Long Term Nursing Care – are your prepared?

Many states have a high cost for long term care and nursing but California is very explosive in expenses.

State Median Annual Care Costs for 2010 are:

Nursing Home Care

1. Private Room                                                      $87,345
2. Semi-private Room                                          $73,000

Assisted Living Facility

1. Private, one bedroom                                     $42,000

Adult Day Health Care

1. Adult day health care                                    $20,020

Home Care

1. Home health aide                                           $46,904
2. Homemaker Services                                   $45,646

The statistics are that 7 in 10 people will require one of these types of long term care in their senior years. The question is what have you done to take care of this potential problem?

You need to look at a long term care policy or better yet, an insurance policy that provides for supplemental retirement income but also has living benefits if you need them like nursing care. To ignore the numbers is to ignore a fact like you’re going to get old and that everyone has to pay taxes. You need to be responsible to your loved ones and in order to preserve all that you are and have worked for from going out the window to pay for this.

James Burns, Esq.

www.jamesgburns.com

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

Obama and The Fate of your Estate

We are getting closer to some permanency in terms of future estate tax. US Congressman Earl Pomeroy (D – SD) has stated that  nearly every family, farmer and small business in America will be exempt from paying any estate tax under a bill passed by the House of Representatives on December 3, 2009.

The Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (HR 4154), authored by Pomeroy, would make  the 2009 estate tax exemption level of USD $3.5m permanent for an individual ($7m for a married couple) and a maximum tax rate of 45%.  The bill also maintains the “step-up in basis” tax rules, which protect many heirs from paying additional capital gains taxes on appreciated assets they inherit.

The bill was approved by 225 votes to 200, but must be passed by the Senate and signed by President Obama before it can become law.

Without change, the estate tax is scheduled to enter one year of full repeal (no taxes at all) in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount ($1,000,000m per person or $2,000,000 for a married couple) and a much higher maximum tax rate (55%)…ouch!!!

The one year of estate tax repeal was also coupled with the enactment of  “carryover basis” tax rules, which will require heirs in 2010 to pay capital gains taxes on inherited assets based on the decedent’s original purchase price.

Under the step-up in basis rules, continued under Pomeroy’s bill, the value of the asset is calculated at the time of the decedent’s death. It is claimed that preserving the step-up in basis rules will protect small businesses from paying an estimated $34,000,000,000 billion in capital gains taxes so who knows if this bill will make it because they could really use this to pay for bailout and TARP funds.

According to the United States Department of Agriculture’s Economic Research Service, the continuation of the$7m exemption for couples will help the vast majority of family farmers, as the average farm household’s net worth ranged from $586,000 for small farms to $2,200,000m for very large farms in 2008.

“By making the 2009 estate tax level permanent, we will make the estate tax go away for 99.75% of all percent of families, farmers, and small businesses in this country,” Pomeroy observed, concluding that: “It’s time to resolve this issue once and for all, and this bill is the fair way to do it.”

We so desperately need to know the rules of the game so we can start playing to win it again and hopefully Senate and the President can get on board and make this happen.

Untaxingly,

James Burns, Esq.

“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.