Chuck Jones & Associates, Inc.

All Things Financial

Volume 16 No. 4, April 2010
By Charles P. Jones, CFP®

No one wants to give up control of their lives. That’s true for someone who’s 20 or 80. But if you sense an older relative is slowing down, or if a serious illness is threatening the finances of any loved one, it’s time to fashion a battle plan.

A good first stop is a financial planner — a financial expert with the experience to step into a tense situation and help you create a system for locating key information so you can make the necessary critical decisions. Of course, the best way to set up a system is to work with the relative before there’s a problem or in the early stages of illness. Some suggestions:

Understand their condition and strike a cooperative balance: The first step in helping someone in a crisis is not to talk about the money but to understand the crisis. Before talking about money issues, do everything possible to understand how they’re feeling and most important, how they want to handle family, work and money issues at each stage of their illness. It’s not unreasonable for someone to want to keep control until the point when they really have to give up the reins. Get them to talk about what they believe will be triggers for them to give up control, and then find out how they would like to proceed and formulate a transition plan.

Talk about legal documents: Does this parent, relative or friend have a will and necessary health directives in place? Health directives name a single individual to manage all key health decisions if a patient cannot make them; a will depending on their assets and lifestyle situation — if they have kids to raise or a business to run, for example — check to see what detailed legal instructions they have in place to manage their finances or run their business if they are incapacitated. And if those plans have not been made, they need to be made immediately with the help of a CFP® professional, such as Chuck Jones, and necessary tax and legal experts. An individual who is ill needs to designate people whom they trust to handle health and personal finance decisions. But if they have not planned for the future of their business, that is a third and very detailed step that needs to be addressed in collaboration with other family members as well as key co-workers or executives.

Talk about long-term care provisions: According to the American Association of Retired Persons, the average nursing home stay is 2.5 years. Whether an individual chooses long-term care in the home or in a facility, it’s important to understand that while some direct medical expenses will be covered by private insurance, Medicare or Medicaid, most of the cost including daily living expenses, will not.

Get a handle on bills and other key financial events: It’s not the most pleasant dinner table conversation, but if more people planned their affairs with the assumption that they could die or become permanently incapacitated tomorrow, survivors would have a much easier time running or settling matters in their absence. Such planning goes beyond having simple wills and powers of attorney in an easy-to-find location. It makes good sense to establish the following:

• Electronic transactions: Older relatives tend to trust traditional means of paying bills, but automatic bill pay is an extraordinary benefit for caregivers or relatives charged with managing someone else’s finances. By gathering all bills that need to be paid and programming in their payment dates, there’s little or no risk that any regular bills will be paid late. Automatic bill payment should be one of the first decisions made if an elderly relative establishes a joint checking account with a caregiver or whoever holds their financial power of attorney. Also, if a relative wants to continue a regular savings or investment plan while they are incapacitated, those payments can be made as well. Most important — once those automatic transactions are set up, all the security codes and passwords must be kept in a safe place for both to access.
• Set up a home maintenance schedule: If the relative is hoping to return to the home or if it must be sold at a later date to pay bills or to settle the estate, it must be maintained to assure its value at the time it needs to be reoccupied or sold.
• Set up a correspondence system: In addition to the stress of helping someone who’s ill or incapacitated, the sheer amount of paperwork associated with a serious illness can shake the most unflappable person. Again, The Chuck Jones Team, led by Chuck Jones, a CFP® professional with special skills working with elderly clients, can help you set up a system for collecting and sorting that information as well as non-medical financial correspondence. If the house is unoccupied, it’s also important that there is a way to keep mail secure to avoid identity theft — buy a shredder for all mailed materials that don’t need to be filed.
• Pull credit reports: Get permission from your relative to pull the three annual credit reports they are entitled to during the year so you can confirm all accounts are current and that identity thieves haven’t targeted their accounts.

March 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones, CFP®, a local member of FPA.

Noteworthy

Preparing Heirs
By Roy Williams and Vic Preissier

Williams & Pressier provide some interesting research regarding legacy planning in this excerpt:

The Williams Group, recorded in Roy Williams and Vic Preisser’s book Preparing Heirs provided the following:

3,250 families interviewed.

• 70% of estate transitions fail and 30% succeed. (Williams and Pressier do not define which generation, 2nd or 3rd, fail.)
• Failure is defined as the involuntary loss of control of the assets.
• The origins of the 70% failure rate in estate transitions lie within the family itself.
• 60% of the estate transition failures were caused by a breakdown of communications and trust within the family unit.
• 25% of the estate transition failures were caused by inadequately prepared heirs.
• 15% of the estate transition failures were attributed to all other causes such as tax considerations, legal issues, mission planning, etc.
• Note of this 15%, less than 3% of the failures were due to professional errors in accounting, legal, financial advisory planning, or estate taxes.

Something very interesting in their study of the breakdown of communications was an understanding of the two root words that comprise the word communication — Common and Action. So, the objective of communications within a family is the objective to find consensus or common actions within the family.

Trust does not refer to fraud, dishonesty, purposeful deceit, or illegal activity. Rather, trust refers to whether or not individual members of the family are known to be:

1. reliable — do they do what they say they will do;
2. are they sincere — does their internal story match up with their outer story; And
3. are the family members competent — have the capacity to accomplish the task at hand.

Chuck’s Comments:

I have just returned from a long weekend skiing with my sons. I personally utilize these semi-annual trips to talk to my adult children about my wishes and the planning I have in place, should something happen to me. It’s an opportunity to speak to them without the distractions that we all have in our busy lives.

Have you discussed your transition plans with members of your family? Or does the prospect of discussing these issues with your adult children or relatives make you uncomfortable? It is frequently less stressful to have these very necessary talks (which are often fraught with emotion), with a concerned third party present. We want your children and/or adult relatives to know that we are here, we care about you and your family, and we are willing to assist them with their needs, as well.

As a client of Chuck Jones, CFP®, this is part of the personal service that we provide and is included at no additional charge. We will be honored to assist you with this very important part of your Financial Life Planning.

Call us today at (503) 291-1313 to set up your own Family Meeting.

All Things Financial

Volume 15 No. 12
By Charles P. Jones, CFP®
Happy Holidays!

Next year, individuals with a modified adjusted gross income of more than $100,000 will be eligible to convert a traditional IRA to a Roth IRA. The IRS is offering taxpayers a three-year window in 2010 to pay taxes due on a conversion as part of removing the income limits.

Traditional IRAs allow investors to save money tax-deferred with deductible contributions (within certain income limits if either spouse is eligible for a qualified plan at work) until they’re ready to begin withdrawals anytime between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If you leave your savings in the Roth for at least five years and wait until you’re 59 ½ to take withdrawals, you’ll never pay taxes on the gains. You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax contributions, plus any gains.
Keep in mind that conversion might be a good idea for people in lower income tax brackets. Talk to your tax professional about doing a full or partial Roth conversion.

Remember that when you do a conversion, you must pay income tax on the amount you are converting. Since you received a tax deduction on your initial contributions to most traditional IRAs, you must pay the taxes due on those initial contributions and any growth in your IRA. But, subject to certain restrictions, you won’t pay tax when you finally need to withdraw your money. That’s where the silver lining comes in for you, or for your heirs if you pass that money on to them.

The conversion issue is a potentially attractive retirement and estate planning idea for all Americans who want to make sure they maximize the assets they have for themselves and for their heirs on a tax-free basis. And the conversion option isn’t available just for traditional IRAs – it can be used for retirement assets held at other employers and 401(k) holdings. But anyone considering such a move – regardless of his or her income status – should first review their current retirement asset strategy with a tax or financial advisor.

Things to consider:

How close is retirement?

If you have more than five years until you plan to withdraw your retirement funds, conversion of traditional IRA assets to a Roth IRA might make sense. The longer the time span where earnings can grow tax deferred, the greater the benefit of being able to withdraw those earnings without paying tax on them.
What will your tax rate at retirement be?

Many people, such as business owners, may be paying taxes now at a fairly low rate. So they might pay higher taxes at retirement. If that’s the case, converting to a Roth might make a lot of sense. Additionally, with Social Security benefits being taxable at certain income levels, Roth IRAs can allow you to limit or eliminate such taxes.
A Roth conversion can be expensive:

You’ll have to pay taxes on contributions that you previously deducted, as well as taxes on the accumulated earnings. Also, you need to be aware that conversion could push you into a higher tax bracket, especially if you’ve accumulated sizeable earnings over the years. This is why a conversion needs to be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax (AMT) due to those high earnings.

Know how the conversion window will work:

Keep in mind that 2010 is the actual year you will be able to convert your retirement assets to a Roth, but you’ll be able to spread out the tax hit. The Internal Revenue Service has granted taxpayers the option to claim 50 percent of conversion amount as income in 2011 and the remaining 50 percent in 2012. Also, you have to understand that if you choose the conversion period, your tax will be based on the bracket you fit that year. That means swings in income will affect what you pay.

November 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones , a local member of FPA.

Noteworthy

The Chuck Jones Team Welcomes Its Newest Member!

Susan Tinker will be joining the Chuck Jones Team in January 2010 as our Insurance Specialist. Susan comes to us with over twenty years in the insurance and investments industry and is extremely well-qualified. Her undergraduate studies were in accounting at the University of Utah. Please join us in welcoming Susan!

We bid a fond farewell to Jackie and wish her all the best.

Building Innovation Capacity in Oregon’s Higher Education Research Institutions: the University Venture Development Fund

A tax credit is available for contributions to Oregon university venture development funds.

Who can claim the credit?
Any taxpayer who makes a qualifying charitable donation to an Oregon university venture development fund is eligible for the credit. If you also claimed the contribution as an itemized deduction, you must add the amount back into your income before you can claim an Oregon tax credit.
S corporations and partnerships may claim a credit for their donations. Part-year residents and nonresidents. Your allowable credit must be prorated by your Oregon percentage.

How much is the credit?
The taxpayer’s credit is 60 percent of the amount stated on the tax credit certificate. The amount allowed for 2008 is the least of:
-20 percent of the amount actually contributed to the fund, $50,000, or
-The tax liability of the taxpayer.

How to claim the credit:
The university that established the fund will issue a tax credit certificate to you. Keep this certificate with your tax records.

The program provides a generous tax credit to donors in return for helping research within Oregon universities move from lab to market in one of Oregon’s research universities. When the state tax credit is combined with the federal charitable deduction, for each dollar contributed the net after-tax cost to the donor is less than 10 cents.

This is a unique way to benefit both the institutions who commercialize inventions and the Oregon innovation economy.

If you are interested in the tax credit and/or know someone who is interested, please call Chuck Jones & Associates at (503) 291-1313 and we will review your situation with your tax professional.

Source:www.Oregon.gov Department of Revenue. Revised 12/31/2008 ORS 315.521 [Credit code 739]

Protection Parcel

The Importance of Having Separate Disability Coverage
If you’ve never taken notice of disability coverage before, it’s time to start.

Disability insurance protects your ability to earn an income. It provides money to pay your rent, mortgage and basic living expenses if you are injured or sick for an extended period. It is called disability insurance or disability income protection but think of it as income replacement when you are sick or hurt and cannot work. At any age, you are about six times more likely to become disabled for some period of time than to die.

Think your employer’s coverage is enough? Think again. You may have whatever sick leave you have coming, and then if an employer offers short-term disability coverage, it generally doesn’t last more than 12 weeks. There are employers that offer long-term disability coverage, but if you’ve never checked the terms of that coverage, you should.

Basic components of long-term disability coverage:

Monthly benefits: Depending on your income, long-term disability insurance is generally structured to pay 50 to 70 percent of your income up to age 67 or your normal retirement age. Research if the policy you’re buying offers you the chance to buy more insurance as your income increases in future years.

Benefit term: For each disabling incident, your policy may pay benefits for a certain period — two or five years, or until retirement. It’s all about how your policy is constructed. Some policies even pay for life if you purchase this benefit and you are disabled prior to age 60.

Buying younger is generally cheaper: Like health and life insurance, the younger you buy, the less you’ll pay. Occupation enters into the picture because high-risk jobs (where disability is a greater work-related factor) tend to draw more claims. Like health insurance, the company will consider your medical history and your lifestyle, including your weight, pre-existing conditions and whether or not you smoke.

Premium cost: The premium will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they tend to live longer and may work longer) will be considered.

Non-cancellation provisions: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates.

Guaranteed renewable: Like the category above, this means your insurance can’t be canceled,. The insurer can, however, raise the rates for everyone in the category.

Own occupation vs. any occupation: If you have “own occupation” coverage, it is intended to go into effect if you can’t perform the functions of your current job. “Any occupation” coverage pays only if you can’t work at any job where you’ve been reasonably trained to do the tasks. For example, if you’re working a desk job, you could easily be transferred to a receptionist’s job or some other function within the company that you can now do or is your former position. That could significantly interfere with your recovery time, so consider the benefits and specify “own occupation” coverage.

Elimination period: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. Most policies will start paying after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and funnel the money you’ll need in the meantime to your emergency fund.

Partial payments/Residual benefits: Some policies may offer you ‘residual benefits’ or a partial payment if you’re less than 100 percent disabled, but still can’t perform all the duties of your job.

If you’re thinking about self-employment: You’ll likely need disability coverage. But the time to buy is while you’re still in your current job. Why? You won’t be able to prove your income once self-employed, so consider obtaining your desired coverage before you leave.

December 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones , a local member of FPA.