Moving blog to aamllc.com

I have integrated my blog into my website and all future posts will be at www.aamllc.com

Estate Planning: The Rules Change Again

Estate Planning: The Rules Change Again

The federal government isn’t making it easy for Americans to feel confident about their estate plans. In the past four years, the estate tax exemption has performed a jitterbug — jumping from $2 million with a 45% top tax rate in 2008, disappearing completely in 2010, and ratcheting up to $5 million with a 35% top rate in 2011.

The $5 million/35% threshold will remain in place through 2012, but after that, all bets are off.  The current law expires at the end of 2012, and unless Congress acts again to extend or change it, the exemption may revert down to just $1 million, while the top tax rate could rise to 55%.

Estate Taxes: A Moving Target

Year	Exemption	Top Tax Rate
2008	$2,000,000	45%
2009	$3,500,000	45%
2010	Estate tax repealed	0
2011	$5,000,000	35%
2012	$5,000,000	35%
2013	???	???

 

With so many changes over the years and so much uncertainty for the future, it’s a good idea for anyone with an estate in excess of $1 million (both individuals and couples) to meet with a financial and tax professionals to map out their estate planning needs.

Gift Tax Exemption: Act Before It’s Gone?

As part of the new tax act, the gift tax exemption has increased from $1 million to $5 million. Couples can transfer $10 million. But, as with the estate tax exemption, this “gift” is set to expire at the end of 2012.

One important item of note: While the current estate and gift tax exemptions render certain trust arrangements redundant for many, be sure to consider state tax considerations when drawing up your estate plan. Currently, nearly 20 states impose their own estate tax exemptions that can differ widely from federal law. For example, New Jersey allows an exemption of only $675,000. Be sure to check with your advisors to see if your state imposes taxes on estates and if a trust may still be applicable to your situation.

When you do meet with your estate planning professional, you should also ensure your overall plan includes the following pieces:

• Durable power of attorney — This document allows you to designate to one or more individuals access and control over your financial assets in the event you are incapacitated or unavailable.
• Living will and health care proxy — A living will spells out your wishes in the event you need life-sustaining medical treatment. A health care proxy is similar to a durable power of attorney, but in this case, it allows your designee(s) to make medical decisions for you when you are unable to do so.
• Business succession plan — Business owners should leave clear instructions as to the transfer of ownership of their entities upon their death or incapacitation. If you have a trust, be sure your succession plan complements your trust provisions.

The information in this article is not intended to be tax advice and may not be applicable to your situation. Please contact your tax advisor for information relevant to your own situation.   

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© 2011 McGraw-Hill Financial Communications. All rights reserved.

February 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Ronald J VanSurksum, CFP® , a local member of FPA.

Washington Hotline – March – Week 1 – 2011

Senate Starts Tax Reform 2011

 

The Senate Finance Committee opened hearings on March 1, 2011 to discuss the topic of general tax reform. Chairman Max Baucus (D-MT) started the hearing by recounting the major changes in America between 1980 and 2011.

He noted that in 1980, “The Berlin Wall was still intact, most business was done using snail mail – except then we just called it, ‘the mail,’ and the concept of derivatives was only familiar in a few, limited markets.” At that time, most of America did not know of the internet, there were very few cell phones except in a few expensive automobiles and the computers were “hundreds of times slower” than today’s models.

Sen. Baucus then contrasted the past with changes that affect every American today. He noted that “business is usually done using email, the internet and smart-phones.” There are new financial products that led to a major downturn in the economy. Mobile phones are widely used today and have much more power than a 1980 computer.

Similarly, tax law has changed since 1980. The last comprehensive revision of the Internal Revenue Code was in 1986. Since that time there have been “15,000 changes” in the tax code. Sen. Baucus asks whether we now have “a tax code that is more efficient, competitive and fair?”

As a result of the complexity and changes in the tax code, most businesses are now created as a subchapter S corporation or LLC. Approximately 94% of businesses operate as “pass-through entities.”

In the view of Sen. Baucus, the hearings must examine how best to efficiently tax business. There is also a “gap between the taxes owed and the taxes paid” of nearly $300 billion. Congress will need to examine methods to close this tax gap.

Finally, Sen. Baucus expressed concern about the 141 potential tax extenders each year. He suggests that it is time to reconsider the wisdom of continuing to pass tax extenders each year.

Sen. Orrin Hatch (R-UT) is the Ranking Member of the Senate Finance Committee. He responded to the opening comments by Senator Baucus with a note of caution. Sen. Hatch quoted the statements by President Obama in his State of the Union Address that called for revenue-neutral corporate taxes and simplification of individual taxes this year. Sen. Hatch agrees that tax reform should be revenue-neutral. In his view, a tax bill could “risk walking down the road to a backdoor tax increase.” If tax simplification and improvements are passed, they should be revenue-neutral and not lead to a major tax increase.

Editor’s Note: During 2011 there are two major discussions underway in Congress. The 2010 Fiscal Commission proposed addressing the budget deficit with a combination of spending reductions and modest revenue increases. However, the Fiscal Commission suggested that a major overhaul and simplification of both the corporate and individual taxes is in order. As the Senate Finance Committee members noted, when Congress is preparing to eliminate major deductions of either corporations or individual taxpayers, there will be strong opposition. Lowering rates and simplifying the code is much easier in concept than actually writing a new tax bill.

President Supports Ban on Tax Patents

The Senate is preparing to consider and vote on the Patent Reform Act of 2011 (S. 23). This week the White House published a statement of policy in support of the bill. The White House indicates, “This bill represents a fair, balanced, and necessary effort to improve patent quality, enable greater work sharing between the United States Patent and Trademark Office (USPTO) and other countries, improve service to patent applicants and the public at the USPTO and offer productive alternatives to costly and complex litigation.”

The White House supports the plan to make the U.S. a “first-to-file” system and notes that the USPTO will be able to adjust fees and operate in a deficit-neutral manner.

The American Institute of Certified Public Accountants (AICPA) has been strongly supportive of the ban on tax patents. It published a news release that stated, “Patents for tax strategies undermine the integrity, fairness and administration of the tax system and are contrary to sound policy.”

The AICPA did note that it was clear under the bill that tax software will continue to qualify for patents. AICPA indicated that financial software has “multiple, new and innovative features” that will be protected under the provisions. However, AICPA also emphasized, “As a matter of public policy, all taxpayers should have unhindered access to fully comply with the tax code and to fully utilize interpretations of tax law intended by Congress.”

Accounting firm KPMG also sent a letter to Senate Judiciary Chairman Patrick Leahy (D-VT). KPMG noted approvingly that it is appropriate to ban tax patents that could lead to “taxpayers facing fees simply for complying with the tax code.” However, KPMG noted that it also is a technology firm that develops tax software and it appreciated the “proper balance between the protection of intellectual property rights and the public policy concerns implicated by extending that protection to patents on tax planning.”

In the view of KPMG, the bill gives “proper deference” to the rights of the taxpayer and still provides a good balance through protection for software patents.

Editor’s Note: The patent act now will be submitted for a vote by the full Senate. With White House and bipartisan support now developing, there is a strong likelihood of passage.

House Votes to Repeal Expanded 1099 Reporting

Both the House and the Senate have now passed bills that repeal enhanced IRS Form 1099 reporting required under the Patent Protection and Affordable Care Act of 2010.

By a vote of 314-112, the House passed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Over Payments Act of 2011 (H.R. 4).

The bill repeals a requirement that many business owners would have to prepare 1099s for a large number of common payments. However, the House bill included an offset that would change the tax credit under the Healthcare Act that is scheduled to go into effect in 2014. While the House leadership supports the repeal of enhanced 1099 reporting, House Democratic Leaders expressed opposition to this reduction in the healthcare credit after 2013.

House Majority Leader Eric Cantor (R-VA) stated that the vote will “make it easier for our small businesses to grow and create jobs by repealing the onerous 1099 provision.”

However, Ways and Means Ranking Member Sander Levin (D-MI) expressed concern and noted, “If this bill would become law, it would mean a tax increase for hundreds of thousands of middle-income taxpayers.” Rep. Levin is concerned that the reduction of the healthcare credit in 2014 will increase middle-income taxes and is hopeful that the final bill will remove this provision.

Editor’s Note: Both the House and Senate have passed the enhanced 1099 repeal. The Senate repeal of the 1099 reporting requirement was attached to a bill to reauthorize the Federal Aviation Administration budget. It will now be necessary for House and Senate to come to a final agreement on the bill language. Because the Senate bill included no offset, it is quite possible that the House offset provision will be removed.

Applicable Federal Rate of 3.0% for March – Rev. Rul. 2011-6; 2011-10 IRB 1 (17 Feb. 2011)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2011. The AFR under Section 7520 for the month of March will be 3.0%. The rates for February of 2.8% or January of 2.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2011, pooled income funds in existence less than three tax years must use a 2.8% deemed rate of return. Federal rates are available by clicking here.

5 Stock Market Changers to Watch This Week – March 7 – 2011

• Consumer Credit: Consumer credit increased in December — the third consecutive expansion after seven straight months of contraction and another indication the economic recovery is accelerating. Data for January come out Monday at 3 p.m.
• Wholesale Inventories: Wholesale businesses boosted inventories 1 percent in December. That’s more than 11 percent above the low reached in September 2009 when companies were slashing their inventories in response to a deep recession. January’s numbers are due out on Wednesday at 10 a.m.
• Trade Balance: The U.S. trade deficit widened in December to its highest level in four months as exports accelerated and oil prices rose. Overall imports of goods and services also hit a three-year high, another sign that consumers and businesses are spending more. January data is due out on Thursday at 8:30 a.m.
• Retail Sales: After winter storms in December and January hurt retailer traffic, retailers’ February sales came in better than expected, underscoring consumers’ itch to shop and willingness to open their wallets. But rising oil and gas prices could dent consumers’ spending power. Watch for new data on Friday at 8:30 a.m.
• Consumer Sentiment: Consumer sentiment rose to a three-year high in February bolstered by gains in the labor market — the number of first-time filers plunged to a nearly three-year low the week ended Feb. 26 — and increased confidence in improved personal finances among higher-income households. Still, the rise in oil and gas prices at the pump may erase some of that renewed confidence. March numbers come out on Friday at 9:55 a.m.

from www.moneynews.com

AAM Weekly Market Wrap – March 7 – 2011

March 7, 2011

Weekly Market Wrap:  Stocks managed to generate a small gain this week as continued turmoil in Libya put more pressure on oil prices.  The S&P 500 index ended the week at 1,321 up about 0.1%.  Oil continued to surge gaining 6.68% to $104.42 per barrel.  Gold also continued its climb adding 1.5% to $1,428.55 per oz.  The dollar was down on the week against other major world currencies dropping 1% to $76.39.

Year-To-Date the major indexes are at: The S&P index +5.05%, The Dow Jones Index +5.12%, The NASDAQ + 4.97%, The Russell 2000 Small cap Index + 5.28%, EAFE International +5.27%.  In the Bond market the 10 year treasury is currently yielding 3.49% and the 30 year yielding 4.60%

Monday the markets gained 7 as Oil prices stabilized, manufacturing and personal income numbers were up, pending home sales were down and spending was flat. 

Tuesday’s market slumped almost 21 points despite positive comments from Bernanke and the US ISM Manufacturing index nearing a 7-year high as oil prices surged.

On Wednesday the market gained 2 points back as Bernanke continued his comments and suggested that growth could accelerate in 2011.  The Fed’s Beige Book showed expansion across every sector of the US economy and private sector payrolls were higher than expected.  On the negative side mortgage applications fell.

On Thursday the market surged nearly 23 points as an unexpected drop in jobless claims and improvements in service sector activity and 4Q productivity were better than expected.

Friday’s market dropped 10 points oil moved up another 2% and the labor report was less than raised expectations.  On the positive side factory orders were better than expected.

Volatility is back thanks to oil prices and the Mideast tensions.  The market saw a couple of moves this week in the 2% range, one moving the market lower and the second moving the market higher.  Expect this to continue as long as Oil and the Mideast are making the headlines.

If the Mideast situation proves to be a short-term event this could be a great buying opportunity as the US economy continues to slowly repair itself and is now starting to add jobs at a clip that may actually make a difference.

On the other side, if the Mideast problems linger on and continue to push oil prices higher it could take money out of consumer’s pockets and cripple corporate profits to point of unraveling the gains we have made. 

Mortgage rates were flat this week.  The Schwab Bank 15-year rate is now at 4.33% and the 30-year rate is at 5.00%. These rates are as of 03/04/2011 and assume no points, no origination fee and a $250,000 conforming rate mortgage.

The Week at AAM (to highlight what I do for clients and how I am different than most advisors):

Some of the highlights of my last two weeks include:

• Attended a funeral of a client who passed too young.  Len, rest in peace.
• Helped clients prepare for the completion of their tax returns by gathering information and getting it to their tax preparer.
• Worked on a new SIMPLE retirement plan for a client to help him and his sons start saving for their futures on a pre-tax basis.
• Met with clients, planned for their goals and funded some IRAs .
• Met with a new prospect to discuss mostly debt concerns.  Suggested that she read some of Dave Ramsay’s books and follow his “baby steps” to work their way out of debt.
• Took a client to an attorney to discuss doing a private mortgage with one of her kids.  This can be a great way to help out the kids and increase returns on fairly safe assets as well.
• Helped a client plan for the purchase of a cottage upgrade.

I hope you had a great few weeks as well.  Please let me know if there is ever anything I can do for you or if something has changed in your financial situation to warrant a meeting or a change of investment policy.

Ronald J. VanSurksum, CFP®

Advanced Asset Management, LLC

Government Stepping In to Help Americans Pay for LTC Costs

Government Stepping In to Help Americans Pay for LTC Costs

The federal government is concerned about the rising costs of long-term health care for senior citizens and the disabled. And it is actually taking action.

The Community Living Assistance Services and Support Act (CLASS Act), part of the health reform legislation signed into law by President Obama in 2010, will establish the nation’s first government-run, long-term care (LTC) insurance program. Long-term care insurance is designed to cover costs associated with cognitive impairment, a chronic illness, a disability, or help with daily needs such as bathing and getting dressed.

One of the primary goals of the CLASS Act is to reign in the role Medicaid plays in long-term care. Currently, Medicaid spends one-third of its budget on LTC costs — and with a rapidly aging population, those costs are only expected to skyrocket over the next few decades.

The Act does not yet specify premium levels or the full scope of what services will be covered. The Department of Health and Human Services is responsible for determining the parameters of the program. While the program became effective as of January 1, 2011, the full details won’t be finalized until October 2012.

Here is a summary of what is known so far.

• The program will be voluntary and not funded by tax dollars.
• Employers can include the program as part of their benefits offerings and may fund all or part of the costs. Their employees will be automatically enrolled, but will have the ability to opt out.
• Eligible employees can pay their monthly premiums through direct payroll deductions, similar to traditional workplace health insurance plans.
• Participants earn eligibility for their LTC needs after at least five years of participation.
• These plans will be tax-advantaged, allowing participants to deduct their premiums and out-of-pocket expenses on their tax returns.
• Those who are currently retired are not eligible for the program. Also not eligible are the unemployed and nonworking spouses.

A Need for Supplemental Coverage?

The program’s benefits won’t be capped, but the amount paid will probably not cover 100% of all LTC costs. The law stipulates a daily benefit minimum of at least $50, and many experts believe the program will launch with a $75 daily stipend. Currently, the median cost of “adult day health care” is $60 a day, while a semi-private room in a nursing home runs $185.1

Given the rising costs of care, it is likely that supplemental insurance still may be a necessity for many who have not yet retired. Standalone LTC insurance can be pricey. In 2009, premiums for a policy with a three-year benefit period averaged $1,590 annually for a single 55-year-old.2

In addition to their costs, LTC insurance policies are complicated. If you are considering purchasing a policy before the government plan is launched, be sure to consult with your financial professional. 

¹Source: Genworth Financial, Genworth 2010 Cost of Care Survey, April 2010.

²Source: American Association for Long-Term Care Insurance, 2009 Long-Term Care Insurance Price Index.    

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© 2011 McGraw-Hill Financial Communications. All rights reserved.

February 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Ronald J VanSurksum, CFP® , a local member of FPA.

Washington Hotline – February – Week 4 – 2011

IRS Announces Open House

The IRS announced on February 23 that it is holding open houses in 100 IRS offices. The offices will be open from 9:00 am to 2:00 pm local time on Saturday, February 26 and Saturday, March 26.

Commissioner of the IRS Doug Shulman stated, “We are opening our doors these Saturdays to help taxpayers who may not have a chance to seek assistance during the work week. If taxpayers need help preparing their tax returns or have account questions, we encourage them to visit one of our open houses.”

Last year, 35,000 taxpayers were assisted during similar open houses. The taxpayers had questions on tax preparation and qualification for various tax deductions or benefits. The IRS indicated that 95% of the questions were resolved.

In addition to the open houses, IRS offices in 10 cities will also offer free seminars on the 2010 tax laws. The locations of the IRS offices and seminars are available on www.irs.gov.

Individuals with incomes of $49,000 or less also qualify for additional assistance. The Volunteer Income Tax Assistance (VITA) program will assist in completing returns. Those persons over age 60 qualify for the Tax Counseling for the Elderly (TCE) program. They also can receive help in preparing their 2010 income tax returns.

Tax Exempt Hospitals Granted Filing Delay

In Announcement 2011-20; 2011-10 IRB 1 (23 Feb 2011), the IRS granted a three-month automatic filing extension for most tax-exempt hospitals.

Following the development of a new Form 990 Return for Charitable Organizations, the IRS published a comprehensive Schedule H for medical centers. With the passage of the Patient Protection and Affordable Care Act of 2010, both the IRS and many medical centers need additional time to properly prepare for filing of Form 990 with the Schedule H for medical centers.

As a result, the IRS indicates that the earliest permitted filing date for tax-exempt medical centers filing Form 990 and Schedule H will be July 1, 2010. This is the earliest filing date whether the filing is in paper form or electronic format.

For those medical centers with return due dates before August 15, 2011, there is an automatic three-month extension of time to file. This extension is available without filing Form 8868, Application for Extension of Time to File an Exempt Organization Return.

However, there may be new organizations that have not filed Form 990 Schedule H for tax year 2009. In this case, they may choose to file Form 8868 to clarify their intention to extend the deadline. If a medical center requires an additional three months to file, then it should file Form 8868.

For those medical centers that qualify for this automatic extension, there will be no penalty if they file within the additional three-month period.

Accountants Support Tax Patent Ban

David Auclair, Managing Principal of the Washington National Tax Office for Grant Thornton LLP, sent a letter this week to Senate Judiciary Chair Patrick Leahy (D-VT) and Ranking Member Charles Grassley (R-IA). In his letter, Mr. Auclair expressed “strong support” for the ban on tax patents included in the patent reform legislation (S. 23) that recently passed the Senate Judiciary Committee.

Mr. Auclair stated, “Patents on tax strategy methods threaten the integrity, fairness and administration of the tax system.” He indicated that his firm hopes that the two senators will aggressively oppose any efforts to weaken the tax patent ban when S. 23 reaches the Senate floor.

Tax patents are particularly objectionable because they preclude taxpayers from satisfying “their legal obligations using a patented interpretation of the tax code, allowing patent holders to privatize tax provisions that Congress intended for everyone.” The patents undermine confidence and will mislead taxpayers who may think that a government patent is equivalent to approval by the IRS of a tax method.

Editor’s Note: The ban on tax patents is part of a much larger bill on patent law. The tax patent provision covers a “strategy for reducing, avoiding or deferring tax liability,” but excludes a ban on patents for tax preparation software.

Palimony Claim a Valid Estate Debt

In Estate of Bernard Shapiro et al v. United States; No. 08-17491 (21 Feb 2011), the Ninth Circuit Court of Appeals reversed a summary judgment by a District Court in Nevada. The District Court had determined that the estate was not entitled to a deduction for a palimony claim.

Decedent Bernard Shapiro and Cora Jane Chenchark met in 1977 and lived together from that year until 1999. They never were married. In 1999, the decedent had a relationship with another woman and the two separated. Chenchark sued in Nevada court and claimed breach of contract and breach of fiduciary duty. She claimed that during the 22 year relationship, both parties had agreed to share equally in each other’s assets.

While the suit was pending, Bernard Shapiro passed away. The estate filed IRS Form 706 and paid $10,602,238 in estate and generation skipping tax. The Nevada Court ruled in favor of the estate on the palimony claim and Chenchark appealed. The estate then settled with Chenchark for approximately $1 million.

In June of 2003, the estate filed an action seeking a refund of approximately $2 million based on the assertion that the palimony claim was deductible. Following further proceedings, the estate claimed a potential refund of $4.86 million.

The District Court noted that there were no factual issues and therefore ruled based on the applicable law. In the view of the lower court, the love and homemaking management provided by Chenchark were not sufficient consideration under Nevada law to create a contract. Therefore, there was no deduction for the value of Chenchark’s claim against the estate. In addition, the District Judge ruled that there was an estoppel argument that precluded the estate from claiming in the palimony case that there was no consideration and then making the opposite claim in the estate tax case.

The Court of Appeals first reviewed the law on consideration. It noted that under both California and Nevada law, a promise to perform homemaking services is adequate to create consideration. Because Chenchark had managed the home and supervised the decedent’s maid, gardener and pool man, the court determined that there was sufficient performance to provide adequate consideration.

On the judicial estoppel issue, the court noted that the estate had opposed the contract claim on the palimony allegation. However, that did not cause the estate to relinquish a right to deduct the potential value of that claim on IRS Form 706.

Finally, Chenchark had filed notices of Lis Pendens against several of Shapiro’s properties. These properties had lower values as a result of the cloud on title. However, the estate had failed to raise that issue in a timely manner and was not permitted to raise it on appeal. Therefore, the Court of Appeals reversed the District Court grant of summary judgment on the deduction for the palimony claim and remanded it to the District Court.

Circuit Judge Tashima concurred in part and dissented in part. Judge Tashima noted that there is a difference between contract law for state property purposes and that which applies for federal tax purposes. Even though there may have been a valid contract under Nevada law supported by Chenchark’s homemaking activities, that does not necessarily qualify the estate for the deduction. If under Sec. 2053 there is a person who is a “natural object of bounty,” then a claim is permitted only if it is supported by “adequate and full consideration.”

Even though Chenchark supervised the maid, gardener and pool man, she never contributed to any funds to the partnership and therefore did not provide the full consideration required for federal tax purposes.

Applicable Federal Rate of 3.0% for March – Rev. Rul. 2011-6; 2011-10 IRB 1 (17 Feb. 2011)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2011. The AFR under Section 7520 for the month of March will be 3.0%. The rates for February of 2.8% or January of 2.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2011, pooled income funds in existence less than three tax years must use a 2.8% deemed rate of return. Federal rates are available by clicking here.

AAM Weekly Market Wrap – February 27 – 2011

February 28, 2011

Weekly Market Wrap:  Stocks gave back some gains this week as tensions in the Middle East and Libya escalated driving up oil prices.  The S&P 500 index dropped 1.7% on the week closing at 1,319.88.  Oil surged 9% on Middle East supply concerns topping off the week at $97.88 per barrel.  Gold also pushed higher up 1.5% to $1,407.93 per oz.  The dollar moved slightly lower against other major world currencies off ½% to $77.24.

Year-To-Date the major indexes are at: The S&P index +4.95%, The Dow Jones Index +4.78%, The NASDAQ + 4.83%, The Russell 2000 Small cap Index + 4.89%, EAFE International +4.42%.  In the Bond market the 10 year treasury is currently yielding 3.43% and the 30 year yielding 4.52%

Monday the markets were closed for the Presidents day holiday.  On Tuesday the market plummeted 28 points as Middle East and Libya unrest rattled the stock markets and the oil markets.  In economic news home prices continued to fall but consumer confidence reached a 3-year high and the Richland manufacturing numbers came in better than expected.  On Tuesday the market carried through with an 8 point drop as oil prices touched $100 per barrel and despite an increase in existing home sales and mortgage applications.  Thursday’s market settled down to a 1 point loss as oil prices eased some, a mixed durable goods number, a drop in new home sales and a better than expected drop in initial jobless claims.  On Friday the market found its land legs and made some group back adding 13 points.  4^th Quarter GDP was revised lower and consumer confidence was at its best since January of 2008.

The markets gave back some gains as tensions increased in the Middle East and especially Libya pushing Oil prices significantly higher to nearly $100 per barrel.  This could turn into an excellent buying opportunity if things settle down overseas or could pose a significant drag on the markets if they don’t and oil prices continue to rise.  Only time will tell.

The US economy continues to show mixed results with a bias towards slow improvements.  Consumers are becoming more confident in the recovery.  I think that will hold up as long as gas prices do not reach $4 per gallon.  Initial jobless claims were down and existing home sales up – both good signs.

I remain fairly confident that the economy will continue to improve at a gradual pace and 2011 will bring more jobs to the US economy.

Mortgage rates eased slightly this week.  The Schwab Bank 15-year rate is now at 4.33% and the 30-year rate is at 5.00%. These rates are as of 02/25/2011 and assume no points, no origination fee and a $250,000 conforming rate mortgage.

The Week at AAM (to highlight what I do for clients and how I am different than most advisors):

Some of the highlights of my last two weeks include:

• Mailed out tax information and an annual letter to my clients.
• Helped clients prepare for the completion of their tax returns by gathering information and getting it to their tax preparer.
• Helped a client with the purchase of a new home – another goal achieved!
• Met with potential referral partners who work with business owners to help them transition out of their business and get the most value for what they have built.
• Helped a client prepare for a major surgery by reviewing beneficiary designations.
• Volunteered at the Knights of Columbus 7487 Wild Game Dinner and helped them raise money for all the good works that they do.
• Took a few days off with the family and extended family.  I had a great time!
• Had a great Valentine’s Day and wished my wife a happy birthday.

 

I hope you had a great few weeks as well.  Please let me know if there is ever anything I can do for you or if something has changed in your financial situation to warrant a meeting or a change of investment policy.

Ronald J. VanSurksum, CFP®

Advanced Asset Management, LLC

5 Stock Market Changers This Week – February 27 – 2011

• Personal Income and Spending: Personal income and spending both increased in November and December, but personal spending outpaced income. The uptick in spending was good news for the economy. But with spending rising faster than income, personal savings dropped in December. Data for January come out Monday at 8:30 a.m.
• ISM Manufacturing Index: The manufacturing sector picked up steam in January as the ISM Manufacturing Index rose to its highest level since May 2004. In another good sign the economy is recovering, the order backlog expanded for the first time since August. Look for February’s numbers on Tuesday at 10 a.m.
  
• Construction Spending: As if the real estate sector needed more bad news, construction spending declined in December after falling in November. Of course, it’s difficult to ascertain how much of an effect December’s snowstorms had on construction spending. But what is known is the number of housing units currently under construction fell to the lowest level on record in December. January data is due out on Tuesday at 10 a.m.
  
• Fed’s Beige Book: With a little more than one week to go until the Federal Reserve’s second meeting of 2011, all eyes will be on the Fed’s Beige Book announcement for hints of any overheating economy or inflationary pressures that could push the Fed to raise interest rates. The Fed is also mulling tapering off from its $600 billion bond buying plan.Watch for data on Wednesday at 2 p.m.
  
• Nonfarm Payrolls: Nonfarm payrolls increased meagerly in January compared to December’s gains. The Labor Department blamed Mother Nature and lots of wintery weather around the country for the poor jobs growth. Now that the severe weather has subsided, will that have a bearing on February numbers? New data come out on Friday at 10 a.m.

Simple Steps to Help Reduce Credit Card Debt

Simple Steps to Help Reduce Credit Card Debt

The U.S. has a cumulative revolving debt of more than $850 billion, according to the Federal Reserve. A whopping 98% of that figure is comprised of credit card debt — with 54 million households in arrears for an average balance of $15,788.1

If you are contributing to staggering sum of outstanding credit card debt in America, you need to start digging your way out, and the sooner the better. Debt can stand between you and your financial goals, such as buying a home and being able to fund your retirement. Here are some simple steps to help you start paying down those charges.

 Step 1: Consolidate and pay aggressively. The best approach to paying off debt is to become systematic and aggressive. If possible, try to consolidate your balances into one card with the lowest interest rate. Then cut out some of your indulgences — lay off the morning coffee fix and brown bag your lunch. The $50-$200 a month you can save by making a few small sacrifices should go right into your credit card payment. If you can’t consolidate your debt, start with the card with the highest interest rate, and double or triple your monthly payments until you eliminate your balance. Then do the same thing with the next highest interest rate card, and so forth.

 Step 2: Pay debt first, invest later. Conventional wisdom states that if you can earn a higher after-tax return on your investments than the interest rate you are paying on your debt, you should invest. Otherwise you should pay off your debt.

 As an example, say you have a credit card balance of $8,000 with a 14% interest rate. Given current market performance, paying off the card before investing is a no-brainer. But even if the stock market was experiencing an annual gain between 8% and 9%, paying off debt would still be your better bet.

 Step 3: Ask for a lower rate. You can accelerate the pay-down process by calling your card issuer and asking for a reduced interest rate. According to a survey conducted by the U.S. Public Interest Research Group, more than half (57%) of those who called and requested a lower interest rate were successful. On average, the rate was lowered between seven and 10 percentage points.

 It may take months or even years, but becoming debt free is your first step to true financial freedom. It is also a prudent move for individuals who are nearing retirement.

 For More Information

These Web sites offer information on competitive rates and more. Be sure to shop around for the best rates.

• http://www.creditcards.com
• http://www.lowcards.com/CreditCardIndex.aspx
• http://www.bankrate.com/brm/rate/brm_ccsearch.asp

 

¹Source: Federal Reserve, G-9 Report on Consumer Credit, March 2010. 

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© 2011 McGraw-Hill Financial Communications. All rights reserved.

February 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Ronald J VanSurksum, CFP® , a local member of FPA.