Category: Wealth Planning

Let Year-End Planning Lower Your Tax Bill

by Elizabeth Camp

With the passage of the American Taxpayer Relief Act of 2012, many Americans are facing higher tax rates, making tax planning more important than ever. And there’s no better time for tax planning than before year-end. That’s because there are a number of tax-smart strategies you can implement now that will reduce your tax bill come April 15. Consider how the following strategies might help to lower your tax bill for 2014.

 

Put Losses to Work

If you expect to realize either short- or long-term capital gains, the IRS allows you to offset these gains with capital losses. Short-term gains (gains on assets held one year or less) are taxed at ordinary rates, which range from 10% to 39.6%, and can be offset with short-term losses. Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20% and can be reduced by long-term capital losses.1 To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year’s tax return and carry forward any unused losses for future years.
Given these rules, there are several actions you might consider:

  • Avoid short-term gains when possible, as these are taxed at higher ordinary rates. Unless you have short-term losses to offset them, try holding the assets for at least one year.
  • Take a good look at your portfolio before year-end and estimate your gains and losses. Some investments, such as mutual funds, incur trading gains or losses that are reported on Form 1099 and must be reported on your tax return. These are difficult to predict because they depend upon the fund’s trading activity during the year and are not known until after year-end. But most capital gains and losses will be triggered by the sale of the asset, which you usually control. Are there some winners that have enjoyed a run and are ripe for selling? Are there losers you would be better off liquidating? The important point is to cover as much of the gains with losses as you can, thereby minimizing your capital gains tax.
  • Remember that unused losses may be carried forward for use in future years, while gains must be taken in the year they are realized.

When evaluating whether or not to sell a given investment, keep in mind that a healthy unrealized gain does not necessarily mean an investment is ripe for selling. Remember that past performance is no indication of future results; it is expectations for future performance that count. Moreover, taxes should only be one consideration in any decision to sell or hold an investment.

 

Callout:

Unearned Income Tax – Medicare TaxA new 3.8% tax on “unearned” income went into effect in 2013, effectively increasing the top rate on most long-term capital gains to 23.8%. The tax applies to “net investment income,” which includes interest, dividends, royalties, annuities, rents and other passive activity income, among other items. Importantly, “net investment income” does not include distributions from IRAs or qualified retirement plans, annuity payouts or income from tax-exempt municipal bonds. In general, the new tax applies to single taxpayers with a modified adjusted gross income (MAGI) of $200,000 or more and to those who are married and filing jointly with a MAGI of $250,000 or more.

 

IRAs: Contribute, Distribute or Convert

One simple way of reducing your taxes is to make tax-deductible contributions to a traditional IRA, if you are eligible.

Contributions are made on a pretax basis, so they reduce your taxable income. Contribution limits for the 2014 tax year—which may be made until April 15, 2015— are $5,500 per individual and $6,500 for those aged 50 or older. Note that deductibility phases out above certain income levels, depending upon your filing status and if you or your spouse are covered by an employer-sponsored retirement plan.

An important year-end consideration for older IRA holders is whether or not they have taken required minimum distributions. The IRS requires account holders aged 70½ or older to withdraw specified amounts from their traditional IRA each year. These amounts vary depending on your age, increasing as you grow older. If you have not taken the required distributions in a given year, the IRS can impose a 50% tax on the shortfall; so make sure to take the requirement minimum distribution for the year by year-end.

Another consideration for traditional IRA holders is whether to convert to a Roth IRA. If you expect your tax rate to increase in the future—either because of rising earnings or a change in tax laws—converting to a Roth may make sense, especially if you are still a ways from retirement. You will have to pay taxes on any pretax contributions and earnings in your traditional IRA for the year you convert, but withdrawals from a Roth IRA are tax free and penalty free as long as you’re at least 59½ and the converted account has been open at least five years. If you have a nondeductible traditional IRA (i.e., your contributions did not qualify for a tax deduction because your income was not within the parameters established by the IRS), investment earnings will be taxed but the amount of your contributions will not. The conversion will not trigger the 10% penalty for early withdrawals.

 

Let me work with you and your tax advisor to see what you can do now to reduce your tax bill in April.
Footnotes/Disclaimers

 

1Under certain circumstances, the IRS permits you to offset long-term gains with net short-term capital losses. See IRS Publication 550, Investment Income and Expenses.

 

Sources

Internal Revenue Service, Publication 550 (2013), Investment Income and Expenses.

Internal Revenue Service, Publication 590 (2013), Individual Retirement Arrangements (IRAs).

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she  is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1013963 [09/14]

 

 

Making Divorce Work: Tax Time

by Elizabeth Camp

With divorce comes significant and complex changes to your income tax filing status and your tax return. It is very important that you discuss these changes with your own qualified tax advisor or accountant.

Perhaps the most important tax subject, and certainly something central to your budget, is the cash flow provided by alimony and child support. If you are receiving alimony, it is taxable as income to you and tax deductible for your former spouse. On the other hand, child support payments you make are tax-free to you but not deductible by your former spouse. The different tax treatment of these two types of payments can become a contentious topic in divorce, making it particularly important to get good advice before you finalize any agreement.

 

Additional issues you may encounter include:

  • When it is appropriate and advantageous to consider filing a joint tax return with your spouse — and when it is no longer legal.
  • Whether you can take advantage of filing as a head of household because a dependent lives with you.
  • Claiming a child or children as dependents on your tax return. (In general, you must be the custodial parent, which may also allow you to claim other types of exemptions as well.)
  • Tax credits for child care and work related expenses if your child is younger than 13.
  • Deductions for a child’s medical expenses. (Generally, the parent paying can take the deduction, even if he or she is not the custodial parent.)

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article byMorganStanleySmithBarneyLLC. Courtesy ofMorganStanleyFinancial Advisor.

 

Articles are published for general information purposes and are not an offer or solicitation to sell or buy any securities or commodities. This material does not provide individually tailored investment advice.  Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives.

 

Tax laws are complex and subject to change. This information is based on current federal tax laws in effect at the time this was written. Morgan Stanley

Smith Barney LLC, (“Morgan Stanley”) its affiliates and Morgan Stanley Financial Advisors do not render advice on tax and tax accounting matters to clients.

This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on

the taxpayer under U.S. federal income tax laws. Clients should consult their own legal, tax, investment or other advisors, at both the onset of any transaction

and on an ongoing basis to determine the laws and analyses applicable to their specific circumstances.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/Camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 951282 [06/14]

 

 

 

 

Municipal Bonds—Still Appealing

by Elizabeth Camp

The City of Detroit may have dominated municipal finance headlines for more than a year with its long descent into bankruptcy and its contentious reorganization efforts since. But a closer look suggests that there may be little in these select events that apply to the overall state of municipal bonds.

 

For example, it is true that there was an increase in municipal bond defaults in 2013, to seven from six in 2012 among the municipal bond issuers rated by Moody’s. But four of those sevendefaults involved entities connected to Detroit (such as schools) who were dragged down by the city’s primary insolvency.1

There have been 30 defaults since the recession began in early 2008. This averages five defaults per year compared with an average of 1.3 annual defaults over the period 1970 ‑ 2007. 1To put the default numbers in perspective, although the bond amounts involved in the high-profile defaults may look large when viewed in isolation, they account for a very small percentage of the overall municipal bond market, which tallied some $3.7 trillion at the end of 2013, according to the Securities Industry and Financial Markets Association (SIFMA), an industry trade group.2

In other words, the great bulk of municipal bond debt is being repaid on time.

Chart: Number of Defaults per Calendar Year1

 

 

Past performance does not guarantee future results.

After holding periods of 10 years, the average cumulative default rate for investment-grade municipal bonds rated by Moody’s was 0.08%, ranging from 0.01% for Aa-rated debt to 0.32% for Baa-rated debt. There were no defaults of Aaa-rated municipal debt during the study period.

Source: Moody’s, US Municipal Bond Defaults and Recoveries, 1970-2013, May 7, 2014.

A Closer Look at the Municipal Market

There are two broad categories of bonds in the municipal market:

•           General obligation bonds are the direct debts of a state or local government entity and are backed by the issuer’s full faith and credit. Historically, general obligation bonds issued by states have shown a negligible default risk. A small number of cities and towns have defaulted on general obligation debt over the years, but bondholder losses have been relatively small in comparison to the overall market, and recovery values have tended to be higher than for revenue bonds.

•           Revenue bonds are bonds tied to a particular project or agency. Since revenue may come from a specified tax, a particular user fee or toll, or a lease payment. Revenue bonds tied to commercial projects may carry additional risks if a tenant in the project becomes bankrupt.

Many other factors impact the risk and reward potential of any specific municipal bond. Among them are the availability of collateral or insurance to secure repayment and the health of the economic environment for the bond issuer. These factors are usually reflected in credit ratings. They may also be reflected in the prices of bonds relative to others in the market.

Let me work with you and help you assess the value of a specific bond for your investment needs and risk profile.

As with all fixed income securities, interest rate risk is a consideration, especially as our forecast is calling for a rising interest rate environment.

Footnotes/Disclaimers

 

1Moody’s, US Municipal Bond Defaults and Recoveries, 1970-2013, May 7, 2014.

 

2SIFMA market estimate is as of December 31, 2013, published on July 7, 2014, and retrieved from http://www.sifma.org/research/statistics.aspx on July 7, 2014.

 

 

Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer.

 

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state of residence and, if applicable, local tax-exemption applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability. The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value.

 

Insurance for bonds is subject to the claims paying ability of the insurer.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp

Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1015412 (09/14)

 

Transferring Wealth With Spousal IRAs

by Elizabeth Camp

An IRA offers married couples some powerful tools to share their wealth efficiently and preserve their tax benefits for as long as either spouse survives. But you should tread carefully to take full advantage. Here are the highlights:

 

An easy place to start is with the beneficiary designation on the account, so be sure that the official paperwork associated with your account reflects your intentions. As a designated primary beneficiary, a spouse would receive his or her assigned share as the same type of IRA as the owner had (Roth or traditional) when he or she died. What is more, when you use the beneficiary process to convey IRA assets, you generally supersede the provisions of any wills or probate proceedings.  The distribution options available to beneficiaries will differ depending on the beneficiary type: spousal, non-spousal (i.e. children) or a non-living entity such as a charity or trust.

 

IRAs created as a result of the beneficiary process are known generically as inherited IRAs. A living individual who is a beneficiary can (a) cash out an inherited IRA in full, paying all taxes due immediately, (b) begin taking required minimum distributions under a schedule determined typically by the beneficiary’s age and continue to defer a portion of the tax liability, or (c) if the IRA owner died before reaching April 1st of the year following the year in which he or she would have turned age 70 ½, withdraw the entire interest in the inherited IRA (in a single or multiple payments) no later than the end of the calendar year containing the fifth anniversary of the IRA owner’s death . New contributions are not permitted to an inherited IRA, and the assets would not be protected from creditors’ claims in bankruptcy.

 

A spouse has additional options–to retitle the IRA as his or her own if he or she was the sole designated beneficiary of the IRA or roll it over to his or her own IRA.  As the spouse’s own IRA, it can accept new contributions, and distribution requirements would be determined by the spouse’s age and circumstances. The spouse’s own IRA would also be generally protected from many bankruptcy claims.

 

All of these choices have complex tax considerations and important deadlines. I can help you weigh your options and navigate the procedures to carry out your intentions.

 

Sources:

 

Internal Revenue Service, “Retirement Topics – Beneficiary,” retrieved June 13, 2014.

Forbes, “Supreme Court Finds Inherited IRAs Not Protected In Bankruptcy,” June 12, 2014.
If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged LifeMeisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 973998 [07/14]

 

 

The Family Business: The Key to Preservation Is Planning

by Elizabeth Camp

Business planning involves a complex array of personal, legal and financial decisions. To execute an effective plan, small business owners typically need an integrated team of financial professionals to guide the process.

Some Common Transfer Strategies

Many strategies are available to assist small business owners in transferring–and preserving–both business and personal wealth while also minimizing tax consequences. Following are general descriptions of a few of the more commonly used instruments.

Family Limited Partnerships (FLPs) are used by business owners to shift income and equity to the next generation without surrendering management control. Assets placed in an FLP are converted to “limited partner” and “general partner” shares. As the general partner, the owner retains control over the business.  The limited partnership interests are gifted to beneficiaries, generally at a discount from the underlying value of the business.  The ability to apply a discount results in reduced gift tax liability. The discount applied to the limited partnership assets results from the fact that the limited partnership interest  are restricted–less liquid, harder to sell–and consequently, their value can be  discounted for tax purposes.1

Grantor Retained Annuity Trust (GRAT) is a type of irrevocable trust that allows a business owner to gift assets to the trust, retain an income stream from the trust for a period of years, and pass the appreciation in the value of the business free of tax to his or her beneficiaries at the end of that period.  However, in order for the GRAT to work as intended, the business owner must outlive the term of the trust.

Life insurance is used by many family-owned businesses to transfer assets and/or fund estate taxes, either through an irrevocable life insurance trust or in connection with a buy-sell agreement.

Private annuities allow business owners to transfer the business to another family member in exchange for a lifetime stream of income. By doing so, the owner removes the value of the business from his or her estate (and relinquishes interest in the business).  In order to be effective, the  value of the annuity must equal the value of the business.

Systematic Gifting removes future appreciation of the gifted assets from your estate and may enable you to take advantage of valuation discounts. The current gift tax annual exclusion amount is $14,000.  This means that a gift of $14,000 can be made to as many people as you wish without incurring any gift tax or the need to file a gift tax return.2

When a business is a central part of the wealth equation, transfer strategies such as those outlined above represent just a small part of the planning that is required to ensure a smooth passing of wealth from one generation to the next. Other equally important elements include a business valuation and net worth assessment, a contingency plan to protect the business and the owner’s family in the event of sudden death or disability, and liquidity strategies to help the owner facilitate other financial goals.

If you count yourself among the many business owners who have navigated their companies through the past several years of economic hardship and are ready to pass the baton on to the next generation, contact your CPA, legal counsel and/or tax planning professional to explore the opportunities and challenges involved in implementing the best wealth transfer strategy for you and your family.

 

Sources:

 

1Inc. Encyclopedia, Family Limited Partnership.

American Institute of CPAs, “Family Business Succession Planning.”

Journal of Accountancy, “Wealth Harvesting: More Than Just Retirement or Succession Planning.”

 

2Formulating Your Business Succession Plan, Morgan Stanley,  CRC611116 (1/2014).

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged LifeMeisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

Individuals should consult their personal tax and legal advisors before making any tax or legal related decisions.  Morgan Stanley and its Financial Advisors do not provide tax or legal advice.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 973980 [07/14]

 

 

Active vs. Passive Funds: It’s More Than Just Fees

by Elizabeth Camp

Since the first index fund was invented in 1975, the debate has raged between active and passive investing styles.

Passive investors adhere to the principal of market efficiency, which holds that all information available about a company is reflected in its current stock price. Rather than trying to second-guess the market, passive investors buy the entire market, or a specific segment of it, via index funds.

Active investors counter that the market is not always efficient and that through research, active fund managers may be able to uncover information not already reflected in a security’s price and potentially profit by it. A less-than-efficient market, they reason, favors active stock selection.

Which is better? That depends on what you look at.


Performance

Over the years, numerous performance comparisons have been made between the two styles. Most have found that in the aggregate, passive outperforms active, especially after fees are taken into consideration. One of these, Standard & Poor’s SPIVA® (S&P Indices Versus Active Funds) U.S. Scorecard, found that 57% of all actively-managed domestic equity funds underperformed their benchmarks after expenses during the 10 years ended Dec. 31, 2013.1

But the results are more mixed during shorter time periods or when different segments or investing styles are examined. For instance, although actively managed large- and small-cap funds underperformed their benchmarks in 2013, actively managed midcap funds outperformed, as did actively managed growth funds in the large-cap, midcap, and multi-cap categories.1

Fees

Actively managed funds generally charge higher annual expenses than their index-based cousins. As of December 31, 2013, the average dollar-weighted expense ratios of actively managed domestic large-cap, midcap, and small-cap funds was 0.80%, 0.97%, and 1.03% respectively. By comparison, the index versions of these fund categories charged 0.13%, 0.23%, and 0.23% respectively.2 Although fee ratios for actively-managed funds have been trending down in recent years, they are still well above those of passive funds and are likely to remain so given that they require higher research and management costs and are consequently more expensive to run.

Takeaways for Investors

Although aggregate, long-term performance and fees both favor passive over active, there are some important points to be made in favor of active management. In certain segments, such as growth and international small-cap equity, active managers have tended to outperform the benchmarks more frequently, often when the economy and financial markets are in a state of flux.1 While active management cannot guarantee market-beating returns, it does offer the potential to capitalize on market shifts and the flexibility to take advantage of different investing strategies. Active managers also appear to have the edge in markets that are not efficient and when implementing investment strategies that are complex and fast moving. Such circumstances can pose issues for index funds, which typically must adhere to a predetermined set of rules and may not be able to respond as nimbly as active managers.3

In practice, a blended approach may be the best answer. Consider index funds for efficient markets and active management for less efficient areas. When the broad market turns volatile, adding a defensive, actively traded fund to a portfolio of index holdings may help to smooth out bumps and moderate overall portfolio risk. Alternatively, passive investors can potentially build risk management into their portfolios by diversifying among a range of index funds covering a wide, varied swath of the market.

Keep in mind that how you construct your portfolio should consider much more than performance and fees. Let me work with you to find the mix that best suits your situation.

 

Sources:

1S&P Dow Jones Indices, “S&P Indices Versus Active Funds (SPIVA®) U.S. Scorecard,” March 20, 2014.

2Morningstar. Based on the dollar-weighted average expense ratios for all funds tracked by Morningstar within each category.

3The Wall Street Journal, The Experts: When Does Active Management Make Sense? April 21, 2013.

 

Index Funds are offered by prospectus.  It is not possible to directly invest in an index.

 

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund before investing.  To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website.  The prospectus contains this and other information about the mutual fund.  Read the prospectus carefully before investing.

 

The investor should note that funds that invest exclusively in one sector or industry involve additional risks.  The lack of industry diversification subjects the investor to increased industry-specific risks.

 

Diversification does not ensure a profit or protect against loss in declining financial markets.

 

Equity Securities’ prices may fluctuate in response to specific situations for each company, industry, market conditions, and general economic environment.

 

Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.

 

Small Capitalization Funds are managed aggressively and typically carry more risk than stock funds investing in well-established companies.

 

International investing involves certain risks, such as currency fluctuations, economic instability and political developments. 

Past performance is not indicative of future results.

 

This material does not provide individually tailored investment advice.  It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.  The securities discussed in this material may not be suitable for all investors.  Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 930688 [05/14]

 

 

Choosing the Right Health Care Plan

by Elizabeth Camp

Maybe you’ll be among the many whose companies are phasing out their employer-sponsored insurance plans (29 million lost employer-sponsored coverage between 2000 and 2012.1) or, you may be starting a business and striking out on your own.

You could join the 5.4 million shopping for health care coverage on one of the new health exchanges set up under the Affordable Care Act.2 Or you could count yourself among the 7.8 million people buying new individual coverage directly from an insurance company.3 Whatever path you take, being an educated consumer can make you a better customer. Here some considerations when shopping for coverage:

  • Insurance premiums are only your upfront costs. They may not be the only health care expenses you’ll have. Deductibles, copayments, coinsurance and out-of-pocket limits vary widely from plan to plan.  Review the entire costs outlined on the plans since low individual deductibles and copayments may be aligned with high out-of-pocket limits, and vice versa. Different treatment scenarios in the same plan can also have dramatically different costs.

 

  • From a plan’s perspective, doctors, hospitals and clinics are not all equal. Insurance plans generally have preferred providers. You’ll get the best financial cost structures only if you go to designated practitioners and institutions. If certain providers are important to you, confirm that they participate in the plans you are considering.

 

  •  Review the specialist referral policies and primary care responsibilities. Some plans require referrals from your primary care physician (PCP) before you can see a specialist, and they may have financial incentives for PCPs to limit referrals.4 What’s more, each plan has its own limits for prescription medication, medical appliances and diagnostic tests. Medication and devices that are important to you may not be covered at favorable reimbursement rates; they may even not be covered at all. Diagnostic tests may be limited to those that the plan defines as medically necessary

 

If you find yourself shopping on a state health care exchange, you’ll find that each plan fits one of five general categories to describe the overall division of costs between you and the plan. Bronze plans pay 60% on average, and you pay about 40%. Silver plans pay 70%, Gold, 80% and Platinum, 90%. So-called Catastrophic plans pay less than 60% of the total average cost of care on average and are available only to young people and those who have a financial hardship exemption.5

 

As you can see, shopping for health care coverage has become complex. I can help you weigh your options carefully.

 

Sources:

1Employer-Sponsored Health Insurance Coverage Continues to Decline in a New Decade, EPI Briefing Paper 353¸ The Economic Policy Institute, Washington, D.C., retrieved 5/21/2014.

http://s4.epi.org/files/2012/bp353-employer-sponsored-health-insurance-coverage.pdf

2New Survey Results Show Significant Decline in the Uninsurance Rate, Press Release, The Robert Wood Johnson Foundation, retrieved 5/21/2014.

http://www.rwjf.org/en/about-rwjf/newsroom/newsroom-content/2014/04/new-survey-results-show-significant-decline-in-uninsurance-rate-.html

3Private Insurance Market Booming, Kaiser Health News, The Kaiser Family Foundation, retrieved 5/21/2014.

http://www.kaiserhealthnews.org/Stories/2014/April/15/private-insurance-market-booming.aspx

4Implementation of Financial Incentive Programs under Federal Fraud and Abuse Laws, Governmental Accountability Office Report GAO-12-355, http://www.gao.gov/products/GAO-12-355, retrieved 5/21/2014.

5https://www.healthcare.gov/how-do-i-choose-marketplace-insurance/#part=2

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanelyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 938999 [06/14]

 

 

Renting vs. Owning — Portfolio Implications

by Elizabeth Camp

If you are one of the 35% of Americans who currently rents versus owns a home, your investment profile is likely different from that of a homeowner.1 Instead of being tied to one very large, long-term asset, renters have the freedom and, one could reasonably assume, more liquidity to pick and choose a broadly diversified portfolio of investments that complement their lifestyle choice and financial objectives.

Weigh some of these renter-friendly investing strategies as you pursue your own version of the American Dream.

Think Past Stocks and Bonds. While traditional investments shape the foundation of most long-term investment portfolios, individuals at higher income levels or with more investable assets may turn to alternative investments.2

Alternative investments include hedge funds, private equity partnerships, commodities, and derivatives, among other vehicles.

Although these investments may differ in their individual risk/return features, they share some common characteristics—namely a historically low correlation to publicly traded stocks and bonds, a high risk-high return profile and a potential lack of liquidity, the chance that an investor may be unable to sell or forced to sell a security at a discount in the secondary market, due to a lack of buyers.

 

For Real Estate Exposure, Consider Real Estate Investment Trusts (REITs) or Rental Properties. REITs feature investment in different types of commercial real estate. A rental property also offers exposure to real estate, with the potential to build long-term equity and take advantage of tax deductions.

 

Turn to Municipal Bonds to Lighten Your Tax Burden. Without access to the attractive tax benefits available to home owners, renters may find municipal bonds, or “munis,” to be a wise investment choice. In general, the interest paid on municipal bonds is exempt from federal taxes and may also be exempt from state and local taxation if they are purchased by residents of the issuing state/municipality. This tax- advantage makes munis particularly attractive for investors in higher tax brackets. Although interest on munis may be tax exempt, any capital gains generated from the sale of a muni bond or bond fund are taxable at the applicable capital gains rate, currently a maximum of 20% for gains from most types of investment assets held over one year.3

 

Maximize Tax-Advantaged Retirement Accounts. Without the significant expenses associated with home ownership renters may be in a better position than homeowners to fully utilize the savings and tax benefits of employer-sponsored retirement plans and IRAs. In 2014, individuals can make pretax contributions of up to $17,500 to a 401(k)—$23,000 if they are age 50 or older, while the contribution limit for IRAs is $5,500, or $6,500 if they are age 50 or older.4

 

Like investing in a home, all of these investing strategies carry their own risks. If you are a renter and looking to diversify your holdings please contact me to discuss the risks and strategies outlined here and how they might work for your situation.

 

Sources:

1National Multifamily Housing Council, NMHC tabulations of 2012 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau (http://www.census.gov/cps). Updated October 2012.

 

2Alternative investments are complex, high-risk instruments with limited liquidity compared with stocks, bonds or mutual funds. In addition most require individuals to have investable assets of $1 million and some require assets of up to $5 million or more. You should consult your financial advisor before investing in any of these products.

 

3 Investors whose taxable income exceeds the thresholds set for the 39.6% ordinary income tax rate will be subject to the 20% long term capital gains rate (for 2014, the threshold is $406,750 for single filers, $457,600 for married filing jointly or qualifying widow(er), $432,200 for heads of household, and $228,800 for married filing separately).”

 

4 IRS, A Guide to Common Qualified Plan Requirements; Publication 590, Individual Retirement Arrangements (IRAs).

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

A security that is usually traded like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.  The risks of REIT investing are similar to those associated with direct investments in real estate: lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change. This information is based upon current federal tax rules in effect at the time this was written. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. This material was not intended nor written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.

 

Interest in municipal bonds is generally exempt from federal income tax.  However, some bonds may be subject to the alternative minimum tax (AMT).  Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence.

 

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration.  http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 925699 [05/14]

 

 

Five Common Estate Planning Mistakes–and How to Avoid Them

by Elizabeth Camp

Estate planning is intricate. Here are the most common pitfalls to avoid and tips on how to avoid them.

Choosing the Wrong People to Fulfill Your Estate Plan

Choosing your fiduciaries is important as creating the plan itself, since your plan won’t work as you intended if your fiduciaries aren’t capable or unwilling to carry out the tasks required from them.  Being the oldest or the smartest child does not necessarily make that child the best choice for executor, trustee, guardian or health care agent; each of these roles has specific expectations that the person appointed must be able and willing to fulfill. Care must also be given to choosing appropriate successors, because the person you name may not be able or willing to fulfill those duties. Avoid this mistake by working with your estate planning attorney to assign the right people or institutions for these different roles.

Not Factoring in Probate

Probate is a legal process that takes place after a person dies. It involves the general administration of his or her estate, including the appointment of an executor, validation of the will, collection and liquidation of assets, payment of debts and taxes, and distribution of the estate’s net assets to beneficiaries. The probate process necessarily involves costs, and can take months, or even years.  It is open to public record and overseen by state courts.

Although a simple will must pass through probate, there are several ways to structure your estate plan to avoid probate. One way is by establishing joint tenancy, whereby all property ownership and title is shared between you and your spouse, child or other party so that, upon the death of the first person, all the property passes directly to the surviving owner without probate. A second way is to establish a living trust, into which ownership of all assets is placed. Upon death, assets are distributed by the trustee to named beneficiaries without going through probate.

Not Keeping Beneficiary Designations Current

Accounts, such as IRAs, employer-sponsored retirement savings plans, or insurance policies offer you the opportunity to name beneficiaries. Typically you will name the beneficiaries when you first open the account. However, you need to periodically review your beneficiary designations to make sure that it still reflects your wishes. It is possible to have beneficiaries who are deceased, or whom you may no longer wish to leave assets to. It is important to remember that any account with a designated beneficiary will not be distributed according to the terms of your Will, but will be distributed pursuant to the beneficiary designations. To insure that the assets are paid to those you wish, keep your beneficiary designations current and coordinated with beneficiaries named in your Will or trust.

Not Having a Health Care Directive

Unless your wishes are spelled out in a health care directive–otherwise known as a living will or health care proxy–you risk having your health care decisions handled in a manner that is not in accordance with your wishes, which may create strife among your loved ones. Establishing a health care directive and naming a health care agent authorizes someone to make health care decisions for you and will help assure that your wishes are carried out.

Procrastinating

Perhaps the most common estate planning mistake is simply putting off your estate planning. You take a significant risk in not having an estate plan in place, regardless of your age or the value of your assets. If you die intestate, your state’s succession guidelines determine your heirs who will receive your property. In many cases, following the state intestacy guidelines will result in a distribution that is not in accordance with your wishes. In the event that you have a dependent child, the state may end up selecting the guardian for your minor child. Begin your estate planning now, then regularly review and update your estate plan to ensure that it continues to reflect your wishes.

 

Planning ahead and working with qualified legal and financial professionals will help you avoid these and other estate planning mistakes.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 938534 [06/14]

 

 

Exit Strategies for Small-Business Clients

by Elizabeth Camp

For successful entrepreneurs, the road into the business is often more clearly laid out than the route from involvement. However, a well-drawn roadmap for the endgame can be the difference between achieving success and missing the target on important life goals. As a result, preparing an effective exit plan can provide a valuable service.

 

Laying the Groundwork

Since a viable entrepreneurial exit strategy must take account of both where your client is today and where he or she would like to be in the future, exit planning should start with a comprehensive appraisal of business and personal finances. Many planners have found it valuable to start with a net-worth assessment with their clients. This not only helps to identify all available resources, but it also helps to match those resources against specific goals. (The assessment process may also help you identify potential opportunities for client relationships unrelated to the exit plan.)

Perhaps less objective but no less key to a successful exit strategy is values clarification. For example, if some or all of your client’s children are involved in the business, does your client want them to continue in their current roles or expect that all will move on when the business is sold? Your client might have a clear choice for successor, and so might wish to consider how that choice will impact other family relationships. Keep in mind that many exit plans have foundered because of internecine conflicts. A related area of concern that will form a backdrop for the exit strategy is your client’s vision for life after the event. Is he or she planning to retire? To remain involved as a consultant or part-time executive? To start a new venture in another field? How each of these questions is addressed will direct the practical thrust of the nascent exit strategy.

Finally, a successful exit process should be based on a sound understanding of existing business relationships and provisions. Your client should identify the key professional and executive talent in his or her firm, and then formulate appropriate reward and retention strategies for them.

 

Potential Deal Forms to Consider

The various choices of deal structure each offer unique cost/benefit tradeoffs. Here is an overview of the options:

  • Buy-sell agreement – This arrangement is designed to permit the dissolution of a partnership by setting the parameters for some partners to buy out others. It enables one or more partners to maintain involvement in a business when others might wish to sever their ties to it. A buy-sell agreement requires careful design to ensure that its execution does not work at cross-purposes with other estate and succession planning tools.
  • Cash sale to a third party – A pure cash transaction may create the greatest immediate liquidity for the seller, but other financing structures may have the potential to generate greater net yield over time. A cash sale may also be the simplest means to execute a complete and immediate separation from the business.
  • Buyout or recapitalization – In leveraged transactions, partners, managers, or the business as a corporate entity borrows the funds to purchase the stock of the exiting entrepreneur. These deals may be especially useful for dissolving a partnership while otherwise maintaining the business as a going concern. They are also often used for transferring business responsibility to children or other heirs while creating financial independence from them. Recapitalizations can also be used to finance an annuity for a business owner who might wish to combine financial independence with limited business involvement.
  • Employee Stock Ownership Plan (ESOP) – An ESOP is a form of leveraged buyout designed specifically to give control of the business to a broad base of its current employees. ESOPs may have higher transaction costs than ordinary cash sales, but in many cases these costs are not out of line with the costs of other more complex deals. There are also specific tax benefits for ESOP transactions that may improve their net value significantly.

 

Managing the Proceeds

A key part of any exit strategy is the financial plan for managing the proceeds of the deal in a manner consistent with the client’s post-sale goals. Such plans typically include a blueprint for investing sale proceeds in a diversified portfolio. They also typically include an estate plan crafted to take advantage of the trust structures and tax code features that allow your client to preserve wealth and protect the future interests of heirs. Among the favored devices may be family limited partnerships and grantor retained annuity trusts, which can reduce the estate value of shares passed on to heirs. In addition, many entrepreneurs are interested in charitable remainder trusts. These may be used to fund philanthropic programs that realize specific charitable goals while maximizing tax benefits and minimizing costs.

 

Points to Remember

  1. The sale of a business is only one small transaction at the center of a larger plan often referred to as an exit strategy.
  2. The most successful exit strategies are those that give the business owners the greatest probability of comfort with the results as seen in their financial security, family dynamics, and long-range goals.
  3. There are many options for structuring the sale of the business, and each has different implications for other elements of the broader strategy. Buy-sell agreements can help maintain continuity for remaining partners in a wide range of circumstances. Pure cash transactions typically yield the greatest immediate liquidity. Leveraged transactions may enable managers, partners, or family to take over and maintain continuity for the business. ESOPs can provide tax benefits and empower employees.
  4. Trusts can be valuable tools for managing the income tax and estate planning implications of the wealth derived from a business sale.

 

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 557785 [09/12]

 

 

Are You Being Financially Bullied?

by Elizabeth Camp

Financial bullies come in all shapes and sizes: husbands who insist on control of their wives’ money; wives who control finances by manipulating the purse strings; domestic partners who insist on making all financial decisions. In fact, bullying is common behavior. A 2013 survey conducted by Credit Karma found that one-in-10 respondents classified their spouse or live-in partner as a “financial bully.” 1

 

Portrait of a Bully

Couples often argue over money, but sometimes one partner can exhibit behavior associated with financial bullying. By definition, a bully is someone who uses his or her influence or strength to intimidate others and force them to do what they want. Financial bullies control household finances by restricting access to accounts, limiting spending and withholding money. Typical bully behaviors include making their partners show receipts for all purchases, preventing them from having credit cards, making them feel guilty for shopping, or requiring them to live on an allowance. Bullies may even threaten to leave knowing this would place their partner in financial trouble.

The young are especially vulnerable to financial bullying, according to the Credit Karma survey, which found that:1

  • Those aged 18 to 34 are three times more likely to say they are financially bullied than those aged 55 or older.
  • Those with children under the age of 18 in the household are more likely to classify their mate as a bully than those who don’t live with children.
  • Over one-fifth of married 18- to 34-year-olds surveyed said they would get a divorce “if money were no object.”

 

What to Do About It

If you think you are being financially bullied, there are ways to take back control of your finances. First, discuss your concerns with someone you trust, sharing with them the specific behaviors you have encountered. An objective ear will help you better gauge how real or severe the problem actually is.

Next, consider involving a third party such as a financial advisor when making major financial decisions. He or she can effectively act as a facilitator, and can help you formulate mutually satisfactory goals and strategies.

Finally, look for ways to build trust between you and your partner. Finances, like other aspects of a relationship, are best tackled with transparency and communication, and mutual trust is a critical first step.

 

Source:

1CreditKarma, Is Your Partner a Financial Bully?, 2014

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 914742 [05/14]

 

 

Key Tax Changes for 2014

by Elizabeth Camp

Although taxpayers this year will not face the dramatic changes they did in recent years as a result of the Tax Relief Act of 2012, they will still encounter several important changes, including those associated with implementation of the Affordable Care Act (ACA) and the extension of joint-filing rules to married same-sex couples. Below is a summary of some of the key changes you’ll want to be aware of.

Health Insurance Subsidy

For 2014, a new credit is available to eligible taxpayers who obtain qualifying health insurance by enrolling through either a state or federal Health Insurance Marketplace established under the ACA. You are potentially eligible if your household income is between 100% and 400% of the federal poverty line and you don’t have access to employer-sponsored affordable coverage. The allowable credit can vary widely depending on your specific circumstances.

The credit can be paid by the government directly to your insurance company to lower your monthly premiums or it can be claimed when you file your federal income tax return. Any differences between what you receive in the form of reduced insurance premiums and the credit you’re actually entitled to for the year will be reconciled when you file your 2014 return sometime next year. In other words, if you collect more than you’re entitled to, you’ll have to pay back the excess with your return. Note that the credit is first used to reduce your 2014 federal income tax bill. After your tax bill has been reduced to zero, any remaining credit can be either refunded to you in cash or used to make estimated tax payments for 2015.

 

Health Insurance Penalty

If your health insurance coverage is lacking or insufficient, the IRS will impose a tax penalty—$95 per uninsured adult and $47.50 per child (up to $285 for a family), or 1% of income in 2014, whichever is greater. Any penalty will be assessed when you file your tax return on the basis of proof-of-coverage documentation, which you will need to file with your tax return. Note that there are a number of exceptions to the penalty, such as one for eligible lower-income individuals and one for those whose existing health insurance plans were canceled.

 

Higher Threshold for Medical Expense Deductions

Starting in 2014, taxpayers who itemize face a higher threshold for deductible healthcare expenses. You may now deduct only those expenses that exceed 10% (previously 7.5%) of your adjusted gross income, or AGI. People aged 65 and over, however, may continue to use the 7.5% threshold through tax year 2016, at which time they will default to the 10% framework.

 

Joint Filing for Same-Sex Spouses

Because the Supreme Court struck down the Defense of Marriage Act, any couple with an official marriage license is now treated as “married” for all federal tax matters. All married couples—regardless of gender—are expected to file their federal income tax returns as “Married Filing Jointly” or “Married Filing Separately.” This policy applies to any couple with a properly issued marriage license from any U.S. state or territory, or any foreign jurisdiction, and it applies whether or not the couple currently lives in a state that recognizes their marriage. Accordingly, same-sex married couples may take advantage of the same deductions, tax credits and other rules that apply to joint filers.

 

Expiring Tax Deductions and Credits

The following expired at the end of 2013 and will not be available for 2014 taxes.

  • A deduction for teacher out-of-pocket costs for school and classroom-related supplies.
  • A deduction for qualified tuition and related expenses that you paid for yourself, your spouse, or a dependent.
  • Tax credits for a number of energy-efficient home improvements, including up to $500 for the installation of qualified insulation, windows, doors and roofs as well as certain water heaters and qualified heating and air conditioning systems.
  • The provision that allowed residents to deduct state and local sales and use taxes instead of state and local income taxes on their Schedule A.
  • The provision that allowed seniors to make direct gifts to a qualifying charity of up to $100,000 from their individual retirement accounts (IRAs) without reporting it first as income.

 

There are many other changes in addition to these. Work with your tax accountant to find which might impact you. And please contact me to find ways to help reduce your tax bill through tax-advantaged investments such as municipal bonds and qualified investment accounts.

 

Sources: Tax information was compiled from the following: Internal Revenue Service (IRS) Affordable-Care-Act-Tax-Provisions; IRS HCTC: The Premium Tax Credit; Forbes, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More, January 5, 2014.

 

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

http://www.irs.gov/Individuals/HCTC:-Latest-News-and-Background

http://www.irs.gov/uac/The-Premium-Tax-Credit

http://www.forbes.com/sites/kellyphillipserb/2014/01/05/what-you-need-to-know-about-taxes-in-2014-expired-tax-breaks-obamacare-penalties-more/

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account, their tax advisors for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 916189 [05/14]

 

 

Protect Yourself from Identity Theft

by Elizabeth Camp

Millions of Americans fall victim to identity theft each year—and their financial losses are in the billions. In 2012, an estimated 16.6 million Americans experienced identity theft, causing losses of $24.7 billion.1

What can you do to help reduce your chances of having your identity stolen? The steps below can help you prevent significant losses.

  • Never divulge your credit card number or other personally identifying information over the Internet or telephone unless you initiate the communication.
  • Reconcile your bank account monthly, and notify your bank of discrepancies immediately.
  • Actively monitor your online accounts to detect suspicious activity. Report unauthorized financial transactions to your bank, credit card company, and the police as soon as you detect them.
  • Review a copy of your credit report at least once each year. Notify the credit bureau in writing of any questionable entries and follow through until they are explained or removed.
  • If your identity has been assumed, ask the credit bureau to print a statement to that effect in your credit report.
  • If you know of anyone who receives mail from credit card companies or banks in the names of others, report it to local or federal law enforcement authorities.

Finally, be very wary of any email or text message expressing an urgent need for you to update your personal information, activate an account, or verify your identity. Practice similar caution with email attachments and downloadable files and keep your computers protected with the latest security updates and virus protection software.

 

Source:

1Source: Bureau of Justice Statistics, December 2013.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

©2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 914845 [05/14]

 

 

Five Strategies for Tax-Efficient Investing

by Elizabeth Camp

With higher top tax rates now in effect, it may be time to ask yourself: Are you doing everything possible to improve your portfolio’s bottom line through tax-efficient investing? Here are five tried-and-true strategies to help lower your tax bill while improving your net return.

 

Take Advantage of Tax-Sheltered Accounts

To encourage Americans to save for retirement, Uncle Sam offers tax incentives in the form of IRAs, 401(k)s, 403(b)s and other qualified retirement savings plans. These accounts provide the opportunity to defer paying tax on contributions and earnings, or to avoid paying taxes altogether on earnings, depending on the type of vehicle you choose.

By contributing as much as possible to these accounts, you can realize significant savings over time. For instance, contributing $400 per month to a traditional IRA will save you nearly $22,000 in taxes over 20 years, assuming a 5% annual return and 25% tax rate.1 (Taxes, however, will be due on distributions at the time you make withdrawals.)

For 2013, you can contribute up to $5,500 to a traditional or Roth IRA. And if you’re over 50, you can contribute an extra $1,000. For employer-sponsored retirement savings vehicles such as 401(k) or 403(b) plans, you can contribute up to $17,500 in 2013 and an additional $5,500 if you’re over 50.

But keep in mind that most withdrawals prior to age 59½ from a qualified retirement plan or IRA may be subject to a 10% federal penalty in addition to any taxes owed on contributions and accumulated earnings.

Turn to Municipal Bonds for After-Tax Yield

 In today’s low-rate environment, finding yield can be a challenge. Rates on high-quality corporate bonds have hovered at historical lows, and the yield on US Treasuries has not topped 4% since 2008. While municipal bonds, or “munis,” are no exception, they carry one significant advantage: Interest paid by muni bonds is generally exempt from federal and, in some cases, state and local taxes.

Consider this: A municipal bond yielding 4% translates to a tax-equivalent yield of 5.33%, assuming a 25% tax rate. In other words, you would need to earn 5.33% on a taxable bond to receive the same after-tax yield as a 4% municipal bond.

Remember, however, that any capital gains arising from the sale of municipal bonds are still taxable (at capital gains rates), and that income from some municipal bonds may be taxable under alternative minimum tax rules.

Avoid Short-Term Gains

Before you sell an investment, check to see when you purchased it. If it was less than one year ago, any profit will be considered a short-term gain. If it was more than one year ago, the profit will be considered a long-term gain. That’s important because long-term capital gains are taxed at significantly lower rates than short-term capital gains, especially if you’re in a high tax bracket.

 

•           Short-term capital gains are taxed at ordinary income rates which can be as high as 39.6%.

•           Long-term capital gains are taxed at a maximum rate of 20% in 2013.2

 

Considering those different rates, it can pay to look at the calendar before you sell a profitable investment. Selling just a day or two early could mean that you’ll incur significantly higher taxes.

 

Make the Most of Losses

As most taxpayers know, the IRS lets you use long-term capital losses to offset long-term gains. In any given year, you can minimize your capital gains tax by timing your losses to correspond with gains. What’s more, you can carry forward unused losses to future years, and use them to offset future gains, subject to certain limitations.

You can also offset up to $3,000 of unused capital losses per year against ordinary income. So before taking a long-term capital loss, consider the timing of gains as well as ordinary income.

Get a Professional’s Perspective

Keeping an eye on taxes is a prudent way to try to enhance your investment returns over time. However, tax laws are complex, subject to change and may have implications you haven’t considered.

 

Footnotes/Disclaimers

 

1Example assumes monthly pre-tax contributions of $400 over a 20-year period, a 5% annual rate of return, compounded monthly, and a marginal tax rate of 25%. Example is hypothetical. Your results will differ.

2Does not take into consideration Medicare tax on certain unearned net investment income or state or local taxes, which will vary.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MorganStanley.  The information and data in the article or publication has been obtained from sources outside of MorganStanleyand MorganStanleymakes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MorganStanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account.

 

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration. http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 667512  5/14

 

 

 

Alternative Minimum Tax: Strategies for Avoiding or Minimizing

by Elizabeth Camp

When first introduced in 1969, the alternative minimum tax (AMT) was widely acknowledged to be a “rich man’s tax”–a fallback tax for those taxpayers with big incomes and numerous deductibles. But because the AMT has been adjusted for inflation only twice in 30 years, it is now encroaching upon the middle class. Consider that while only 19,000 people owed the AMT in 1970, millions are paying now.1

The mechanics of the AMT are complex. But a general understanding of how the tax works and what triggers it can help you minimize or avoid it, and even use it to your advantage.

The Other Federal Tax

The AMT truly functions as an “alternative” tax system. It has its own set of rates and rules for deductions, which are more restrictive than the regular rules. It operates in parallel with the regular income tax system in that if you’re already paying at least as much under the “ordinary” income tax as you would under the AMT, you don’t have to pay it. But if your ordinary tax falls below this minimum, you have to make up the difference by paying the alternative minimum tax.

The AMT can be triggered by a number of different variables. Although those with higher incomes are more susceptible to the tax, many other factors such as the amount of your exemptions or deductions can also prompt the tax. Even commonplace items such as a deduction for state income tax or interest on a second mortgage can set off the AMT.

AMT rates start at 26%, rising to 28% at higher income levels. This compares with regular federal tax rates, which currently start at 10% and step up to 39.6%. Although the AMT rates may appear to cap out at a lower rate than regular taxes, the AMT calculation allows significantly fewer deductions, making for a potentially bigger bottom-line tax bite. Unlike regular taxes, you cannot claim exemptions for yourself or other dependents, nor may you claim the standard deduction. You also cannot deduct state and local tax, property tax and a number of other itemized deductions, including your home equity loan interest, if the loan proceeds are not used for home improvements. Accordingly, the more exemptions and deductions you normally claim, the more likely it is that you’ll have an AMT liability.

On the positive side, the law does allow taxpayers to apply a special AMT exemption designed to prevent the AMT from applying to those with modest incomes. For the 2013 tax year, it is $80,800 for joint filers and $51,900 for single filers.

AMT Red Flags

Certain circumstances and tax items are likely to trigger the AMT:

  • If your gross income is above $100,0003
  • If you have large numbers of personal exemptions
  • If you have significant itemized deductions for state and local taxes, home equity loan interest, deductible medical expenses (AMT has a slight difference) or other miscellaneous deductions
  • If you exercised incentive stock options (ISOs) during the year
  • If you had a large capital gain, which may reduce or eliminate the AMT exemption amount4
  • If you have passive income or losses5
  • If you received income from private activity municipal bonds

If any of the above applies to you, you should complete the AMT worksheet when preparing your taxes. If you don’t, rest assured that the IRS will. And if they find that you owe AMT, they’ll add penalties and interest.

Avoiding or Minimizing the AMT

Because large one-time gains and big deductions that trigger the AMT are sometimes controllable, you may be able to avoid or minimize the impact of the AMT by planning ahead. Here are some practical suggestions.

  • Time your capital gains. You may be able to delay an asset sale until after the end of the year, or spread a gain over a number of years by using an installment sale. If you’re looking to liquidate an investment with a long-term gain, you should review your AMT consequences and determine what impact such a sale might have.
  • Time your deductible expenses. Many itemized deductions are not deductible when computing the AMT. When possible, time payments of state and local taxes, home equity loan interest (if the loan proceeds are not used for home improvements) and other miscellaneous itemized deductions to fall in years when you won’t face the AMT. Since they are not AMT deductible, they will go unused in a year when you pay the AMT. The same holds true for medical deductions, which face stricter deduction rules for the AMT. But also keep in mind how deferred deductions might impact next year’s tax and potential exposure to the AMT. And if you do not itemize because the standard deduction is greater than itemized deductions, but still find yourself subject to the AMT, you may want to consider itemizing, which may result in a lower AMT tax.
  • Look before you exercise. Exercising ISOs is a red flag for triggering the AMT. What’s more, ISO proceeds (the excess of the fair market value over the strike price or exercise price) are taxable under the AMT, while they are not under the ordinary tax calculation. There are several strategies you can employ to minimize your AMT tax exposure with ISOs. First, try to exercise the options when the price is low, so that any gains will be taxed at capital gains rates when the shares are later sold. Second, stagger exercises over a number of years, so that you stay under the level that triggers the AMT each year. And third, by selling the options in the year of exercise you may be able to minimize your AMT exposure. Because ISO tax issues are complex, you should consult with your investment advisor before exercising ISOs.

AMT Red Flags: Incentive Stock Options

When you exercise an incentive stock option, you must report an adjustment for AMT purposes. The adjustment equals the difference between the exercise price and the fair market price.

EXAMPLE: You exercise an incentive stock option to purchase 1,000 shares of your company’s stock at $20 per share when the stock is trading at $50 per share. For AMT purposes, you must report an adjustment of $30,000 ([$50-$20] x 1,000).

  • Invest selectively in municipal bonds. Although interest on most municipal bonds is exempt from regular and AMT tax, interest on municipal bonds that fund a private activity are taxable for AMT purposes. So if you are subject to the AMT, make sure to factor in the AMT when calculating after-tax returns on private activity bonds. Also keep in mind that the tax exemption for municipal bonds is more “valuable” if you are in the top tax brackets. Since the top AMT tax rate is 28% (compared with 39.6% for ordinary income), those subject to the AMT may find that a taxable bond will yield a higher rate of after-tax return.

 

  • Minimize passive activity losses. Losses from rental real estate, tax-shelter farm activities and similar passive activities are not deductible in computing AMT income. For certain taxpayers, this can pose an issue if the passive activity loss is deductible for regular tax purposes.
  • Use home equity loans wisely. The AMT limits the deduction on home equity loans to interest on proceeds used to purchase, build or substantially improve a principal or second residence. Amounts used for other purposes are not deductible under the AMT. This is an important point to keep in mind when using a home equity loan for other purposes, and you may wish to pursue alternate funding for such purposes if you will be subject to the AMT. You should make sure to keep accurate records of what is borrowed specifically for home improvement and keep receipts of all your expenditures.

Keep in mind that the rules and reporting associated with the AMT are complex, and the tax planning issues that relate to it are comprehensive. If you think you may be subject to the AMT, let me help you evaluate what steps you can take to avoid or minimize your exposure.

 

Notes/Disclaimers

 

1Source: SmartMoney, The Alternative Minimum Tax, February 4, 2013. (http://www.smartmoney.com/taxes/income/the-alternative-minimum-tax-9540/)

2 Source: Internal Revenue Service, Publication 505, What’s New for 2013.

3Source: CCH, 2012 CCH Whole Ball of Tax, AMT Patch Expires, But Look for a Comeback (http://www.cch.com/wbot2012/016amt.asp?fr=print)

4Source: Fairmont.com, Tax Guide For Investors, 2008(http://www.fairmark.com/amt/topten.htm).

5Source: Eiltscpa, Understanding The Dreaded Alternative Minimum Tax, 2012 (http://eiltscpa.wordpress.com/2012/02/05/understanding-the-dreaded-alternative-minimum-tax/).

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MorganStanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MorganStanley.  The information and data in the article or publication has been obtained from sources outside of MorganStanleyand MorganStanleymakes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MorganStanley. Neither the information provided nor any opinion expressed constitutes a solicitation by MorganStanleywith respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley, its affiliates and Financial Advisors do not provide tax advice.  Individuals are urged to consult their tax advisor regarding their own tax or financial situation before implementing any strategies.

 

Interest in municipal bonds is generally exempt from federal income tax.  However, some bonds may be subject to the alternative minimum tax (AMT).  Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp  may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 671143 [05/13]

The Housing Recovery: Will It Last?

by Elizabeth Camp

The housing market looks to be getting stronger, which could be taken as an omen of more generally good economic news to come. After all, home values are an important barometer of consumer wealth. Home construction is a significant fraction of theU.S.economy. Both of those elements had taken significant hits in recent years.

 

The Rebound in Home Prices

The average home value (as measured by the S&P/Case-Shiller 10-City Composite Home Price Index) shrank 33% from 2006 to 2009. 1 But since those difficult days, home prices have begun to recover. As of the latest data (at the end of 2013’s first quarter), the S&P 10-City Composite had gained 5.4% from its recession low, and most of that gain took place during the past year.1

 

Overall, S&P/Case-Shiller home price indexes cover 20 metropolitan real estate markets around the United States. All 20 of those markets showed solid gains from their year-ago levels in the March 2013 report. Phoenix, which saw some of the steepest price declines of the past decade, led the way with a 23.2% recovery. Of the remaining 19, Detroitwas the only city whose rate of growth did not increase.2

 

 

Homebuilding Follows Apace

With home prices rising, construction activity should recover as well. Housing starts are now up 23.6%, year over year, supporting a solid growth trajectory in 2013. More importantly, new housing permits, a leading indicator for future construction, have been rebounding even more strongly, to a 925,000-unit pace in January, the highest rate since June 2008.3

 

Builders are building because demand has picked up, as evidenced by the shrinking inventory of unsold homes. New home sales surged nearly 16% to an annual rate of 437,000 units in January–the strongest gain since July 2008. Existing home sales came in a little weaker, but in both cases, the data have maintained an upward trend since last June, keeping the housing recovery in place.3

 

Other measures of market strength come from the National Association of Realtors (NAR). As of January, NAR’s measure of buyer traffic is up a whopping 40% from year-earlier levels, but the companion measure of seller traffic has held steady. That’s resulted in a near-record low of inventory for sale–it would take just 4.1 months to eliminate the supply of unsold new homes. The inventory of existing homes, at 4.2 months, is the lowest since April 2005, when the housing boom was near its peak.3

 

A third measure of market prospects is the monthly expectations survey by the mortgage bank Fannie Mae. They report that nearly half of the people they polled (48%) believe home prices will go up in the next 12 months. The number who fear home prices will decline was just 10%, the lowest level ever recorded in the survey. Similar numbers believe that rental prices will also go up in the year ahead.4

 

Capitalizing on the Recovery

There are significant implications in this turnaround for investors as well as homeowners.

 

Certain industries stand to benefit from a housing recovery. Homebuilders themselves are not the only business actors who stand to gain from a turnaround. Home furnishing and consumer electronics retailers tend to benefit from increased real estate activity. Further down the road, so do certain manufacturers.

 

 

Footnotes/Disclaimers

 

1Source: S&P Dow Jones Indices LLC. The S&P/Case Shiller 10-City Composite Home Price Index is an unmanaged index that is calculated monthly to reflect the average prices recorded for single family home sales in 10 major U.S. cities–Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C. Data are as of January 2013 and reported on March 26, 2013. The S&P/Case Shiller 10-City Composite Home Price Index has been calculated monthly from then-current market reports since May 2006; index values prior to that date were calculated from historical real estate transaction records using the same methodology. You cannot invest directly in any index. Past performance does not assure future results.

 

2Source: Home Prices Accelerate in January 2013 According to the S&P/Case-Shiller Home Price Indices, S&P Dow Jones Indices press release, March 26, 2013.

 

3Source: Trends & Projections, Standard & Poor’s, March 2013.

 

4Source: Consumers’ Positive Housing Attitudes Withstand Fiscal Concerns, Fannie Mae press release, April 8, 2013.

 

 

If you’d like to learn more, please contact Liz Camp at 954-762-3045.

 

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

 

The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

 

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Liz Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Liz Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 665737  (05/13)

 

 

Saving on Taxes With Municipal Bonds

by Elizabeth Camp

Investing in municipal bonds is a well-known strategy for lowering your tax bill, since their interest income is generally exempt from federal income tax, and in most cases, from state and local taxation, if the investor resides in the state of issuance. But interest payments from some municipal bonds may be subject to the alternative minimum tax (AMT) or even ordinary income tax. What’s more, capital gains on municipal bonds are subject to capital gains tax, just like most other financial securities. Here’s a current summary of the tax treatment of different types of municipal bond investments.

 

Different Tax Treatment for Different Municipal Bonds

The term “muni” is generally used as a synonym for bonds with federal tax exemption on interest income. Some state and city governments may offer additional tax preferences to their residents who invest in locally issued municipal bonds. This creates scenarios for double tax-exempt and triple tax-exempt securities. Here are the three broad categories of municipal bonds and summaries of their different tax treatments:

 

  • Public Purpose Bonds are those issued to support the general financial needs of states, cities, towns and independent government entities, such as school, water, sewer, road and utility districts. Many municipal bonds are general obligations of the issuer (and referred to as General Obligation Bonds), while many others are tied to specified public revenue sources, such as tolls, fees or taxes and are commonly known as Revenue Bonds. Interest income from public purpose bonds is generally exempt from federal income tax and possibly state and local tax, too.
  • Private Activity Bonds are those issued to support projects that may be sponsored by a government entity but are intended to provide private or commercial benefits. Among these are bonds issued for industrial parks, independent hospitals and schools, and some airport facilities. Interest income from these bonds is considered a preference item and must be included in calculations of the AMT. Therefore, investors with AMT exposure will pay federal AMT on these bonds. Potential AMT exposure is typically noted in bond offering documents and brokerage listings.
  • Build America Bonds were issued as part of the American Recovery and Reinvestment Act of 2009. The program ended on December 31, 2010, but the bonds can still be purchased on secondary markets. Government entities that issued them were given a direct subsidy by the US Treasury, although it’s important to note that they are backed by the credit quality of the issuer, and not the federal government. Income on these bonds is taxable at the federal level but may be exempt from some state taxes.

 

Bottom Line: Determining the Value of Your Personal Tax/Yield Trade-Off

Because of their income tax benefits, tax-exempt municipal bonds typically carry lower stated yields than taxable bonds of comparable credit quality. At the end of 2012, for example, the average yield on a 20-year term Baa-rated municipal bond was approximately 30% less than the yield on comparable duration Baa-rated corporate bonds. That means that the presumed income tax benefits of the muni could outweigh the opportunity cost of the lower yield for taxpayers in the 33%, 35% and 39.6% marginal tax brackets. The same benchmark muni yield was also 40% higher than comparably termed US government bonds. Given their tax advantages, the extra yield from munis after taxes could be even greater.*

 

Taxable vs. Tax-Free Yield
Tax-Free
Yield:
2.00% 3.00% 4.00% 5.00% 6.00%

 

Marginal Federal Tax Rate Taxable-Equivalent Yields
10% 2.22% 3.33% 4.44% 5.56% 6.67%
15% 2.35 3.53 4.71 5.88 7.06
25% 2.67 4.00 5.33 6.67 8.00
28% 2.78 4.17 5.56 6.94 8.33
33% 2.99 4.48 5.97 7.46 8.96
35% 3.08 4.62 6.15 7.69 9.23
39.6 3.31 4.97 6.62 8.28 9.93

 

Capital Gains

Although municipal bonds bought at par and held to maturity do not incur capital gains, those purchased below face value or sold at a gain prior to maturity may incur capital gains tax. Currently, the maximum federal tax rate on long-term capital gains is 20% for individuals with taxable incomes above $400,000 ($450,000 for married couples filing joint tax returns). Most others will continue to pay the lower 15% rate on long-term capital gains.

 

In the end, the tax benefits of a particular municipal bond will depend on a number of factors, and these benefits need to be weighed against the yield and quality of the particular issue. Let us work with you to find the municipal bonds that provide the best combination for your particular needs.

 

 

Footnotes/Disclaimers

 

*Source: The Federal Reserve’s reported month-end average yields for 20-year term municipal bonds, the 20-year Treasury Constant Maturity Yield Curve, and Baa-rated corporate bonds with remaining terms of 20 years or more. Yields as of December 31, 2012.

 

More information on municipal bonds is available on the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) website: www.emma.msrb.org.

 

The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds may also be subject to call risk, the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date.  Bonds are also subject to reinvestment risk; the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MorganStanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MorganStanley.  The information and data in the article or publication has been obtained from sources outside of MorganStanleyand Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MorganStanley. Neither the information provided nor any opinion expressed constitutes a solicitation by MorganStanleywith respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley and its Financial Advisors do not provide tax or legal advice.  Individuals should consult their tax advisor regarding their own tax or financial situation before implementing any strategies.

 

This material does not provide individually tailored investment advice.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanleyfa.com/camp. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 657077  (5/13)

 

 

Commonly Asked 401(k) Plan Questions

by Elizabeth Camp

Because your retirement planning is so important to your future well-being, you should ask questions about the retirement plans available to you and how they work, as well as how to best use your retirement dollars. Below are answers to several commonly asked questions about 401(k) plans.

Q.  How do my 401(k) contributions lower my income taxes?

A.  Your 401(k) contributions can be made on a pre-tax basis. This means that they aren’t reported to the Internal Revenue Service as current income on your W-2 form. For example, if you earn $50,000 a year and decide to contribute 10 percent of your salary ($5,000) to your 401(k) account on a pre-tax basis, only $45,000 will be reported as current income for income tax purposes.

Why does the government give you this excellent tax break?  Because it wants to encourage individuals to save as much as possible with their own dollars today so that they are better prepared for their retirement in the future.

Q.  What is a Roth 401(k)?

A. A Roth 401(k) is not a type of plan, but rather a type of plan contribution. If a 401(k) plan offers this feature, employees can designate some or all of their elective contributions as designated Roth contributions, rather than traditional, pre-tax elective contributions. Roth contributions, however, are taxed in the year they are contributed to the plan (i.e., they are made on an after-tax basis). Upon distribution, Roth 401(k) contributions are received tax free. Earnings on Roth 401(k) contributions will not be taxed upon distribution if the Roth account has been open for at least 5 tax years and distribution occurs after 59½ , death or disability.  Traditional 401(k) contributions and Roth 401(k) contributions are subject to a combined limit of $17,500 for 2014 ($23,000 if age 50 or older).

 Q.  Am I able to contribute to both a 401(k) and an IRA?

A.  Yes. Many individuals contribute to their 401(k) plan and to a traditional Individual Retirement Account (IRA) or Roth IRA. It may be best to maximize your traditional 401(k) contributions first, since they can be made with pre-tax dollars. (Your traditional IRA contributions may or may not be tax deductible, depending on your annual salary and other qualifications.) If your employer offers matching contributions and you qualify for a traditional IRA or Roth IRA, it may make sense to contribute enough to the 401(k) plan to obtain the maximum employer match, and then contribute to a traditional IRA or Roth IRA if eligible. If you have not then exhausted the maximum allowable contribution and can afford to do so, consider contributing additional amounts to your 401(k) plan.

Q.  If I change jobs, may I take my 401(k) money with me?

A.  Yes. All contributions you have made to your 401(k) account are 100 percent yours. Contributions made by your employer (if any) may be yours depending on a vesting schedule. You will need to check your plan for specific vesting schedules.

 

In addition, if you do change jobs, it may be a good idea to consider either rolling your 401(k) money over into an IRA or another qualified plan (such as a profit-sharing or 401(k) plan) at your new employer. Otherwise, you may incur taxes and early withdrawal penalties. Be sure to check with your tax adviser before taking any distributions from your 401(k) plan.

For more information, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com

 

Aging Parents While Raising Kids: The Sandwich Generation

by Elizabeth Camp

Are you “sandwiched” financially and emotionally between an aging parent and an adult child? According to a recent study, nearly half of Americans in their 40s and 50s have a parent aged 65 or older and are either raising a young child or financially supporting a grown child (age 18 or older).1 Among this group, 15% are providing financial support to both an aging parent and a child.

While the “Sandwich Generation” is a demographic trend that has been documented for some time, the financial implications associated with caring for multiple generations of family members has been escalating in recent years, with the bulk of the financial pressure coming from adult children as opposed to aging parents. More than a quarter of respondents (27%) provide primary financial support to their adult children, up from 20% in 2005. By contrast, just 21% of middle-aged adults report having provided financial support to an aging parent in the past year, a number that has not changed since 2005.1

One explanation for the growing need for financial support among the nation’s young adults is the toll that the Great Recession has taken on this demographic group. According to U.S. government data, the percentage of young adults employed in 2010 was the lowest it had been since 1948.2

Despite the added financial resources being directed toward the young, the study found that, in general, the public places more value on supporting aging parents than on supporting grown children. Among all survey respondents, 75% said adults had a responsibility to provide financial assistance to an aging parent in need, while only 52% believed parents had the same responsibility to help out an adult child.1

What Can You Do?

If you are supporting both a parent and a grown child there are a number of resources and support services you can turn to for help. For your parents, consider the following.

  • Enroll them in adult day care or hire a home health aide. Whether they live with you or on their own, you may need to consider helping them to manage medication, to conduct daily tasks such as bathing or meal preparation, and to make arrangements for assistance with household chores. A visiting nurse and home care agency may provide assistance in these areas. The average adult day-care program costs $70 per day, and a home health aide costs an average of $21 per hour.3
  • Consider engaging a health care advocate. Professional health advocates or private health advisories can ease the burden associated with health care planning. In addition to facilitating and expediting care during major illnesses, private health advisories can also help you develop a comprehensive and customized health strategy based on your individual needs and personal health issues.
  • Encourage parents to update their estate plans and beneficiary designations.   Even if they already have an estate plan in place, there is a good likelihood that it could be out of date and may not take into consideration life events that have transpired over the years, such as the birth of grandchildren, divorces, remarriages or other factors.
  • First, talk to them about your financial realities. Live-at-home adult children may not be aware of what it costs to run a home while supporting aging parents at the same time. Letting them know the costs you face each month makes those costs real to them, and can encourage them to shoulder some of the responsibility themselves.

·         Investigate potential tax breaks. You may be able to contribute up to $5,000 per year to your employer’s dependent care flexible spending account, if available, provided your parents live with you more than half the year and you pay for them to attend an adult day-care program. If you don’t have a flex account, you may be able to claim the dependent-care credit on your tax return,  The maximum amount of expenses to which the credit may be applied is  $3,000 for one dependent or $6,000 for two. The applicable percentage of the maximum amount of expenses that you receive as the credit varies with your income, from a high of 35% of the maximum amount if you have an income of $15,000 or less, to a minimum of 20% of the maximum amount if your income exceeds $43,000.

·         Search online for local support services. In addition to day care and health aids, many states and communities offer other services that can help both you and your parents cope. Look online under “elder,” “geriatric” or “senior” care services for support programs near you.

For dealing with your grown children, consider the following.

  • Share the common costs. Most live-at-home adult children are there for a reason, often due to lack of a job or inability to afford a place of their own. But that does not mean they should not shoulder a portion of household expenses. Work out a realistic rent or cost-sharing arrangement and stick with it.
  • Separate the individual costs. Is your live-at-home son or daughter a finicky eater? Do they demand certain foods or sundries that you would not buy otherwise? Then let them pay for them. They’ll learn to appreciate what their tastes are actually costing, and avoid resentments on your part.
  • Share the chores. Assigning chores and responsibilities may seem obvious, but often it’s overlooked, leaving mom and dad to do all the work. Garbage, lawn care, housework, laundry–make it clear to all who is responsible for what task.
  • Don’t make it too comfortable. If your goal is to eventually nudge your fledglings out of the nest, you need to provide incentive. That means not treating them as permanent guests, but as temporary live-at-home adult children, with obligations and responsibilities of their own. In the end, they will appreciate it as much as you.

Footnotes/disclaimers:

1Source: Pew Research Center, “The Sandwich Generation: Rising Financial Burdens for Middle-Aged Americans,” January 2013.

2Source: U.S. Bureau of Labor Statistics.

3Source: MetLife Mature Market Institute, The 2012 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, November 2012.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice.  This material was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 776056 [12/13]

 

 

Women, Money, and Today’s Retirement

by Elizabeth Camp

Despite all of the other advances made in our society in recent generations, women continue to face unique challenges when it comes to preparing for their financial futures.

Recognizing the Shortfalls

For starters, women on average still earn less than men, according to the Department of Labor’s Bureau of Labor Statistics. And because women tend to serve as primary caregivers for young children and aging parents, women typically spend fewer years in the workforce. As a result, the average woman could earn significantly less than the average man during the course of a lifetime.

That combination of lower earning power and fewer years in the workforce translates into less retirement savings for women. In addition, the average annual pension benefit for a retired woman is less than that of the average retired man.

Adding to the inequity, Social Security benefits, based in part on workplace longevity, are also adversely affected. The end result is that retired women also tend to receive smaller monthly Social Security checks than men.

Closing the Gap

Consequently, it’s essential that all women and their loved ones embrace a more active approach to investments to make up for the financial shortfalls they could face at retirement.

It’s particularly important to take advantage of tax-deferred individual retirement accounts and employer-sponsored savings plans when available.

Remember, even a small increase in the amount of your investments or contributions may add up to significant savings over time.

If you’d like to learn more, please contact Elizabeth Camp, http://www.morganstanleyfa.com/camp

Article by S&P Capital IQ  and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

 

CRC 657102 5/13

 

Long-Term Care Insurance: Key Questions for Prospective Policyholders

by Elizabeth Camp

Most Americans today can expect to live to a ripe old age. The life expectancy of a 50-year-old is now 79 for a male and 83 for a woman.1 What’s more, over a fifth of today’s 65-year-olds can expect to survive past age 90.2 While increasing longevity is good news, it increases the likelihood of needing long-term care at some point in your life. Long-term care costs can be significant and are not covered by Medicare or Medigap insurance. Whether or not you choose to buy long-term care insurance to defray such costs will depend upon a number of factors.

Safeguard Your Later Years

If you are considering long-term care insurance, it is critical that you plan early and choose wisely among the available options. The cost of long-term care policies may increase dramatically with the age of the subscriber. According to the National Association of Insurance Commissioners, a 50-year-old can expect to pay premiums averaging $888 per year, increasing to $1,850 at age 65 and $5,880 at age 75.3 Purchasing a policy when you are younger and healthier can help contain costs and maximize benefits.

Determining which long-term care features and benefits may be most meaningful to you requires an understanding of your projected financial situation as well as your anticipated health insurance coverage in your later years.

The following questions can help you decide whether long-term care insurance is right for you, and if so, what features and benefits may be most meaningful to you in your later years.

What does “long-term care” entail?

Long-term care encompasses a range of services that pertain to personal care as opposed to medical care: everyday tasks, which include bathing, dressing, moving around your surroundings and eating, as well as services that support independent living such as house cleaning, medication management, shopping, cooking, using the telephone or even paying bills. These services can be delivered at home, in an assisted living facility or nursing home, and costs can be high. According to the 2012 MetLife Market Survey of Long-Term Care Costs, the annual cost for an assisted living facility averages $42,600 per year and a nursing home averages $90,520 per year. Expenses can run even higher, depending on where you live and the facility you choose.4

 

Doesn’t Medicare cover these services?

Medicare coverage works in two phases: In phase one, Medicare will fully cover short-term nursing home stays up to 20 days for patients recovering from an acute illness or injury; in phase two, partial coverage maxes out at 100 days. During this second phase, individuals are responsible for daily co-payments unless a Medigap policy is in force. After 100 days, Medicare coverage expires leaving the elderly fully responsible for funding an array of often critical support services on their own whether those services are delivered in a nursing home, assisted living facility or at home. In addition, Medicare does not cover any assisted living expenses or adult day care expenses. While Medicaid will pay for long-term care in certain qualifying nursing homes, only those with minimal assets and income may qualify for benefits.

 Does the Affordable Care Act provide at all for long-term care?

Although there was an attempt to include a long-term care supplement within the Affordable Care Act, it was suspended indefinitely from the program due to questions surrounding its financial sustainability. Issues regarding pre-existing medical conditions and limited appeal to lower-income populations would result in extraordinarily high premiums, and therefore, the program was eliminated.

How are long-term care insurance premium costs determined?

In addition to your age and health profile when purchasing a long-term care policy, premiums are most directly linked to the benefits you chose. Because opting to cover every potential risk and need can be prohibitively expensive, picking and choosing what makes the most sense for your particular situation can manage premiums. For example, instead of opting for lifetime benefits, a three- to five-year benefit period may be sufficient. A shared benefit between married couples pools benefits and can be split up between spouses as needs arise. For example, a total of six years of benefits can be split equally, but if one spouse requires longer-term care, all of the policy could be used for that spouse. If you have a family history that includes Alzheimer’s or other significant predispositions, it may be cost effective to choose a longer benefit period to offset more extensive long-term care.

How can subscribers protect themselves against inflation if benefits may not be tapped into for 20 years or more?

Inflation protection riders are valuable to any long-term care policy. A 5% compound inflation protection rider has long been a traditional option on many policies, but recently a 3% option has gained popularity especially in view of low inflation rates that haven’t exceeded 4% since 1991.5 Opting for a lower inflation protection rider can also save on premium costs while still offering a hedge against rising prices.

 

If you are considering a long-term care insurance policy, it is important to discuss your needs and expectations with a trusted advisor. At Morgan Stanley, we can help you sort through all the coverage options and help you find a long-term care solution that works best for your particular situation.

 

Footnotes/Disclaimers

 

1Source: Social Security Administration, Actuarial Life Table, based on 2009 data (latest data available); http://www.ssa.gov/oact/STATS/table4c6.html.

2Source: Social Security Administration, based on 2010 Calendar Year Life Table (latest data available); http://www.ssa.gov/oact/NOTES/as120/LifeTables_Tbl_6_2010.html.

3Source: National Association of Insurance Commissioners; NAIC Consumer Alert, February 2012; http://www.naic.org/documents/consumer_alert_ltc.htm.

4MetLife Market Survey of Long-Term Care Costs, November 2012; https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-2012-market-survey-long-term-care-costs.pdf.

5Source: CoinNews Media Group, September 2013; http://www.usinflationcalculator.com/inflation/historical-inflation-rates//.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration- http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 760332 [11/13]

 

 

Role Reversal: When Children Should Talk to Parents About Money

by Liz Camp

As Baby Boomers grow older — and presumably wiser about economic matters — more are finding themselves in a position of caretaker for elderly parents. Raising the topic of money with parents can be difficult. But with the right choice of words, timing, and tone, you can open the door to a meaningful conversation.

Select a Representative. An initial conversation about finances should be done one-on-one. Involving too many people can be overwhelming and appear threatening. If you have siblings, select one — perhaps the oldest, most financially knowledgeable, or one with whom your parent(s) may feel most comfortable — to lead the way. Remember, this is about your parent’s money, not about yours or your children’s.

Be Sensitive. To some extent, our financial lives influence how we view ourselves as independent human beings. For many, old age is a time of coping with a series of physical and emotional losses: hearing, eyesight, mobility, memory, as well as friendships. With any conversation about money, be sensitive to the fears and concerns your parents may harbor about their possible loss of control or independence.

Break the Ice Skillfully. A subtle opening could involve an anecdotal story about a person you know in common, a news article found in the daily paper, or even about yourself.

•           I need help with my will. Who did you use?

•           How’s Aunt Mary doing since Uncle Joe passed away?

•           What was it like for your parents during the Great Depression?

•           Did you watch that TV special on hospitals last week?

Start Slowly. Don’t commence a dialogue during a crisis situation or try to resolve all details in one meeting. Raise questions that your parents can consider for a follow-up conversation. You could try something like: “I’ll stop by for coffee next week, and we can continue our talk. Maybe you’ll have those papers by then?”

Your parents may actually enjoy the attention. After several informal conversations, you may want to consider the help of a financial professional. For more information, contact the National Council on Aging (www.ncoa.org) and AARP (www.aarp.org).

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 667506  05/13

 

Keeping Financially Fit

by Elizabeth Camp

Achieving financial success is no simple matter. It takes hard work, perseverance and adherence to   strategies of saving, investing and managing your finances. Just as there are good habits associated with staying physically fit, there are also best practices involved with keeping financially fit. Simple strategies such as using debt wisely, taking advantage of tax-advantaged investment vehicles, and monitoring spending habits all go a long way toward helping you achieve your personal, business and financial goals.

Consider the “financially fit” best practices below. If you are not already doing them, consider how they could improve your financial picture.

Reduce and manage debt.

  • Consider how much you spend on debt service for mortgages, auto loans, credit cards, and student or other loans. Lenders typically look at two metrics when deciding whether or not to extend credit: the front-end and back-end ratios. The front-end ratio shows what percentage of your income goes toward housing expenses, including mortgage payments, real estate taxes, homeowner’s insurance and association dues. The back-end ratio shows what portion of your income is needed to cover all of your monthly debt obligations, including housing, credit card bills, car loans, student loans and other debt service. Most lenders look for a front-end ratio of no more than 28% and a back-end ratio of 36% or less.1
  • Develop a plan for eliminating credit card debt. Credit card debt is one of  the most expensive debts you can carry. Interest rates often top 18% on existing balances. Paying off just $100 more per month on a $5,000 balance could pay off the entire balance in 32 months instead of 94 months, saving almost $3,000 in interest (assuming an interest rate of 18% and a 2% minimum monthly payment).2
  • Check your credit report. Credit reports offer a snapshot of how the world views your “creditability.” Credit scores range between 300 points and 850 points, and most fall between 600 and 750. A score above 700 usually suggests good credit management.3 You can request a free copy of your credit report once each year from each of three major credit reporting agencies–Equifax, Experian and TransUnion–at AnnualCreditReport.com.

Manage your income and expenses.

  • Set a budget and track monthly spending. This is one of the most effective ways to control your costs. The simple act of recording expenses forces you to think about them and to see exactly how much you are spending on a given item on a monthly or annual basis. A $5 latte at the local coffee shop may seem insignificant on its own, but if you buy one five days a week, that adds up to over $100 per month and $1,200 per year.
  • Pay bills on time using online recurring services. Online bill payment saves time and postage, and lets you avoid late fees by automating payments for many services. Timely bill payment also factors in your credit score. According to FICO, credit history accounts for about 35% of your credit score.4
  • Cancel recurring expenses you don’t use. Many services today are purchased on a subscription basis, with monthly charges and automated annual renewals. That includes club memberships, gyms, newspapers, magazines or online publications, not to mention cable TV and phone service. Taken individually, none of these expenses may amount to a lot, but when looked at collectively over the course of a year, they can be surprisingly high. Consider how often you use these services or if they can be renegotiated with the provider by reducing elective options.

Save more by taking advantage of tax-deferred accounts.

  • Contribute the maximum to your 401(k) or other employer-sponsored retirement plan. Your company retirement savings plan offers one of the best ways to save for retirement. Contributions to traditional plans are tax deductible, and earnings are tax-deferred. And in many plans, employers will match a portion of your contributions. In a 401(k) plan, employees can contribute up to $17,500 in 2013. Individuals aged 50 or older can contribute an additional $5,500. 5
  • Contribute to an IRA. Contributions to a traditional IRA may be deductible, so they may reduce your taxable income. Contributions to a Roth IRA are after tax, but distributions are tax free when you retire. Whether or not you can contribute to a Roth is based on your Adjusted Gross Income.  Traditional and Roth IRA contribution limits for the 2013 tax year–which may be made up until April 15, 2014–are $5,500 per individual and $6,500 for those aged 50 or older. 6 Note that deductibility of traditional IRA contributions phases out above certain income levels, depending upon your filing status and if you or your spouse are covered by an employer-sponsored retirement plan.
  • Look into a Health Savings Account (HSA). If you have a high-deductible health plan, you may be able to contribute to a HSA. These accounts let you set aside pre-tax money to pay for health care costs not covered under your plan. The maximum contribution to an HSA for 2013 is $3,250 if you have single coverage, or $6,450 if you have family coverage. No income limits apply to HSAs, and funds do not have to be used in a given year. HSAs are offered through banks or other financial services companies, and may be available as part of your employer benefits package. For more information, see IRS publication 969 Health Savings Accounts and Other Tax-Favored Health Plans.7

Plan for the future.

  • Set aside money for emergencies and retirement. Whether through contributions to an employer plan or automated payroll deductions to a savings or investment account, making regular, systematic contributions is the easiest and most effective way to save over time. And when it comes to saving, time is your ally because of the power of compounding; so the earlier you start, the more you’ll save.
  • Create a will. Especially if you have children, a will serves not only to specify executors and beneficiaries of your estate, but also to designate guardians for minors. If you die without a will and have minor children, the probate court will appoint a guardian for them, and there is no guarantee that the court’s appointment of a guardian will coincide with your own wishes.
  • Review your beneficiaries annually. This includes your will, insurance policies and retirement accounts. Keep in mind that an account with a designated beneficiary is not included in your estate for distribution purposes. It is distributed to the designated beneficiary. So you will want to make sure your account beneficiaries are coordinated with named heirs in your will.

 

Footnotes/Disclaimers

 

1Source: Bankrate.com, http://www.bankrate.com/finance/mortgages/why-debt-to-income-matters-in-mortgages-1.aspx.

2Source: S&P Capital IQ. Example is hypothetical. Your results will differ.

3Source: Experian, http://www.experian.com/credit-education/what-is-a-good-credit-score.html.

4Source: Fair Isaac Corporation, 2013, http://www.myfico.com/crediteducation/whatsinyourscore.aspx.

5Source: Internal Revenue Service, http://www.irs.gov/uac/2013-Pension-Plan-Limitations.

6Source: Internal Revenue Service, http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits.

7Source: Internal Revenue Service. http://www.irs.gov/pub/irs-pdf/p969.pdf.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045, http://www.morganstanleyfa.com/camp

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration, http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where she is not registered or excluded or exempt from registration.

 

(c) 2013 MorganStanleySmith Barney LLC. Member SIPC.

 

CRC 758843 11/13]

 

 

Selecting Guardians and Trustees for Special Needs Children

by Elizabeth Camp

Your will and trust documents may represent your best-laid plans for your special needs dependent. But such documents are only as good as the people you trust to administer them. By selecting suitable stewards for that financial blueprint, you can help ensure that those plans do not go astray.

Here are some guidelines that may help you when you designate your trustees and guardians.

  • Select your stand-ins with care. Your trustees will fulfill the roles of guide and protector when you can no longer do so. You should assure yourself that the people you select are willing, prepared and able to seek the kind of outcomes you would have sought had you been there.
  • Appoint fiduciaries for your dependent’s valuable assets. A financial guardian should not only act to protect your dependent’s financial assets, but should be prepared to do so according to the highest standards of prudence and forethought.
  • Prepare to confront the unpredictable future. No one can really foretell what twists and turns may sway a person’s life years or decades into the future. Many parents improvise virtually every day to balance the demands on their families and themselves and to meet the needs of all their dependents. You will be selecting agents who will continue to do so in your stead.

The Jack or Jill of All Trades

As the architect of your plan, you have broad discretion in selecting the individuals who will act in your stead. You may choose people you know well: a business associate you’ve worked with closely or a relative in whom you have strong faith, such as a sibling or spouse. You can also select a professional practitioner whose skills might be especially useful to your purposes, such as a lawyer or accountant. Or you can designate a bank or trust company to act as a corporate trustee. Each option presents a unique balance of benefits and concerns.

Whoever you do choose, keep in mind that the person acting as trustee or guardian for a special needs dependent may be called upon to wear many hats in different circumstances. As your surrogate, a trustee or guardian can be expected to weigh in on the medical, educational and psychosocial issues affecting your special needs child. He or she may also confront the legal, tax, investment and administrative questions inherent in managing both trust resources and the day-to-day affairs of someone who may not be able to do so for him or herself. The ideal surrogate will able to bring specialized expertise to these circumstances and should also be able to deliver that expertise loyally, decisively and impartially.

Insourcing or Outsourcing: Weighing the Differences

The closest source of potential trustees and guardians is your family and friends. A personal confidant or relative may already have a well-established relationship with your intended beneficiaries and a detailed knowledge of the unique circumstances in your bequest. That familiarity can provide the context needed to interpret your wishes in your absence most effectively. It can also lay the groundwork for a strong long-term relationship between the trustee and the beneficiaries. However, someone chosen solely on the strength of personal relationships and intimate knowledge may lack the training or skills needed to act impartially and efficiently in the face of duress or emotional entanglement. What’s more, a friend or relative acting as a trustee might have a conflict of interest or be unable to devote sufficient time to the duties of trusteeship, and these potential deficiencies may not become readily apparent for some time.

You should also consider tapping into existing relationships with licensed advisory professionals such as lawyers and accountants. A professional practitioner who has had significant involvement in your family’s affairs may offer many of the same advantages as a personal associate, such as direct acquaintance with beneficiaries and historical knowledge of unusual situations and special needs. Such advisors may also have the professional distance needed to remain dispassionate under difficult circumstances. However, like a lay trustee, an individual professional’s tenure may be subject to the vicissitudes of his or her life and may ultimately be unavailable at some critical future juncture.

Outsourcing to a Corporate Trustee

A bank or trust institution can act as a corporate trustee. As such, it can provide a high level of impartiality and detachment as well as ready access to specialized technical, tax and legal expertise. An institutional trustee can also offer a high level of continuity and stability, since its ability to serve is generally not dependent upon any single individual. However, an institution cannot maintain the same level of intimate knowledge as a family insider about your intentions or your beneficiaries’ needs.

You should keep in mind that different types of trustees may be subject to different rules, insurance and licensing requirements. Lawyers, for example, must meet the terms of their state bar association licenses when they act as trustees. Banks may be subject to regulatory audits and documentation procedures. Also, professional trustees are often held to the highest fiduciary standards under the “prudent investor” principle. Simply put, that means that trust assets would have to be managed according to the best practices of the asset management profession, with special attention to appropriate risk management and diversification.

Other Considerations for Trustees and Guardians

Here are some additional thoughts that might apply to your circumstances:

  • Family members may not always be eligible to serve as a trustee. Although federal law creates a specific framework for special needs trusts, appointment of trust and guardianship officials generally is regulated by state law. Each of the 50 states has its own rules. For example, some states allow anyone to function as a trustee. Some require that the trustee be bondable. Some states allow family members to act as trustees for any assets, others only for assets that are not already owned by the beneficiary. (Assets owned by a beneficiary may include proceeds from lawsuits, insurance policies and inheritances already received; trusts that contain these assets are commonly called self-settled or first-party trusts.)
  • Guardianship and trusteeship should be seen as separate roles. Guardians and trustees have very different perspectives on the life and needs of the beneficiary and also have different responsibilities for elements of the beneficiary’s well-being. The person in the role of guardian may derive some benefit from potential trust expenditures. The person in the trustee role is responsible for vetting trust expenditures. Putting one person in both roles creates a heightened potential for conflict of interest and self-dealing.
  • You can create checks and balances using co-trustees and trust protectors. When you design a trust you can split the duties of the trustee so that different people have to monitor each other be take important actions jointly. For example, you can put spending policies in the hands of a family member closely attuned to the needs of your beneficiary, but actual fiscal control in the hands of a professional more sensitive to issues of financial management and the intricacies of benefit law. You can also assign someone the role of “trust protector,” whose function would be to monitor and audit the activities of the trustee. A designated trust protector generally has authority to hire or fire a trustee for cause, if needed.

Ultimately, your choice of trust officials will have great influence on whether your trust arrangements achieve your long-term goals for your special needs dependent. Let me help you sort through all of the competing considerations and find the path best suited for your needs.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates, Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice.  This material was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

 

If you’d like to learn more, please contact Elizabeth Camp at htttp://www.morganstanleyfa.com/camp

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

 

CRC 579823 [2/13]

 

 

Long-Term Care Insurance: Key Questions for Prospective Policyholders

by Elizabeth Camp

Most Americans today can expect to live to a ripe old age. The life expectancy of a 50-year-old is now 79 for a male and 83 for a woman.1 What’s more, over a fifth of today’s 65-year-olds can expect to survive past age 90.2 While increasing longevity is good news, it increases the likelihood of needing long-term care at some point in your life. Long-term care costs can be significant and are not covered by Medicare or Medigap insurance. Whether or not you choose to buy long-term care insurance to defray such costs will depend upon a number of factors.

Safeguard Your Later Years

If you are considering long-term care insurance, it is critical that you plan early and choose wisely among the available options. The cost of long-term care policies may increase dramatically with the age of the subscriber. According to the National Association of Insurance Commissioners, a 50-year-old can expect to pay premiums averaging $888 per year, increasing to $1,850 at age 65 and $5,880 at age 75.3 Purchasing a policy when you are younger and healthier can help contain costs and maximize benefits.

Determining which long-term care features and benefits may be most meaningful to you requires an understanding of your projected financial situation as well as your anticipated health insurance coverage in your later years.

The following questions can help you decide whether long-term care insurance is right for you, and if so, what features and benefits may be most meaningful to you in your later years.

 What does “long-term care” entail?

Long-term care encompasses a range of services that pertain to personal care as opposed to medical care: everyday tasks, which include bathing, dressing, moving around your surroundings and eating, as well as services that support independent living such as house cleaning, medication management, shopping, cooking, using the telephone or even paying bills. These services can be delivered at home, in an assisted living facility or nursing home, and costs can be high. According to the 2012 MetLife Market Survey of Long-Term Care Costs, the annual cost for an assisted living facility averages $42,600 per year and a nursing home averages $90,520 per year. Expenses can run even higher, depending on where you live and the facility you choose.4

Doesn’t Medicare cover these services?

Medicare coverage works in two phases: In phase one, Medicare will fully cover short-term nursing home stays up to 20 days for patients recovering from an acute illness or injury; in phase two, partial coverage maxes out at 100 days. During this second phase, individuals are responsible for daily co-payments unless a Medigap policy is in force. After 100 days, Medicare coverage expires leaving the elderly fully responsible for funding an array of often critical support services on their own whether those services are delivered in a nursing home, assisted living facility or at home. In addition, Medicare does not cover any assisted living expenses or adult day care expenses. While Medicaid will pay for long-term care in certain qualifying nursing homes, only those with minimal assets and income may qualify for benefits.

Does the Affordable Care Act provide at all for long-term care?

Although there was an attempt to include a long-term care supplement within the Affordable Care Act, it was suspended indefinitely from the program due to questions surrounding its financial sustainability. Issues regarding pre-existing medical conditions and limited appeal to lower-income populations would result in extraordinarily high premiums, and therefore, the program was eliminated.

How are long-term care insurance premium costs determined?

In addition to your age and health profile when purchasing a long-term care policy, premiums are most directly linked to the benefits you chose. Because opting to cover every potential risk and need can be prohibitively expensive, picking and choosing what makes the most sense for your particular situation can manage premiums. For example, instead of opting for lifetime benefits, a three- to five-year benefit period may be sufficient. A shared benefit between married couples pools benefits and can be split up between spouses as needs arise. For example, a total of six years of benefits can be split equally, but if one spouse requires longer-term care, all of the policy could be used for that spouse. If you have a family history that includes Alzheimer’s or other significant predispositions, it may be cost effective to choose a longer benefit period to offset more extensive long-term care.

How can subscribers protect themselves against inflation if benefits may not be tapped into for 20 years or more?

Inflation protection riders are valuable to any long-term care policy. A 5% compound inflation protection rider has long been a traditional option on many policies, but recently a 3% option has gained popularity especially in view of low inflation rates that haven’t exceeded 4% since 1991.5 Opting for a lower inflation protection rider can also save on premium costs while still offering a hedge against rising prices.

If you are considering a long-term care insurance policy, it is important to discuss your needs and expectations with a trusted advisor. At Morgan Stanley, we can help you sort through all the coverage options and help you find a long-term care solution that works best for your particular situation.

 

Footnotes/Disclaimers

 

1Source: Social Security Administration, Actuarial Life Table, based on 2009 data (latest data available); http://www.ssa.gov/oact/STATS/table4c6.html.

2Source: Social Security Administration, based on 2010 Calendar Year Life Table (latest data available); http://www.ssa.gov/oact/NOTES/as120/LifeTables_Tbl_6_2010.html.

3Source: National Association of Insurance Commissioners; NAIC Consumer Alert, February 2012; http://www.naic.org/documents/consumer_alert_ltc.htm.

4MetLife Market Survey of Long-Term Care Costs, November 2012; https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-2012-market-survey-long-term-care-costs.pdf.

5Source: CoinNews Media Group, September 2013; http://www.usinflationcalculator.com/inflation/historical-inflation-rates//.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration- http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 760332 [11/13]