July Personal Finance Newsletter
July 14, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The July personal financial planning newsletter is now available.
Because of the tumultuous investment markets and economic uncertainty, the newsletter includes two investing columns — one a recap of the second quarter market performance with a look forward, and another by Jim Parker with Dimensional Funds providing some compelling data on the importance of maintaining investment discipline.
The newsletter also has information on the new IRS mileage rates for the second half of 2011, a summary of how A/B and A/B/C trusts work for estate planning, and an overview of the tax and policy issues involved in taking a loan from your life insurance policy.
Plus, there’s an invitation to my social security workshop this coming Tuesday at the library.
Click here to read the newsletter.
Keller Free Financial Workshop
October 16, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
How much insurance do you really need?
It can often seem challenging to get an objective answer to this question.
On Tuesday, October 19, at 6:30 pm, I will be presenting a free personal finance workshop at the Keller Public Library on life insurance, disability insurance, and long-term care insurance. We will cover the basics of each type of coverage: what it is, who should consider having it, different kinds, and criteria to determine how much (if any) to purchase. You will receive objective facts on these important insurance coverages to support your decisions on managing financial risks for yourself and your family. I’m a fee only financial planner which means I provide financial advice and planning, but I don’t sell financial or insurance products or receive any compensation from your purchases.
The Keller Public Library is at 640 Johnson Drive. RSVPs are encouraged to ensure adequate seating to library@cityofkeller.com.
When an Insurance Company Fails
May 10, 2010 by Jean Keener, CFP, CRPC, CFDS · 1 Comment
Last week I attended the Financial Planning Association annual symposium in Dallas, and one of the speakers was Bart Boles, executive director for Texas’ insurance guaranty association. He shared the association’s processes when an insurance company fails, and how we as the consumer would likely be affected. Some of the exclusions and limits are important information to consider in your individual planning process. With this information, you can make smart insurance purchase decisions and avoid any surprises if the worst happens.
If your insurance company fails, here are the limits to what the association would cover.
Funds required for this coverage don’t come from tax payer dollars. They come from assessments of other insurance companies.
Health Insurance (all per individual per insolvent company)
- $500,000 for hospital, medical & surgical and major medical
- $300,000 disability and LTC insurance
- $200,000 all other health insurance
Life Insurance (all per insured life per insolvent company)
- $100,000 of cash surrender value
- $300,000 of death benefits
- $5 million per owner of multiple non-group policies
Annuities (all per insolvent company)
- $100,000 of the present value of annuity benefits per insured life (individual and allocated group annuities)
- $100,000 per payee for structured settlement immediate annuities
- $5 million per owner of unallocated group annuity
Aggregate Limit
- $300,000 of aggregate benefits for an individual per insolvent company (with the exception of the individual limits listed above exceeding this amount)
Exclusions
Some of the exclusions include:
- Insurance policies with insurance companies not licensed to do business in Texas
- Benefits of an insurance policy that are not guaranteed by the insurance company (such as the non-guaranteed portion of a variable life insurance or annuity contract)
- Benefits for which the policyholder bears the risk (such as certain variable or indexed annuities). Specifically, equity-indexed annuities are not covered.
- Interest rate yields that exceed an average rate set by the terms of the Texas Guaranty Association law. This can come into play with some annuities offering high guaranteed rates.
- Items not part of the specific written terms of the policy, such as claims based on marketing materials, side letters, riders not part of the approved policy form, misrepresentation, etc. For example, if the agent wrote a note on your application guaranteeing a benefit that’s not expressly in the contract, that’s not covered.
- PBGC protected annuities
- Property and casualty insurance policies (such as auto, homeowner’s, workers compensation, etc.). This is covered by a separate guaranty organization. Their website is: http://www.tpciga.org/
There are other exclusions as well. For more information on this, visit the FAQ section of the Texas Guaranty Assocation’s website.
In addition to the limits, being aware of the exclusions is also an important part of the insurance purchase process. If your policy is fully excluded, an extreme amount of due diligence needs to be done on the company prior to purchase. If a particular guarantee is a critical part of your purchase decision, you need to read the actual contract and make sure it’s clearly communicated in the contract and not just in the marketing materials. You should also verify that the guarantee falls within the limits of what’s covered. If it’s above the limits, consider the worst-case scenario and ask yourself if you could live with that outcome and if your purchase decision still makes sense given that possibility.
Ten Gifting Traps to Avoid
November 6, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Lifetime gifting can be a powerful estate planning tool. Transferring property during your life, instead of at your death, has many advantages. Making lifetime gifts can be desirable for personal reasons (e.g., to help your children or other family members) or for financial reasons (e.g., saving taxes). No matter what your reasons for starting a gifting program, there are a few gifting traps you should be aware of.
1. The kiddie tax rules
Beware of the kiddie tax rules when transferring income-producing property to your children. Investment income over $1,800 (for 2008) will be taxed at your marginal income tax rate, not your child’s.
The kiddie tax rules apply to children who are: (1) under age 18, (2) age 18 with earned income that doesn’t exceed one-half of their support, and (3) ages 19 to 23 who are full-time students with earned income that doesn’t exceed one-half of their support.
2. Gifts of retained interests or powers
Be careful when making gifts of property in which you retain some financial interest (e.g., a life estate, right of reversion, or right of revocation) or powers (e.g., the power of appointment). This property may be includible in your estate for estate tax purposes.
For example, say you transfer ownership of your home to your son on the condition that you’re allowed to continue living in the home for the rest of your life. You have retained a financial interest in the home, and this interest may be includible in your estate for estate tax purposes.
3. Income taxation of gifts made to a trust
Some types of trusts are taxpaying entities, which are taxed at more compressed income tax rates than individual taxpayers. If you’ll be using such a trust, be sure to consider the consequences of paying income tax on trust income at higher income tax rates.
4. Delays in making a gift of life insurance
Do not delay making a gift of a life insurance policy on your life. A transfer of an insurance policy by gift within three years of death results in the proceeds being includible in your estate for estate tax purposes.
5. Delays in planning your estate to meet percentage tests
Do not delay removing certain nonbusiness assets to help your estate meet the percentage tests to qualify for Section 303 (redemption of stock), Section 2032A (special use valuation), or Section 6166 (installment payout of taxes) tax treatment. This technique will work only if the gift is made more than three years prior to your death.
6. Payments for tuition or medical care made to the donee
Payments you make for tuition or medical care on behalf of another are exempt from federal gift tax. However, to qualify, you must make the gifts directly to the educational or medical institution–do not make such payments to the donee.
7. Overlooking gift splitting
For 2008, you can give $12,000 per donee federal gift tax free under the annual gift tax exclusion. There is also a gift-splitting privilege for spouses who qualify that can double the exclusion.
8. “Reverse” gifting if death is imminent
Reverse gifting is a technique where a healthy individual transfers low-basis assets to a dying individual. If the decedent lives for more than one year from the date of the transfer, the basis gets stepped up to fair market value. However, the basis will not get stepped up if the decedent dies within a year of receiving the gift, and should this happen, you may end up needlessly paying gift tax and/or using up your $1 million gift tax applicable exclusion amount.
9. Overlooking the benefit of taxable lifetime gifts
Don’t assume that lifetime gifts and transfers made at death result in the same tax effect. Paying gift tax on taxable lifetime gifts can result in an overall tax savings because the tax you pay is also removed from your estate.
10. Selecting property that does not attain your tax-savings objectives
There are some types of property that you should avoid giving if you want to enjoy tax savings, such as property that has depreciated in value or is likely to depreciate.