As a wealth management consultant and professor for over a decade, it is that time again to file our taxes. With tax filings, we must document our income, expenses, deductions, exemptions, retirement contributions and so forth. Some of us must file our taxes for partnerships or corporations.

Wealth management comprises various subjects including: Economics, Banking, Investments, Risk Management, Investment/Asset Management, Estate Succession, Taxation, and Trust Planning and Retirement Planning.

Many of us simply receive W-2 and employment income and traditional company benefits primarily, but others who are self-employed or contractors are doing their best to utilize the system to declare income, pay for insurance, take mortgage deduction and so forth.

The good news is that that the tax code has become more amicable to the self employed over the last decade. Self employed individuals are able to write off or deduct more of their health care expenses while also setting aside more money pre-tax into their self directed retirement accounts.

Here are some thoughts related to Wealth Management 2012

Investments: While we are not sure what will happen with taxes going forward, several of today’s tax rates on income such as dividends and long-term capital gains are reasonable. If they go up, many people may sell out of dividend stocks or other related holdings. Dividend stocks have been particularly popular for retirees and those who don’t want CDs with the rates so low.

Thus, dividend stocks have been the alternative for income producing investments because the tax rates are at 15%. Overall, if income taxes go up on dividend stocks at this time, the hardest hit may be seniors and those who live on a fixed income.

Retirement and Education: In light of the present situation, we hope you are able to maximize your contributions to your retirement before April 15th each year. Also, setting aside money in a 529 plan is a good way to fund a child or grandchild’s education for the future. The annual gifting rules and estate and gift tax rules allow you to gift cash to others during life or at death. Therefore, now may be a good time to consider large gifts due to the generous estate & gift tax exemption for 2012.

Estates and Succession: As for estate taxes, those rates right now are the most generous ever. However, the large exemption may be reduced again to the Clinton era rates if nothing is done by Congress before 2013.

The other major estate management issues are succession documents. Do you have a valid will? Do you have health care directives? Have you considered limited powers of attorney for your financial affairs or health care affairs? Have you arranged for the guardianship of your children if something happens to you? All of these issues can be dynamic and very important?

Insurance: Other topics are risk management related. Do you have proper life, health, and home insurance? Have you considered an umbrella policy or disability policy? Again, protecting yourself and your family in this way is imperative. However, you must remember that insurance contracts have beneficiaries and that each policy can have primary beneficiaries or secondary beneficiaries. Further, these assets are not controlled by your will and the beneficiary receives regardless of what your will says. Providing the policy numbers and information to your loved ones may also be a good exercise.

Banking and Investment Accounts: Additionally, if you have bank or brokerage accounts, you should consider listing your spouse or loved one as person who receives the account upon death. TOD “Transfer on Death” and POD “Payable on Death” accounts are typical choices for your accounts and this allows a loved one to have access to cash immediately if something happens to you. Sometimes, rolling over or consolidating accounts is a great exercise so as to help create a better view of the totality of your investments.

Taxation: The IRS has a tax tips section which is interesting and resourceful. Moreover, there are many great tax software programs out there to chose from that you can use privately on your computer. Thus, with good information coming from the Treasury Department and quality software, all of us have a fair opportunity to get our tax paperwork done on time.

Economics: Keep in mind that there has been a number of economic cycles in the last 20 years in the USA and Internationally. That means that we should all keep an eye on our risk tolerance and our investing time horizon. When you are getting closer to retirement, you should be moving out of riskier investments and into more stable investments or stocks with less volatility if possible. Other related problems such as an election year and global debt crisis issues domestically and abroad are also now part of the macro-economic effects.

In the end, most people are concerned with financial security. During our earning years, all of us want to work in a labor of love, earn what we can, protect our children and retirement, and worry about taxes later. In the end, the key is doing what you want to do, and have the experts handle your legal, tax and wealth management for you.

*No investment, legal or tax advice is intended to be given herein. Please see a licensed professional before making any important decision.

Estate Planning 2012 – Do I Need to Worry? Is there a Strategy Going Forward? by George Mentz, Esq.

You may think estate planning is just for the wealthy. If your assets are worth $1,000,000 or more, estate planning is still a pending and delicate issue. With most assets such as homes and stocks devalued at the moment, those prices and valuations may move up quickly in the coming months and years. You may not also be familiar with your spouse’s net worth or pending inheritances either.

With the tax changes for 2011 and 2012, you may not need to worry so much about estate taxation because of the 5 million that an individual can leave without estate taxes while the spousal exemption is still in force, but it will keep changing and taxes will probably go back up soon. Presently, the old trusts may or may not be needed depending on your net worth, spouse, health, children and other dynamics, so this is one of the most dynamic times in history for a review of estate planning documents.

Tax Year Tax Rate Exemption Equivalent
2009 45% $3,500,000
2010 N/A or 35% N/A or $5,000,000
2011 35% $5,000,000
2012 35% $5,120,000
2013 55% $1,000,000

The worst problem is that there is no guarantee that any large exemption will be available anytime in the near future.

Adding up the value of your assets can be an eye-opening experience. By the time you account for your home, investments, company value, retirement savings and life insurance policies you own, you may find your estate will end up in the taxable category.

The strategy that must be evaluated by yourself or your parent(s) is whether to use the large exemption NOW and make large gifts of your holdings to your loved ones in the short term.

By giving now, you can fund:
1. Pre-Fund Education of children and grandchildren
2. Home purchases or rental real estate in a low market for children.
3. Give away assets such as stock to loved ones.
4. Move large gifts of family stock to your children.

Further, it is always a good time for you or your clients to review:

1. Durable Power of Attorney
2. Wills
3. Medical Directives
4. Any Trusts (Some may want to be voided and replaced)
5. LLCs and Company Stock (operating agreements)
6. State Tax issues
7. Guardianship designations
8. Whether a professional trustee should be involved
9. Checking all of your designations and beneficiaries of your insurance, annuities, or other non-probated assets.
10. Document preservation.

The last challenge is document preservation. Make sure your important documents are: with a reputable or safe law firm, with a reputable trust department, in a bank deposit box that somebody knows about, or preserved in another type of lock box service that will notify your loved ones about your intentions.

All Rights Reserved – No legal advice is intended herein. Please consult with a qualified or licensed professional in your jurisdiction before making any important decision.

Trusts offer your clients asset protection and tax benefits, giving them the power to say how and when their cash and property are distributed. They also offer a mechanism for putting the decision-making process in the hands of someone other than the grantor—the power of appointment (POA).

But for all their flexibility, powers of appointment also have the tendency to throw estate plans off track, resulting in unplanned-for tax liability and unforeseen results.

Although a person who has a general power of appointment over property isn’t said to own the property, if they die holding the POA, their gross estate can include the value of that property. And that’s where the dispute in Estate of Chancellor v. Comm’r, T.C. Memo 2011-172 (2011) begins.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the estate tax in Advisor’s Journal, see More States Moving to Estate Tax Repeal (CC 11-121) & Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122).

For in-depth analysis of the estate tax, see Advisor’s Main Library: A—Federal Estate Tax General.