Will health care reform mean headaches … or hidden dividends?
Increased costs or savings in years to come? What do the federal health care reforms mean for your company? Will they lead to thousands of dollars in extra costs and more paperwork? Or will federal subsidies make this a “game changer” for small companies that have struggled to provide insurance plans?
If you employ 50 or more, you will face a major choice. Businesses with 50 or more employees will have a choice beginning in 2014: they can sponsor a health plan for 100% of their workers (even those signed up for government-subsidized health insurance) or pay $750 per worker in penalties to the federal government.
A business might opt to take the penalty and do away with health insurance. Paying the annual penalty might be cheaper. So that would leave the employees uninsured, and they would have to go to state health plan exchanges to buy health coverage that could be more expensive.
Some analysts warn that another macroeconomic effect might result - years of high unemployment. They think that increased insurance costs will discourage business hiring in the next decade.
The new reforms don’t put any caps on health insurance premiums. Insurers have every reason to hike rates before the new insurance markets come around in 2014 with added competition.
If you employ 25-49 people, you won’t face this choice. The government won’t require companies with fewer than 50 employees to offer health insurance starting in 2014, and therefore these companies won’t have to contend with possible fines like their big brothers. But while firms with 50 or fewer workers would be exempt from coverage provisions, they will still have to contend with rising premiums.
A major tax credit for smaller firms and solopreneurs. If you employ less than 25 or are self-employed, you may find that the healthcare reforms bring you tax relief.
Beginning in 2010, companies with less than 25 employees that pay the majority of health care premiums for their workers qualify for a tax credit up to 35% of their premiums. (In 2014, that credit could be as great as 50% of premiums if you arrange insurance via one of the Small Business Health Options Programs, or SHOP Exchanges). The tax break you get will depend on a couple of variables: the number of employees you have and their average salary.
However, this tax break won’t be offered to sole proprietorships. That factor may encourage you to incorporate or become an LLC.
If you own a smaller company, insurance might become cheaper. The idea is that small businesses can pool together in the SHOP Exchanges and negotiate insurance coverage as a group. Greater buying power implies lower premium costs (in theory).
Businesses with 100 or fewer workers can jump into a state SHOP Exchange pool starting in 2014; states may choose to limit the pools to firms with 50 or fewer employees through 2016.
The non-partisan Congressional Budget Office estimates that the SHOP Exchanges would lower annual premiums for these businesses by 1-4% with a 3% increase in the amount of coverage. That could mean a savings of more than $10 billion nationally.
If you work for yourself, you will likely be able to take advantage of government health care subsidies in 2014. If you are self-employed in 2014 and earn less than four times the poverty level, you can qualify for these subsidies. (To give you some idea, in 2010 400% of the poverty level comes to $88,200 for a family of four.)
Some notes for 2011. In 2011 as a result of the new law, a business will have to report the value of an employee's health care coverage on W-2 forms. Many companies provide coverage for employee dependents not enrolled in other employer-based health plans up to age 22 or 23; next year, that age limit will rise to 26. All lifetime caps on insurance policies offered through employer-sponsored plans will be eliminated in 2011. Penalties will increase for the misuse of HSA funds, and workers with FSAs and HSAs will not be reimbursed for money used for over-the-counter drug purchases.
Saturday, March 27, 2010
Monday, March 22, 2010
Health Care Changes in America
But the historic vote hardly means an end to the debate.
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President could sign the bill into law as early as March 23.1
But the fight is not over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.1,2
“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.3
Will the reforms be overturned? Twelve state attorney generals have indicated that they will contest the bill on these grounds the moment President Obama signs it.4 What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
• Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.5,6
• In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.5,7
• After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.5
• In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.7
• Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.5
• Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.8
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
• Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.6
• Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.6
• Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.6
• Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.6
• Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.6
• Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.6
New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.5,6,9
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.5
These are the views of Montgomery Taylor, CPA, CFP, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 blogs.ajc.com/kyle-wingfield/2010/03/22/obamacare-now-for-the-hard-part/?cxntfid=blogs_kyle_wingfield [3/22/10]
3 bloomberg.com/apps/news?pid=20601087&sid=aghrqNBEBtIc [3/20/10]
4 csmonitor.com/USA/Justice/2010/0322/Attorneys-general-in-12-states-poised-to-challenge-healthcare-bill [3/22/10]
5 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
6 csmonitor.com/USA/Politics/2010/0319/Health-care-reform-bill-101-Who-must-buy-insurance [3/19/10]
7 latimes.com/features/health/la-na-healthcare-passage22-2010mar22,0,2788293.story?page=2 [3/22/10]
8 whitehouse.gov/blog/2010/03/21/one-more-step-towards-health-insurance-reform [3/21/10]
9 investmentnews.com/article/20100322/FREE/100329992 [3/22/10]
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President could sign the bill into law as early as March 23.1
But the fight is not over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.1,2
“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.3
Will the reforms be overturned? Twelve state attorney generals have indicated that they will contest the bill on these grounds the moment President Obama signs it.4 What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
• Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.5,6
• In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.5,7
• After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.5
• In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.7
• Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.5
• Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.8
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
• Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.6
• Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.6
• Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.6
• Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.6
• Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.6
• Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.6
New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.5,6,9
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.5
These are the views of Montgomery Taylor, CPA, CFP, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 blogs.ajc.com/kyle-wingfield/2010/03/22/obamacare-now-for-the-hard-part/?cxntfid=blogs_kyle_wingfield [3/22/10]
3 bloomberg.com/apps/news?pid=20601087&sid=aghrqNBEBtIc [3/20/10]
4 csmonitor.com/USA/Justice/2010/0322/Attorneys-general-in-12-states-poised-to-challenge-healthcare-bill [3/22/10]
5 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
6 csmonitor.com/USA/Politics/2010/0319/Health-care-reform-bill-101-Who-must-buy-insurance [3/19/10]
7 latimes.com/features/health/la-na-healthcare-passage22-2010mar22,0,2788293.story?page=2 [3/22/10]
8 whitehouse.gov/blog/2010/03/21/one-more-step-towards-health-insurance-reform [3/21/10]
9 investmentnews.com/article/20100322/FREE/100329992 [3/22/10]
Saturday, March 20, 2010
The DB(k)
In 2010, companies have a whole new retirement plan option.
What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).
DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.
Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.
A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.
What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:
• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker's average salary during his or her five consecutive highest-earning years.
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)
• The company automatically directs 4% of a worker's salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.
The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.
What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).
DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.
Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.
A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.
What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:
• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker's average salary during his or her five consecutive highest-earning years.
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)
• The company automatically directs 4% of a worker's salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.
The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.
Wednesday, March 17, 2010
New Tax Perks for Nonqualified Annuity Owners
You can thank the Pension Protection Act.
More options. On January 1, 2010, owners of nonqualified annuities were allowed some new tax benefits. On that date, the Pension Protection Act (PPA) of 2006 was fully implemented and brought about dramatic and interesting changes for those who had started annuities with after-tax dollars. At the start of 2010:
• Non-qualified deferred annuities with added long term care insurance riders were now characterized as tax-qualified LTC insurance plans.
• As a result, all withdrawals from these “hybrid annuities” are income tax free so long as they are used for qualified long term care. So you can use the cash value of the annuity to cover the cost of LTC insurance premiums without triggering a taxable event.
• Annuity owners were now allowed to make tax-free 1035 exchanges into appropriate hybrid annuities with long term care riders.
• Additionally, an annuity owner can do a 1035 exchange for the cash value from any annuity into a single-premium qualified LTC insurance policy without incurring any gains.
Now these annuities are even more attractive. Hybrid annuities with LTC insurance riders already offer their owners tax-deferred growth - and sometimes, a return-of-premium option that gives back the investment to an owner’s estate if no LTC claim is made. These linked-benefit annuities (and linked-benefit life insurance policies) can provide something like a “money-back guarantee”, as well as the capability to multiply the benefit value of idle cash sitting on the sidelines. The new allowance of what could be sizable tax-free withdrawals makes them look even better.
In addition, the new freedom to make a tax-free exchange means that an annuity owner can now leave a current contract for a hybrid annuity that may provide a much greater pool of money someday to cover LTC costs.
Are they for you? These hybrid annuities are certainly worth a look. If you can’t qualify medically for LTC insurance but still need to be protected, a hybrid annuity may be an excellent option. Many people fund these annuities by redirecting cash from a bank CD or an annuity they already own. You might want to talk to your insurance or financial consultant about the possibility.
More options. On January 1, 2010, owners of nonqualified annuities were allowed some new tax benefits. On that date, the Pension Protection Act (PPA) of 2006 was fully implemented and brought about dramatic and interesting changes for those who had started annuities with after-tax dollars. At the start of 2010:
• Non-qualified deferred annuities with added long term care insurance riders were now characterized as tax-qualified LTC insurance plans.
• As a result, all withdrawals from these “hybrid annuities” are income tax free so long as they are used for qualified long term care. So you can use the cash value of the annuity to cover the cost of LTC insurance premiums without triggering a taxable event.
• Annuity owners were now allowed to make tax-free 1035 exchanges into appropriate hybrid annuities with long term care riders.
• Additionally, an annuity owner can do a 1035 exchange for the cash value from any annuity into a single-premium qualified LTC insurance policy without incurring any gains.
Now these annuities are even more attractive. Hybrid annuities with LTC insurance riders already offer their owners tax-deferred growth - and sometimes, a return-of-premium option that gives back the investment to an owner’s estate if no LTC claim is made. These linked-benefit annuities (and linked-benefit life insurance policies) can provide something like a “money-back guarantee”, as well as the capability to multiply the benefit value of idle cash sitting on the sidelines. The new allowance of what could be sizable tax-free withdrawals makes them look even better.
In addition, the new freedom to make a tax-free exchange means that an annuity owner can now leave a current contract for a hybrid annuity that may provide a much greater pool of money someday to cover LTC costs.
Are they for you? These hybrid annuities are certainly worth a look. If you can’t qualify medically for LTC insurance but still need to be protected, a hybrid annuity may be an excellent option. Many people fund these annuities by redirecting cash from a bank CD or an annuity they already own. You might want to talk to your insurance or financial consultant about the possibility.
Friday, March 12, 2010
Where were you on the night of April 15, 2007?
If you didn’t collect your refund for the 2006 tax year,
time is running out to claim it!
$1.3 Billion Dollars.
That’s the amount of unclaimed refund money the IRS is holding in their account. From the original filing deadline, each taxpayer has a window of just three years to claim refunds they are owed. Miss the window, and that’s it … no money.
Why is so much money sitting there?
According to the IRS, unclaimed refunds are fairly commonplace. Generally this is due to individuals simply not filing in a given year because they don’t owe taxes. But of course, by not filing, they can’t get any refund due either. In 2006 the number of individuals who decided, for some reason, not to file their taxes was over 1.4 million.
What could you do with $604?
That’s the median outstanding refund amount, according to IRS estimates. The most unclaimed refunds come from the state of California, where almost 160,000 taxpayers did not file their 2006 returns. Texas and Florida are next in line, with over 100,000 unfiled returns in each of those states.
How about an additional $30 or $60 on top of that?
Based on the number of exemptions filed on 2006 tax returns, most taxpayers received $30 or up to $60, thanks to the repealed Telephone Excise Tax Refund. For some who did not file, that money, too, is sitting in an IRS account waiting for them. The only way to get that money is to file a 2006 return.
If you didn’t file your 2006 return, you have until April 15, 2010.
If the IRS owes you a refund on your 2006 return, you only have until April 15, 2010 to claim it. Otherwise, that money goes to Uncle Sam. You might want to double-check your 2007 and 2008 returns as well (though, you have a little more time on those). To file a return for a previous year, visit www.irs.gov and download the appropriate documents from their index of forms from past years.
time is running out to claim it!
$1.3 Billion Dollars.
That’s the amount of unclaimed refund money the IRS is holding in their account. From the original filing deadline, each taxpayer has a window of just three years to claim refunds they are owed. Miss the window, and that’s it … no money.
Why is so much money sitting there?
According to the IRS, unclaimed refunds are fairly commonplace. Generally this is due to individuals simply not filing in a given year because they don’t owe taxes. But of course, by not filing, they can’t get any refund due either. In 2006 the number of individuals who decided, for some reason, not to file their taxes was over 1.4 million.
What could you do with $604?
That’s the median outstanding refund amount, according to IRS estimates. The most unclaimed refunds come from the state of California, where almost 160,000 taxpayers did not file their 2006 returns. Texas and Florida are next in line, with over 100,000 unfiled returns in each of those states.
How about an additional $30 or $60 on top of that?
Based on the number of exemptions filed on 2006 tax returns, most taxpayers received $30 or up to $60, thanks to the repealed Telephone Excise Tax Refund. For some who did not file, that money, too, is sitting in an IRS account waiting for them. The only way to get that money is to file a 2006 return.
If you didn’t file your 2006 return, you have until April 15, 2010.
If the IRS owes you a refund on your 2006 return, you only have until April 15, 2010 to claim it. Otherwise, that money goes to Uncle Sam. You might want to double-check your 2007 and 2008 returns as well (though, you have a little more time on those). To file a return for a previous year, visit www.irs.gov and download the appropriate documents from their index of forms from past years.
Life Insurance
Is it time to review your policy?
Life insurance is hard.
It’s hard to know if you have the right kind.
It’s hard to know if you have enough.
And it’s hard to know if you need any at all.
The insurance companies have made it even harder by coming up with bewildering names: whole life, term life, universal life. Some life insurance policies have a cash value while others don’t. Some invest that cash value in the stock market while others pay a fixed rate of interest. Some insurance policies combine all of these ideas.
This may be one reason why a recent study by the National Association of Insurance Commissioners found that about 40% of people don’t review their life insurance annually. In my experience, that number seems to be even higher. But no matter what the exact number, a large portion of Americans may simply be paying for insurance that’s not right for them.
That is why it’s important for you to sit down annually with an insurance professional to review how your policy works and how it will help you to protect your family.
When you’re young, a certain type of policy is needed. As you raise a family and take on more responsibilities, your needs change again. At some point - when the nest is empty or other life changes occur - there may come a time where you don’t need life insurance at all or you may desperately need it to protect your estate. Reviewing your life insurance policies is one way to make sure you have the coverage that is right for you and your family now, today – not when you bought it.
When is the last time you thought about your life insurance?
Is it time to take another look?
Life insurance is hard.
It’s hard to know if you have the right kind.
It’s hard to know if you have enough.
And it’s hard to know if you need any at all.
The insurance companies have made it even harder by coming up with bewildering names: whole life, term life, universal life. Some life insurance policies have a cash value while others don’t. Some invest that cash value in the stock market while others pay a fixed rate of interest. Some insurance policies combine all of these ideas.
This may be one reason why a recent study by the National Association of Insurance Commissioners found that about 40% of people don’t review their life insurance annually. In my experience, that number seems to be even higher. But no matter what the exact number, a large portion of Americans may simply be paying for insurance that’s not right for them.
That is why it’s important for you to sit down annually with an insurance professional to review how your policy works and how it will help you to protect your family.
When you’re young, a certain type of policy is needed. As you raise a family and take on more responsibilities, your needs change again. At some point - when the nest is empty or other life changes occur - there may come a time where you don’t need life insurance at all or you may desperately need it to protect your estate. Reviewing your life insurance policies is one way to make sure you have the coverage that is right for you and your family now, today – not when you bought it.
When is the last time you thought about your life insurance?
Is it time to take another look?
What's Going on With the Estate Tax?
Good question. Congress has elected to keep us in suspense.
0% estate taxes in 2010 … for now, anyway. On January 1, the federal estate tax went away – at least for the time being and perhaps for all of 2010 as envisioned back in 2001. President Obama and Congressional leaders wanted the estate tax to stick around in 2010 at 2009 levels (estate taxes up to 45% with a $3.5 million exemption), but lawmakers were preoccupied with other matters.
Will Washington really give families million-dollar tax breaks? If no estate tax is imposed in 2010, it could mean a savings of millions for wealthy families. There is talk of bringing the tax back retroactively – after all, the federal government could really use the money. Yet the further we get from January 1, the more difficult reinstating the estate tax for 2010 may become.
As American Institute of Certified Public Accountants vice-president for taxation Tom Ochsenschlager told MarketWatch, "They're still talking (in Congress) about making something retroactive, but at some point they can't do that … is it even constitutional? There’s a real question about that."
The unconstitutional argument goes like this: if Congress moves to retroactively apply the estate tax for 2010, an estate could take the matter to court and point out that Congress had all year to reinstate it but failed to do so.
That argument aside, some estate planners think Congress will get around to a retroactive measure – one that would put the 2009 estate tax levels back into place for 2010.
What taxes are in place now? Some taxes still apply to estates in 2010 even if the estate tax doesn’t. People who give away more than $1 million during their life still face federal gift taxes – though in 2010, they max out at 35% instead of 45%.
Also, all assets with capital gains are to be taxed at 15% above a $1.3 million federal exemption when sold by heirs in 2010. The big news here is that heirs don’t get to use a step-up this year. When they compute the value of an inherited asset, they have to use the basis (the original price paid for the asset) instead of how much that asset was worth when the original owner died. (In addition to the $1.3 million exemption per estate just mentioned, there is another $3 million exemption available for assets inherited from a spouse.)
What precautions may be wise this year? As a potential heir, you’ll want to document the cost basis of any assets you might receive in 2010. Good recordkeeping is in order.
Additionally, you may want to search a trust or a will for so-called formula clauses anchored by words such as “that portion”, “that amount” or “that fraction”, especially if the will or trust was created some years ago with the presumption of a constantly increasing federal estate tax exemption.
These formula clauses are fundamental to bypass trusts created to defend estate tax exemptions for a couple. However, these clauses assume that there is an estate tax. With no estate tax in place, there is the possibility (depending on how the formula clause is worded) that a deceased spouse’s assets would not be inherited by the surviving spouse, but instead go directly into the family trust – not the most useful result for the surviving spouse.
What will 2011 bring? Well – if there are no changes – the estate tax and the generation-skipping tax would come back in 2011. Only the first $1 million of an estate would be exempt from estate taxes. Assets above the exemption would be hit with a 55% federal penalty.3 However, the Obama administration had talked of keeping the 2009 estate tax levels in place for 2010 and beyond, which would be better than returning to the pre-EGGTRA levels in 2011.
0% estate taxes in 2010 … for now, anyway. On January 1, the federal estate tax went away – at least for the time being and perhaps for all of 2010 as envisioned back in 2001. President Obama and Congressional leaders wanted the estate tax to stick around in 2010 at 2009 levels (estate taxes up to 45% with a $3.5 million exemption), but lawmakers were preoccupied with other matters.
Will Washington really give families million-dollar tax breaks? If no estate tax is imposed in 2010, it could mean a savings of millions for wealthy families. There is talk of bringing the tax back retroactively – after all, the federal government could really use the money. Yet the further we get from January 1, the more difficult reinstating the estate tax for 2010 may become.
As American Institute of Certified Public Accountants vice-president for taxation Tom Ochsenschlager told MarketWatch, "They're still talking (in Congress) about making something retroactive, but at some point they can't do that … is it even constitutional? There’s a real question about that."
The unconstitutional argument goes like this: if Congress moves to retroactively apply the estate tax for 2010, an estate could take the matter to court and point out that Congress had all year to reinstate it but failed to do so.
That argument aside, some estate planners think Congress will get around to a retroactive measure – one that would put the 2009 estate tax levels back into place for 2010.
What taxes are in place now? Some taxes still apply to estates in 2010 even if the estate tax doesn’t. People who give away more than $1 million during their life still face federal gift taxes – though in 2010, they max out at 35% instead of 45%.
Also, all assets with capital gains are to be taxed at 15% above a $1.3 million federal exemption when sold by heirs in 2010. The big news here is that heirs don’t get to use a step-up this year. When they compute the value of an inherited asset, they have to use the basis (the original price paid for the asset) instead of how much that asset was worth when the original owner died. (In addition to the $1.3 million exemption per estate just mentioned, there is another $3 million exemption available for assets inherited from a spouse.)
What precautions may be wise this year? As a potential heir, you’ll want to document the cost basis of any assets you might receive in 2010. Good recordkeeping is in order.
Additionally, you may want to search a trust or a will for so-called formula clauses anchored by words such as “that portion”, “that amount” or “that fraction”, especially if the will or trust was created some years ago with the presumption of a constantly increasing federal estate tax exemption.
These formula clauses are fundamental to bypass trusts created to defend estate tax exemptions for a couple. However, these clauses assume that there is an estate tax. With no estate tax in place, there is the possibility (depending on how the formula clause is worded) that a deceased spouse’s assets would not be inherited by the surviving spouse, but instead go directly into the family trust – not the most useful result for the surviving spouse.
What will 2011 bring? Well – if there are no changes – the estate tax and the generation-skipping tax would come back in 2011. Only the first $1 million of an estate would be exempt from estate taxes. Assets above the exemption would be hit with a 55% federal penalty.3 However, the Obama administration had talked of keeping the 2009 estate tax levels in place for 2010 and beyond, which would be better than returning to the pre-EGGTRA levels in 2011.
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