Broker Check

Financial Security Checklist

  1. Has your advisor discussed the impact of the continuing favorable tax treatment of capital gains and qualified dividends vs. wages?  Long-term capital gains & dividend tax rates for 2018 are 0% for couples with taxable income less than $77,200 ($38,600 single), then 15% up to $425,400 ($479,000 joint) and 20% above those brackets. Plus an additional 3.8% capital gains tax applied to modified adjusted income over $200k ($250k joint) to help fund Medicare.  Even at the highest income, the highest rate of 23.8% is less than the maximum 37% rate on wages and other ordinary income.
  2. Have you discussed retirement planning, estimated family income needs if you, or your spouse, have an unexpected disability or death?  Is your life insurance reviewed periodically?  Do you have the right amount and type of coverage?   Insurance options taking advantage of the updating of the old 1980 CSO mortality table which insurance companies are required to use in calculating reserves and pricing, especially of term insurance. The current 2001 CSO tables were required starting in 2009. Overall they reflect about a 20% reduction due to mortality improvements. A new 2017 CSO/VBT table for insurance mortality is being implemented over the next 3 years.
  3. If you hold investments in joint tenancy with your spouse, are you aware of the income tax disadvantages of this type of ownership vs. in AZ the income tax advantages of holding investments as "Community Property with Right of Survivorship"?
  4. If you have parents still living, have you discussed Long-term care planning for them or yourself?  Do you know what your options are, or what type of plan if any, may be suitable for your family’s needs? A generation ago, you retired at 65 and died at 70 or so.  Today with medical advances many retirees enjoy a happy active lifestyle for 20 years or more after retirement.  The family risk used to be dying too soon. Today the larger risk is living too long and using up family assets.
  5. If you seek to be responsible and protect your family from having long-term care costs wipe out family assets, has your advisor done side-by-side comparisons of different sponsor plans?   Has he showed you the disadvantages of so-called “tax-qualified” plans, when you understand how it is less likely to pay you benefits and has questionable tax benefits?
  6. If you have a 401K retirement plan are you confident you have selected the best investment options?  If you seek other alternatives do you know if your plan allows for "in service" rollovers to your own IRA with many more investment options?  Are your beneficiaries set up properly?  If you are self-employed, or have only your spouse working for you, are you aware of the benefits of a "Solo K"?
  7. Have you considered amending your Living Trust or will to reflect the estate tax exemption changes?  Do you know the advantages of a Living Trust? Have you considered a provision to "sprinkle" income to children and grandchildren to shift income to lower tax brackets?  Does your Trust permit the trustee to postpone distributions for good cause?  This provision may protect beneficiaries from creditors or divorced spouses.  Is the Marital Trust a "Qualified Terminal Income Preservation" (QTIP) trust so that a surviving spouse cannot disinherit your children if for example, she remarries?
  8. Does your Living Trust or will have the typical "AB" Trust provision that until 2011 was used to maximize the estate tax marital deduction? For 2018 the exemption of $11.18 million has a “portability” provision. In some cases, current AB Trust provisions can result in higher income tax without a step up in basis, vs. the savings in the estate tax. However, an AB Trust may still be desired if each spouse has different final beneficiaries such as a case of 2nd marriages with each spouse wanting to pass on to their own children This has to be considered or the wrong children may wind up the beneficiaries. If there is a business as a trust asset the issue of control or “governance” can also be a consideration. Lifetime asset transfers and trusts can provide benefits that exemption portability doesn’t offer. For example, portability doesn’t protect future growth on assets from estate tax as effectively as applying the exemption to a credit shelter trust does. Also, the provision doesn’t allow the deceased spouse’s remaining GST tax exemption to be used by the surviving spouse.

Regarding trust provisions, the details of the tax aspects should be reviewed by a qualified CPA or attorney. We cannot give legal advice.  Only a qualified attorney can make specific legal recommendations and draft the Trust Agreement with the provisions that are recommended for you.

We can work with your CPA, tax accountant or attorney as appropriate.

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