Home is Where the Heart Is – and Your Tax Bill

Posted by admin on Tuesday, April 1st, 2014 at 4:26 pm    

tax base It’s common today for people to cross state lines to go to work, to temporarily relocate to another state for work or medical treatment, or to have a second or even a third home.

Unfortunately, what’s not uncommon is for all of these states to simultaneously lay claim to your income tax dollars.

Residency and Domicile
Although we may think of home as where the heart is, the state taxing authorities define your tax home based upon a variety of factors. Your “domicile” is what most of us think of as “home.” It is the “place of a person’s permanent home to which he or she intends to return to whenever absent from the state for a period of time.” This means that you can remain domiciled in a jurisdiction even after you’ve left if you have maintained sufficient links with that jurisdiction or have not displayed an intention to leave permanently (i.e., if you live in a different state but have not yet formed an intention to remain there indefinitely).

A “residence” is simply a place to live. Many states simply count the number of days you are present in their state. If it’s greater than 183, you are a resident. Other states require both residency and domicile. Thus, dual state residency (regardless of where you consider home) can result in dual taxation.

Residency Factors
For states that count you as a tax resident if you are present greater than an allotted number of days, avoiding being found to be a resident is pretty simple – don’t be in the state for that number of days and keep proof.

For states that look to whether you are a domiciliary, there are several common factors. Evidence of your domicile includes:

  • Location of employment
  • Classification of employment as permanent or temporary
  • Location of business relationships and transactions, such as active participation in a profession or trade or substantial investment in or management of a closely held business
  • Serving on the board of directors for a business or charity
  • Living quarters – whether your former living quarters were sold, rented out, or retained, and whether you leased or purchased real property in your new location
  • The amount of time spent in the state versus amount of time spent outside the state
  • State where you’re registered to vote
  • The state of issuance of a driver’s license or fishing/hunting permits
  • Location of the school your child attends
  • Memberships in country clubs, social, or fraternal organizations

Changing your residence takes planning and is a proactive process. Careful documentation is key:

  • Note the date of your change of residence.
  • Document in writing the reason for the change in residence, which shows basis and intent.
  • Obtain a driver’s license in your new state.
  • Register your vehicle in your new state.
  • File a resident income tax return in your new state.
  • Revoke any homestead claims or election on your home in your former state and file similar documents in your new state of residence.
  • Register to vote in your new state.
  • Open bank or brokerage accounts in your new state.
  • Replace involvement with business, charities, and other organizations in your former location with activity in such organizations in your new residence.
  • Change the mailing address for all bills, banks, insurance, doctors, etc. to your new state address.
  • Keep a calendar of when you are in your former state versus when in your new state or states.
  • Retain airplane tickets, credit card statements, hotel records, etc. that will support your calendar.
  • Change professional licenses to your new state.
  • Establish relationships with new doctors, dentists, accountants, attorneys, etc.

If you have previously filed a tax return in your current state but are changing your residence, you must observe the formalities of making a change of residence and retain all documentation you may need to prove your new residency. There are many documented cases of states successfully asserting tax claims on former residents’ income. Check with your financial advisor today to make sure you’re covered.

Christopher P. Van Slyke, CFP®

LGBT Planning Isn’t Only About the Couple

Posted by admin on Thursday, February 27th, 2014 at 10:00 pm    

wedding picThe U.S. Supreme Court struck down the Defense of Marriage Act (DOMA), which was a federal law that sought to exclude same-sex couples from the definition of spouse. But last year, the United States Supreme Court in U.S. v. Windsor, struck the exclusion, holding it to be unconstitutional.

But I’m Not Gay

Many people may think the law doesn’t concern them because they are straight and their advisors may not disagree. But, as evidenced by the Cheney family, straight clients often have gay relatives, and most of us at least know of someone who had children who were seemingly happily married to a spouse of the opposite sex only to later declare themselves gay.

The Cheney family’s public struggle with the issues surrounding same-sex marriage highlights how what may have been thought to be a fairly straightforward estate plan can turn into a battle over legal definitions and rights that are constantly evolving.

Who Is a Family Member?

Should estate plan documents define marriage and children or leave the definitions explicitly vague? What if the heir’s state laws don’t mirror those of the grantor’s state? The easy answer is to simply leave all spouses, lovers and other life partners out of the discussion and only allow descendants to inherit.

But that doesn’t address the myriad of possibilities.


In a typical estate plan a spouse is the person married to the grantor or a beneficiary. The law in at least 17 states recognizes this as a person of the same sex and we can likely expect more to follow. Descendants have traditionally been defined as the “children of the grantor and the descendants of such children” and usually addresses whether only blood descendants are included. The definition may be expanded to include the children of the grantor’s spouse. But few definitions cover today’s scientific possibilities.

For example, few estate plans have a definition of descendants that addresses a child born after the donation of an egg to a same sex partner, residing with the egg donor in a state that does not recognize same sex marriages, who then gave birth — as was found in a recent Florida case.

Taxes and Employee Benefits

Although it had originally denied the status of spouse to Edith Windsor for purposes of the unlimited marital deduction, in Notice 2013-72, the Internal Revenue Service, joined by the U.S. Department of the Treasury, ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The notice tells us that same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes regardless of whether they live in a state that does not recognize same-sex marriages.

This tells us that the definition of spouse in an estate plan and the ancillary documents will have income and tax consequences.

What to do Next

Regardless of your religious, moral or other beliefs, every estate plan should evidence your intent. Why? Because the law may not now and/or may not in the future be in line with these convictions. Don’t let this issue be one that could cause strife in your family. Talk to your team of trusted advisors about what’s important to you and how to accomplish your goals.

Choosing a Professional Financial Advisor

Posted by admin on Monday, February 10th, 2014 at 3:48 pm    

By Christopher Van Slyke

Working with a professional financial advisor can be key to achieving your goals for the future, but it can also derail your plans—if you’re not working with the right person. There’s no one-size-fits-all recipe for choosing an advisor, but there’s some important due diligence you should undertake before making a decision.

Step 1 of the selection process is acknowledging that significant benefits can result from working with a professional financial advisor. Some people never get there, choosing to invest the considerable time and energy required to do the heavy lifting themselves—and they seldom realize the ROI that’s possible by partnering with a financial professional.

Step 2 is figuring out which advisor is most qualified to give you advice. This can take a while if you do it right, but since your assets are involved, it’s time well spent.

Before I unveil the questions you need to ask potential advisors, let me get something out of the way: I don’t advocate asking your friends and family for recommendations. Frequently, people don’t know if they’re getting good financial advice or not until it’s too late. This is how Bernie Madoff swindled so many people. You had to get to him via your friends and that implied trust. Had anyone done any independent research on Madoff’s operation, they wouldn’t have been able to verify the existence of client assets for his firm.

When you meet with someone who wants to be your advisor, here’s what you need to find out:

  • How does the advisor get paid? Is he/she commission based or fee-only? Fee-only advisors don’t accept commissions based on product sales, which allows them to provide advice that’s conflict-free and generally more comprehensive.
  • Does the advisor have independent custodians? When advisors take custody (holding assets in their name) of client funds or securities, the risk to the client increases dramatically. Independent custodians play an integral role in helping guard against fraud and misappropriation by advisors.
  • Who is the advisor’s typical client? Does the advisor have any sort of expertise that’s relevant to your situation? Are his/her clients in similar situations to yours?
  • How does the advisor work? Do clients work directly with one advisor or is there team coverage?
  • What certifications does the advisor have? In my opinion, the only legitimate ones are the CFP and CPA/PFS designations; both require a rigorous exam.
  • What is the advisor’s investment philosophy and investment process?
  • Does the advisor provide investment management and financial planning services? Why not have financial planning?
  • Is the firm registered with the SEC or the state? Bigger firms are registered with the SEC.
  • How much does the firm manage in assets? Is it large enough to be stable but small enough to provide you with personalized client service?
  • What fees do the underlying investment products incur and how does the advisor manage cost-effectiveness?
  • Are you comfortable asking the advisor difficult financial questions and willing to take his/her advice?
  • Does the advisor act as a fiduciary? If the answer is no, this is a deal killer. That fact must be put in writing for you.

Yes, that’s a lot of questions—but a lot is at stake. Additionally, you need to do some research: use the SEC website (http://www.sec.gov/investor/brokers.htm) to ensure the advisor doesn’t have any SEC filings or conduct issues against him/her; visit BrokerCheck (http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/), a free tool to help people research the backgrounds of current and former FINRA-registered firms and advisors; see if the advisor is part of FPA and/or NAPFA; and check his/her credentials, e.g. verify a CFP® designation by going to the CFP Board website (http://www.cfp.net/for-employers-of-cfp-professionals/verify-cfp-certification-status).

Finally, there are some things that can serve as red flags during your advisor search.

Buyer beware if an advisor:

    • Promises to outperform the market, claims there are “secrets” to accumulating wealth or says you can get high returns with low risk—as anything that sounds too good to be true is likely not true
    • Pressures you to make a commitment to him/her, buy a product or sign a contract under a time deadline
    • Promises you a specific return (that isn’t a pure fixed annuity/CD)
    • Asks you to recruit other investors (i.e., Ponzi scheme)
    • Fails to explain a specific concept in a clear manner
    • Fails to discuss your financial goals and instead makes sweeping promises on what he/she can do for you

In addition, if you’re considering an advisor who works for a large company, ask for a sample portfolio and try to determine if he/she always recommends the firm’s funds. Also ask about costs, including bid ask spreads, market impact costs, 12b1 fees, commissions, advisor fees, etc. It’s a lot of work—but when you have an advisor you trust, you’ll be able to sleep soundly knowing that your assets are in good hands.

U.S. Estate and Gift Tax Traps for Non-U.S. Citizens

Posted by admin on Friday, January 31st, 2014 at 5:05 pm    

In addition to taxing income, the United States imposes a tax on the transfer of assets from one person to another and a lack of planning can lead to financial disaster. The rules are complex and differ depending upon whether the gift is made during the giftor’s lifetime or at death. The tax is imposed on citizens and non-citizens alike.

Planning involves understanding the taxes, what transfers are subject to tax, and upon what typesof property they are imposed.

Type of Property
Which taxes apply to a transfer of property depends upon whether it is classified as intangibleproperty or property not intangible property (referred to as tangible property in this summary) and whether it’s a gift tax or estate tax.

Gift Tax
Under Section 2501(a)(1), a tax is imposed on the transfer of property by gift by an individual,whether such person is a resident or non-resident. An exception to this rule is that a non-resident can transfer intangible property without a gift tax.

We must first understand what is considered tangible property. Tangible property includes: real property within the U.S., tangible personal property such as artwork, jewelry, furniture, and collectibles situated within the U.S., and U.S. or foreign currency or cash within the U.S.

Intangible property is property not included above regardless of where the property is located. This means stock in U.S. corporations, interests in partnerships or LLCs, mutual funds, bank and brokerage accounts, fiduciary accounts and life insurance policies, even if located in the U.S., are considered intangible property for purposes of gift tax. And are therefore not subject to tax on lifetime gift transfers.

Estate Tax
The estate tax is imposed upon all assets of U.S. citizens and non-citizen residents regardless of the type or location of the property.

A non-citizen/non-resident must pay an estate tax on all U.S. situs assets, including: tangibleproperty such as cash located in the U.S., shares of U.S. corporations, the value of an annuity or life insurance policy issued by a U.S. insurance company on the life of another, and otherintangible property if the property is used in conjunction with U.S. trade or a U.S. based business,including the bank or brokerage accounts of such business or trade if on deposit (even with a branch of a foreign bank) in the U.S.

For gift tax purposes, an individual is a resident if that person is domiciled in the U.S. at the time of the gift. For estate tax purposes, a person is a resident decedent if the person is domiciled in the U.S. at the time of his or her death.
As defined by the U.S. Treasury Regulations, “A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal.”

In practice, domicile is a factual issue based on various factors, none of which are determinative.These factors include length of time spent in the U.S. and abroad, size, cost and nature of the decedent’s houses or other residence (whether owned or rented), location of the decedent’s family and close friends, visa status, location of decedent’s business interests and voting records, anddeclaration of residence in one’s wills, trusts, deeds, etc.

Accordingly, an individual who maintains a residence in the U.S. might not be domiciled there for transfer tax purposes.

Tax Treaties
Many countries have agreed with other countries to mitigate the effects of double taxation. Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes. The provisions vary widely and should be consulted often.

Almost without fail in the U.S., where there is a tax there is an exemption. The same is true of the gift and estate tax. Absent a tax treaty to the contrary, the exemptions are summarized below.

Exemptions for U.S. Citizens and Non-Citizens Who are Domiciliaries of the U.S.
U.S. citizens and domiciliaries have the following exemptions or exceptions to transfer taxes:

  1. A lifetime exemption of $5,340,000 (adjusted annually for inflation);
  2. An annual exemption of $14,000 to any person;
  3. An annual exemption of $145,000 to a spouse who is not a U.S. citizen; and
  4. An unlimited amount may be transferred to a spouse who is also a U.S. citizen during life or at death.

Non U.S. Citizen/Non-Domiciliary of the U.S.
Non-citizens who live in the U.S., but who are not considered a domiciliary, are subject to U.S. estate and gift tax only on property situated in the U.S. The following summarizes the exceptions and exemptions:

  1. Exempt the first $60,000 of U.S. situs assets at death;
  2. Gift an unlimited amount of non-U.S. assets, including stock in U.S. companies;
  3. Gift up to $14,000 per person annually of U.S. assets (gift splitting not permitted);
  4. Gift up to $145,000 to a non-resident spouse of U.S. assets; and
  5. Transfer during life or at death an unlimited amount to a spouse who is a U.S. citizen.

The type and timing of transfers significantly impacts the amount of tax imposed on transfers.

Non-U.S. citizens/non-residents and those married to non-U.S. citizens, whether residing in or outside of the U.S., should seek education in order to minimize an exposure to transfer tax both now and upon their death. Consulting with an advisor who works with international clients can help mitigate these and other issues.

Should You Dump Your Family’s Trust

Posted by admin on Friday, January 31st, 2014 at 4:59 pm    

Many revocable trusts contain by-pass planning. This type of plan captures the assets owned by, in whole or part, a deceased spouse in a trust for the survivor instead of simply giving the survivorthe assets outright.

One primary purpose of this type of planning is to preserve the federal and tax exemptions that would otherwise be forfeited. These trusts are referred to in many ways, including Family Trusts, Credit Shelter Trusts, and Residuary Trusts.

These trusts incur millions of dollars each year complying with tax and other reporting requirements and often result in a higher income tax bill than if the spouse owned the assets outright.

Now that only an estimated .14 percent of estates will owe a tax, many couples and surviving spouses are asking the questions, “Should I eliminate this type of planning in my revocable trust?Can an existing Family Trust be terminated?”

Most states allow a trust to terminate if “the material purpose of the trust no longer exists.” For many families, the only purpose of the by-pass trust is to reduce or eliminate federal estate taxes. If the surviving spouse has an estate of less than $5,340,000, even after adding the amount of the by-pass trust, the trust may no longer serving its original purpose.

Should it be terminated?

Arguments for Termination or Elimination
If all parties agree, including the trustee and the current and future beneficiaries, the trust could be terminated before the death of the spouse. The advantages include:

  • There will be no annual tax return to file;
  • The trustee will no longer be obligated to comply with administrative rules such as sending notices;
  • The assets will get a step-up in basis at the spouse’s death (assets in a by-pass trust are not stepped up).

Reasons Not To Terminate
The reasons to terminate are compelling but there are also solid reasons not to terminate a by-pass trust, including:

  • The spouse could decide to give the assets to someone else;
  • If the spouse is married (or later remarries), these assets are subject to the marital rights of the new spouse if not waived in writing;
  • A typical by-pass trust is creditor protected; and
  • If all of the assets are distributed to the surviving spouse, the other trust beneficiaries (current and/or future) may be making a taxable gift to the spouse.

Dumping the Family Trust may work for some families and may save both administrative costs and income taxes, but all of the factors should be taken into consideration before doing so. You should consult with an advisor for more information.

Asset Ownership: It Really Does Matter Whose Name is on the Title

Posted by admin on Thursday, January 2nd, 2014 at 5:35 pm    

Historically, estate planning centered on wealth transfer. But an increased exemption and portability of the federal estate tax exemption, coupled with laws that capped damages in injury cases being struck down across the country, has caused many families and their advisors to look at wealth preservation.

Wealth preservation is not just for the wealthy or for people in high risk professions such as doctors and lawyers. Consider the laws of California, Florida and other states that make parents financially liable for motor vehicle injuries caused by a minor child, or the laws that make you responsible for a fall on your sidewalk.

Wealth preservation, or “asset protection” as it’s commonly called, consists of three primary strategies: asset ownership, insurance and trusts. In this segment we’ll focus on asset ownership.

Asset Ownership
Creditors’ rights differ by state, but in general how you own your property affects a creditor’s ability to seize or garnish it. Generally, if you own property with another party, some or all of the ownership may be protected from your creditors.

Jointly Owned Property
There are three ways to own both real and personal property jointly with another: tenants in common, joint tenants with right of survivorship, and tenancy by the entirety.

Tenants in Common
There is little or no asset protection under this form of ownership. Each tenant owns an equal, divisible interest. Any co-tenant or a creditor can force a sale of the property and a creditor can seize the property or the proceeds of a sale.

Joint Tenants/Joint Tenants with Right of Survivorship
Each joint tenant owns a divisible interest in the whole property. As with tenants in common, a creditor of a joint tenant may execute upon the proportionate interest owned by that tenant. Generally, unless stated otherwise, the percentage of ownership is proportionate to the number of owners. In some states if a joint owner can prove that he contributed all of the funds, a creditor has no claim.

Side Note: Take care before creating a joint account. Not having a legal claim doesn’t stop a creditor from garnishing an asset and sometimes seizing the whole thing. For example, if you add your son’s name to your bank account so he can “pay the bills” if you are unable to or to avoid probate without a trust, and your son owes child support to the state and the state finds the account and sends a garnishment order to the bank, your bank is obligated to follow the directive. Your account will be frozen and may even be sent to the state agency forcing you to fight the government to get it back.

Tenancy by the Entirety
Tenancy by the entirety is a special form of joint ownership, available only to husband and wife and only in about 13 states. Unlike joint tenancy or tenancy in common, each tenant owns an interest in the entire property, not just a proportionate share. Consequently, a creditor of only one spouse cannot execute on any part of the property. One issue to note is that although this protection is guaranteed by statute where available, if your spouse dies or you divorce, you no longer qualify for this type of ownership.

Joint Trusts
Some spouses opt to create a joint revocable trust. With a joint trust, both spouses create the trust and transfer assets to the trust. Only a handful of states have addressed the issue of whether property held in a joint revocable trust has the same creditor protected status as tenancy by the entirety.

For example, in Virginia, tenancy by the entirety is extended to a joint trust or the separate trusts created by husband and wife. In Florida, case law suggests that this protection may be available, but it is not definite. In Missouri, spouses can use a “qualified spousal trust,” statutorily created for this purpose.

Self-Settled Trusts
A self-settled trust, also called a domestic asset protection trust, is an irrevocable trust designed to protect assets from the creditors of the settlor even though he or she remains a beneficiary of the trust. Historically, public policy has prohibited these types of trusts, but at least 12 states have adopted a form of a self-settled trust (available to residents and non-residents alike). The IRS recently examined such a trust and found that it could also shift income tax liability from the grantor to the trust (a valuable shift for grantors in high tax states).

Understanding how the title or ownership of your assets affects the rights of your creditors and those of your joint owner is a vital part of wealth preservation. You should consult a knowledgeable attorney and financial advisor to assist you with this important part of your wealth strategy.

WorthPointe’s Chief Investment Officer Christopher Van Slyke discusses how high fees kill returns in managed futures with Bloomberg TV

Posted by admin on Friday, November 8th, 2013 at 10:03 pm    

Hidden Fees Swallow Gains in Managed Futures Funds

Warren Buffett Discusses Common Investor Mistakes

Posted by admin on Wednesday, November 6th, 2013 at 3:43 pm    

In a recent article for USA Today, investor Warren Buffett shared what he feels are the three biggest mistakes that investors make. To read this list, and the article in full, click here.

Should you make your year-end charitable gifts from your IRA?

Posted by admin on Friday, November 1st, 2013 at 9:15 pm    

by Charles L Stanley CFP® ChFC® AIF®

CharitableGivingWhen entering retirement, having a big, fat IRA feels good. It provides a certain sense of security —and that’s a good thing. However, when you consider estate planning for a family with a taxable estate in excess of $5.25 million, that big, fat IRA is a horrible asset to own. Why? Because at the death of the IRA owner, the IRA will be subject to both income tax and estate tax. Depending on the details of the case, it’s entirely possible to lose 75% or so of the value of the IRA to taxes. So, what should you do to avoid this extreme taxation?

Give it away

Actually the give it away strategy is only fully effective if the owner is already planning to make charitable gifts anyway. It’s just much more efficient to make those gifts directly from the IRA to your chosen charity [501(c)(3) organization]. Making charitable gifts directly from an IRA avoids income tax on the distribution and reduces the taxable estate. This reduces the after-tax cost of the gift by quite a margin.

Professor Fama’s Nobel Prize, WorthPointe, and You

Posted by admin on Monday, October 28th, 2013 at 4:10 pm    

by Scott O’Brien, CFP®

Director of Wealth Management

wpwmblogWe are thrilled to share news that University of Chicago Professor and Dimensional Fund Advisors board member Eugene F. Fama has been named a co-recipient of the 2013 Nobel Prize in Economic Sciences, in recognition of his contributions to the “empirical analysis of asset prices.”

It’s about time we had some wonderful investment news to celebrate! It’s also about time that Professor Fama has been tapped to receive one of the highest academic honors available. Dr. Fama’s groundbreaking work in capital market theory has unquestionably enhanced our ability to assist each of our clients in achieving their personal long-term investment goals – whether the contribution has been realized or unsung.


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