Feb 07

A few weeks ago, I talked about the end of estate planning. It might have been a bit of an over-reaction to the news that the estate exemption was made a permanent, inflation-adjusted figure of $5.25M for 2013. Perhaps I was jumping to conclusions as there are a number of reasons one may want a trust. More important, you may have done some advanced planning years ago when the $1M exemption wasn’t enough to keep your estate (death) tax free.

You may have discovered, however, that income retained within that trust is taxed at some pretty crazy rates;


This, as compared to a single filer that would not hit 28% until a taxable $85,650 or married couple filing jointly at $142,700. Fortunately, in 2013, there is still a long term capital gain rate, albeit a higher one,  20%, plus 3.8% if the trust is in the top bracket. Nearly 24% when the trust beneficiary may very well be in the 15% bracket.

How to navigate this? First, you need to consider whether the trust should retain all of its earnings or if the beneficiary is responsible enough to get this small distribution. In 2013, a child subject to the ‘kiddie tax’ can receive up to $1000 in unearned income and pay no tax. Additionally, the next $1000 is taxed at the child’s rate, likely 10%. If the trust assets are loaded with CDs earning interest, this may be tough, as interest is all taxed at the ordinary rate. Invested in the right mix of low dividend stocks would keep the need to distribute any income to a minimum.

Even with the generous estate tax rules currently in place, a trust can help your heirs avoid probate, and in case you have a child whom you fear would blow his inheritance on a weekend in Vegas, the trust can be used to provide an annual stream of income instead of a lump sum windfall.

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Jul 25

The first article I’d like to share with you this week lent its sentiment to this week’s roundup title. 5 Financial Bubbles: Are We Facing a Bubble of Bubbles? This was a guest post on the Balance Junkie site, and it’s an interesting read. There may be not just one or two markets that are in bubble territory, but five. Who knows the ramifications of each of them correcting over the next few years, but it won’t be pretty.

Free From Broke explains why Dollar Cost Averaging Helps Eliminate Emotion And Market Risk. I liked this discussion of Dollar Cost Averaging, but I’d make one correction – it reduces emotion, nothing can eliminate it, unfortunately.

Neal Frankle offered 5 Tips on How To Make Your Own Living Trust Online. The return of the estate tax is just one of many reasons to consider a trust, and Neal explains how to do it without breaking the bank.

Jason Topp guest posted on Bible Money Matters with Saving For Retirement Til It Hurts! He offers tips on how to make this a priority, how to increase your savings year after year. The benefit is twofold – of course, saving for retirement will help you enjoy a comfortable, worry-reduced time, but also, by spending less now, your needs at retirement will go down as well, as your spending pattern adjusts to a lower level.

Kay Bell at Don’t Mess With Taxes offered a great peek at Your 2011 tax burden.  It’s worth reading, but I’ll give you a hint/spoiler – brace yourself, taxes are rising.

Last – I’d like to thank those who gave me a mention or included in a roundup this week – Money Help for Christians, Oblivious Investor, Len Penzo, and Neal Frankle. My thanks to all of you.


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Jan 11

Last week, in my New Year Goals post, I mentioned how in ’10 I wanted to get more exposure by guest posting among other approaches. I’m proud to tell you that I was invited to be a regular guest poster on the TurboTax blog, and my first guest post Estate Planning 101 was published this past Saturday. It offers an overview of three sub-categories, Will, Designated Beneficiaries, and Trusts. A good read to help you understand this process and give you the first steps to get your own plan in order.


I look forward to being a regular there as it seems a comfortable fit. Taxes play a major role in our finances, and by coincidence, it was TurboTax (then MacIntax) that I chose to use when I first filed my own return in 1985. I’ll continue to post a note here to let my readers know of any guest posts I author, as I hope you’ll read and comment.


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Aug 06

I recently read that Leona Helmsley bequeathed $8 billion to a charitable trust dedicated to “the care and welfare of dogs.” I have nothing against dogs, or other pets, for that matter. When I read stories of people spending large sums of money on their pets, I think it’s their money, to spend as they wish. But enough is enough. $8 billion dollars? Some time ago, I posted about the Global Rich List, a web site that will tell you how well you’re doing compared to the rest of the world. This web site informs me that 1.3 billion people live on less than $1 per day. That $8 billion dollars could have been directed to a trust that could help to double the well being of one million people ($365M/yr is less than 5% of $8B) who are otherwise starving, not just for a year, but indefinitely. Queen of Mean, indeed.

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Apr 28

I recently became aware of a situation that was pretty upsetting, even though it happened to someone I don’t know and never met. A friend of a friend passed away and left her brother a sum of money in a trust. The brother, disabled, and not working, panicked, and took the money out. Now, when I first heard this, I thought that since it was in a trust, he may have some capital gains due, but that should be minimal. What happened was that the trust held the deceased woman’s IRA, so every last cent was taxed as ordinary income. Even though he had no other income, his tax bill was well over $40,000. A peek at Fairmark tells me that in 2008, one can have $8950 income not be taxed at all (this figure is the sum of the single exemption and standard deduction). The next $8025 is taxed at 10%. So this poor soul could have withdrawn $16,975, rising a few hundred each year, and paid about $800 in tax. The interest alone on the $40,000 would pay his taxes each year. It’s unfortunate that he started asking for advice well after the withdrawal was made, as he could have rolled this money into a beneficiary IRA within 60 days of the withdrawal.

The lesson here, when a loved one passes away, take a breath, don’t panic. Mourn, and take some time. Ask questions and understand where the money, stock, real estate is, before making any decisions you are likely to regret. I hope you can learn from this person’s mistake.


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