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Dear ,
Welcome to the July 2010 issue of The Wealth Chronicle.
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ESTATE PLANNING ESSENTIALS
When you pass away who would be the guardian of your kids, or how would someone locate your assets to distribute as you wish. What would happen to your business? These are all questions that are not pleasant to think about, but they are essential things that must be planned for.
Most people think once they have a Will they have completed their Estate Planning. For some people, a Will is enough to define who would be the guardian of your kids or how your assets should be distributed. However, a question that often comes up is whether you should write a will yourself or have one done by an attorney. An attorney I can recommend to help with a Will and/or Trust is Lawrence Lofaro of Lofaro & Headley Law Firm. 201-659-1141 llofaro@lofaro-headly.com.
If you dropped dead right after reading this article, would your survivors - your kids, your spouse, your family - have any idea where all of your accounts were or how to access your money? There are other tools in the Estate Planning toolbox that should be explored to assist in this situation, specifically a Master Document. A master document is a guide to the executor of your estate, containing all important information in one location. Information recommended to list in this document include: Living Trust, Durable Power of Attorney, Health Care Proxy, Living Will, and Business Succession Plan. I have detailed below what each of these items entail.
Living Trust
A Living Trust is a contract that holds title to and controls your assets. You put in that document all of your plans, wishes and desires. One difference of a living trust and a will is when they take effect. A will takes effect only when you die. A living trust takes effect when you execute it and begins to operate when you transfer assets to it. A key benefit of a Living Trust is that it avoids probate which could mean a significant cost and time savings.
Durable Power of Attorney
Durable Power of Attorney allows a person you designate to access and control your financial assets. It can take effect immediately, or it can launch into effect after an event you define such as incapacitation or unavailability.
Health Care Proxy
Heath Care Proxy identifies the person you would like to make medical decisions on your behalf if you become unable to make them yourself.
Living Will
With a Living Will, you can map out the care you wish for if life-sustaining medical treatment may be necessary and you are mentally unable to make the decision yourself.
Business Succession Plan
Estate planning for business owners is significantly different than it is for people who do not own a business. Most likely you have worked years on building your business, therefore it is absolutely necessary a business succession plan is carefully devised.
It makes sense to use all of the tools available to you to create your Estate Plan. If you do not create an Estate Plan one will be created for you. It is called an intestate plan, in which your estate is by default decided by a judge according to your state's law.
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SOCIAL SECURITY: THE EARNINGS TEST
Social Security is a complex topic and one of the areas that brings a lot of confusion is "The Earnings Test". Social Security withholds benefits if your earnings exceed a certain level ($14,160), called a retirement earnings test exempt amount, and if you are under your Full Retirement Age (FRA). Your FRA is between 65 and 67 depending on when you were born. If you exceed the retirement earnings test exempt amount Social Security will withhold $1 in benefits for every $2 of earnings.
An example will illustrate how this works:
Bob is 63 years old and is collecting $1,500 per month ($18,000 per year) in Social Security benefits Bob is still working and is earning $30,000 in income per year
Because Bob is under his Full Retirement Age and still working he must go through the Earnings Test
Subtract the earnings test exempt amount from his yearly earnings
$30,000 - $14,160 = $15,840
Divide the amount over the exempt level by 2
$15,840 / 2 = $7,920
The amount determined is step two is how much of Bob's Social Security benefits will be withheld. Instead of receiving $18,000 per year in Social Security benefits Bob would only receive $18,000 - $7,920 = $10,080
The following table shows how your Social Security benefits will be impacted by different earnings level. If you earn $14,160 or less your Social Security benefits will not be impacted. If you make between 60,000 and 70,000 you will have all of your Social Security benefits withheld.
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Few things to keep in mind regarding The Earnings Test:
Once you obtain your Full Retirement Age you are no longer subject to the Earnings Test. You are free to earn as much income as you would like (or are able to) and not have any Social Security benefits withheld. A question that comes up often in my Social Security Planning seminars is how a spouses earnings would impact their Social Security benefits since they file their taxes jointly. The following example should detail how this situation would work. Bob and Jane are both 62 years old. Bob plans to continue working, potentially until he is 70. Jane is looking to retire and start taking collecting her Social Security benefit now.
Jane would like to know if Bob's earnings would impact the amount of Social Security benefits she would receive. ANSWER: Even though Bob and Jane file their taxes jointly, The Earnings Test for Jane would be based off of her W-2 and not off of their joint tax return. In other words, the amount of money that Bob earns is irrelevant to Jane's Social Security benefits.
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The Lion of Fallujah
I first met Doug Zembiec at the Naval Academy where we were teammates on the Navy wrestling team. Doug was a senior while I was a freshman. The first day I walked in the wrestling room I could see Doug had a presence about him and would be a charismatic leader. Doug became a two time All-American and after graduating from the Academy he began his career in the Marine Corps. I never spoke to Doug after he graduated, but came across his story on the internet about a year ago.
 Doug Zembiec became a Major in the Marine Corp during Operation Enduring Freedom in Iraq. Doug was a throwback in the military and was given the nickname of "The Unapologetic Warrior" from a 2004 article where he was profiled in the Los Angeles Times. In the article, Doug candidly reveals his viewpoint as an officer in the Marines.
When most people refer to bravery in the military we usually look back to stories from wars in the past. However, for nearly the last decade, war has been raging in the Middle East and Afghanistan from which there are many heroes we need to recognize. Below are accounts of battles Doug was a part of which demonstrate his determination, persistence and bravery.
In early April of 2004, Zembiec's company was sent in to help pacify Fallujah and restore order in a city where violence had spiraled out of control. During the month-long battle to claim Fallujah, Zembiec's Echo Company was often the first one in and the last one out.
On April 6, Zembiec, a captain at the time, found himself deep in insurgent territory in Fallujah's Jolan district. A Marine patrol was taking heavy fire, and Zembiec's unit was called in to lead a retaliatory assault. Right after arriving, Echo Company rushed toward the enemies, who launched a heavy volley of fire toward the new arrivals. Instead of directing from the back, Zembiec himself led the men toward the fire, determined to help the trapped patrol.
His men moved to a roof to counter the insurgents who had been firing down from above. The enemies wasted no time and focused their AK-47- and RPG-fire on the Marines on the roof. The Marines tried to radio an Abrams tank to fire on the enemy, but the tank didn't respond. As they continued to call for assistance, Zembiec decided to take matters into his own hands.
He raced down the stairs and directly into the line of fire, heading toward the tank. He climbed up to the hatch even as mortar rounds exploded nearby and bullets ricocheted off the metal. Unscathed, he told the tank operators where to fire. The tank made quick work of the enemy, and Zembiec ran back to the roof. Witnesses say the other Marines dropped their jaws in awe of his bravery.
A few weeks later, on April 26, insurgents opened fire on Zembiec's platoon from three sides, with thousands of rounds. Grenades flew back and forth between the enemy and his men - with only 20 feet between them. Zembiec, wounded by shrapnel, moved to a better position to direct the counterattack. He then moved from house to house, encouraging and motivating his men and repositioning the outnumbered Marines. Even as the battle raged, Zembiec coordinated the evacuation of nine injured Marines.
Later, despite being assigned to a desk job, Zembiec volunteered to return to the frontlines. He completed a tour in Afghanistan and returned to Iraq again. On May 11, 2007, Zembiec was killed in Baghdad, Iraq, while leading a combat operation.
Doug did a lot of writing in a journal that he left behind. The following are some quotes that were found in his journal:
Be a man of principle. Fight for what you believe in. Keep your word. Live with integrity. Be brave. Believe in something bigger than yourself. Serve your country.
Teach. Mentor. Give something back to society. Lead from the front. Conquer your fears. Be a good friend. Be humble and be self-confident.
Appreciate your friends and family. Be a leader and not a follower. Be valorous on the field of battle. And take responsibility for your actions.
Never forget those that were killed. And never let rest those that killed them.
Doug's High School wrestling coach really sums up his character best:
"If you took 100 Doug Zembiecs to war with you, you could conquer the world."
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The Great Depression Ahead, by Harry Dent, Jr.
BOOK REVIEW
No matter where you look you can find an opinion by someone on how the market is doing and how it will perform in the future. Some people predict the economy has righted itself, while others predict there is more downside ahead. You can get this information from everyone including economists with PhD's to taxi drivers. Sometimes these people flip flop their minds and their opinions change daily, weekly, or monthly.
 One person who has not wavered in their market predictions is Harry Dent. Harry is an economist with an MBA from Harvard. In addition to "The Great Depression Ahead, he has published several other books, most notably "The Great Boom Ahead", which in 1992 predicted the economic boom of the 90's. Dent's theory on what will cause the upcoming Depression is different than what most economists believe. Most economists
and market predictors think problems in the future with the economy will be caused by the real estate housing bubble, credit issues, large debt taken on by countries, and high unemployment rates. Dent believes all of those will contribute to the downturn, but his main theory is also based on historic cycles in a couple of different areas: Demographics Dent's research shows that the world is approaching the greatest demographic and thus economic shift in modern history. His theory is that by 2010, the populations of Europe and North America, the engines that have driven the economic world for centuries will set to age and begin slowing down long term (Similar to what has happened in Japan since 1990). Dent believes that there will be explosive growth in Asia for decades to come. Because of these trends he predicts a major economic slowdown between 2010 - 2020. Asian economies would continue to grow, however because the Asian economies have a dependence on exporting their products and services to the West they would also feel the pain. When the economy picks up again in 2020 Dent expects the Asian economies to be at the forefront.
Innovation A growing economy needs innovation. Things like the car, personal computer, and the airplane all spurred economic growth over a period of time. Without innovation the economy stagnates. The concerns over demographic trends that are mentioned above will lead way to a slowing of innovation and technological progress as there are fewer young people to innovate and challenge the established systems. Conclusion The book is full of graphs, charts and details showing how these cycles played out throughout history and how they will impact us in the upcoming years. Dent is brave about his predictions giving both long and short term advice on what to buy and sell and when to do it. It will be interesting to see if his predictions come true.
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Monthly Tidbits
· The Dow rose 511.55 points on the week ending July 10th. This was the best week of the down in over 12 months and came after a disastrous June and first week of July. High volatility in the market should continue especially as the second quarter corporate earnings season is about to begin.
· Two upcoming important economic dates are July 23, which we will find out the results of the European Bank Stress Tests. I would expect the results to be positive as that is what a stress test is meant to do (show that the banks are stable). The other important date is July 27, in which we will see the latest GDP numbers. If the numbers are not as expected we could see a dip in the market.
· Don't think the amount of debt the US is taking on is a problem. According to economist Niall Ferguson: The US Has 6 Years Before Debt Payments Surpass Defense Spending.
· The Biggest Defaulters of Mortgages are the Rich! Can you believe that? More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
· Lebron's move to Miami not only with a better winters than in Cleveland, but also in a significant tax savings. Florida has no income tax, whereas the rate in Akron, Ohio is a little over 7%. Lebron's tax savings over his figured $100 million dollar contract would be between $6 and $8 million. |
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Please contact me if you have any questions about the articles above or about your personal or business finances.
Sincerely,
Marc Bautis
Wealth Manager
tel: 201-221-6895
fax: 201-754-9760
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Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation. You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter
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 | MEET MARC
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Marc Bautis is a Wealth Manager specializing in working with retirees and those nearing retirement who want to protect their principal and ensure their money lasts. He is committed and proud to deliver independent advice, always in his clients best interest.
Marc is a graduate of Seton Hall University. He is a Bergen County native, from Lyndhurst, where much of his extended family still resides. He currently lives in Hasbrouck Heights with his wife Katie and Old English Bulldog, Winnie.
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