Domestic Financial Terrorism – How do we defend?

The level of destruction on our financial system is incredible compared to what even Timothy McVee did as a domestic terrorist. You have to ask yourself who do some of these bankers and investment firms work for when you look at what they’ve done to the once wealthiest nation in the world.

Right now we’ve got $2 trillion in short-term debt that has to be refinanced this year of 2010 and China, India and Russia are not buying. This is not counting the extra deficit spending which should top $1.35 trillion this year…more or less. The fact the countries we’ve relied on are not buying means we have to fire up the printing presses again. We would already acknowledge that we are at a 10% inflation but the money folks have been using tricky phrases like “core inflation” which ignores half the things we spend money on so that way they can keep the numbers looking low.

A great book called This Time Is Different: Eight Centuries of Financial Folly by Carmen Reinhard and Kenneth Rogoff shows that EVERY TIME a nation’s debt went above 90% of GDP or Growth Domestic Product…the nation failed. The book studies 25 countries over 800 years and there were NO exceptions to the 90% rule. Every nation that ran their deficits to this 90% ratio is now off the map or turned Third World.

Right now, the US is above 90% and there appears no way to bring it down for decades unless some obscure genius comes out of the woodwork as they are not in the White House, Treasury or Fed.

It is unclear what Americans will do, especially for their retirement as the very tool our bankers use against us (stock market) they expect us to hand over our life’s savings and just be ok with negative 30 or 40% loses. You know, its just the market reacting and it goes up and down. Why is that Ok? Why should we accept losses that take us forever to recover just to get back where we started be considered alright?

We need to redo some of the Healthcare Reform Act that President Obama so valiantly promoted before 2013 when our investments could be ravaged with a sur-tax just because we are in a certain income bracket and that bracket is not hard to be in if you live in a state with a high cost of living. Where is Sarah Palin and the Tea Party when we need them.

It is time to look at guaranteed opportunities that does not go down when the market goes down. When Wall Street was once honorable a man named Benjamin Graham (mentor to Warren Buffet) extolled what was an investment. It preserved principal and gave an adequate return. We need to get back to this simple idea and quit trying to find home runs since base hits get you to home plate just as well.

We also need tax-free strategies to weather the storm our own government and their brainy bankers have left before us. It was like turning on the gas to an already smoldering economy.

James Burns

Health (scare) Care Reform and an Insidious Tax it Releases

The new Health care reform bill includes a 3.8 percent Medicare tax on unearned income including annuities, and possibly income recognized from the surrender or sale of life insurance.

Many clients have asked how to get out of annuities they don’t need to minimize a potential huge tax hit. This is only if you don’t think you’ll need this income as we can move it to an insurance policy that is free of the tax, leaves a legacy and still provide some income for you and your family.

This strategy spreads out potential tax payments over a 7-year period and moves funds from an existing annuity where funds are trapped and destined for taxes to efficiently transfer your wealth through life Insurance.

The benefit to you is that you keep more of what you earned and leave more to your family who should be the recipients of all your hard work.

Don’t fail to plan or get information on how this might affect you as the outcome could be disastrous.

James Burns

Finance Insurance With Other People’s Money (OPM)

Succession Capital

Using other people’s money (OPM) with the intent to realize a financial gain is a financial concept that has been practiced by real estate developers, investors, business owners, and entrepreneurs for centuries. Most recently, this concept is being utilized to purchase life insurance, and has raised the eyebrows of insurance promoters and financial professionals alike. But, does this concept offer economic substance or is it just another sales tool to sell life insurance?[1]

Life insurance is an important part of any high net worth individual’s financial picture. Since adequate life insurance usually requires significant premium payments, the premium financing strategy can be an effective solution for clients who do not want to liquidate assets to fund their life insurance premiums.

Premium financing is a method of funding the purchase of life insurance for those individuals who have significant net worth and the insurable need, but do not have or want to use liquid capital to pay the premium on a life insurance policy.  By borrowing the money to pay the life insurance premiums with a loan, the insured individual frees up capital that can be used more efficiently.  The use of premium financing may lower out-of-pocket costs and potential gift taxes.

Most lender’s in this space base the current loan interest rate on the one-year London Interbank Offering Rate (LIBOR), adding a profit margin spread of 175 to 250 basis points. Essentially, lending rates are determined on a case-by-case basis taking into consideration the loan amount and the lenders’ risk exposure. Loan interest rates can be fixed on an annual basis, but may vary from year to year, based on fluctuations in LIBOR or changes in the borrower’s financial conditions, which must be updated annually. There was once a yen version that eventually went disastrous when markets changed and if an exit strategy was not built into the plan it could have cost the insured significantly.

There additional fees, such as loan origination fees (commonly 0.5 to 1.25%) of the expected total loan balance), associated with the loan that can offset any savings related to a low interest rate? Often times these fees must be paid up front while some lenders allow them to be financed with the policy premiums. In addition, is the interest variable or fixed, and if variable, how often does it reset? Typically, in most arrangements the interest is a variable rate, with a portion of the interest determined by an index resetting each year, but the spread on top of the index may be fixed for the life of the loan. The 12-month LIBOR is a common index as well as the prime rate. If there is a fixed interest rate, it is important to determine how long it will be fixed. In many instances the fixed rate is only for a certain time period such as five or 10 years. A cap will set on how high the loan interest rate can go during the loan term. So while the loan interest might be variable, there is a cap that will limit how high the interest rate can grow, such as 8%. When the loan interest has both a cap and a floor it is said to have a “collar.” The lender limits how high the loan rate can go, and the borrower agrees that the rate may never go a below a certain amount even if the index with the spread is below that rate. A cap by itself is more expensive than a collar, and the expense is usually expressed in a loan origination fee or in the amount of spread placed in the offer. Caps and collars are generally offered only in fairly sizable loan arrangements, generally in excess of $1 million.

The best candidates for premium-financed life insurance typically have a minimum net worth of $5 million.  Collateral for the loan usually consists of personal assets and can be reduced by the cash value in the policy being financed.

Plan highlights include:

· Target market: at least $5 million estate and a minimum of $100,000 annual life insurance premium

· Frees up business or personal investment capital for more efficient usage.

· Leverages available assets to provide needed insurance coverage with minimal out-of-pocket expenses.

· Potential to reduce gift taxes.

· Loan rate typically tied to a published rate like LIBOR, plus a spread.

· Required collateral can be offset by cash values growing tax-deferred in the policy.

· Can provide substantially greater internal rate of return on the life insurance policy death benefit over non-financed payment methods.

The power of premium financing lies within the same simple concepts related to the leveraging of permanent life insurance for estate liquidity and wealth transfer planning. The key is to evaluate premium financing not as a stand-alone transaction, but as an alternative to the traditional funding of life insurance using the same capital base.

The single greatest misconception is that the client must have an arbitrage opportunity for the financed transaction to provide a benefit over traditional funding. The power of premium financing is based on the leveraging effect created by combining the financing piece with a properly designed life insurance policy so one of the Secret Pillars predominates over the other.[2]

I have been involved in cases where it made sense to not drain cash flow and use leverage to accomplish payments of the life premiums. If the structure is designed properly it can have an exit strategy built in. There is one planning technique for families that have done no estate planning but are uninsurable and have healthy children. This planning tool is too technical to discuss here but if you’re reading this and know someone with over $10,000,000 of net worth without an estate plan and they have an illness, you can have them give my office a call.

Consumers Get Insult to Injury in a Worsening Economy

I was paying my T-mobile bill today when I noticed that if I didn’t sign up for electronic billing and kept the hard copies coming in the mail I am now going to be charged $1.50 per month for the luxury of getting a bill sent to me.

As if it wasn’t bad enough, now you have companies trying to stick it to you even for the bills they need to send to you. I’m not a fan of receiving the electronic bills because I receive so many e-mails and a lot of them are junk and might miss the bill or delete it by accident. I’m old school on my billing and want it in hard copy so I can organize it in a file with dates and make sure they get paid.

This is akin to the airline practice of hitting you up extra for a bag. It started out with no more meals. OK we said, we had enough of that cardboard food anyway but it was nice to get it offered or included in the outrageous price for flying. Now they are charging you not just for an additional bag, but every bag you check; even if it is one. We need to rebel Americans and show them we’re not going to take it. Forget sending a tea bag to your public representatives, start sending tea bags to these company CEOs who allow such caustic policies to be deployed that are not consumer friendly.

If we as consumers don’t work together to show them what is unacceptable they will continue to push us down and before you know it they be billing us for our carry on bag and to bring your own meal on the flight and there will be no stop to their adverse creative ideas to bilk you.

Sincerely,

James Burns, Esq.

“THREE WAYS YOU CAN AVOID GOING BROKE IN THE NEW ECONOMY”

The first thing you can do as illustrated in “The 3 Secret Pillars of Wealth” book is take ownership of your monthly expenditures by having a family budget and a family balance sheet you observe with conviction. If you’re desirous of change, you have to do the work since the only place success comes before work is the dictionary.

Number two, if your home payments are too high because you’re job or industry has fallen off, seek a loan workout with your lender or use a law firm to assist you that has a success rate.

Mr. Burns also states that if you are carrying too much bad debt like credit cards and you’re slowing sinking into the quicksand, think about debt settlement or management services that don’t have an upfront cost and can get you from point A to point B in terms of eliminating this debt. While it may have a temporary blemish on your credit score, at least you get back to the surface where you can breathe.

Lastly, if you’re crunched for cash to invest or pay down bills, look if you or your parents have an old universal life or convertible term life insurance policy that has underperformed or is not really needed and consider having it sold in the secondary market as a life settlement.

More power solutions are available right here so stay tuned, get involved and please send in comments so we can save or pick up lives in this down economy. In numbers we are strong.

James Burns, Esq.

Invest Like the Wealthy and Wise

When a judgment is won against a person for a particular amount, the first choice is cash. The next choice would be the quick sale value of real estate, including forcing foreclosure on your home. One of my colleagues still does this work to this day and while he does not enjoy having people removed from their homes, he has to get paid along with his client and that means every asset is up for grabs.

If the bank and other friendly creditors own the property then there is nothing to turn over. At the end of the day, the creditor or their counsel is looking for how much equity you have in the home.

If you are in business or have a sizable estate, you may want to keep your equity lean so that it is off the negotiation table. Stripping equity makes sense on so many accounts. First, we’ve all heard the cliché that it is unwise to have all your eggs in one basket. Why? Because if you drop the basket with all your eggs they are all finished. The old adage is not just for the sake of it but is a wise wealth-making concept. Do you think the folks in Laguna Beach whose homes slide down the side of the hill were better off if the home was completely paid or outside of that home earning interest somewhere or invested in another piece of property? I hope the answer is obvious to you that you would want it outside of that now demolished home so that you had access to it.

Where should I put it you ask? Many readers are using real estate in multiple jurisdictions and this makes sense. You should not keep more than 10% of your equity in the properties unless that would not pencil out properly in having the renter cover your loan. The other significant asset many clients are using is savings grade life insurance because this contract can be structured to not provide for creditors of the beneficiary during a period when you are under attack. You can also put a large amount into a single premium immediate annuity (SPIA) that is irrevocable and you divest your control over it while it pays directly to the insurance company to fund your tax-advantaged savings account, better known as the investment grade life insurance.

If you’re not sure about investments, you can also get personal equity lines from family and friendly companies. A good idea is to get a loan from family members, create a functional promissory not that has flexible payments and higher interest rate for the premium of having the flexibility e.g., pay in lump sum 5 years from now. Then they put a deed of trust on the property and that encumbers a portion of the equity.

This process involves:

A friendly third party that holds a lien on your property.  This friendly party may be a corporation, which you control.  The “friendly” corporation places liens against your real estate and other immovable assets to strip the valuable equity.

HIGH ASSET PROFILE

Before:

Appraised Value $200,000

- $40,000/Mortgage             

+ $160,000 = Equity (at risk)

Now this same asset with an equity strip.

After:

Appraised Value $200,000

- $40,000/Mortgage

- $150,000/ Lien

+ $10,000 = Equity

Real estate is immovable.  Therefore, there are specific challenges to reducing the amount of equity accessible to abusive creditors.  We reduce the equity, through equity stripping.

This process works wonders along with a Delaware Series LLC because you can have a property seeded in one of the Series and another Series that has its own bank account and name as a creditor on the property with a filed deed of trust on the property. You have to create a credible document to substantiate the financial substance but this is done all the time with businesses and real property to keep the ownership reduced.

What if I lose a case and a creditor finds out I control the entity that has a lien against the property. This is one of the little risks but is difficult to lose as long as you run your entity like it has a real business purpose and respect the transaction like it is a true arm’s length dealing.

You can always use a global solution as many of my clients have using a foreign bank to take out up to 90% of the available equity and then settling the money on a trust that has an agreement with the bank to oversee it. The capital never transfers out of the jurisdiction, costs about 1.5% per year on the loan amount to maintain, offers a rate of return on the CD that offsets other fees so it is a wash but it protects property like nobody’s business. There are so many interesting ways to provide for estate taxes, create wealth abroad that is legitimate and protects the money that we can explain them all in this article but we invite any of Rick Stuart’s readers to request an appointment if they have any concerns in their financial and estate planning strategy. Even that little hairline fracture left untreated over time can have cataclysmic results in your financial planning structure.

James Burns

Law Office of James Burns

Is Advanta in Breach of Contract on Credit Cards?

As of July 30, 2009 – Advanta Bank Corp. stated that they were closing all business credit card accounts. They cited in the letters that went out that an independent trust which owned the balances cards and provides funding for new transactions was pulling out. As such, you need to keeping paying your balance but Advanta will be unable to provide further credit.

Now under basic contract law which is the thread between your agreement with credit card companies there is an offer, acceptance and consideration. Advanta offered me credit and I accepted and the consideration is the the act of providing credit with my obligation to pay it back with interest. Now, as a result of Advanta losing a trust that was funding these, they suddenly are in breach in my mind and as a result, they are asking me to modify my agreement without new consideration which is a requirement to modify the terms of any agreement.

A breach occurs when the bargained-for exchange is not honored by the other party, in this case Advanta Bank Corp. I believe I’m entitled to an order of performance which is the extension of credit otherwise what incentive do I have to pay back any balance on this card? They have not offered me additional consideration like to pay less or go without interest and I think this is not only a breach but unconscionable that Advanta could not act it good faith and fair dealing and assumes the public is stupid and unaware of their rights.

I implore all consumers, if your card is cut off please get a copy of your original agreement and all addendum and see if they have the ability to do this or take the credit card company to arbitration since they make that a part of the agreement. I intend to call and get my card settled for a lot less since they are in non-performance and breaching their agreement.

Wake up and take back your power and let them know you’re not going to be insulted and slapped around any longer. Chime in and let us know about your credit card stink by leaving a message below.

Sincerely,

James Burns, Esq.

“Buying Foreclosure Without the Exposure”

Start your retirement planning early

Real estate investing is exciting because we get the opportunity to use wealth pillars like leverage which allows ordinary people the ability to considerable wealth in a short time; I know because I’ve seen it happen. Another exciting aspect is there are always opportunities to make strong returns, regardless of how the market is doing and right now that is especially true as we bear witness to hundreds of thousands of foreclosure nationally per month. But like other forms of investments, real estate investing takes discipline, education and smart decision making to become successful. I’ve met with clients who made impulse purchases and the result is usually disaster.

There are fundamentally at least eleven reasons why real estate deals are always available no matter what the real estate market is doing. There is no magic here, just human circumstances that create opportunity if you know how to look for them.

1. Divorce
2. Job loss
3. Job relocation
4. Bankruptcy
5. Health problems
6. Incarceration
7. Reduced income – market conditions
8. Death
9. Failed business
10. Military duty or activation
11. Adjustable rate mortgages – on stated income that was unreal

Right now all eleven of these personal circumstances are widespread since American is in two military conflicts, unemployment expands monthly, record business failures and layoffs and numerous professional incomes reduced due to market conditions. In my own practice of modifying loans I see that there was a serious abuse of the stated income loan that has now come to boil and are popping left and right leaving folks unable to make the payments. The inability to make adjusted payments should be no surprise as there was no way for them to ever afford the home with their current income.

Enter the REO. An REO (real-estate-owned) is a form of distressed property and is similar to buying a short sale (sale of a home for less than the owner owed), except the property is already back in the possession of the lender or bank through the foreclosure process. In an REO situation the banks end up owning the property when no one bids to cover the amount owed against the property at a public auction. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It’s just the investor or their agent, the bank or the bank’s agent negotiating the transaction. Some REOs can be purchased directly from the lender for pennies on the dollar especially for those who can buy them in bulk. However, if you combine the purchase of an REO with a system for investing where you don’t have to do anything but collect your checks then you can leverage your time and resources to make and find more opportunities.

Normally REOs are purchased on what is referred to as tapes and the more money you have to spend the better the tape but on these large tapes there are the good, the bad and the ugly which are properties that you wouldn’t want because the fix up costs eat into the profits. Also, to get really good deals or the actual pennies on the dollar you have to come in with millions if not billions the way the hedge funds do who typically have purchased most of the good deals by the time the individual investors or small investor pools can get a hold of the REOs. Nevertheless, there is an old fashion way of acquiring these properties if you have the time to fly all over to numerous states and get into the underground or you can rely on a systematized approach to investing in this distressed market where you’re able to not only get all good properties (bedroom communities), the system operators actually cherry pick and buy properties that are livable, fix them up bring you not only positive monthly cash flow from your systematized property but also has built-in exit strategies that put a cash windfall on top of your positive cash flow.

All the most successful business in America follows a system. Once you have real estate you are in business in a sense, you’ve become a real estate entrepreneur and why wouldn’t you want a system to take care of your investing? To make sure we understand what a system is specifically here is a great definition: System (from Latin systma, in turn from Greek systma) is a set of interacting or interdependent relationships, real or abstract, forming an integrated whole. The concept of an ‘integrated whole’ can also be stated in terms of a system embodying a set of relationships which are differentiated from relationships of the set to other elements, and from relationships between an element of the set and elements not a part of the relational regime.[i] Now this is just a very technical way of saying things that work together or “special sauce” if we were to look at Kentucky Fried Chicken (KFC™).

The system works like this, you buy the property, management places a new buyer in the home that will pay you the going rate for rent is in the area as their new mortgage payment to you, and you’ve just become the bank. For example, say rents at the local apartment are $500 and you only make $1,000 to $1,500 net after taxes. If I came up to you and said hey, “how would you like to own a home for $500 down and $500 per month,” the same you’re paying right now in rent, what would the reasonable person do? They are going to want to own and you have them on a land contract, no landlord/tenant relationship here so you don’t fix sinks, toilets or anything else…it is their home. You just hold this contract like the bank and are akin to the note which is reverse engineered at $500 at 10% time 10 years amortized. Did you get a deal? Of course you did and until this person repairs their credit so did they because we made it affordable just like a car dealer would…it’s all about the payment.

Management collects your $500 per month minus a 10% servicing fee for collecting and disbursing your money and making a website available to you on line where you can manage your property and check on it and see pictures both interior and exterior.

The lynchpin in this type of investing is the land contract. A land contract (sometimes known as a “contract for deed” or an “installment sale agreement”) is an agreement between the owner of a property and a person who wants to buy the property for an agreed-upon purchase price.

What are the Benefits of using the land contract you might ask? Well, there are plenty but they include, not having to fix anything, you don’t pay taxes or insurance, payments are predetermined and there are minimal liabilities (asset protection).

Finally, for the first time you have multiple exit-strategies inherent in your real property investment. I usually ask real estate investors that come in to my office two questions – #1 what is the exit strategy? And #2 did you buy retail, wholesale or discount? In both cases they give me a look like I spoke a foreign language at them. In this system these two threshold concerns are integrated because you have the exit strategies and you are definitely buying discount.

You or your new buyer could choose to refinance as it behooves them to get conventional financing which may be lower than structured in your land contract. For example, if you had an investment entry point of $23,900 and a $37,900 sales price fixed in your land contract. After a year of timely and seasoned payments the land contract Buyer’s credit is restored. Buyer can refinance property to lower interest rate and cashes out your $37,900 note which creates a high return on investment (ROI).

Alternatively, since you own this note you might choose to sell it to a note buyer. For example if you have an investment of $29,900 which you sold for $90,000 ($500 down@ $500 per month @ 12% interest) and after the loan seasons for 12 to 18 months you have the option of selling your note in a marketplace that is a trillion dollar industry. So you sell your note for $67,500 (25% discount). But you’ve also received the $5,400 in monthly income for the past year. The combined profit is in Excess of $40,000 or more with the monthly payments and the note sale even though it is discounted. That’s another hard to find ROI particularly if you’re accustomed to market returns from mutual funds and the like.

You can always just hold because you have an investment of $29,900 with a documented sales price of $60,000 via the land contract.

This system has been a huge success with waiting lists of approved applicants nationwide just waiting for properties to come available as the secondary buyers. We are watching this program transform families, neighborhoods and communities. In addition to the socially redeeming value of this program, it provides investors with massive advantages. Some of those include:

1.       Triple Net – Your buyer is responsible for taxes, insurance and maintenance

2.       Pride of ownership – Your buyer typically improves home and maintains well

3.       Lower Default – Owners paying the same amount as they would for rent rarely default

4.       Socially redeeming – You can help a hard working family become home owners

5.       Cash flow between $450 – $650 – for properties purchased all under $30,000.

The next five to ten years will be defining and you have the power to change your financial future if you only get off the sidelines and in the game. I played football in college and whether you were at a real game or a practice scrimmage, while you were on the bench at the sidelines you were helpless to change the outcome of the game. It was only when you got in the game and you knew you placed your entire being into the game that you hand control to change an outcome and in effect, you can only take control of your own personal destiny by getting in the game.

To prove the point that you can be more victorious in a down market you’ll want to take a lesson from the playbook of Floyd Bostwick Odlum. He has been described as “possibly the only man in the United States who made a great fortune out of the Depression.”

After struggling as a corporate attorney in Salt Lake City, Odlum received an offer to a law clerk at a New York firm, and in 1921 became Vice-President of his primary client, Electric Bond and Share Corporation.

About 1923, Floyd Odlum and friends along with their wives pooled together a total of $39,600 and formed the United States Company to speculate in purchases of utilities and general securities. Within two years, the company’s net assets had increased 17 fold to nearly $700,000. If Mr. Odlum got started with $39,600 during the Great Depression, can’t you get a few friends or family together and pool funds to get in on this once in a lifetime historical opportunity to purchase discounted REOs at a modern price-point of $29,900? We only see great declines once or twice in our lifetimes and who can predict the next one as this one came without warning; will you have done something by then?

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” — Thomas Edison, Inventor

Success Driver,

James Burns, Esq.

(949) 440-3243

“How to Save Your IRA from Destruction”

If you have an IRA and you’re concerned about how to pass it on to your loved ones, an approach of naming a trust as the designated beneficiary has several benefits over directly naming the beneficiaries. The issues that can affect the named beneficiary to name a few are they could be a minor, they might not be careful with money, or they may have marital or creditor issues, and could be disabled to the extent the inheritance would affect their governmental benefits. Next, if the beneficiary dies before distribution, the alternate beneficiaries may not be accurate. Another condition we often see is the beneficiary may purposely or accidentally withdraw monies from the IRA causing adverse tax consequences. Additionally naming the client’s revocable living trust as the beneficiary, even with the appropriate language that extends payout called “conduit provisions” may create issues with the age of beneficiaries in order to “stretch-out” the required minimum distributions.

However, in 2005, the IRS issued Private Letter Ruling 200537044 (the “PLR”) that approved a new type of revocable trust created solely to be the beneficiary of an IRA account. As a result of this PLR, it is now possible for you to create an individual trust known as an IRA Beneficiary Trust® which provides maximum protection and flexibility for your retirement investments.

This IRA Beneficiary Trust® insures that your beneficiaries will extend (“stretch-out”) their taxable Minimum Required Distributions (MRDs) on the IRA over a much longer period of time. By using this trust, the age of each beneficiary becomes the effective age for that beneficiary’s required minimum distribution. As an effect, the IRAs can continue to compound for many years free of income-tax and may literally grow to be worth millions of dollars! This type of trust goes by many names and has also been called an IRA trust, an IRA Inheritance Trust, a standalone IRA trust, an IRA stretch trust or an IRA protection trust.When your loved one/s inherit your IRA fund and they keep the funds in the IRA over their lives and only take the minimum required distributions each year (the “stretch-out”), the amount of money that can accumulate and be paid to them should be massive in comparison to taking the monies directly and facing the immediate tax on them. For example, assume you have a $150,000 IRA account; we will also further assume you have two different ages (10 and 25) for your beneficiaries and presume that the account averages an annualized 7% return. First, for the beneficiary who is age 35[i] and inherits IRA proceeds upon your departure, the total benefit is $1,212,165 of after-tax benefit as opposed to $663,496 for taking the proceeds directly without the stretch-out. For the 10 year old beneficiary,[ii] they will receive approximately $4,589,236 after-tax benefit as opposed to $2,641,198 which is what they would receive lacking the stretch-out because of the immediate taxes due when they receive your funds directly.

Therefore, you can see that this wealth amassing strategy only works if the beneficiaries hold the inherited funds inside the IRA account. If a beneficiary takes all of the funds out of the IRA account (referred to as a “blow-out” because it blows the stretch-out), this wealth accumulation technique is lost. One great reason to create an IRA Beneficiary Trust® is to preserve the stretch-out and prevent a blow-out. Unfortunately, we see this blow-out too often and it jeopardizes wealth that must be saved. Many times your beneficiaries will not be aware of the tax rules and their distribution choices, so they’ll withdraw from the IRA funds at the first opportunity or do a forbidden rollover. Even if you hope that your children or beneficiaries will do the right thing by keeping the funds in the IRA account for their lives to “stretch-out” payments, they may expose it to numerous threats and hope is not a planning strategy as I’ve indicated in my book “The 3 Secret Pillars of Wealth.”

Some of the threats come in the form of a divorce where your beneficiary’s spouse could seek half of the inherited IRA if they live in a community property state. The divorce rate is out of control and a huge numbers of inherited money has become a target for the ex-spouse. Even though inherited property is considered separate property it may become the only thing available and because divorces can be very costly and last for years, your beneficiary may succumb to the pressures of long and nasty divorce litigation and be willing to surrender a large portion of the IRA account just to settle the divorce.

If you have a reasonable IRA you want to pass down or don’t think you’ll need to live on your IRA you absolutely should be thinking about this strategy.

James Burns, principal of the Law Office of James Burns and author of the international best seller “The 3 Secret Pillars of Wealth” shows unassuming investors how naming a trust as the designated beneficiary of their IRA has several very important advantages over directly naming the beneficiaries.

In addition, Burns says: naming the client’s revocable living trust as the beneficiary, even with the appropriate “conduit-trust” language, may create issues with the age of beneficiaries in order to “stretch-out” the required minimum distributions.

Burns’ office is one of few that offer the IRA Beneficiary Trust® which insures that your beneficiaries “stretch-out” their taxable, required minimum IRA distributions over a much longer period of time. And, if you do it right, the IRAs can continue to compound for many years income-tax free  and can literally grow to be worth millions of dollars!

Even if you assume that your children or beneficiaries will do the right thing – that is, keep the funds in the IRA account for their lives to maximize the income tax “stretch-out” of the IRA – the IRA may still be seriously exposed to one or more of the following threats that can arise years after you depart.

If you have a reasonable IRA you want to pass down or don’t think you’ll need to live on your IRA you absolutely should be thinking about this strategy.

The Law Office of James Burns provides debt settlement services, bankruptcies, short sales and estate and wealth planning with emphasis on real estate investing.

Untaxingly,

James Burns, Esq.

“Loan Modification or Complication?”

The plan centers on Fannie Mae and Freddie Mac, which between them own or back about 31 million mortgages worth a combined $5 trillion. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy.

Their mortgage payments would be adjusted through lower interest rates or longer repayment schedules with the goal of bringing payments below 38% of monthly household income. Interest rates could be lowered for five years and then raised to a predetermined level. Loan terms could be lengthened to 40 years.

Officials said the standards for loan modifications should fast-track changes in payments. The standards will be applied to loans owned and guaranteed by Fannie and Freddie, but officials said they hope they will also be adopted industry wide.

“We expect that it could significantly increase the number of modifications completed,” said James Lockhart, director of the Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie. …

Fannie reported this week that 1.7% of its mortgages by value are delinquent by 90 or more days. Fannie’s filings suggest that it has about 18 million mortgages on its books, which would work out to about 300,000 mortgages that could potentially be eligible. The borrower will ultimately be responsible for paying the full amount of the principal borrowed, but payment on part of the principal can be deferred to make the monthly payment affordable.

Homeowners who purposefully default on their mortgage to get a modification will not be eligible. Borrowers will have to submit a statement showing financial hardship or a change in financial circumstances, along with proof of their income. The modification will become final once a borrower has made three payments under the modified terms.

But even in cases where declining home prices have taken the value of a home to less than is owed on the mortgage, the balance of the loan will not be lowered under this program.

“This is not loan forgiveness; the loans will be paid but at terms affordable for borrowers,” said Brian Montgomery, commissioner of the Federal Housing Administration.

The fact that mortgage balances will not be reduced for the so-called underwater mortgages — those in which a homeowner owes more than the home is worth — will limit the use and impact of the program, according to some experts.

However, there is a competing interest in getting modifications done and that is the investors who purchased these loans. Some hedge funds, including Greenwich Financial Services and Braddock Financial, told banks in October that they might sue the banks if they changed mortgages that were within mortgage bonds that the hedge funds had purchased. Modifying the terms of mortgages underlying mortgage bonds can change how much those bonds are worth.

Investor rules and underlying servicing contracts with respect to modifications are not uniform and may prevent us from doing modifications that would benefits borrowers and investors.

Under the plan, Fannie Mae, Freddie Mac and other mortgage firms will rewrite the terms on some overdue mortgages so the homeowners won’t pay more than 38% of their monthly income. Modifications could include deferring some of the principal owed, lowering interest rates or extending maturities to as much as 40 years. The process will be streamlined and uniform.

If you know someone in need of saving their home have them contact my office after downloading our questionnaire which should be faxed back to use…get it here .

James Burns, Esq.