You may have bought long-term care insurance (LTCI) to help cover the potential costs of long-term care. The Life Insurance and Market Research Association (LIMRA) estimates that over 7 million Americans have LTCI. However, the U.S. Census Bureau estimates that in 2010 there were over 40 million Americans age 65 and older. So only a small percentage of those who face the increasing prospect of long-term care have LTCI.

Companies leaving the business

In spite of the apparent need for LTCI, some of the largest providers of individual LTCI have either stopped selling individual LTCI or they’re planning to do so (although some of these carriers will remain in the group LTCI market).

So if the need for LTCI remains, why are some of the biggest insurers getting out of the individual LTCI market? There are a number of reasons, such as poor investment returns due to the chronic low interest rate environment, the fact that more policyowners are keeping their insurance instead of letting it lapse, the rising cost of long-term care, and the fact that people are living longer, leading to larger LTCI payouts.

If your LTCI carrier is getting out of the LTCI business, don’t worry–you’re still covered. Generally, insurers that leave the LTCI market must either continue to service existing policies or transfer that responsibility to another carrier.

Your LTCI premiums may increase

If you purchased your LTCI policy more than a few years ago, you could be in for a surprise when you get your next premium bill. Several states have allowed insurers to increase their premiums. If your premium does increase significantly, you may be faced with a dilemma: do you keep the insurance and pay the higher premium, or should you stop paying for the insurance altogether and lose not only the insurance coverage, but also all the prior premiums you paid? Here are some alternatives to consider:

• Shorten the length of your insurance coverage. For example, if you have lifetime coverage, decrease it to 3 or 5 years. The National Clearinghouse estimates women need care on average for 3.7 years, while men need care for about 2.2 years.
• Drop or change your inflation protection. This provision can almost double your premium in some cases. Depending on how long you’ve had your policy, your daily benefit might have increased enough over time to allow you to lower the inflation protection from say 5% compound to 3% simple interest (and lower the cost for that protection), or you might even be able to drop the inflation coverage completely.
• Consider replacing a current costly policy with a new one. Even though you are older, you may find that today’s carriers offer policies with fewer “bells and whistles” and at a lower average cost. Also, some insurers now offer life insurance or annuities that also provide long-term care benefits. For example, many life insurers allow you to accelerate a portion or all of your death benefit to provide a monthly payment that you can use for long-term care expenses (although there may be an additional cost for this provision).

Compliance: 2012-003996

Written by Broadridge Forfield

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit. You may also be able to contribute to an IRA for your spouse for 2011, even if your spouse didn’t have any 2011 income.

Traditional IRA

You can contribute to a traditional IRA for 2011 if you had taxable compensation and you were not age 70½ by December 31, 2011. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2011, then your ability to deduct your contributions depends on your filing status and whether your modified adjusted gross income (MAGI) is within prescribed limits (see chart below). Even if you can’t deduct your traditional IRA contribution, you can always make nondeductible (after-tax) contributions to a traditional IRA, regardless of your income level. However, in most cases, if you’re eligible, you’ll be better off contributing to a Roth IRA instead of making nondeductible contributions to a traditional IRA.

Roth IRA

You can contribute to a Roth IRA if your MAGI is within certain dollar limits (even if you’re 70½ or older). For 2011, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $107,000 or less. Your maximum contribution is phased out if your income is between $107,000 and $122,000, and you can’t contribute at all if your income is $122,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $169,000 or less. Your contribution is phased out if your income is between $169,000 and $179,000, and you can’t contribute at all if your income is $179,000 or more. And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can simply make a nondeductible contribution to a traditional IRA, and then immediately convert that traditional IRA to a Roth IRA. (Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own (other than IRAs you’ve inherited) when you calculate the taxable portion of your conversion.)

Finally, keep in mind that if you make a contribution to a Roth IRA for 2011–no matter how small–by your tax return due date, and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2011.

Tracking #: 2012-003084

Rest assured Raymond James is aware that public trust and confidence in our industry is one of the most significant concerns we face. That is why Raymond James operates a far more conservative business model; unlike many of the other firms that have incurred the kinds of problems that result in client distrust and ultimately business failure.

As a firm that celebrates financial pragmatism and prudent business practices, Raymond James has delivered 95 consecutive quarters of profitability. Raymond James has chosen not to be in the commodities business directly because it does not want to expose clients to the inherent risk and the potential for loss. And Raymond James does not put the stability of the firm at risk by incorporating high degrees of leverage on its balance sheet in order to enhance shareholder return, a practice that saw the company through the financial crisis of 2008 without having to take a bailout or lay off employees. Yes, Raymond James’ goal is to be profitable – but not at the peril of its business, investors or clients.

Raymond James is equally dedicated to high principles of honesty and business ethics. That means it meticulously adheres to SEC rule 15c3-3 that was put in place to protect clients and their funds from financial misfortune. In fact, in March 2011, in a survey that involved 673 companies from 32 countries, Fortune magazine ranked Raymond James Financial the fourth most admired securities company in the world because of its quality of management, products, services and social responsibility.

 Our business and personal reputation rest confidently having a company like Raymond James behind us. And it is a confidence we do not bestow lightheartedly. The firm’s unwavering commitment to its founding core values of putting clients first, conservatism, independence and integrity is demonstrated each and every day. And we have the utmost confidence Raymond James will be as committed to protecting client trust in the future as it is today.

 If you have any further questions concerning the stability of Raymond James or would like to discuss the many other issues facing investors today, please don’t hesitate to contact us.

 Compliance approval M12-0435

Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you’re able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.

2. Paying deductible expenses sooner may help you in 2011

Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.

3. Income tax rates to remain the same in 2012

The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you’ll fall into either the 10%, 15%, 25%, 28%, 33%, or 35% rate bracket. And, as in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15% in 2012; and if you’re in the 10% or 15% tax rate brackets, a special 0% tax rate will generally continue to apply.

4. Is AMT a factor?

If you’re subject to the alternative minimum tax (AMT), special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You’re more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. If you’ve been subject to the AMT in the past, or think that you might be for 2011, you’ll want to make sure that you understand how the AMT rules might affect you.

5. IRA and retirement plan contributions

Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren’t deductible, so there’s no tax benefit for 2011–they’re still worth considering, though, because qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.

6. Special distribution requirements at age 70½

Once you reach age 70½, you’re generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. It’s important to make withdrawals by the date required–the end of the year for most individuals. The penalty is steep for failing to do so: 50% of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a popular provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income, and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).

7. Depreciation and expense limits to drop for business owners and the self-employed

If you’re a small business owner or a self-employed individual, you’re allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this “bonus” first-year additional depreciation deduction will drop to 50% for property acquired and placed in service during 2012. For 2011, the maximum amount that can be expensed under IRC Section 179 is $500,000, but in 2012 the limit will drop to $139,000.

8. Last chance to deduct energy-efficient home improvements

This is the last year you’ll be able to claim a credit for energy-efficient improvements you make to your home (up to 10% of the cost of qualifying property). Improvements can include a qualifying roof, windows, skylights, exterior doors, and insulation materials. Specific credit amounts may also be available for the purchase of energy-efficient furnaces and hot water boilers. However, there’s a lifetime credit cap of $500 ($200 for windows). So, if you’ve claimed the credit in the past–in one or more years since 2005–you’re only entitled to the difference between the current cap and the amount you’ve claimed in the past.

9. Other expiring provisions

Barring additional legislation, this is the last year that you’ll be able to elect to deduct state and local general sales tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.

10. Get help

Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.

Approved Re:FX2011-1118-903/E

This is good news for many, but I wanted you to be aware of another change, as well. Starting next year, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase from $106,800 to $110,100. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.

Keep in mind, as of May 2011, new recipients of federal benefits – including Social Security retirement benefits – are required to establish direct deposit to receive their payments electronically; physical checks will no longer be issued. In addition, beginning March 2013, all federal benefits – new and existing – will require direct deposit. So if you’re already receiving benefits by this date, you will need to establish electronic transfers to your bank or financial institution. I’m happy to help you set up a cash management solution that will satisfy the new direct deposit requirements.

You may also like to know that we’re now in the annual open enrollment period for Medicare that happens each fall. This year, you have until December 7 to review your benefit choices and costs and elect new coverage, if you need to make changes. Please take the time to go over these important options. If you haven’t yet enrolled in Medicare, keep in mind you must do so within the seven-month period around your 65^th birthday. Please contact me if you have any questions or need assistance; I’m available to help.

Compliance approval M12-0202

According to its website, a Standard & Poor’s rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years).  CreditWatch highlights Standard & Poor’s opinion regarding the potential direction of a short-term or long-term rating.

Standard & Poor’s has indicated it will release more information on August 8 “concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance and structured finance sectors.”

Separately, on August 2 Moody’s confirmed its ‘Aaa’ bond rating with a negative outlook for the U.S. government.

More information about ratings is available at standardandpoors.com, moodys.com and fitchratings.com.

While the immediate effects of these actions are currently unknown, we will continue to monitor the situation and the markets. To view updates and commentary as they are available, please visit raymondjames.com.

Compliance approval M11-1680

The Budget Control Act of 2011 left all sides with plenty to argue about over the next few months. In addition to increasing the debt ceiling, it would bring down the federal budget deficit by an estimated $2.1 trillion over the next ten years. It also sets the stage for more debate over how to achieve that $2.1 trillion reduction, focusing on spending cuts rather than increased revenues. Here are some of the key provisions.

Debt ceiling will be increased in stages

The $14.3 trillion debt ceiling will be increased immediately by $400 billion, and by another $500 billion after September. The increases will allow the Treasury to pay bills without interruption after August 2.

Assuming deficit reduction measures are adopted by the end of the year, an additional $1.2 trillion to $1.5 trillion in borrowing authority will be available in 2012, which is believed to take care of the Treasury’s needs until 2013. Though Congress could vote to disapprove the additional borrowing authority, that action could be vetoed, which would prevent a rerun of the recent uncertainty.

Immediate limits are imposed on discretionary spending

Caps on domestic and defense spending will cut an estimated $900 billion to $1 trillion–roughly the same amount as the initial increase in the debt ceiling–from federal budgets over the next decade.

Joint congressional committee will seek $1.5 trillion in additional deficit reduction

A special joint select committee of 12 Democrats and Republicans from both the House and Senate will be charged with finding ways to reduce the deficit by an additional $1.5 trillion. The committee, which must be appointed within two weeks after the legislation is signed, is directed to report its proposals by November 23, 2011; by December 2, it must submit legislation to implement them. Both houses of Congress must vote on that legislation, which cannot be amended, by December 23.

Additional spending cuts, 2012 debt ceiling increase tied to deficit reduction agreement

The joint committee’s deficit reduction proposals will determine the amount of an additional increase in the debt ceiling. If the committee’s proposals are approved by Congress, the debt ceiling will be increased in 2012 by the amount saved by the deficit reduction measures. If the committee cannot agree on how to cut the deficit by at least $1.2 trillion, or if Congress doesn’t approve the committee’s proposals, the new debt ceiling increase would be limited to $1.2 trillion.

To try to prevent gridlock on the committee, failure to agree on at least $1.2 trillion in deficit reduction would automatically trigger an additional $1.2 trillion in broad-based spending cuts beginning in January 2013. The cuts would apply to both defense spending, such as the Departments of Defense and Homeland Security, and to nondefense spending, such as payments to Medicare providers. However, Medicare cuts would be limited to 2% of the program’s cost, and programs such as Social Security, veterans benefits, food stamps, and Supplemental Security Income (SSI) would be exempt.

Balanced budget amendment would give authority to increase debt ceiling

President Obama also would be granted immediate authority to increase the debt ceiling by $1.5 trillion if Congress were to pass by year’s end a constitutional amendment requiring a balanced budget. Such an amendment also would need to be ratified by three-quarters of the states.

Subsidized loans for graduate students eliminated

Subsidized-interest Stafford Loans for graduate and professional students (other than those in state-required teaching or certification programs) will end after July 1, 2012, though unsubsidized loans will still be available. The Act also adds $17 billion in mandatory funds over two years for Pell Grants to compensate for the funding gap.

Compliance approved: 2011-005539

Moody’s also placed on review for possible downgrade the Aaa ratings of institutions directly linked to the U.S. government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks and the Federal Farm Credit Banks. Also included are those securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the U.S. government or the affected financial institutions.

With all the uncertainty, we wanted to give you some perspective from the renowned investment professionals at Raymond James.

•  Our fixed income team, for example, is following Standard & Poor’s closely because the agency has said it may downgrade the outlook for U.S. ratings even if the debt ceiling is raised, unless a “substantial and credible” deal is struck to put the nation’s future borrowing and spending ways on a more sustainable path. This, in turn, could have implications for AAA-rated municipal credits that are linked to the federal government or otherwise vulnerable to sovereign risk. At least 7,000 top-rated municipal credits may also be placed under review for possible downgrade if the U.S. government loses its Aaa grade, according to Moody’s.
• Chief Economist Scott J. Brown, Ph.D., believes “it’s important to remember that the debt ceiling crisis is a manufactured problem. The U.S. must address its long-term budget situation and the debt ceiling has to be raised, but these are separate issues. Lawmakers can raise the debt ceiling right now if they want to, and worry about the long-term budget deficit later. Using the debt ceiling as a political bargaining tool is foolish.”

While we do not yet know what decisions will be made, rest assured that we are monitoring events closely to better gauge their potential impact on investors.

If you’d like to read the latest updates, please visit the Bond Market Commentary page on our website at http://www.marvinellis.com/deliver/marketcommentary.php.

Please let us know if you have any questions about these ongoing events or how they may impact your portfolio. We’d be glad to discuss them with you.

Compliance approval M11-1569

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit. You may also be able to contribute to an IRA for your spouse for 2010, even if your spouse didn’t have any 2010 income.

Traditional IRA

You can contribute to a traditional IRA for 2010 if you had taxable compensation and you were not age 70½ by December 31, 2010. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2010, then your ability to deduct your contributions depends on your filing status and whether your modified adjusted gross income (MAGI) is within prescribed limits. Even if you can’t deduct your traditional IRA contribution, you can always make nondeductible (after-tax) contributions to a traditional IRA, regardless of your income level. However, in most cases, if you’re eligible, you’ll be better off contributing to a Roth IRA instead of making nondeductible contributions to a traditional IRA.

Roth IRA

You can contribute to a Roth IRA if your MAGI is within certain dollar limits. For 2010, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $105,000 or less. Your maximum contribution is phased out if your income is between $105,000 and $120,000, and you can’t contribute at all if your income is $120,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $167,000 or less. Your contribution is phased out if your income is between $167,000 and $177,000, and you can’t contribute at all if your income is $177,000 or more. And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.

Finally, keep in mind that if you make a contribution to a Roth IRA for 2010–no matter how small–by your tax return due date, and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2010.

Created by Forfield 2011

Compliance Approved till 12/31/2014

Recent legislation introduced a new, but perhaps temporary, estate planning concept–exemption “portability.” In short, the estate of a deceased spouse can transfer to the surviving spouse any portion of the federal estate tax exemption that it does not use. The surviving spouse’s estate can then add that amount to the exemption it is entitled to, increasing the total amount that can be passed on to heirs tax free. This new feature makes it easier for married couples to minimize the potential impact of estate taxes.

The federal estate tax exemption defined

The federal government imposes a tax on the value of your property when you pass it along to your descendants at your death. Any amount that is passed to a surviving spouse is generally fully deductible. The estate is also allowed to exclude a certain amount that passes on to nonspouse beneficiaries. That amount is called the “basic exclusion amount,” which is $5 million in 2011.

How the exemption works for married couples

Prior to the new tax law, if a spouse died without having planned for his or her exemption, the deceased spouse’s estate would have passed tax free to the surviving spouse under the unlimited marital deduction (assuming all assets passed to the surviving spouse), and the deceased spouse’s exemption was lost or “wasted.” The surviving spouse’s estate could then only transfer an amount equal to his or her own exemption free from federal estate tax. To solve this dilemma, married couples typically set up what is commonly referred to as a credit shelter trust (aka “bypass” or family trust) that sheltered or preserved the exemption of the first spouse to die.

The following example illustrates how portability can achieve a similar result without the use of a credit shelter trust.

Example: Result without portability

Assume Henry and Wilma are married, have all of their assets jointly titled, and have a net worth of $10 million. Henry dies first, when the federal estate tax exemption is $5 million and there is no portability. Henry’s estate passes to Wilma free from federal estate tax under the unlimited marital deduction and does not use any of his $5 million exemption. Assume that at the time of Wilma’s death, the exemption is still $5 million, the federal estate tax rate is 35%, and Wilma’s estate is still worth $10 million. With Henry’s exemption completely wasted, Wilma can pass on only $5 million free from federal estate tax. Assuming no other variables, Wilma’s estate will owe about $1,750,000 in federal estate tax: $10 million estate – $5 million exemption = $5 million taxable estate x 35% estate tax rate = $1,750,000.

Example: Result with portability

Assume Henry and Wilma are married, have all of their assets jointly titled, and have a net worth of $10 million. Henry dies first, when the federal estate tax exemption is $5 million and there is portability. As above, Henry’s estate passes to Wilma free from federal estate tax under the unlimited marital deduction and does not use any of his $5 million exemption. Even though Henry’s estate owes no tax, Henry’s executor files a timely return on which he elects to transfer Henry’s unused exemption to Wilma. Assume that at the time of Wilma’s subsequent death the exemption is still $5 million, the federal estate tax rate is 35%, and Wilma’s estate is still worth $10 million. Since Wilma has “inherited” Henry’s unused exemption, she can pass on the entire $10 million estate free from federal estate tax. Portability of the estate tax exemption saves Henry and Wilma’s heirs $1,750,000 in estate tax.

Portability does not eliminate the benefits of credit shelter trusts

Even with portability, there are still tax and nontax considerations that may lead you to use a credit shelter trust, such as:

• The portability feature is in effect for only two years and will expire after 2012, unless Congress enacts further legislation.
• The trust can help protect assets against creditors of the surviving spouse or future beneficiaries (typically children and grandchildren).
• The trust gives the first spouse to die control over the ultimate distribution of his or her assets. For example, in a second marriage situation, one spouse may wish to ensure that any assets remaining after his or her spouse’s death pass to his or her children from a previous marriage.
• Appreciation of assets placed in the trust will escape estate taxation in the survivor’s estate.
• The portability feature applies only to estate tax; it does not apply to the generation-skipping transfer (GST) tax. Without a trust, any unused GST tax exemption of the first spouse to die will be lost.

Some technical information

To use the exemption portability, the first spouse to die must elect to use portability on his or her estate tax return. An estate tax return must be filed by the first spouse to die to use portability even if the return is not otherwise required to be filed.

Many states have state estate tax exemptions that are less than the federal estate tax exemption. So, while your surviving spouse might not be subject to federal estate tax upon your passing, your surviving spouse may have to pay state estate tax if you rely solely on the federal exemption portability.

Exemption portability is available only from the last deceased spouse. It will be lost if the surviving spouse remarries and is widowed again. In other words, if the surviving spouse survives spouse 1, the surviving spouse can use spouse 1′s unused exemption even if the surviving spouse marries spouse 2. However, if spouse 2 also predeceases the surviving spouse, the exemption of spouse 1 can no longer be used. However, the surviving spouse can then use the unused exemption of spouse 2.

Source: Forefield Inc.
© Copyright 2006 – 2011 Forefield Inc. All rights reserved.  AD #: 2011-001184