Investment strategies for navigating today’s highly valued market

Many stock market valuation metrics today, such as price to sales, price earnings and total market capitalization relative to gross domestic product, point to a relatively highly valued market. While not every stock in the market is overpriced, the broad market is looking expensive compared to historical valuations.

“Investors often struggle with how to respond to a highly valued market,” says Daniel Roe, CFP, Chief Investment Officer at Budros, Ruhlin & Roe, Inc. “Regardless of one’s personal portfolio strategy and allocation, we believe that investors should be taking less risk today than they were 12 and 24 months ago. We think there are some prudent steps investors can take in order to begin to reduce the risk in their portfolios.”

Smart Business spoke with Roe about risk-management strategies in today’s market.

What portfolio strategies are best in today’s market?

For any portfolio that has a known cash flow component required to be paid each year — a retirement income portfolio that requires cash for groceries and travel, foundations or endowments that need to meet grant needs, etc. — it’s recommended to hold a full two years’ worth of known cash withdrawals in a safe money market or bank cash account. While 12 months of need might be acceptable in ‘normal’ periods, it is appropriate to move to a full two years’ worth of withdrawals today.

Further, consider holding higher allocations in positions and strategies that tend to be more defensive and have less downside exposure. These could include opportunistic fund managers who are willing to hold cash, and are doing so currently. Some value-oriented fund managers are currently holding 25 to 35 percent in cash, given market levels. That’s not always the case, but this gives them an option on future opportunities.

One way to gauge how much market risk you have in your stock allocation is to figure out your stock portfolio’s market Beta. This is the number that estimates how sensitive your stocks are relative to the Standard & Poor’s 500 index, or some other broad market index. The Beta for the whole market is 1.0, so if your stock portfolio measures out at, say, 0.85, then you would likely experience 15 percent less decline should stocks fall. Likewise, if your Beta is 1.15, then your stocks would probably fall 15 percent more than the decline in the broad market.

How should valuations affect an investor’s overall stock and bond allocation?

Most institutional portfolios, like pension plans and foundations, have investment policy statements that help guide the big allocation decisions. For example, a portfolio strategy might call for a target allocation to stocks of 65 percent, but with the ability to be anywhere in the range of, say, 55 to 75 percent. This allows for valuations to impact the allocation, but does not allow speculation, such as moving to 100 percent stocks, or all the way to 100 percent cash. That would be market timing and not advisable.

Today, an investor could move to underweight their target equity allocations as it is a good idea to be sensitive to and conscientious about valuations. When valuations are low, it’s advisable to take more risk. But when valuations are stretched, it’s best to carry less.

What’s the biggest mistake an investor can make in today’s market?

The biggest mistake investors can make is to chase past performance, yet it happens all the time, in every market cycle. It’s encouraging that there are solid flows to overseas stocks this year where it seems there are some better opportunities to diversify and earn higher returns.

How long do you anticipate these conditions will exist in the market?

It’s tough to predict how long current conditions will persist. It’s important to remember that market volatility is a normal thing, but was largely absent for a few years through the end of 2014. At the moment, we are in the third-longest stretch in the past 50 years without a 15 percent market correction. That’s a pretty odd thing when compared to historical trends. Ten and 15 percent corrections should be viewed as normal and healthy for the markets as they can set the stage for the next round of gains.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

How to prepare for the six risks that impact retirement

As baby boomers approach retirement, many find themselves in different economic circumstances than what they planned for.

“We are facing a new retirement reality. In the past, most retirees had two things going for them —pensions and shorter life spans, on average,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual. “And if they did live longer, Social Security was there.”

Today, the top fear in retirement is running out of money, while recent economic events have taught Americans the downside of risk.

Smart Business spoke with Spiegelman about how to keep your retirement plan on track and soften the impact of six key risks.

What are the risks common to most retirees? How can you plan around these?

Longevity — Americans can outlive their resources. There is a 10 percent chance that a 65-year-old male will live to 97 years of age and a 1 percent chance the same male will live to 105 years of age, according to Yet, average life expectancy is only 85 years.

Your retirement plan needs to weigh the likelihood that you might live to 90, 95 or longer —  and you could be retired longer than you worked.

Long-term care — The cost of care for an unexpected event, or long-term illness not covered by private insurance or Medicare, is requiring more Americans to prematurely deplete their assets. A 2009 Life Insurance Marketing and Research Association survey of people ages 55 to 75 found that health care and long-term care expenses account for 12 to 15 percent of retirement expenses, depending on the household income.

Make sure you include funding for long-term care to help protect your savings and reduce reliance on others. Keep in mind, however, that you cannot protect against the full loss potential.

Health care — Rising medical and prescription drug costs, fewer employer-sponsored retiree benefits and the limitations of Medicare are all impacting income and retirement savings. According to, estimated health care costs for a 65-year-old range from $3,000 to $10,000, including premiums, deductibles and co-pays but not including long-term care, vision or dental expenses.

Health care expenses can be significant, but many people don’t have a good gauge of what these costs might be. Be sure to take time to adequately plan for this risk.

Legacy — Many Americans want to leave a legacy by leaving a financial gift to a loved one or a charity. You need to balance this desire with the need to fund your retirement. If you’d like to leave a legacy, start planning as early as possible to ensure you can maintain your lifestyle, too.

Inflation and taxes — With inflation reducing purchasing power and taxes impacting liquidation strategies, less money will be available to spend or invest in retirement planning. At a 4 percent inflation rate, if it takes $100,000 a year to support your lifestyle at age 65, it would take almost $200,000 to support that same lifestyle at age 80. The money you’ve set away in a traditional IRA is subject to ordinary income taxes, and if one spouse passes away, the survivor switches to single tax rates and can see a jump in the tax burden.

In retirement, it’s no longer about how much you have; it’s about how much you get to keep.

Market — Participating in the stock market can give your retirement savings and income the potential to keep pace with inflation, but market volatility significantly affects your income and savings. Market risk is always there. You can’t avoid it, and the closer you are to retiring, the greater the risk. All you can do is mitigate the impact by working closely with a financial adviser.

Is there anything else you’d like to share?

Planning for retirement is like planning for the longest vacation in your life. It’s critical that you put in the time. This will help ensure you enjoy it, that you can do everything you want and that your income lasts as long as you do.

Article prepared by Northwestern Mutual with the cooperation of Adam Spiegelman. Spiegelman is a Wealth Management Advisor with Northwestern Mutual, the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries. Spiegelman is based in San Francisco, California.

Why a happy retirement requires a mix of both planning and discipline

It’s one thing to maintain spending discipline when you are still working. You can afford to take a big vacation with the kids or make a major improvement to your house because you are still drawing paychecks on a regular basis to replenish your account.

It all changes when you decide to retire.

“The biggest exercise we go through with clients is retirement income planning,” says Gregg LaSpisa, CLU, executive vice president at AXA Advisors, LLC’s Cleveland Branch.

“You go through your working career and you always contributed money to your 401(k) plan or your retirement plan and you are more in an accumulation mindset. When you retire, you have this big lump sum asset. How do you get income off of that? The retirement income plan is critical. You have to match expenses with income.”

Smart Business spoke with LaSpisa about why it’s never too late to put yourself in a better position to enjoy retirement.

What are the most significant retirement planning challenges?

One of the biggest issues is the fact that we are living longer. Of course, it’s great that we are living longer, healthier lives. But the downside is when you are talking to a financial professional about planning for your retirement, because now you have to plan to live to 90, 95 or even 100. Previous generations were only planning to live to age 75 or 80, so the total money needed for retirement was a lot less.

How do lower interest rates figure in?

It’s huge. If you think back to the 1980s, interest rates were at 12, 13 or 14 percent. Most pension plans invest in government bonds or some sort of bond portfolio. Now many of those rates are at 2 percent or less. Corporations need more capital to generate the income they are guaranteeing. The trend has been to get away from pension plans and push the responsibility for retirement to the employee as opposed to the employer.

What’s the most important thing I can do to plan for retirement?

Have a realistic budget of what it’s going to cost at retirement. How much income do you need to cover your expenses? People will say, ‘My home is paid off, so I won’t have that expense.’ That may be true, but there are expenses you will have, such as health care, that will increase. If you want to help pay for your grandkids to go to college, you’ll need money for that too.

So you need to know what your income sources are going to be and what kind of protection you have against inflation.

We talk about the withdrawal rate in terms of how much you can take out of your portfolio. Some clients want to take 8 to 10 percent out a year. That’s often way too high. On average, you should plan to take maybe 4 percent out a year. That’s the kind of discipline you need to have.

How can I help my financial planner?

Have an understanding or have access to all of your accounts. In other words, be aware of what benefit plans you have from work or the CDs, IRAs or 401(k) plans that you have set up. Take the responsibility to know where your assets are and gather all those documents before you meet with your planner. If you don’t tell your planner what you have, they can’t do their job effectively.

Is it ever too late to start?

It’s never too late to start. There are ways to improve your position and it may not get you to the ideal situation, but it can certainly improve your current situation. If you have done planning, it’s a good idea to review your plan every six months to make sure it is still in accordance with all your objectives and has been updated to include any major changes in your status. The goal of a planner is to make you aware of the issues that are out there because there are too many moving parts to do it alone. Engage a professional and take ownership of your future.

Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries.

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Insights Wealth Management is brought to you by AXA Advisors, LLC

How to protect your financial portfolio from yourself

When it comes to investing, people tend to chase performance — looking at what worked last year at precisely the wrong moment.

And it’s no different now. Investors are asking, “If the market hit new record highs last year, why didn’t my portfolio reflect that?” “Why should I bother investing overseas, when only the U.S. market is doing well?” “Does diversification still work?”

That last question is concerning, because diversification remains critical, whatever the market environment.

“Whenever people think it’s no longer important, that’s when it matters most. That’s when you wish you’d stuck with your guns, instead of changing to something that has worked in the recent past and is just about to change,” says Andrei Voicu, CFP®, AIF®, chief investment officer at Fragasso Financial Advisors.

Smart Business spoke with Voicu about portfolio allocations and the current market.

How much do market conditions impact portfolio allocation strategies?

As investors, you need to stay humble and recognize the fact that predicting the future is very difficult. For example, last year many feared interest rates would rise, when in fact they declined. That’s why diversification and a balanced approach are so important. You don’t want to bet the house in one direction.

At the same time, some things don’t need to stay static; you can adjust certain values over time, given the market conditions. You would invest differently today with interest rates so low, than 10 years ago when they were significantly higher.

It’s important to have a diversified core that does not change — it only changes if your life goals change. That’s your major allocation of stocks, bonds, etc., which are based on your age, goals and cash flow needs.

Then, at the edges you can make adjustments along the way to respond to oil prices, currency or interest rates. But whenever you make an adjustment, consider: ‘What’s the worst case scenario?’ ‘Can I afford to be wrong?’ ‘How am I going to recover if I’m wrong?’ The answers dictate how much you want to respond to market conditions.

How should an investor set up a portfolio?

With the help of your adviser, you’ll want to start with your long-term goals. Then, figure out what is the real return that you require, how much risk you’re comfortable with and how you feel about losing X percent of your money in any given year.

The safest course is an indexed portfolio that gives you diversified access to the various markets. Then, you can look to improve upon your returns with different strategies — but only at the margin. If you happen to be wrong, you want to come back and fight another day.

But once you’ve determined a course, it’s possible your risk tolerance could change when market losses actually materialize. You may have said you’d be comfortable with a 10 percent loss, but you’re really not when it happens.

Or perhaps your goals and expectations need to be adjusted, as you go through life changes like having kids. There’s always a give-and-take that’s part of the ongoing part of planning.

When investors get nervous about the market or their portfolio’s performance, how does your firm advise them?

You should have already determined the proper allocation for the long term. And assuming things have not changed with that, there’s no reason to change the allocation if the market goes down. It’s actually counterproductive because you’re selling low and buying high when you feel comfortable.
Your adviser will try to re-educate you about how markets move up and down, and how they recover. If you sell when your heart tells you, it’s probably the worst time.

If you’re still nervous, you can create a cash cushion or hedge the portfolio as incremental steps to keep you on course as much as possible. It’s important that you don’t make temporary losses into permanent ones by selling at the bottom.

Set a plan based on knowing yourself and understanding how you react, and stick to that plan. Do you tend to panic? Do you watch the financial markets every day? This allows you and your professional adviser to put together the right mix for your future, and set processes in place to guard your portfolio against yourself and knee jerk reactions.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

Income tax is the new focus when drafting wills, trusts

Income taxes, some 20 years ago, had not been much of a consideration when devising a will or trust for estate planning purposes. The focus was on avoiding estate taxes. To that end, fundamental planning suggested that upon death sufficient assets be placed in a trust to utilize the decedent’s estate tax exemption, historically $600,000, to avoid estate tax on those assets, rather than pass them directly to a spouse.

“Most wills and trusts were drafted with this strategy in mind,” says John Schuman, Chief Planning Officer at Budros, Ruhlin & Roe, Inc.

“Now, because of significant increases in the estate tax exemption and the ability of a surviving spouse to utilize the exemption of a deceased spouse, known as ‘portability,’ those with less than $10 million in assets don’t need to create trusts with the intention of avoiding the estate tax,” he says. “The focus should be on taking advantage of the step-up in the income tax basis of those assets upon both spouses’ deaths. When an appreciated asset is received upon someone’s death, the asset’s income tax basis for the beneficiary is reset to the asset’s date of death value, which eliminates any income tax on the asset’s prior appreciation.”

Smart Business spoke with Schuman about crafting wills and revocable trusts with strategies for today’s estate-planning circumstances.

Why has a shift occurred in estate planning strategy?

Today, estate tax exemptions have increased to $5.43 million per person from $600,000 back in the 1990s. Additionally, portability allows a surviving spouse to inherit the unused exemption of their deceased spouse. This makes it possible for a couple to exclude $10.86 million in assets from the estate tax.

On the other hand, ordinary income tax rates have increased to 39.6 percent and capital gains rates have increased to 20 percent, plus a 3.8 percent surtax for high-income earners. Understanding that people with less than $10 million in assets have no estate tax concerns, the game has shifted to avoiding income taxes.

How is this change affecting estate-planning considerations?

Stepping up the income tax basis of assets upon death to eliminate gains for beneficiaries has become the new game in estate planning. Wills and trusts need to be reviewed so that an income tax basis step-up is possible on each spouse’s death.

Previously, people were encouraged to utilize their estate exemption to gift away assets in order to get the future appreciation of the asset out of their estate. Now, people should be encouraged to die with appreciating assets and utilize their estate exemption to get an income tax basis step-up.

Another strategy in this new game may be to move appreciating assets upstream to take advantage of a basis step-up. For example, a child could gift assets up to a parent so that when the assets come back down upon death the child gets a step-up in basis on those assets.

To whom does this apply and what assets are affected?

This is an opportunity for every couple likely to have less than $10 million in assets upon death. Those with more than that will still be concerned with the estate tax. However, this income tax planning is going to continue to grow in value because the estate exemption will be indexed with inflation. Assuming just 2 percent inflation, the estate exemption in 2025 could be as high as $6.6 million, and in 2035 as high as $8 million per person.

People who have business assets, depreciable assets such as real estate, or intellectual property and artwork, which are taxed at ordinary rates, should be particularly aware of this new planning strategy.

What measures are important to take now?

This is a paradigm shift in how to think about estate planning. While there is no sunset on the current estate tax law, it’s still possible that things could change. It is important to have flexibility within your wills and revocable trusts to allow beneficiaries to play either the estate or income tax game upon your death. Review your documents to ensure you’re planning for the right scenario.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Consider the financial implications of a divorce before it’s too late

In typical divorce settings, two parties work with their attorneys to divide property, a decision that’s usually centered on assets, current income and expenses. How the division of assets will affect each party over the long term, however, isn’t often part of the discussion.

“There’s no one there to provide long-term financial projections and illustrate the consequences of those actions,” says Amy Weldele, CFP®, CDFA™, Senior Wealth Manager at Budros, Ruhlin & Roe, Inc.

When shared assets are divided, it must be understood that each spouse likely won’t be able to afford the same lifestyle as before the divorce, she says. A Certified Divorce Financial Analyst (CDFA™) can point to potential problems before a divorce, giving each party more information on which to base long-term planning decisions.

“If you’re close to retirement and splitting assets in a divorce, you don’t have much time to make up for a financial mistake,” Weldele says. “It’s very important for older people to think about the effects of a divorce settlement before a legally binding decision is made.”

Smart Business spoke with Weldele about the long-term financial considerations that should be made when getting a divorce, CDFAs™ and how they fit within the collaborative divorce process.

What is the CDFA™ designation?

The CDFA™ designation is acquired by financial professionals through the Institute for Divorce Financial Analysts. Financial professionals who have this designation are considered experts on the financial planning side of divorce.

A professional who has the CDFA™ designation can act as a strategist and prepare long-term financial projections that attorneys would often not prepare. CDFAs™ provide a second layer of financial expertise that adds value to what attorneys bring to divorce settlements.

CDFAs™ also provide litigation support to attorneys if a case goes to trial. These professionals can testify as financial experts and expert witnesses because the designation often carries more weight in a legal setting.

What is collaborative divorce and how are CDFAs™ involved?

In thinking about hiring a divorce attorney, many people are not aware of the collaborative approach to divorce. It’s not for everyone, but it can be beneficial in the right circumstance.

Traditionally, the two people pursuing a divorce each hire individual attorneys and enter into an often protracted legal battle over assets, with the final decision made by the court.

When the lines of communication are somewhat open, the couple may instead seek out attorneys trained in collaborative law. These specially trained attorneys work with a couple outside of court on the premise that they can find a compromise without requiring a judge to issue a decision.

Two attorneys, one for each person in the divorce, and the couple work together along with a mental health professional to come to the terms of the divorce. Often a CDFA™ is brought in to consult with both parties on the division of assets and the financial consequences of those decisions.

How can a CDFA™ help?

Bringing in a CDFA™ as soon as possible to help divide assets and highlight long-term financial goals can save people from realizing, after the fact, that they’ve taken on more than they can afford.

There are major financial planning issues to consider when entering into a divorce, such as Social Security benefits, which have a number of technicalities; estate planning adjustments; and health insurance issues. As the divorcing couple faces these decisions, a CDFA™ may present the financial implications of the decisions today and in the future.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

How to create a safety net for using accumulated wealth in retirement

You’ve spent years putting funds away in order to earn a relatively large retirement income, but spending that income may be more difficult than you expected when you no longer have a paycheck coming in — especially if you’re a “saver” by nature.

Adam Spiegelman, wealth management advisor at Northwestern Mutual, says there’s a psychological shift when you start drawing down your assets.

“Many retirees become more frugal in retirement, regardless of the amount of income or assets they have,” he says. “Their biggest fear is running out of money — and it goes across all levels of net worth, whether you have $1 million or $20 million.”

For example, if you go out to dinner when you’re making a couple hundred thousand dollars a year, paying $100 or $150 isn’t a big deal. But after you’ve retired, that expensive dinner is coming from a bucket of money you’re not replenishing.

Smart Business spoke with Spiegelman about planning to spend your wealth in a way that still provides peace of mind.

Why do some retirees in particular fear that their income is going to run out?

It’s interesting. If you were a big spender during your working years, that won’t necessarily change in retirement — your philosophy is ingrained. The same is true for those who are savers. They are always going to be somewhat frugal and often find retirement spending much more difficult.

For people in their 30s, 40s and 50s, the name of the game is accumulation. But when you retire, the biggest questions are do you have enough money to live for the rest of your life and are you losing principle? That’s why you need a more conservative investment strategy.

What are some options that may put their minds at ease?

If this is something you’re struggling with or you think might be a concern, first hire a professional to oversee everything and put you at ease. It doesn’t matter if you’re an expert on managing money and investments, you don’t want to have to worry about where your money will come from or what funds to sell to fund your lifestyle.

Consider purchasing guaranteed income products like annuities to add to your monthly pension and Social Security income. This is where you turn over a lump sum to a life insurance company and in exchange it provides you a monthly income for life. If you outlive your expected life expectancy, you’ve made money from the deal. (You can estimate your life expectancy with this calculator.)

With annuities, there are many ways to protect your income stream from a sudden death. For example, in a joint and survivor arrangement, you receive a lower monthly payout, but when you die your spouse continues getting that income for the rest of his or her life.

If you want to buy an annuity, do your due diligence because lots of different products, such as market-based annuities or indexed annuities that keep pace with inflation, are available from many companies. Expenses and performance can vary as well.

Another option is an investment or rental property that provides a monthly income, if you have the available discretionary capital. Again, you need to know what you’re doing and like any other investment it may take a while to get a return.

Medicare premiums are an expense that many people approaching retirement might forget about, so get in touch with the state health insurance assistance program, also known as California’s Health Insurance Counseling and Advocacy Program, (800) 434-0222. This volunteer organization consults on Medicare and advises retirees how to find the most efficient and cost effective plan.

Keep track of what you spend and try to stick to a budget. If possible, plan to spend close to what you did in your preretirement years until your 80s. That figure can be dropped by roughly 20 percent later in retirement, but you also want to create a plan for a long-term care event, whether that is spending down some assets or through some other means.

If you’re careful and deliberate in your plan, you can have the peace of mind that you can be comfortable for the rest of your life and still provide for your heirs.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries.


Insights Wealth Management is brought to you by Northwestern Mutual

Think about what you want before engaging with a financial professional

It’s never too late to make plans for your retirement, even if you just retired.

“There are plenty of people who choose to wait,” says Matthew Goedde, CFP, a financial professional at AXA Advisors, LLC.

“These are individuals who have been saving for their entire lives and have done a good job. But the next step is the distribution phase and there are so many more pitfalls that can come up during this phase. The professional’s job is to help you navigate through those pitfalls so they don’t become a problem.”

Everyone takes a different approach to retirement planning. But no matter the process, there is almost always something to be gained from sitting down with someone who does it for a living.

“The financial professional’s job is as much about helping you accumulate and protect your wealth as it is about managing it,” Goedde says. “A lot of people think you have to be rich in order to work with a financial professional. But part of the job is to help you define your goals, prioritize your objectives and develop a road map to your definition of wealth.”

Smart Business spoke with Goedde about how to find the right financial professional to suit your needs.

Where is a good place to start when looking for a financial professional?

You have to ask a lot of questions to find out whether or not the professional will be a good fit. What you are trying to figure out is if the professional has the experience, knowledge and skills to best help you. How long has this person been in the financial industry? Is this someone who has advanced skills and the ability to explain complex concepts in everyday terms?

Look at the tools and services that would be available to you and the different investment vehicles that exist through this person.

Would the professional work alone or is he or she part of a team that would help you?

In the middle of all that, you’re going to want to know about the compensation for services that are provided.

If you don’t have a specific person in mind to speak with, look at referrals from family and friends or colleagues at work. Referrals from co-workers can often be very helpful, especially if your employer has specialized benefits such as a pension or bonus plan.

What are some red flags that should make you wary?

Communication is the key. If there is a breakdown and you don’t feel satisfied or don’t understand the advice the financial professional is giving you, it’s probably not a good fit.

If it sounds too good to be true, it probably is. If they are putting pressure on you in any way or hasn’t asked you a single question, but is already going into a sales pitch, it’s probably time to take a step back.

What materials can you bring to your first meeting with a financial professional?

It’s great to have any financial statements on hand from any current accounts that you have. You should also be prepared to share as much information about your attitude and your core beliefs when it comes to investing.

It’s definitely not a cookie-cutter approach. The professional needs to get a feel for what you are trying to accomplish and use the right tools to help.

What if you’re considering a change after years with one financial professional?

You always need to look out for your own best interests, but be sure to keep communications open with your current professional. It might be that he or she doesn’t realize that you want to be contacted twice a year instead of once a year. A communication breakdown is something that potentially can be worked out so you can keep moving forward.

Matthew T. Goedde is a registered representative who offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC and an agent who offers annuity and insurance products through AXA Network, LLC. Investment advisory products and services offered through AXA Advisors, LLC, an investment advisor registered with the SEC.  AXA Advisors and AXA Network are affiliated companies and do not provide tax or legal advice.

AGE 102242 (3/15)(Exp 3/17)

Insights Wealth Management is brought to you by AXA Advisors, LLC

How to estate plan, beyond just creating a basic will

Half of Americans with children and 41 percent of baby boomers don’t have a will according to a 2012 survey by Rocket Lawyer.

The lack of planning is an epidemic, says Melissa Richey, an executive vice president of sales and marketing at Fragasso Financial Advisors. People aren’t prepared for an untimely death, and they aren’t prepared for their timely death either.

“People need to understand that life is unpredictable. They should not put estate planning off,” she says. “People get caught up in the investment rate of returns and the stock market — none of that means anything if you lose half your money to the government because you died without a will or didn’t plan well and your family suffers.”

Smart Business spoke with Richey about the pieces of your individual estate plan, including looking beyond a will.

What are the basics that you need in your estate plan?

Three pieces to a solid estate plan are the simple will, power of attorney and living will. The power of attorney guides financial decisions and allows somebody to manage financial tasks if you’re incapacitated. A living will is a legal document that provides end of life directives like medical decisions. When emotions are running high, it can be hard for family members to make decisions. Clearly defined documents make it easier.

Why do you think people put planning off?

People often think they are too young. Others don’t think they have the time or money to spend. For some, it’s just not a priority. There are reasons to plan no matter who you are or what your situation is, but it usually takes a triggering event. People taking care of both their children and elderly parents may realize how much needs to be done with their parents’ affairs and they spring into action for their own.

What are the repercussions — financial or otherwise — to poor planning?

If you die intestate, meaning you don’t have a will or any way to transfer your property, the state comes in and says who gets what.

The federal estate tax can go as high as 45 percent if your estate is over $5 million or $10 million as a married couple. A business owner can easily have an estate, including the value of the business and life insurance, over that amount.

In Pennsylvania, there’s a state inheritance tax assessed no matter how large or small your estate is, which you can possibly protect against.

It’s also important to properly designate your accounts. If your will states that your husband gets everything, but your IRA, 401(k) and life insurance beneficiaries are different, that supersedes the will. If you’re going through a life change update all your beneficiaries. It’s easy to do; you just have to fill out the paperwork.

What are some other estate planning tools?

Gifting is something most high net worth people need to consider while they are still alive, because it removes funds from the estate. You can give to charities, your kids or educational accounts for your grandkids.

Trusts can get complicated, but a couple of key ones are charitable remainder trusts (CRUTs) and irrevocable trusts. A CRUT is typically funded with highly appreciated stock. You get a tax deduction for the contribution, the assets transfer to a charity at death where they are not taxed and you can get income for life from the trust.

An irrevocable trust typically is funded with life insurance. For example, you calculate your estate or inheritance tax at $500,000, buy a $500,000 life insurance policy and set up an irrevocable life insurance trust. It pays the tax of your estate, protecting the assets that pass on to heirs or charity. The caveat is that you must be healthy to get the life insurance.

Are trusts only for the wealthy?

Beyond wealth, there are lots of reasons to set up a trust, like family dynamics, special health considerations or multiple properties across state lines. Trusts are great for going into detail about distribution of wealth and property. They also can help you avoid probate, which is public.

How often do you need to update the plan?

Once a year is common, but whatever life throws at you — a divorce, birth of a child or a severe car accident — pause and think about the repercussions on your planning.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

How Ohio’s new residency provision affects financial planning decisions

As of March, Ohio became more favorable to those who spend most of the year here but winter elsewhere. People, such as retirees, who have ties to Ohio but wish to be residents of Florida, can now extend their stay in Ohio without concern for the tax implications.

The so-called “snowbird rules” that determine whether or not an individual is an Ohio resident for income tax reporting purposes have been altered to allow people to spend an extra 30 days in the state without being considered a resident.

“From a financial planning perspective, this is a benefit to those who are looking at ways to maximize the wealth available for themselves and their heirs,” says John Schuman, Chief Planning Officer at Budros, Ruhlin & Roe, Inc. “Now people who are here for fewer than 212 contact periods don’t need to report their income to the state. They’re essentially getting to stay seven months in the state instead of six months.”

Smart Business spoke with Schuman about the implications of Ohio’s revised snowbird rule.

How can residency affect a person’s financial planning decisions?

What most people don’t account for on their balance sheet is the tax impact of their residency. Where one resides affects the net cash that can be generated from a pension, IRA or portfolio assets. When that’s measured over a long period of time, it affects lifestyle and the amount of wealth that can be left to heirs. Residency, then, becomes a big part of the financial planning discussion.

Changing the state in which you live is often done purely as a tax play. Most people, however, found it hard to be out of Ohio more than six months, which was the condition under the old rule. The weather makes it easy to reside elsewhere from January through March, but people want to come back for holidays, summer and fall. That means difficult choices had to be made when deciding which months to not be in the state.

The law change allows snowbirds to pick up an extra month in Ohio without negative tax implications.

What is a contact period and what impact does it have on residency decisions?

The new presumption of residency is based on being in Ohio for 212 contact periods rather than 182 contact periods. More than 212 contact periods and you’re considered a resident, and you’ll pay tax to Ohio on all of your income.

A contact period can be interpreted as staying in the state overnight — it means you’re in Ohio part of any two consecutive days. For instance, if you’re in Ohio at 11:59 p.m. and stay through 12:01 a.m. that’s considered one contact period, even if you’re only here for those three minutes. That doesn’t count as two days, only one contact period.

Just how many contact periods a snowbird has in the state is a source of anxiety for many. That’s because anyone who is called by the state to substantiate his or her residency bears the burden of proof — it’s not the state’s responsibility to show the person should, in fact, be considered a resident. It’s the person’s responsibility to show they aren’t.

Filing Ohio Tax Form IT DA-NM creates an irrebuttable presumption of nonresidency with the state. It’s a good idea for those who have a home in Ohio to file this form, even if they don’t have a tax filing requirement here.

Based on the rule changes, what financial planning advice would you offer Ohio residents who winter outside the state?

This opportunity that the state is providing is making Ohio friendlier to the retiree community. Snowbirds should give this new residency provision a close look because it can be a significant benefit — the ability to keep an extra 5 percent of a pension or Social Security, or the income generated from an investment portfolio.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.