In This Issue
Featured Article
'Tis Better to Give than Receive
Curt's Quick Comment
The Benefits of a Living Trust
From the Financial Presses
Quick Links
Featured Article
I've recently been selected to speak at the Annual National Conference on Financial Education presented by the Institute for Financial Literacy.  The conference will be in April and my presentation is  Soldiers, Sailors and Their Taxes.  You can find out more about the conference by clicking here.
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Financial Strategies
Planning Techniques, Procedures and Guidance for Military Professionals

Merry Christmas and welcome to the December edition of Financial Strategies.  This edition has a focus on Estate Planning techniques.
My first article talks about gifts and how they can be used in a comprehensive financial plan to meet your wishes and minimize estate and income taxes.
My quick comment talks about how you can control your taxes by timing the purchase of mutual funds this month.
Next there is an article about Living Trusts and how they can be used in your estate plan.
Finally, I wrap up with a couple of articles from the Financial Presses.  The first talks about baby boomers and estates and the second reminds us about debt (which is a timely topic this time of year).
I did want to hit two topics about me as well.  The first is a brag.  I've been selected to speak at a National Conference.  You can see more in my Featured Article to left.  Second, I've decided to start doing tax preparation this tax season.  Check back here next month for special pricing for Financial Strategies readers.
I hope your holidays are happy and that your New Year is happy.  By the way, don't forget to pause for a moment today and remember those who gave their life during the attack at Pearl Harbor.

Merry Christmas!

Curtis L. Sheldon, EA
C.L. Sheldon & Company, LLC
(703)542-400 or (800) 928-1820
'Tis Better to Give than Receive 


Well, as we all know now is the season of giving.  And while most of think of gifts for the holidays, gifts can also be an effective financial planning tool as well.  Gifts can either reduce your income tax or estate tax (or both).  Gifts can also help your family or charities and make you feel pretty good too.  In this article, I'll take a quick look at some gift basics and how they can be used in a comprehensive financial plan.


First off, you can give as much money as you want to anyone you want. Period. Whether the IRS wants a piece of that gift is another matter. The person who receives the gift won't owe any taxes, but the giver might. So let's take a look.


Marital Exclusion. You can give as much to your spouse as you want with no Gift Tax impacts. This is because the IRS considers the married couple a single economic unit.


Annual Gift Tax Exclusion. Each individual can give $13,000 to anyone ($14,000 starting in 2013), each year with no Gift Tax due. But, it isn't quite that simple. The gift must be of a present interest. That means that the receiver of the gift has immediate use of the gift. You can't put restrictions (through a trust for example) on when they can use the funds. There are ways to get around this rule, but they are too involved for this article. By the way, a married couple can give twice the amounts above ($26,000 and $28,000) to an individual.


Lifetime Gift Tax Exemption. You can give an additional $5,120,000 (in 2012) without Gift Tax consequences. However, the Gift Tax exemption is "joined" with the estate tax exemption. Every dollar of exemption you take as a gift reduces the amount of your estate that can pass estate tax free.


Gifts to Charity. From a Gift Tax perspective you can give as much as you want to any recognized charity with no tax consequences. There are, however, limits on how much you can deduct on your income taxes (limited as a percent of Adjusted Gross Income) depending on the type of gift given.


So, what can you do with gifts? There are several options.


Income Taxes.  If income taxes are a concern, you can gift appreciated taxes to someone who is in a lower tax bracket. This most likely would involve a parent that wants to help a child or perhaps some other relative. Rather than give money, it might make more sense to give an appreciated security to the child and let the child sell it and be taxed at a lower rate. This is especially effective in 2012 as the lowest long-term capital gains tax rate is 0% (if the person who receives and sells the gift is in the 10% or 15% tax bracket). You can replace the asset sold immediately with the money you were going to give to the child and you'll never owe taxes on the gain.


Estate Taxes. If you have assets that will appreciate significantly in the future you can get them out of your estate now and effectively multiply the amount of your estate tax exemption (remember in 2013 it is going down to $1,000,000). Here is an example. Let's say you have an asset that is worth $750,000 today and by the time you "expect" to die the asset will be worth $1,500,000. If you hold on to the asset, your estate will owe estate taxes on $500,000 (which could be $175,000 or more). If, on the other hand you gift the asset today and use the gift tax exclusion you will pass the asset to heirs with no gift or future estate tax...saving about $175,000 in taxes.


Supporting Charities. If you want to support charities there are several methods through trusts and annuities that can provide you an income tax deduction today, reduce your taxable estate in the future, and provide you with an income stream to live on. A couple of examples are Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unit Trusts (CRUTs). These techniques are complicated, but may be quite rewarding financially for both you and your favorite charity.


As you can see, there are a lot of things that can be done with gifts. You, of course, want to start with the desire to help someone or some charity, but there is nothing wrong with using the tax law to your maximum benefit.

Curt's Quick Comment


Don't buy a tax bill this December.  If you buy mutual funds outside of tax advantaged accounts (IRA, 401(k), TSP), you want to make sure you purchase the mutual funds after it has paid out dividends and capital gains.  Otherwise you'll owe taxes on the gain, without really making any money.

The Benefits of a Living Trust


When considering your estate planning needs, it can be beneficial to have the tools necessary to distribute your assets in the way you want. While a will is necessary for most people, there are also advantages to a living trust.
A living trust is a written legal document that partially substitutes for a will. The trust is administered for your benefit during your lifetime, and then transfers to your beneficiaries when you die. It can help ensure that your assets will be managed according to your wishes -- even if you become unable to manage them yourself.
Almost any type of asset can be placed in a trust: savings accounts, stocks, bonds, real estate, life insurance, business interests, and personal property. To fund a trust, you simply change the name or title on your assets to the name of the trust.
When establishing a living trust, most people name themselves as the trustee in charge of managing the trust's assets. You can also name a successor trustee -- either a person or an institution -- who will manage the trust's assets if you ever become unable or unwilling to do so yourself. You can amend or revoke the trust at any time.
At your death, the trustee -- similar to the executor of a will -- would then gather your assets; pay any debts, claims and taxes; and distribute your assets according to your instructions. Unlike a will, however, this can all be done without court supervision or approval. And because the trust would not be under the direct management of the probate court, your assets and their value (as well as your beneficiaries' identities) would not become a public record.
Since a living trust can hold both separate and community property, it may be a convenient estate planning vehicle for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document. A living trust does not exempt the assets from estate taxes or state inheritance taxes.
Living trusts are most appropriate for those with substantial assets or complex estates. In general, financial planners frequently recommend them for individuals or couples with an estate of $1 million or more. Estates of this size typically are subjected to probate in the deceased's state of residence, which can cost anywhere between 2% and 4% of the estate's value in court and legal fees and can take months to settle.
Do You Still Need a Will?
A will is an essential backup device for property that you don't transfer to yourself as trustee. If you don't have a will, any property that isn't transferred by your living trust or other probate-avoidance device will go to your closest relatives in an order determined by state law. These laws may not distribute your property in the way you would have chosen. Also, if you have minor children, you need a will to establish guardianship.



This communication is not intended to be legal or tax advice and should not be treated as such. Each individual's situation is different. You should contact your legal or tax professional to discuss your personal situation.

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Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

2012 S&P Capital IQ Financial Communications. All rights reserved.
From the Financial Presses


Wealthy Boomers Are Less Likely To Leave Inheritance  
Compared with their parents' generation, far fewer wealthy baby boomers plan to leave their children a significant inheritance, according to a new study by U.S. Trust. As you approach retirement, you'll need to think about this issue. Is it more important to you to preserve family wealth, or to contribute to societal causes?... (Click Here to Read More)


Give Yourself Greatest Gift: Become Debt Free

If you are nearing retirement, the greatest gift you can give yourself is to become debt free. When you don't owe anything on your credit cards or a mortgage, there's no interest to pay and no monthly payments to drain away dollars that you'd much rather spend on things you really need or want. You'll be amazed at how much extra money this will put at your disposal...(Click Here to Read More)

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