Shalom to you, our partners in ministry. It is an honor to share with you the latest news from Washington, Savvy Living, Personal Planning, gift stories, finance news, and timely articles.
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This information is put together in a way to be a help in understanding what is happening in our economy so you can use it to your best advantage. I hope this information is useful to you.
If you have any questions or I can be of assistance to you please contact me.
David Stone
Director of Donor Relations
PERSONAL PLANNER
Ten Reasons to Update Your Estate
You have completed a will and perhaps a revocable living trust. Your durable power of attorney for healthcare and a living will are accompanied by a HIPAA release. All of your records are safely in place and carefully organized.
So you now are finished with your estate planning. Or are you? Will there be changes in your circumstances or your family that should lead to a review of your plan? Could some events cause you to need to revise or update the plan?
Yes, there are a number of reasons to consider revising or updating your plan. These include any of the following reasons:
1. New Children, Grandchildren or Other Heirs
Your estate plan almost certainly makes provision for children and other heirs who are living when you pass away. If you have a specific transfer to one child, a new child may receive a smaller than intended inheritance.
For example, John Smith had a $1 million estate and left a $400,000 residence to child A. He then divided the balance of the estate with 1/6 of the balance to child A and 5/6 to child B. If a third child is born, depending upon state law, the child might receive nothing or perhaps would benefit from a portion of the residue. In either case, the uncertainty could lead to estate litigation or to family strife.
If you have a sizeable estate and there are large specific bequests, the arrival of a new heir is a good time to review your plan. One option is to transfer assets to the heirs "then living" when you pass away.
If the estate is $1 million, in some states a child C who is born later would receive 1/3 of the estate. This could dramatically change the benefit for child B and leave her with a reduced inheritance. In addition, child C could be a minor or a very young adult and not be capable of managing his or her property. For several reasons, the arrival of a new heir makes a review of your plan very important.
2. Move to a Different State
If you are married and move to a different state, there may be a change in the laws that affect ownership. Some states are called "common law" property states and some are "community property." If you move from one state to another and change in either direction, it may be important to clarify the ownership of your property as separate property or joint property.
For individuals with moderate to larger estates, there could be significant estate or inheritance taxes. Several states have inheritance taxes that will apply at lower levels than the federal exemption per person. Depending on who among your relatives receives your property, a new state may have a substantial tax.
Finally, many states have specific rules on durable powers of attorney for healthcare, living wills or advance directives or even the HIPAA release. If you acquire permanent legal residence in the state, your doctors will expect that your medical planning documents reflect their state law.
3. Sale or Purchase of a Major Asset
You may have a major real estate asset or a business that is to be transferred to one of your heirs. If that property is sold or substantially increases in value, your entire plan could change. For example, if a property greatly increases in value and there is a large estate tax that is paid out of the residue of your estate, the beneficiary of that specific property could receive a much larger inheritance than you intend. Those children or other heirs who are receiving the residue could find their inheritance greatly reduced by estate tax paid on the asset transferred to the first child.
Alternatively, if the first asset is sold, then a child may receive a smaller than intended inheritance. Therefore, a significant sale or purchase is a good time for an estate planning review.
4. Reaching Age 70½
The four types of estate property are generally cash and cash equivalents, stocks, real estate and qualified plans. Over the years, your qualified retirement plan may become a large portion of your estate. Your IRA, 401(k) or other qualified plan will require distributions to start on April 1 of the year after you reach age 70½.
If you pass away before the entire plan is paid out to you during your retirement years, the balance is transferred to your designated beneficiary. Because retirement plans have grown substantially over the past decade (even with a reduction in plan value during the 2008 downturn), it's very important to review your beneficiary designations. Many individuals pass away and the plan value is transferred to beneficiaries who have been selected 10, 15, and even 25 years earlier. There could be many reasons why you would want to update that beneficiary designation, and age 70½ is a logical time to do so.
5. Your Selected Beneficiary is Deceased
In many families there are unmarried brothers or sisters. It is quite common for these individuals to receive an inheritance and to remember the surviving brothers and sisters in their plans. However, even if there are two or three unmarried brothers or sisters, one will inevitably be the survivor and hold most of the assets. If you are remembering a sibling in your plan, there is a substantial possibility that he or she will pass away before you do. In that case, it is useful to revise the plan and select a new recipient of that share of your estate.
6. Divorce or Remarriage
Estate plans for single persons are quite different from those of married couples. A single person who transfers assets to a former spouse will not qualify for the unlimited marital deduction. While property settlements are typically handled during the dissolution of marriage proceedings, there are many cases where individuals forget to change beneficiary designations on retirement plans and insurance policies. Particularly if you later remarry and then pass away with a new spouse, there is a high likelihood of litigation between the ex-spouse and the new spouse if you have forgotten to update your beneficiary designations. Therefore, your plan and your beneficiary designations should always be reviewed in the event of a divorce or remarriage.
7. Substantial Change in Value
If your estate increases or decreases significantly in value, there can be major impact on beneficiaries. For example, mother has children A, B and C. She leaves a home valued at $300,000 to child A, a farm valued at $400,000 to child B and the liquid assets to child C. While she is in a nursing home and no longer able to change the will, oil is discovered on the farm. When mother passes away, child B receives not $400,000 but $4 million. To add insult to injury, the estate is now larger than the estate exemption and each child must pay estate tax on his or her inheritance. While child B with the largest inheritance will under most state tax apportionment laws pay the largest tax, it will be a matter of considerable sibling unhappiness for the two children who receive the smaller shares and still have to pay a large estate tax on their portion.
8. Adding a Major Property to a Living Trust
If you have a substantial estate, you may hold your real estate in a living trust. If you invest in real estate or acquire a major new property and transfer that to the living trust, it will be useful to review the plan. In some circumstances, there may be different beneficiaries for the living trust than for your qualified plans and life insurance. The addition of a high value asset to the living trust could increase the benefits for the persons receiving shares from the trust in comparison to the rest of your heirs.
9. Selected Executor or Trustee Not Available
With a will or a revocable living trust, you may also select a successor executor or trustee. While this usually will handle the situation in which the primary executor or trustee predeceases you, it still is useful to review your plan if one of these persons passes away. You can easily select a new primary executor or trustee with an appropriate backup person.
10. Passage of Time
Estate plans are affected by changes in your asset value, by changes in your family, and potentially by changes in federal or state law. Therefore, it is useful every three to five years for you to sit down with your attorney and review your plan. Given all the potential areas that can change, it's quite likely that you may wish to modify some portion of the plan.
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Required IRA and 401(k) Withdrawl Rules for Retirees
Can you give me the details on required IRA and 401(k) distributions? I turned 70 this year and want to be clear on what I'm required to do and when I'll have to do it.
The old saying "you can't take it with you" is definitely true when it comes to Uncle Sam and your tax-deferred retirement accounts. Here's what you should know about required retirement account distributions along with some tips to help you avoid extra taxes and penalties.
RMD Rules
Beginning at age 70½, the IRS requires owners of tax-deferred retirement accounts—such as traditional IRAs, SEP IRAs, SIMPLE IRAs, SARSEPs, 401(k)s, 403(b)s and 457s—to take annual required minimum distributions (RMDs) and pay taxes on those withdrawals. Why? The IRS doesn't want you hoarding your money in these accounts forever. They want their cut. Distributions are taxed as income at your ordinary income tax rate.
There are, however, two exceptions. Owners of Roth IRAs are not required to take a distribution, unless the Roth is inherited. And if you continue to work beyond age 70½, and you don't own 5% or more of the company you work for, you can delay withdrawals from your employer's retirement plan until after you retire. But if you have other non-work-related accounts, such as a traditional IRA or a 401(k) from a previous employer, you are still required to take RMDs from them at age 70½, even if you're still working.
RMD Deadlines
Generally, you must take your required distribution every year by Dec. 31. First-timers, however, can choose to delay taking their distribution until April 1 of the year following the year they turn 70½. For example, if your 70th birthday was in March 2015, you would turn 70½ in September and your required beginning date would be April 1, 2016. But if your 70th birthday occurred later in the year, say in August, you wouldn't turn 70½ until 2016. In that case, you would be required to take your first distribution by April 1, 2017.
But be careful about delaying. If you delay your first distribution, it may push you into a higher tax bracket because you must take your next distribution by December 31 of the same year.
Be aware that you can always withdraw more than the required amount, but if you don't take out the minimum, you'll be hit with a 50% penalty on the amount that you failed to withdraw, along with the income tax you owe on it.
Distribution Amounts
Your RMD is calculated by dividing your tax-deferred retirement account balance as of December 31 of the previous year by an IRS estimate of your life expectancy. A special rule applies if your spouse is the sole beneficiary and is more than 10 years younger than you.
IRA withdrawals must be calculated for each IRA you own, but you can withdraw the money from any IRA or combination of IRAs. 403(b) accounts also allow you to total the RMDs and take them from any account or combination of accounts.
With 401(k) plans, however, you must calculate the RMD for each plan and withdraw the appropriate amount from each account.
To calculate the size of your RMD, you can use the worksheets on the IRS website—see irs.gov/Retirement-Plans and click on "Required Minimum Distributions." Or, contact your IRA custodian or retirement plan administrator who can do the calculations for you.
For more information, call the IRS at 800-829-3676 and ask them to mail you a free copy of the "Distributions from Individual Retirement Arrangements" (Publication 590-B), or see irs.gov/pub/irs-pdf/p590b.pdf.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.Read More
YOUR PLAN
Tax-Free Sale
Howard and Lynn were age 55 when they purchased some land outside of town. They thought it would be a good investment that they could later sell for a higher price.
Over the years, development from town has moved toward the property and their land is now next to a large commercial store. They now rent the property to the commercial store for overflow parking.
Howard: We have owned this property for over 10 years. It has been a good investment and increased in value. We have received just enough rental income in the last few years to pay the taxes. However, we now would like to sell.
Lynn: It would be nice if we could sell without paying a large tax. Our tax advisor has told us that if we were to sell, there would be a large capital gains tax. We also could use some tax deductions this year.
The good news is that Howard and Lynn were able to create a special trust called a charitable remainder unitrust and receive three very nice benefits.
- Bypass capital gain
- Increase income
- Charitable deduction
Howard: We are delighted with our unitrust. With our unitrust, we saved about $36,000 in capital gains tax and almost $18,000 in income taxes. That is over $54,000 in tax savings!
Lynn: Plus, we increased our income. The land was producing almost no income before. Now, we receive over $12,000 in income each year. This increased income is one of my favorite parts of the plan.
*Please note: The name and image above is representative of a typical donor and may or may not be an actual donor to our organization. Since your unitrust benefits may be different, you may want to click here to view a color example of your benefits.
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Debate on Tax Policy
At the November 10 debate for Republican presidential candidates, the lead topic was tax policy. In response to specific tax questions by the moderators, several candidates explained their tax proposals.
Dr. Ben Carson was asked about his plan for a 10% tax based on the biblical tithe. He previously stated, “Everybody should pay the same proportion of what they make. You make $10 billion, you pay a billion. You make $10, you pay one. You get the same rights and privileges. I do not see how anything gets a whole lot fairer than that.”
When Carson was asked about potentially removing the deduction for home mortgage interest and charitable gifts, he commented, “But the fact of the matter is, people had homes before 1913 when we introduced the federal income tax, and later after that started deductions.”
He also continued, “We had churches before that and charitable organizations before that. The fact of the matter is, I believe if you put more money in people’s pockets, that they will actually be more generous rather than less generous.”
Real estate investor Donald Trump discussed the need to encourage multinational companies to return the $2.5 trillion currently held overseas. He proposes a 10% tax on funds repatriated to America. Trump commented, “A lot of money is going to come back in. We are going to get rid of the bureaucratic problems and roadblocks, because that is also a problem. And we are going to have all of this money poured back into the United States. It is going to be used to build businesses – for jobs and everything else.”
Texas Sen. Ted Cruz has proposed a flat rate of 10% on individuals and 16% on businesses. He suggests that this flat tax plan will lead to “incredible economic growth.” Cruz noted, “It costs less than virtually every other plan people have put up here, yet it produces more growth and it is one of the very few plans that abolishes the IRS.”
Ohio Gov. John Kasich has promised to balance the budget over eight years by combining tax cuts with spending reductions. He stated, “We have got to be responsible with what we propose on the tax side.”
Former Florida Gov. Jeb Bush proposed reducing both the personal and corporate rates by eliminating most deductions. He suggested that his plan would lead to a revived economy. Bush noted, “A 4% growth strategy starts with tax reform.”
Former Hewlett-Packard CEO Carly Fiorina has proposed reducing the 74,000 pages of the Internal Revenue Code and Regulations to just three pages. She has not yet explained how to accomplish this task.
Florida Sen. Marco Rubio was asked to comment on child tax credits. He proposes adding an additional $2,500 to the existing $1,000 credit. The cost estimate for this is over $1 trillion during a decade. Rubio emphasized the pro-family nature of the concept and stated, “Yes, I have a child tax credit increase, and I am proud of it. I am proud that I have a pro-family tax code, because the pro-family tax plan I have will strengthen the most important institution in the country, the family.”
Editor’s Note: This information is offered as a service to our readers. Your editor will continue to share tax proposals from candidates of both parties.
Identity Theft Victims May See Fraudulent Returns
Stolen Identity Refund Fraud (SIRF) has grown dramatically over the past decade. In response to repeated requests from victims, the IRS posted instructions on www.irs.gov enabling the release of fraudulent returns to these persons.
The IRS stated, “A victim of identity theft or a person authorized to obtain the identity theft victim’s tax information may request a redacted copy (one with some information blacked-out) of a fraudulent return that was filed and accepted by the IRS using the identity theft victim’s name and SSN. Due to federal privacy laws, the victim’s name and SSN must be listed as either the primary or secondary taxpayer on the fraudulent return.”
The basic procedure requires the victim to send the IRS his or her name, Social Security Number, address, tax year and state, “I declare that I am the taxpayer.”
The IRS will acknowledge the request for the fraudulent return within 30 days. The victim of SIRF should receive a redacted return within 90 days.
There are limits to the policy. The false returns will only be sent to the actual taxpayers. If you are a listed as a dependent, you will not qualify to receive the information. However, if you are a parent or legal guardian, you may request your child’s return.
Editor’s Note: Sen. Dan Coats (R-IN) is a member of the Senate Finance Committee and has been a leader in highlighting the growth in SIRF. He stated, “This announcement is good news for individuals who are victims of tax fraud.” Many SIRF victims and their advisors have expressed an interest in viewing the false returns so they are better able to protect themselves in the future.Read More
FINANCES
Stocks -
Macy's Sales Slide
Macy's, Inc. (M) announced its third quarter results on Wednesday, November 11. The department store retailer reported earnings that fell below expectations and resulted in a 14% drop in the company's share price.
The company reported sales of $5.87 billion during the quarter, a 5.2% decrease from sales of $6.2 billion during the same period last year. Analysts had expected sales to be $6.1 billion.
"We are disappointed that the pace of sales did not improve in the third quarter, as we had expected," said Chairman and CEO of Macy's Terry J. Lundgren. "Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy's and Bloomingdale's stores in tourist centers, which are some of our company's largest-volume and most profitable locations."
Macy's reported net income during the quarter of $118 million. This was less than the $217 million reported during the same period last year.
Macy's has faced some challenges this year as sales have dropped off. In an effort to combat falling sales, the company rolled out a pilot concept this fall called Macy's Backstage that sells lower-priced items. Macy's saw enough success with the concept that it announced plans to roll-out 50 more Macy's Backstage stores over the next two years.
Macy's, Inc. (M) shares ended the week at $39.10, down 19% for the week.
Viacom's Results Miss Expectations
Viacom Inc. (VIA) announced its fourth quarter and full-year results on Thursday, November 12. For the quarter the company reported results that were lower than the same period last year.
The company reported that revenue for the quarter was $3.79 billion, lower than an expected $3.88 billion. On an annual basis revenue was $13.27 billion, a 4% drop from $13.78 billion last year.
"Viacom continues to create some of the most compelling and entertaining content in the world," said Executive Chairman of Viacom Sumner M. Redstone. "I am confident that Viacom's leadership team will continue to lead through our industry's period of transition and succeed well into the future."
Viacom reported that earnings per share fell 10% during the quarter to $1.54 per share. Analysts had expected earnings per share of $1.55.
Investors were disappointed in Viacom's fourth quarter results. The company's filmed entertainment division was indicative of the tough quarter as its revenue fell 24%. As a traditional media distributor, Viacom has struggled in the competition for consumers against streaming services from Netflix, Amazon and YouTube. Investors were encouraged by Viacom CEO Philippe Dauman's promise that its film studio "will come back and come back strongly."
Viacom Inc. (VIA) shares ended the week at $51.88, up 6% for the week.
Popeyes Reports Quarterly Earnings
Popeyes Louisiana Kitchen, Inc. (PLKI) announced its third quarter results on Wednesday, November 11. The fast-growing chicken restaurant reported strong results that pleased investors.
The company reported that revenue during the quarter increased 11.3% to $61.1 million. In addition, same-store sales grew 6%.
Popeyes CEO Cheryl Bachelder had this to say about the results: "We are pleased to report another quarter of strong sales and earnings. Our combination of innovative menu offerings, media, and messaging delivered global same-store sales of 6.0% and continued market share gains. Going forward, increasing cash flows give us the opportunity to invest in key organic growth strategies, including people initiatives, technology and international expansion. We believe the execution of these strategies will help ensure strong, sustainable financial performance for all of our stakeholders."
Net income during the quarter was $10.6 million or $0.46 per share. During the same period last year net income was $9.8 million or $0.42 per share.
Popeyes was founded in 1972 as a fast-service, fried chicken restaurant. The company is named after Gene Hackman's famous character Jimmy "Popeye" Doyle from the Academy Award winning 1971 film The French Connection. The company currently operates and franchises 2,475 restaurants.
Popeyes Louisiana Kitchen, Inc. (PLKI) shares ended the week at $53.76, down 1% for the week.
The Dow started the week of 11/9 at 17,901 and closed at 17,245 on 11/13. The S&P 500 started the week at 2,097 and closed at 2,023. The NASDAQ started the week at 5,129 and closed at 4,928.
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Bonds Remain Captive to Fed Decisions
Treasury yields fluctuated once again this week with investors remaining uncertain whether the Federal Reserve will finally raise the benchmark short-term interest rate in December. Bond yields have been climbing the past few weeks, though they still remain mired at historically low levels.
On Monday the 10-year yield reached 2.343%, its highest level since July. On Tuesday it closed at 2.322% and Thursday at 2.319%. The bond market was closed on Wednesday in observance of Veteran's Day. During early Friday trading the 10-year yield was trading at 2.297%.
"Bond yields are not going to spike unless there is evidence that the Fed is falling behind the curve on controlling inflation," said Andrew Milligan, Head of Global Strategy at Standard Life Investments.
Fed funds futures showed on Thursday that there was a 70% likelihood that the Federal Reserve ill raise interest rates at its December 15-16 policy meeting. On Friday that percentage had fallen to 66%. Before the Fed's indication on October 28 that it is leaving open the door to raising interest rates this year, that number was 38%.
A couple data points released on Friday also helped drive down bond yields. Retail sales last month increased 0.1%, lower than an expected 0.3% increase. In addition, the producer price index decreased 0.4% in October.
The 10-year Treasury note yield finished the week of 11/9 at 2.28% while the 30-year Treasury note yield finished the week at 3.06%.
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Interest Rates Higher Again This Week
Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, November 12. The report showed interest rates rising for the second consecutive week on expectations that the Federal Reserve will finally raise the benchmark short-term interest rate.
The 30-year fixed rate mortgage averaged 3.98% this week. This represents an increase from last week when it averaged 3.87%. Last year at this time, the 30-year fixed rate mortgage averaged 4.01%.
This week, the 15-year fixed rate mortgage averaged 3.20%. This is up from last week when it averaged 3.09%. The 15-year fixed rate mortgage averaged 3.20% one year ago.
"A surprisingly strong October jobs report showed 271,000 jobs added and wage growth of 0.4% from last month, exceeding many experts' expectations," said Sean Becketti, Chief Economist at Freddie Mac. "The positive employment reports pushed Treasury yields to about 2.3% as investors responded by placing a higher likelihood on a December rate hike. Mortgage rates followed with the 30-year jumping 11 basis points to 3.98%, the highest since July. There is only one more employment report before the December FOMC meeting, which will have major implications on whether we see a rate hike in 2015."
The money market fund finished the week of 11/9 at 0.3%. The 1-year CD finished at 0.6%.
Read More Thank you for your interest in planned giving. To access any of our resources, please go to our website.
Your Brother in Yeshua (Jesus),
David Stone
Jews for Jesus
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