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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.
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David Stone
Director of Donor Relations
PERSONAL PLANNER
Irrevocable Life Insurance Trust (ILIT)
Protection With a Less-Than-Perfect Family
Susan and Steve had been talking to their tax attorney, Elizabeth, about plans for their family. Susan is very concerned about their family.
Susan: "I wish that we had a perfect family, but we must admit we don't. We have three children. Our first child is out on his own, has a good job and is doing fine. But our second child has had substance abuse problems and recently was released from rehabilitation. He now seems fine but he has had relapses before. Our third child is a very sweet young woman who unfortunately has been married, divorced and is now remarried. But she is now going through some real rough spots in her new marriage. How can we protect our three children with so many risks?"
Steve: "We've been very fortunate and our business has grown quite large. We have an offer for the business and have been told that we could sell it tax free through a special charitable trust. That sounds like a great idea, but we need to set up an inheritance for the children and it must be done in a way that protects them. How can we do this? What's the best way to sell our business tax free and replace the inheritance for the children?"
Elizabeth: "We have a great plan that achieves all of those goals. You will be able to sell your business tax free and set up a special trust that holds an insurance policy for the benefit of your children. After both of you pass away, the trust will receive the insurance proceeds income and estate tax free. The full amount can be invested to provide new taxable income for the lives of your children."
When to Use a Life Insurance Trust
A very beneficial estate planning strategy to protect your "less-than-perfect" family is to create a trust that owns life insurance. To gain the maximum benefit from this trust, it is irrevocable after it is created. Your advisor will usually call this an irrevocable life insurance trust (ILIT).
Benefits of an ILIT
Management. If you have a substantial estate and plan to pass a significant inheritance to children, a trust enables you to select the child or the financial institution that will be best qualified to manage significant assets.
Income Rather Than Principal. Many parents are faced with Steve and Susan's problem. They have one or more children who will act in harmful ways with a substantial amount of principal. So the best solution is to provide income to everyone for a term of years or for life. A trust is an excellent method for this purpose. The trustee can also have discretion to distribute principal, or at an age you select the trust property can be given to your children.
Tax Savings. If your estate is more than the federal exemption, it may in future years be subject to taxes at a very high rate. For individuals who support charity, a great plan is to create a trust or make charitable gifts with the majority of the estate and replace the gifted property with an insurance trust. Steve and Susan can create a two-life charitable remainder trust and benefit from a tax-free sale and life income for themselves. After they pass away, their children will benefit from the insurance proceeds in the ILIT.
How Does the ILIT Work?
ILIT Goals. If you have a large estate, a very important goal is to make sure the ILIT is not subject to estate tax. In order to protect the ILIT from taxes, Steve and Susan cannot retain specific powers over the trust or the life insurance. Specifically, they cannot have the right to cash in the policy, to borrow against it, or even to designate the beneficiaries. The policy is purchased with the trust as the beneficiary and will not be changed after it is first acquired by the trust.
Gift of Premiums. Steve and Susan will need to make annual gifts to the ILIT to pay the insurance premiums. Because they can use their annual exclusion, they are able to fund a very substantial policy ($14,000 for each parent times three children equals as much as $84,000 per year in 2015—with indexing of the annual exclusion, it may be more in future years). When they transfer the premium amount to the trustee, their children each receive a special right known as a "Crummey" power, named after the first person to use this concept. Under their Crummey power, the children have 30 days to spend the money. With appropriate parental guidance, the children do not spend the money and it may then be used for payment of insurance premiums. Because the 2015 annual exclusion gift of $14,000 requires the child to be able to spend the money for a short period of time, the Crummey power is an essential part of the ILIT.
ILIT Insurance Policies. There are two ways for the insurance policy to be transferred to the ILIT. The first and preferred method is for the ILIT to actually purchase a new policy. However, if you or your spouse are not insurable, in some cases an existing policy is given to the ILIT. If you give an existing policy to the ILIT, in order for the ILIT to be estate tax free you must survive for at least three years.
Trustee
Child as Trustee. Many parents will select one of the children as trustee, preferably one with good financial skills. The child frequently serves for a reduced fee or no fee. The disadvantage for the child serving as trustee is that he or she may have conflicts with other siblings.
Financial Institution as Trustee. The second option is for a bank or trust company to serve as trustee. If the insurance trust is quite large, the objective nature of the bank or trust institution may make this a good option. In considering a bank or financial institution as trustee, Steve and Susan should understand the costs for the investment and administration services of the bank after the insurance proceeds have been received and the trust is funded.
ILIT Options
Income. After the demise of Steve and Susan, the trustee will invest the insurance proceeds and pay income to the beneficiaries. Some trusts last until the beneficiary has reached a specific age, or the trust may last for their lifetimes. With the concern about protecting a child with a substance abuse problem and the marital relationship problems of their daughter, Steve and Susan decided to continue the income stream for the lives of their children. The primary goal of many parents is to provide an additional level of economic security for the children. This income stream will provide payouts for the rest of their lifetimes.
Ability to Distribute Principal. The trustee may be given permission to distribute principal. This could be based upon such standards as health, education, maintenance and support, or may be discretionary with the trustee. Steve and Susan permitted their trustee to make distributions for medical care but not for enhanced lifestyle. Steve asked, "What is likely to be the result if two of our children receive principal?" Based on the belief that principal distributions will be used for unneeded and perhaps unhealthy purposes, their trust will pay income and, if required, medical expenses.
Income Taxes on New Trust Income. While the insurance proceeds are tax free to the trust as long as there has been no violation of the insurance guidelines, the new income that is earned and distributed to the children will be taxable. If the income were retained in the trust, the trust would pay the tax. However, because most income would be distributed to the children, they will pay the ordinary income or capital gains tax on their trust distributions.
SAVVY LIVINGHow to Make Your Bathroom Safer
What tips do you recommend for making a bathroom safer and more functional for seniors? My 79-year-old mother slipped and fell getting out of the shower last month and I’d like to add some safety features to her bathroom to help protect her.
More accidents and injuries occur in the bathroom than any other room in the house. As a result, the bathroom is a very important room to modify for safety purposes. Here are some tips that can make the bathroom safer.
Flooring: Non-skid bath rugs can help elderly bathers avoid slipping. Alternatively, slip-resistant tiles, rubber or vinyl flooring or carpet will also provide safety from slipping.
Lighting: Good lighting is also very important. Install the highest wattage bulbs allowed for your mom’s bathroom fixtures and get a plug-in nightlight that automatically turns on when the room darkens.
Bathtub/Shower: To make bathing safer, purchase a rubber suction-grip mat or put down adhesive nonskid tape on the tub/shower floor. Also, have a carpenter install grab bars in and around the tub/shower for support.
If your mom uses a shower curtain, install a screw or bolt-mounted curtain rod instead of a tension-mounted rod. That way, the rod won’t spring loose if she loses her balance and grabs the shower curtain.
If your mom has mobility issues or balance problems, get her a shower or bathtub seat so she can bathe from a seated position. In addition, you may also want to get a handheld, adjustable-height showerhead installed that will make washing while sitting down easier.
Another, pricier option is to install a walk-in-bathtub or a prefabricated curbless shower. Walk-in tubs have a door in front that provides a much lower threshold to step over than a standard tub. They also typically have a built-in seat, handrails and a slip resistant bottom. Some even have therapeutic spa features with whirlpool water jets and/or bubble massage air jets.
Curbless showers have no threshold to step over, and typically come with a built-in seat, grab bars, slip resistant floors and an adjustable handheld showerhead. Prefabricated curbless showers and walk-in-tubs typically cost anywhere between $2,500 and $10,000 to install.
Toilet: Most toilets are about 14 to 16 inches high and this can be an issue for many people with arthritis, back, hip or knee problems. To raise the toilet height, which can make sitting down and getting back up a little easier, you can purchase a raised toilet seat that clamps to the toilet bowl and/or purchase toilet safety rails that sit on each side of the seat for support. Alternatively, you can install an ADA compliant toilet that ranges between 17 and 19 inches high.
Faucets: If your mom has twist handles on the sink, bathtub or shower, replace them with lever handle faucets. They’re easier to operate, especially for seniors with arthritis or limited hand strength. Also note that it only takes 130-degree water to scald someone. So, turn her hot water heater down to 120 degrees.
Entrance: If your mom needs a wider bathroom entrance to accommodate a walker or wheelchair, install some “swing clear” offset hinges on the door that will widen the doorway an additional two inches.
Emergency Assistance: As a safety precaution, purchase a waterproof phone for the bathroom or get a medical alert device (SOS emergency call button) that your mom can wear in case she falls and needs to call for help.
You can find all of the products suggested in this column at medical supply stores, pharmacies, big-box stores, home improvement stores, hardware stores or plumbing supply stores as well as online.
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.
YOUR PLANGive it Twice Trust
website, June, a surviving spouse, came across the idea of a Give it Twice Trust. She contacted the charity for more information and talked with a gift planner who explained the concept as a way to first give income to children through a trust and then transfer the trust balance to charity in the future.
June: Fred and I talked about this before he passed away. We both agreed that we wanted to treat each of our four children equally and also provide a benefit to our favorite charity.
The gift planner told June that with her estate of $800,000 she would have the ability to do something significant for both her family and favorite charity. June was concerned because while her three older children are financially responsible, her youngest, Jim, "spends money like water." June was afraid that if Jim were to receive cash in a lump sum he would spend it right away.
The gift planner explained that the "Give It Twice" plan could be very helpful. June could transfer $400,000 from her IRA at death to the trust. Her children would each receive one-fourth of the income from the trust over 20 years. That would give Jim a chance to learn to save and invest. After that time, the trust balance would benefit her charity. In addition, by using her IRA, June could save on income tax because the special trust is tax-exempt.
June: I established a Give it Twice Trust and was thrilled with the plan. The prospect of helping my four children and my favorite charity made me happy and I knew that it was the right thing to do.
WASHINGTON NEWSIRS “Dirty Dozen” Tax Scams
On February 9 the IRS published IR-2015-26 and listed all 12 of the “Dirty Dozen” tax scams for 2015. IRS Commissioner John Koskinen noted that the list highlights two items – phone scams and email “phishing” attempts.
Koskinen stated, “We are doing everything we can to help taxpayers avoid scams as the tax season continues. Whether it is a phone scam or scheme to steal a taxpayer’s identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit www.irs.gov for more information and to be wary of these dozen tax scams.”
1. Phone Scams – Criminals impersonate IRS agents and threaten taxpayers with arrest, deportation or license revocation in order to steal the taxpayers’ identity.
2. Phishing – Fake emails or websites are used to steal personal information. The email may attempt to gain access to your personal information. Koskinen emphasized that the IRS does not email taxpayers about a tax bill or refund.
3. Identity Theft – Criminals continue to steal Social Security numbers and attempt to eFile and obtain an early tax refund.
4. Return Preparer Fraud – Unscrupulous return preparers may be involved in refund fraud or identity theft.
5. Offshore Tax Avoidance – It is unlawful to hide money and income offshore. The IRS Offshore Voluntary Disclosure Program (OVDP) may help you get your taxes in order.
6. Inflated Refund Claims – Do not sign a blank return or have your tax return prepared by someone who bases their fees on a percentage of your refund.
7. Fake Charity – There are individuals who claim to represent a charitable organization and solicit donations. You should check to be sure that your gifts go to legitimate charities that qualify for a deduction.
8. Fake Documents – Some individuals attempt to hide income by filing a false Form 1099 or other documents. A taxpayer is responsible for paying his or her tax, regardless of who prepares the return.
9. Abusive Tax Shelters – There are complex tax avoidance schemes that sound “too good to be true.” You should seek advice of a qualified advisor before using any aggressive tax strategy.
10. Inventing Income to Claim Credits – Some taxpayers have claimed increased income in an effort to qualify for the earned income tax credit.
11. Fuel Tax Credits – The fuel tax credit for off-highway business use, such as farming, can be used to apply for an improper tax refund.
12. Frivolous Tax Arguments – Various promoters have urged taxpayers to make unreasonable and outlandish claims. These claims have regularly been held invalid by the courts and tax protesters have suffered substantial penalties.
IRS Reports Busy 2015 Tax Season
The IRS reports that tax return volume is increasing this year. By January 31, over 14 million tax returns had been filed. Thirteen million of these returns were eFiled.
IRS Commissioner Koskinen stated, “We encourage taxpayers to eFile their returns since it is the quickest, safest and most accurate way to file and the fastest way to get a refund. We also urge taxpayers to take advantage of the many online resources available through our website.”
With staff reductions and reduced phone service, the IRS has been urging taxpayers to use www.irs.gov. Over 65 million visits have already occurred to the website. This represents an increase of 49% from 2014.
The IRS has already issued 7.6 million refunds with total value of $26.8 billion. The average refund has been $3,539. Most of the refunds have been transferred through direct deposit. The 7.3 million direct deposit refunds equal $26.2 billion.
In view of the reduced staff and the peak calling periods during February, Koskinen noted, “The entire week of President’s holiday marks a peak time in the number of calls to the IRS, and we encourage taxpayers to visit www.irs.gov as the best place to get quick help and answers to your questions.”
There are four prime topics on www.irs.gov that taxpayers are exploring.
1. Refund Status – The “Where’s my refund?” tool on www.irs.gov is quite popular. It’s also available on the smartphone app called IRS2Go.
2. No W-2 – Employers are required to mail Form W-2, Statement of Earnings, by January 31 each year. Employees who have not yet received that form should contact their employer for a duplicate copy.
3. Copy of a Tax Return – If you desire to obtain a copy of a return or view a transcript of your tax return, you may file IRS Form 4506-T or use the IRS.gov application with the title “Get Transcript.”
4. Affordable Care Act – Most taxpayers will simply need to check a box to affirm that they have qualified healthcare coverage. IRS publication 5201, The Healthcare Law, also may be helpful in explaining the Affordable Care Act requirements.
5. TeleTax – The IRS provides recorded explanations on many general and business tax topics at 1-800-829-4477.
FINANCESStocks - Pepsi's Quarter Pops
PepsiCo, Inc. (PEP) reported its fourth quarter results on Wednesday, February 11. The company exceeded expectations a day after rival Coca-Cola reported its own quarterly success.
Pepsi reported that revenue during the quarter was $19.95 billion. This beat analyst forecasts calling for revenue of $19.78 billion.
"We are pleased to report that we met or exceeded each of our full-year 2014 financial targets," said PepsiCo Chairman and CEO Indra Nooyi. "Our results are a reflection of our diverse global footprint, the strength of our integrated food and beverage product portfolio, successful innovation and exceptional marketplace execution."
Pepsi reported earnings per share of $1.12 during the quarter. This was higher than the average forecast of $1.08 per share.
Pepsi's successful quarter received ample help from its Frito-Lay division, seller of Doritos, Fritos and Cheetos. Sales at the Frito-Lay division grew 3.5% during the quarter. In Pepsi's conference call, CEO Nooyi mentioned that 2015 is the 50th-year anniversary of Pepsi's merger with Frito-Lay. Following the earnings release, Pepsi's share price rose 2.5%.
PepsiCo, Inc. (PEP) shares ended the week at $99.13, up 2.6% for the week.
Tesla's Earnings Lack a Charge
Tesla Motors, Inc. (TSLA) reported its fourth quarter results on Wednesday, February 11. The results underwhelmed investors even as Tesla founder Elon Musk announced ambitious expansion plans.
Tesla reported revenue of $1.1 billion during the quarter. This fell below consensus estimates that revenue would be $1.23 billion.
"As we continue to invest in the long term growth of Tesla, 2015 capital spending and operating expenses will increase, but at a more moderate pace than last year," said Tesla Chairman and CEO Elon Musk in a letter to shareholders. "We are looking forward to achieving significant milestones in 2015, in addition to seeing our customers reach the billion miles driven mark."
Tesla reported a net loss during the quarter of $0.13. Analysts had expected a profit of $0.32 per share.
Tesla delivered a record 9,834 vehicles during the quarter, but this missed the company's own estimates by 1,345 vehicles. Despite the disappointing quarter, Tesla CEO Elon Musk announced ambitious plans for the company. Tesla plans to spend $1.5 billion on capital expenditures during the year. The plan is for Tesla's market valuation to reach $700 billion over the next decade. While that goal may be within reach, Tesla's latest quarter indicates it will not be easy. After Tesla reported its fourth quarter earnings, shares fell 9.2%.
Tesla Motors, Inc. (TSLA) shares ended the week at $203.77, down 5.4% for the week.
Cheesecake Factory Reports Earnings
The Cheesecake Factory, Inc. (CAKE) reported its fourth quarter earnings on Wednesday, February 11. The company's results fell short of pre-release estimates.
Revenue during the quarter was $499.7 million compared to $475.1 million during the same period last year. This was below estimates calling for revenue of $510 million.
"We continued to achieve a consistent level of sales at our existing Cheesecake Factory restaurants, with the fourth quarter completing our fifth consecutive year of delivering positive quarterly comparable sales," said The Cheesecake Factory Chairman and CEO David Overton. "In addition, our newer restaurants continue to outperform our Company average in sales per square foot, which speaks to the strength of our brand and multi-generational appeal."
Cheesecake Factory reported earnings per share of $0.48 during the quarter. This missed estimates calling for earnings of $0.60 per share.
The Cheesecake Factory was able to improve over last year's fourth quarter, but not to the extent analysts hoped. The company indicated cost pressures contributed to the weaker-than-expected results. Over the past twelve months the company's share price has risen 18%.
The Cheesecake Factory, Inc. (CAKE) shares ended the week at $48.22, down 9.6% for the week.
The Dow started the week of 2/9 at 17,821 and closed at 18,019 on 2/13. The S&P 500 started the week at 2,053 and closed at 2,097. The NASDAQ started the week at 4,724 and closed at 4,894.
Bonds - Bonds Rise on Economic News
Bond prices rose and yields fell this week amid difficult economic reports and growing uncertainty in Europe. Reports show that consumer confidence fell and applications for unemployment benefits rose this past week.
The University of Michigan preliminary sentiment index decreased from 98.1 on January 31 to 93.6 this past week. Economists surveyed by Bloomberg expected that the index would remain between 96 and 100. The index is based on a survey of consumers conducted by the University of Michigan. Consumers are asked how they view their own financial situation as well as the general economy in both the long and short term. The index allows investors and economists to determine the direction and strength of consumer sentiment.
Part of the decline in positive consumer sentiment may be due to the increase in oil prices this past week. The increase in oil prices caused the price of gasoline to rise to an average of $2.24 per gallon. The average price was $2.03 per gallon on January 25. A rise in gasoline prices reduces disposable income and affects consumer sentiment.
Claims for unemployment benefits increased by 25,000 to 304,000 last week. This increase was bigger than forecast and comes on the heels of an impressive jobs report for the month of January. This initiated discussion about the timing of the Federal Reserve's borrowing rate increase that is scheduled for some time this year.
Finally, retail sales fell 0.8% in January. "It was very weak consumer news," said Brian Edmonds, Head of Interest Rates at Cantor Fitzgerald LP. "The [retail sales] report makes a rate increase in June less likely. But the Fed wants to move away from zero interest rate policy. The issue will become how far can they possibly move."
Given this weak consumer news bond prices rose and yields fell. The 10-year Treasury bond yield fell to 1.95% after the retail sales report was released. It was trading around 1.98% in late Thursday trading.
The 10-year Treasury note yield finished the week of 2/9 at 2.02% while the 30-year Treasury note yield finished the week at 2.63%.
CDs and Mortgages - Interest Rates Move Higher
Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, February 12. The results show mortgage rates rising this week on the back of a strong jobs report for January.
The 30-year fixed rate mortgage averaged 3.69% this week. This was up from last week when it averaged 3.59%.
This week, the 15-year fixed rate mortgage averaged 2.99%. This number was an increase from last week when it averaged 2.92%.
"Mortgage rates rose this week following strong economic data," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "The economy added 257,000 new jobs in January after robust increases of 329,000 in December and 423,000 in November. The unemployment rate edged up to 5.7% last month from 5.6% in December. Average hourly earnings rose 0.5%, following a 0.2% decline in December."
The money market fund finished the week of 2/9 at 0.4%. The 1-year CD finished at 0.7%.
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
Jews for Jesus
60 Haight Street
San Francisco, California 94102 United States
Phone 415-864-2600
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