Planning for Our Futures

Whether it's Capital Gains Tax planning, or just plain financial planning, the bottom line is just to start. Below is a good article from the news. The moral of the story is Just Do It!

Got a plan for your retirement?: NML speaker says it's more crucial now

Milwaukee Journal Sentinel, The (KRT) via NewsEdge Corporation :

Jul. 24--About 76 million baby boomers are headed toward retirement over the next three decades, and many of them are simply drifting there without a plan, says Lee Eisenberg.

"It's human nature that people don't like to think about getting old," said Eisenberg, a former Lands' End executive who wrote a bestselling book about retirement, "The Number." "When you're in your 30s or 40s, or even your 50s, you do everything in your power very frequently to deny the inevitable, which is that you are going to get old, and that there may not be too many institutions or people out there to take care of you."

But people need to take a look -- the sooner the better -- not only at how big of a nest egg they'd like to have, but also at what kind of retirement they envision, said Eisenberg, who will speak Wednesday to thousands of Northwestern Mutual Life Insurance Co. agents in Milwaukee for their annual meeting.

There has been a transition during baby boomers' lives that Eisenberg calls "the new rest of your life" instead of the old way of viewing retirement.

"Basically, it has to do with going from a former system in which there were very stable, really predictable support systems in place -- namely corporate pensions and an unquestionably secure Social Security system -- to the new rest of your life where each of us basically is responsible for ourselves," he said during an interview from his Chicago home.

Eisenberg said that when 401(k) retirement plans came into existence in the early 1980s, "a lot of people didn't see the handwriting on the wall" that their employers and the government weren't going to take care of them when their careers ended.

"When it was introduced, there was no big press release that said, 'Guess what? All the retirement funding rules are now dramatically going to change and you better somehow get on the boat and make sure that you are doing what you can individually to take care of your future,' " Eisenberg said.

At the same time, boomers have been coasting through an unprecedented period of low inflation, and easy credit has made them splendid consumers but not-so-good savers, he said.
"As a result, a great many people now are finding themselves unprepared," said Eisenberg, an editor at Esquire and Time magazines before joining Lands' End in Dodgeville as an executive for creative efforts from 1999 to 2004.

His book "The Number" examines the process of planning for retirement -- not just financially but emotionally. The title, in its narrowest definition, refers to how much money a person needs to feel financially secure in the later stages of life.

It's impossible to come up with a figure without envisioning what kind of a retirement a person plans to have, he said.

For example, people may choose to keep working past age 65 because they want to. They might do a new kind of work -- something they've always wanted to do.

They might scale back their lifestyle, which, of course, will require less income. On the other hand, some may want to maintain the same standard of living they had in their peak earning years, which will require that more be put away.

" 'The number' is not just how much, but 'the number' also really has to address what for," Eisenberg said.

He said people need to ask themselves what will really matter to them in retirement once their basic needs are met.

"That examined life may well be a lot less costly than a life in which you just assume, 'Well, you know, I know I'll still need two SUVs and it would be nice to have a condo in a warm place,' " Eisenberg said.

Beyond human nature, several problems hinder adequate retirement planning for many Americans, he said.

One is that students often aren't taught from an early age the fundamentals about money, including the "magic of time and compounding interest" and the danger of putting too much money in one investment. As a result, the workings of money and investing remain a mystery.
Another problem is that professionals with great know-how about money usually aren't very interested in helping average-income people because they can't make enough money off them. Planning professionals normally cater to those who already have a bundle, he said.

"There is no question that a great many people who need financial planning the most are people who either can't afford it or can't figure out a way to get it, and we're going to have to figure out a way to do that as a society," he said.

Eisenberg said financial services companies tell him a lot of people don't start asking questions about retirement planning until they're in their 50s. While that's far from ideal, it's better to get serious about saving later than never, he said.

Many people in their 20s aren't counting on Social Security when they retire, which may inspire them to get a better jump on retirement planning than their mothers and fathers did, Eisenberg said.

"I think they will begin to take much more seriously the need to sign up for the 401(k) and begin to realize that over the long term, that can make an enormous difference," Eisenberg said.
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Paula Straub
SaveGainsTax
Paula's Site

The Alternative Minimum Tax - Gotcha!

Few people and many professionals really know much about the dreaded Alternative Minimum Tax, how it's calculated, and when it might really bite you.

I read an article today that had some good examples. It's amazing that something with such good intentions in 1969 is catching so many undeserving individuals today and no one is willing to permanently get rid of it or to bring it up to date for whom it is meant to catch.

Bloomberg.com: Worldwide

For anyone selling highly appreciated assets, you should visit your CPA and have them do a calculation to see if this will affect you if you chose to sell and "just pay taxes".

Proper planning is always the key!

ps. Really hoping to debut my two new websites by Aug 1st. Stay tuned.

Paula Straub
SaveGainsTax

Capital Gains Tax Resource - Interview with the Pros

Contract Exchanges, What are they?

Tax strategies are always evolving. I enjoy keeping up with all the latest methods to help clients save money and taxes. This week I thought I'd pass along a great article by a colleague I respect. Enjoy!

Contract Exchanges: A Money-Saving Shortcut for a Turbulent Market

By Stephen A. Wayner, Esq., CES

Contract exchanges have recently become a hot topic among tax professionals, because many investors desire to cash in on the built in gains from the real estate market. Now, sensing possible dwindling future returns over the paper appreciation already earned, real estate investors want to lock in the gains from their hot investments such as condominium development contracts, and move into less high-flying, high-risk real estate holdings.

A “Contract Exchange” is the tax-deferred exchange of:-The Buyer’s ownership in a Sales Contract on real property, for different real property, or for a contract or option on different real property; or -The Option Holder’s exchange of an Option to purchase real property, for different real property, or for an option or contract on different real property. Essentially, a contract exchange is an exchange of an open option to purchase, or an open Sales Contract, rather than an exchange of the underlying real estate itself.

For the rest of the article, click the link below.

1031 Exchange News


ps. My new and improved sites are almost complete. I hope to be launching them with my next post.

Paula Straub
SaveGainsTax
askpaula@savegainstax.com

Financial Suicide

Something very sad occurred today. I wish I could say I had never seen something similar happen before, but I have. Seemingly smart people make financially devastating and irreversible choices.

The cause, I believe, is partly fear of something new to them, and partly the unwillingness to trust or listen to those professionals they have chosen to guide them.

I realize that once one is burned in a previous situation, it is harder to put yourself in someone's hands again at a later time. However, if you are faced with a potentially critical event, the worst thing you can do is take the path of least resistance when it is you who will suffer the consequences.

First, before I describe the essence of what I am witnessing, let me give an analogy.

Let's say you were diagnosed with a brain tumor that a specialist said was operable and your chances of pulling through and living a productive life were 95% in your favor. Surgery is a scary thought for anyone, and your brain is an important organ.

So, you get several professional opinions and they all agree this is your best chance of living a happy and healthy life. You, however, had a surgery many years ago that didn't turn out exactly as promised. Maybe a knee replacement that never really let you walk without a limp.

Now you distrust surgeons in general because you had an experience that didn't give you the exact results you were hoping for. You are in less pain than before the knee surgery, but not as good as before the original injury. It's left a sour taste in your mouth, so you prefer not to have another surgery ever again.

Your brain tumor will not go away however. Your choices are have the surgery with a very good chance of living a long life, or do nothing and let the tumor run its course. You might have 1 year, 10 years or 1 week left to live. Chances are the longer you live, the more eventual pain you will be in.

So, what do you do? Get over your fear of having another surgery, and most likely give yourself the gift of a longer life (taking into account that 5% chance there may be side effects or even death), or do nothing so you avoid surgery, and hope that some miracle occurs and you are healed and don't have to think about it anymore.

If this were your mom or dad and you loved them, which course of action would you encourage them to take? You can say, "it's your life" and stay out of it, or you can help them understand that it is in their best interests to have the operation so they are healthy and with you for years to come. Remember, this isn't a 50/50 chance here. It's 95/5 in favor of success.

Obviously, most would be in favor of the surgery. However, there are some that will not under any circumstances venture out of the "known" and will opt to let the tumor grow and take their life, rather than take the 95% chance of living comfortably.

Ok, this was a long road to make my original point. It is my business to put together a strategy for anyone facing a large capital gains tax consequence, so that they minimize their tax obligation and enjoy the maximum fruits of their labor when they sell an asset.

Without going into exact specifics, a potential client had a large real estate holding that was actually entrusted to two children years ago. The client no longer owned the asset. The kids did. The client wished the asset sold, so it was. The tax consequences were very large, as the kids had received it at the basis of the parents, which was very low.

The elderly remaining parent wanted control and liquidity of the proceeds. For some reason, they could not understand that they had lost control years ago. The children have control.

A Private Annuity Trust for each of the children is the best solution. It would give them each about 2800.00/mo after taxes for the rest of their lives. A loan could be taken to pay the parent's current mortgage, so the parent would have no payments to make. The kids are willing to give the parent the payments from the trust (gifting them) for the rest of the parent's life. So the parent would receive about $5600.00/mo with no taxes due as long as they lived. After the parent's death, the kids would continue to receive their $2800.00/mo after taxes for the rest of their lives. When the parent dies, the condo they live in can be sold to pay back the loan to the trust. There is a further complication of the property being held in an LLC if no trust is done.

This is an extremely cost effective way to take care the parent as long as they live. The taxes are spread out over about 30 years, so the majority of the funds are continuing to work in the kid's favor.

So here's the tragedy. The parent isn't familiar with the concepts of the PAT. Despite 2 CPA's, 2 Attorneys, and a Financial Advisor being in agreement this is the best method, the parent can only think liquidity and control are being lost. The kids, although highly educated, are inclined to do what the parent feels comfortable with rather than making their own informed decision as to how the parent is best taken care of financially.

If the asset is sold, taxes paid, and the remainder of the funds deposited in the LLC this is what will happen. For the parent to get any money from the proceeds, the kids will have to take the money first as income and pay income taxes on it before they can gift it to the parent. Since each makes a good salary, this means they will pay taxes again at about 40% when the money comes out of the LLC. So to give the parent $1000. they may have to draw out $1650.

When all is said and done, the parent will receive about 30 cents on the dollar for each payment they get. I really don't even know if they totally grasp this, although they have been informed.

Personally, I don't know why anyone would think this is the "simplest" choice. But then again, I'll take the 95% odds any day of the week. How many lottery tickets would I buy if I had a 95% of winning with each one? Let's just say I would not have to worry about money ever again...

Please don't let someone you care about commit financial suicide. Save them from themselves!

Paula Straub
SaveGainsTax
(760)917-0858

Another niche use for a Private Annuity Trust

Last week I wrote about a Private Annuity Trust being used for the sale of oil rights on an individuals property. What are some other uses one might not immediately think of?

How about the sale of a race horse owner's business, including the ponies?

Some might just keep the business in the family, but what if the owner died and his wife just didn't want to maintain that particular lifestyle?

Assuming they built the business up and could make a hefty profit, they would experience a large capital gain and owe tons of taxes if they sold outright.

The Private Annuity Trust to the rescue.

Instead of paying a huge dollar amount immediately, the taxes would be spread over the remainder of the annuitant's lifetime. The headaches of the upkeep of the stables, horses and equipment would be gone, and a sizeable income stream would replace these.

There's a lot more details to the story, but you get the gist.

I had to wonder whether life at the track may have turned into an estate on Maui or something equally inviting.

Paula Straub

SaveGainsTax

760-917-0858

Capital Gains Tax on Unusual Sales

I love my job. Basically, because I get bored easily and I need to keep my mind busy solving problems and with new challenges.

In my quest to help clients save capital gains tax I work with several different professionals and learn about some unusual cases. No names or specific details are exchanged - but I get to hear about cases that I may never personally come across.

For instance, a person owned land, and in fact lived on it, where oil was found. Some tests were done, and he had in fact a very promising oil well. A company who drills for oil offered him a lot of money in return for the rights to drill on his property. He was ecstatic of course, but faced a huge capital gain that year on his taxes. Through a private annuity trust, he was able to spread out that obligation, and in return now enjoys a significant lifetime income. Talk about a great situation to find yourself in!

I'll post another interesting story next time. Who would have imagined this scenario?

Paula Straub
Interview with the Pros -Educational Resource askpaula@savegainstax.com

1031/TIC Exchanges - What are the Advantages?

Read a good article on 1031/TIC exchanges in the Baltimore Chronicle today.

Sometimes it's good to read about them from an independent source. Here's the link to the Boston Chronicle webpage.

I am currently in the process of revamping my SaveGainsTax website and adding another site with more information and articles. The exact time frame for launch is still up in the air, as the "creative" web guy works at his own pace. I'll keep you posted.

I'm going to be hosting a special call in a few weeks with a guest speaker. I'll post more later, but the subject will be on how to evaluate commercial property and where some of the better buys are today. It'll be very informational for all of you looking into being TIC owners who are used to individual rental properties.

That's all for now. Check back for updates!

Paula Straub
760-917-0858

Free Report "7 Secrets to Help You Hang Onto Your Capital Gains"