Priorities matter

Temptation is a difficult challenge. Regardless of who we are, where we live, how much we earn, or what we own – we are all tempted to acquire new belongings, and splurge on ourselves from time to time. Certainly there is nothing wrong with a day at the spa, or a new car, or any number of purchases that we might make for ourselves. But each of us has only so much legal tender to circulate, and where we spend that cash can have a profound impact on our future. In extreme cases, it can even cause us to relocate, by force if necessary.

There have been two high profile examples of poor financial decision making in the news this year. Okay, there have been lots of high profile examples of poor financial decision making in the news this year. But there are two that caught my eye, and I'm willing to bet that at least one of them caught yours, too. They are both income tax cases, and if you take the superficial view we could leave it at that. If you look more deeply though, these are both prime examples of successful men, with extensive means, who were unwilling, or unable to prioritize their use of resources. And both are paying a price for that failure.

Wesley Snipes was in the news often, well before his financial difficulties caught the attention of the public, or the federal government. An actor with an impressive resume, Snipes had successfully worked his way up to the heights of Hollywood, earning significant sums of money with his biggest hit movies.

Unfortunately, the government took the position that Snipes was not paying his fair share of taxes on that income. A contention that the courts ultimately agreed with. And so Snipes is in prison today, serving a three-year sentence for tax evasion.

Last week another highly paid professional was sentenced to prison for failing to pay taxes. This time it was an attorney, not an actor. Michael “Mickey” Sherman, a prominent Connecticut attorney who has been seen on a host of television news programs in the role of a legal commentator, was sentenced to one year in prison for failing to pay his full tax bill.

In both cases the tax bills in question were several years old. It may surprise some to learn that tax evasion cases are not filed quickly. These cases are built over a period of years. In many cases, with substantial fines and fees building up along the way.

The Los Angeles Times quoted Snipes at one point saying, “Everybody has tax problems,” and “Everybody's failed to file at some point in time.” A contention that I believe most of us would refute. But his example, and that of Mickey Sherman should give all of us pause. Prioritization is important when it comes to how you handle the contents of your pocketbook, and your bank account. Making the wrong choices just might lead any of us down a road we would really have rather not taken.

The ins and outs of robo-signing

  Robo-signing is a term that has come into common use lately. However, the term is new and largely misunderstood. Although it may be counter-intuitive, there are no robots involved in robo-signing. But as the term implies, the humans involved in signing foreclosure documents may in some cases be acting as robots, or automatons, by processing paperwork while putting little if any thought or research into the documentation they are working with. Paperwork that can lead to foreclosure actions that have the ability to financially and emotionally devastate a family.

In October 2010 the problem became mainstream and was splattered across the airwaves by national news providers. Courts got involved and began holding up foreclosures so that judges could review the documentation more closely. What was once perceived to be a virtual slam-dunk (the foreclosure of a property that was in arrears) had become a high-profile embarrassment for the financial institutions that held the paper on the loans that were used to purchase that property – if the paper existed at all.

CNNMoney.com ran a very good piece in late October that does a good job of explaining what the basics of the issue are, and why the problem of robo-signing should be of real concern to anyone who owns property, or hopes to purchase property that may have been involved in a foreclosure proceeding. The article can be found at: http://money.cnn.com/2010/10/22/real_estate/foreclosure_paperwork_problems/index.htm

I sincerely hope this helps to shed light on a truly modern problem that so many of us may find ourselves faced with at some point, now – or in the future.

The Tax "Deal" - the Forecast is Dark Clouds on the Horizon

My fellow member of WealthCounsel, Richard Wohltman of Alexandria, VA,  posted this relevant commentary on the Tax “Deal” currently being ushered through Congress. 

There has been a lot of talk this month about the "deal" to extend the Bush tax cuts. That "deal" also includes a substantial increase in the amount that can pass to your heirs without paying any federal estate tax. The 'exemption amount' will be increased to $5,000,000 per person.

The stated reason for that increased exemption amount is to help 'small' business owners and family farmers pass the business or farm to their heirs without having to pay estate taxes. It also means that all but a very limited number of multi-millionaires will have to file and pay federal estate tax.

Dark Clouds are Forecast.

There really are dark clouds on the horizon even if the "deal" is passed by Congress before the end of the month. The increase in the exemption is going to add billions of dollars to the federal deficit. The Treasury is going to have to borrow that money and we are all going to have to pay taxes or have benefits reduced just to pay the interest on those loans. And the day will come when the loan will have to be paid in full.

There is a more pressing problem, however, for estate planning. The "deal" only lasts two years! At the end of 2012 we will find ourselves right back where we are now -- facing a stupendous increase in the number of estate tax returns and tax payments when the exemption amount falls to just $1,000,000 starting January 1, 2013. The problems from the end of the Bush tax cuts (and the increased exemption amount from the "deal") return in 2o13. The uncertainty of how all of the estate and gift taxes will be interpreted once the large exemption disappears is the big grey cloud on the horizon for estate planners.

Estate planning attorneys have been hoping for some stability in estate tax policy so plans can be designed based on a clear expectation of how estate taxes will be calculated when death occurs. That stability disappeared with the Bush tax cuts. Estate planning attorneys all knew we were faced with the potential return to the 'old rules' with only a $1,000,000 exemption in 2011 and had to plan for the return of the middle class taxable estate. The same lack of stability continues since we can only look at what happens at the end of the next two years.

What does all this mean to you?

Don't think that the "deal" will make your estate planning easier just because you don't have Five or Ten Million Dollars. The vast majority of our clients require extra tax planning if the exemption returns to 1 Million Dollars.

Your estate planning lawyer must assume that the lower exemption will return and is forced to include options to address the substantial estate tax liability that will return in 2013. Your estate plan will continue to require more complication just to protect your family and your business with the automatic termination of the "deal" in 2013.

Where's the silver lining?

Just remember, if there is a silver lining in every grey cloud, that doesn't mean that the grey cloud is gone.  Don't let the proposed silver lining blind you to the limits inherent in any "deal" that lasts only two years!

What is, what was, and what might be

If you found yourself driving down the road this past 4^th of July while holding a cell phone to your ear, you were on solid legal ground in Connecticut. Talking on cell phones while driving was officially discouraged, but it wasn't going to result in a ticket. By Halloween the circumstances had changed, however. You would have been risking a ticket with a price tag of between $100 and $200, depending on whether it was your first offense, your second offense, or you deemed to be a habitually conversational driver. The same goes for texting on that phone while driving. What was perfectly okay during the summer months, was illegal and expensive by fall.

Change is constant, even for the law.

I mention this for the simple reason that we all make decisions based on what we know to be true. The problem for many of us is that what we know to be true, just isn't. It might have been true at one time, but times change, and the law changes with it. So while we may have complete confidence in our judgement based on years of experience and careful consideration, it is worth at least taking a moment to consider the possibility that the rules of the game may have changed since we last played.

As I write this, there is great consternation and concern across the country about what the tax code will be for 2011. Right now nobody knows for sure what that tax code might say, or what our tax rates might be. It is a fair bet that changes will be coming our way no matter which tax bracket we find ourselves in; and there is a lesson in that for all of us.

The law changes. State legislatures and governors spend a great deal of time debating issues, putting forward initiatives, and pressing for legal remedies for the challenges that confront their constituents. The result of all that work is law. New laws, specifically. And many of those new laws kick in with little fanfare or press coverage. In truth, the law often changes in ways that the average person never suspects, until they get caught in a jam. Because ignorance can be expensive. Which is a lesson that many Connecticut residents learned quickly and painfully when they found out that talking on a cell phone while you're at the wheel was no longer discouraged – it had become illegal. It is almost certain that at least a few of those who were first ticketed after the law went into effect in October said in surprise, “But I've been doing this for years – it's not illegal!”

That's a tough way to get an update on what the legislature has been up to.

When we act we have to make sure our actions are based on what is, not what was. And if we're really sharp we'll take into account what might be, too. Because the future matters, and while we can't predict the future with perfect clarity, we can certainly make educated decisions based on what we know to be true, currently. That's true of every facet of our lives, for as long as the law is in a state of constant change, which it always will be, I'm sure.

If nothing else, knowing this is incentive to read the paper more carefully, watch the news with greater interest, and perhaps do a little extra homework every now and then. That may require some extra effort on a continuing basis, but that time is well spent if you can save yourself the trouble of being out of step with the law. Nobody needs that kind of stress. Especially during the holidays.

Little things mean a lot

Tis the season to state the obvious. Ironically, the obvious isn't always obvious to everyone. So let's make an attempt to do something good and wholesome with the closing weeks of 2010. I believe we can do that best by getting back to basics and remembering some very simple things that will one day become important to each of us, if they aren't already.

The basics are true all year long, actually. But during the holidays, and it doesn't matter which holidays you and your family might celebrate, the basics are especially true. And the basics are these, as we age we tend to become less mobile and less socially active. However, our desire to spend time with people and feel cared for sticks with us throughout our lives.

A personal visit from a friend or family member is invaluable to an elderly person who doesn't get out as much as they used to. This is especially true during the holidays, when the cold wind, icy sidewalks, and blowing snow conspire to make even a short walk outside a real risk for many of our more seasoned citizens. You may be surprised how uplifting your presence can be to an old friend, a relative, or a former neighbor who spends much of their time indoors, often alone. The social interaction of your time spent together is like gold to many of the elderly. It lifts their spirits and buoys their outlook on the future. So if you have friends, or family members who might be alone this season, I encourage you to take the plunge and visit if you can.

Of course many of us have relocated far from our hometown's through marriage, work, or circumstances that may be beyond our control. That distance can make visiting in person difficult. However you can still reach out and make a someone in your life feel special and cared for. A phone call, or a card that includes a personal note can go a long way toward making a distant friend or relative feel the warmth of your caring, even from across a continent, or an ocean.

We should all keep in mind too that gifts are just as rewarding to receive at 90 as they were when we were 9. Practical or sentimental gifts can remind the recipient of how important their family ties still are, even if they don't see you in person as often as they once did. Certainly, grandma probably has no need for a skateboard, or an Xbox – but there are a whole host of inexpensive options that have the ability to let grandma know that her children, grandchildren, and even great grandchildren are thinking of her and value her presence. If that gift can be presented in person, all the better. But even a brief interaction with a package delivery person can make someone in your life feel brighter and more enthusiastic during the holidays.

I sincerely hope you, your family, and your friends enjoy a wonderful holiday season this year. If for no other reason than the end of the year tends to encourage us to reflect a bit on what is important to us, and how we might be more engaged and active in our own lives in the coming year. For that, we can all be grateful. Hopefully, grateful enough to call, write, and visit those we think of often, but seldom see.

The Federal Estate Tax Lapsed for 2010

The federal estate tax lapsed for 2010, and barring no action by Congress it was scheduled to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent. 

I have good news to share with you.  The long wait for action to address the unknown status of the federal estate tax may be approaching an end.  In a December 6, 2010 online posting by the New York Times, they reported that President Obama announced a tentative deal with Congressional Republicans on Monday.

An excerpt of the article appears below, and a link to the full article is included.  The accompanying photo by Joshua Roberts of Reuters appeared with the article.

Mr. Obama made substantial concessions to Republicans. In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many Democrats. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.

http://www.nytimes.com/2010/12/07/us/politics/07cong.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=a2

 

But the NY Times article also cautioned that the deal is not supported by all parties.  So resolution may be within sight, but it is not yet a finalized deal. 

“The House Democrats have not signed off on any deal,” Representative Chris Van Hollen of Maryland, who has been representing House Democrats in formal negotiations on the tax issue, said Monday night. “We will thoroughly review and discuss the proposed package in the caucus.”

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers.

With this positive news in the air, it may be time to schedule a meeting to adjust your estate plans to maximize the impact of this likely change in the federal estate tax law.  Call me for an appointment, or leave a comment with a question below.

 

Protecting yourself from fraud

Identity theft and other forms of preventable fraud are nothing to sneeze at. However, as attention grabbing as the word, “fraud” might be, the operative word in that sentence is, “preventable.” Much of the fraud that affects the public today can be prevented relatively easily through simple changes in the way we think about our personal information, and how we handle it. I think you will agree that preventing a crime from happening is far better than being forced to jump through the hoops that are required to repair the damage done, after the fact.

Whether you are young and just starting out in life, or well into your golden years, we all have to consider the reality of fraud, and the profound damage it can do to us if left unchecked. So consider these simple changes to your way of thinking that just might help you prevent identity theft, and fraud, from being a part of your personal life story.

1. Don't give out personal information over the phone. This is especially true if you are asked for information by someone who called you. We always have to be careful when sharing personal information, but when you're on the receiving end of the call, you are assuming that the person on the other end really is who they say they are. Sadly, that is not always the case. If someone calls and identifies themselves as a bank employee who is checking your account security, do not give them your bank account number, PIN, or password. Ask for their name and branch location, then either call them back using the phone number printed in the phone book for that branch, or go visit in person. More often than not, you will find that the person who represented themselves as a bank employee on the phone, is not an actual employee of the bank.

2. Review and reconcile your bank statements regularly. Many of us can find and correct small mistakes quickly and easily, before they become bigger, more debilitating financial problems, if we simply check our statements on a regular basis.

3. Store personal information securely, even if it is in your home. Leaving personal information like account numbers, social security numbers, and similarly sensitive information out in the open can lead to accidental disclosure. Unless you are willing to share your personal records with your plumber, furnace repair person, pizza delivery man, or the neighbor who comes over to chat now and then – put your papers securely in a desk drawer, filing cabinet, or safe. Roving eyes cannot see what is not visible, and it is easier to prevent the opportunity for temptation than it is to prevent temptation itself.

4. Check your credit reports annually, or more frequently if possible. The process is simple, but the rewards can be profound. A single erroneously opened credit account in your name has the potential to cripple you financially. So check those reports as often as you can. If you find an account that is listed as yours, but shouldn't be – you have the opportunity to correct that error before it does damage to you.

5. Do not respond to e-mail requests for bank account numbers, passwords, or other personal information. Most of us do not have secure e-mail accounts that use encryption. The result is that any personal information you send via e-mail can be easily read by people other than those you intended it for. A secondary, but no less important concern, is the fact that some unscrupulous individuals fish for personal information by sending e-mails that appear to be legitimate requests for personal information, but are in fact an attempt to defraud anyone who replies to the e-mail request. A good policy is to never share personal information through e-mail.