that assets left in the trust (after both spouses die) get distributed to the wealthier spouse’s chosen heirs

Planning Tip: Lifetime QTIP Trusts offer a great deal of flexibility when planning for married couples with lopsided estates. During the less wealthy spouse’s lifetime, that spouse will receive all of the trust income and may be entitled to receive principal. If the less wealthy spouse dies first, then the assets remaining in the trust will be included his or her estate, thereby making use of the less wealthy spouse’s estate tax exemption.

In addition, the remaining trust funds may continue in an asset-protected, lifetime trust for the surviving spouse’s benefit (subject to applicable state law), will be excluded from the surviving spouse’s estate when he or she later dies, and will ultimately be distributed to the wealthier spouse’s chosen heirs.

Spousal Lifetime Access Trusts
SLATs became popular in 2012 when it was anticipated that we would go over the proverbial “fiscal cliff.” They still remain popular today as “estate freeze” and asset protection strategies. This trust is also referred to as a “Lifetime Bypass Trust” since it is funded with lifetime gifts that are held for the benefit of the client or the client’s spouse. As with a Bypass Trust created after the first spouse dies, distributions from a SLAT can be as broad or as limited as clients choose.

Planning Tip: SLATs are useful in states that do not collect a state gift tax but collect a state estate tax and the state exemption is expected to remain significantly lower than the federal exemption (e.g., Maine, Massachusetts, Minnesota, New Jersey, Oregon, Vermont and Washington).

Domestic Asset Protection Trusts
The goal of a DAPT is to allow the client to fund the trust with his or her own property and maintain some degree of beneficial interest in the trust, yet have trust assets protected from the client’s creditors. Currently, 16 U.S. states permit the creation of DAPTs and the number will likely continue to grow, although laws vary widely from state to state.

Planning Tip: The laws governing DAPTs are relatively new and still evolving. In addition, U.S. courts have been limited in interpreting them. And, under bankruptcy law, assets remain exposed to creditors’ claims for ten years. Nonetheless, a DAPT can be a powerful asset protection strategy for the right client.

Testamentary Asset Protection Trusts – Ruling From the Grave

A Testamentary Asset Protection Trust is an Irrevocable Trust, created after the client’s death and used for a variety of reasons, including:

- Protecting life insurance proceeds for the benefit of the client’s heirs – Irrevocable Life Insurance Trusts (“ILITs”).

- Protecting retirement accounts for the benefit of the client’s heirs – Standalone Retirement Trusts (“SRTs”).

- Protecting other assets for the benefit of the client’s heirs – Discretionary Trusts

Irrevocable Life Insurance Trusts
Aside from removing life insurance proceeds from the client’s estate for estate tax purposes, an ILIT is a powerful tool for leveraging generation-skipping planning and protecting insurance proceeds for the benefit of the client’s heirs.

Standalone Retirement Trusts
Because of the recent U.S. Supreme Court decision in Clark v. Rameker (which held that an IRA inherited by a non-spouse beneficiary is not protected from the beneficiary’s bankruptcy creditors) the Standalone Retirement Trust has become an important vehicle for protecting retirement accounts from the beneficiaries’ creditors.

Planning Tip: Discussing the new Supreme Court ruling and retirement account vulnerability is an effective way to identify assets that are not yet under management, but need to be protected.

Discretionary Trusts
A Discretionary Trust is an Irrevocable Trust that can be built into an ILIT and is an integral part of a Standalone Retirement Trust. Clients can also include Discretionary Trusts in their Revocable Living Trusts to protect other assets.

Planning Tip: Clients who are concerned about heirs, or who are or may become spendthrifts, married to an overreaching spouse, bad at managing money, or in a high risk profession, should incorporate Discretionary Trusts into all of the testamentary trusts created in their estate plan.

Trust-Based Asset Protection Planning – The Bottom Line

Even though asset protection trusts must be irrevocable to safeguard the trust property, they offer a great deal of flexibility for clients looking to protect their own property as well as property gifted to or inherited by loved ones. Since this type of planning can become complicated and should not be attempted without the assistance and counseling of an experienced attorney, seek help to answer your questions about trust-based asset protection strategies and options for planning.

Common Mistakes When Designating a Beneficiary

life insuranceMy Comments: With so many of us getting older, there is an increasing focus on what happens to our money when we die. If we don’t pay attention, large pieces of it may flow to the IRS and into the hands of others simply because we couldn’t be bothered to get it right the first time.

It’s not just retirement accounts and life insurance policies anymore either. I have a number of clients who have identified their non-retirement money as TOD accounts. This stands for Transfer on Death, and its a way to cause regular accounts to be distributed to beneficiaries when the account owner(s) die. It avoids probate and can be changed by the owner(s) at any time before you meet your maker. Of course, this assumes you are considered competent and not just a little goofy.

But whether it’s a TOD form or typical beneficiary designation, if mistakes happen, someone may have a problem later on when you can’t fix it by signing a new form. At this point, you may be gone.

Legal and financial professionals were recently polled and asked to list the most common mistakes that individuals make when completing their beneficiary designations. Here are the top five mistakes:

1. Failing to sign and date the Beneficiary Designation form.

2. The percentages listed next to the various beneficiaries did not total 100%.

3. Attempting to update their designations through wills, incorrectly believing that their wills will override their existing beneficiary designations.

4. A false belief that a divorce or property settlement automatically removes their former spouse as a designated beneficiary.

5. Forgetting to update their beneficiary designations when a major life event occur (eg., birth, adoption, marriage, divorce, or death).

As a general rule, it’s wise for clients to conduct an annual review of their beneficiary designations. For employees, open enrollment is oftentimes an appropriate reminder. Individuals should also back up their beneficiary designations electronically. Finally, if there is a future challenge to a beneficiary designation upon an individual’s death, it’s typically wise to retain former beneficiary designations.