But the historic vote hardly means an end to the debate.
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did - and by a vote of 219-212, the House of Representatives sent the Senate's version of landmark healthcare legislation toward President Obama's desk. The President could sign the bill into law as early as March 23.1
But the fight is not over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill - exactly as it is worded. If that doesn't happen, then guess what ... there will be another vote on the Senate version of the bill in the House.1,2
"If those people think they're only going to vote on this once, they're nuts," Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.3
Will the reforms be overturned? Twelve state attorney generals have indicated that they will contest the bill on these grounds the moment President Obama signs it.4 What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
· Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.5,6
· In 2014, if you aren't enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.5,7
· After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.5
· In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.7
· Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.5
· Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman's life.8
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
· Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.6
· Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.6
· Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.6
· Children will be able to stay on their parents' health care policies until age 26, and they won't be denied coverage because of pre-existing health conditions.6
· Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan - albeit a temporary one.6
· Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.6
New taxes? Yes - starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.5,6,9
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.5
Citations.
1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 blogs.ajc.com/kyle-wingfield/2010/03/22/obamacare-now-for-the-hard-part/?cxntfid=blogs_kyle_wingfield [3/22/10]
3 bloomberg.com/apps/news?pid=20601087&sid=aghrqNBEBtIc [3/20/10]
4 csmonitor.com/USA/Justice/2010/0322/Attorneys-general-in-12-states-poised-to-challenge-healthcare-bill [3/22/10]
5 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
6 csmonitor.com/USA/Politics/2010/0319/Health-care-reform-bill-101-Who-must-buy-insurance [3/19/10]
7 latimes.com/features/health/la-na-healthcare-passage220inar22,0,2788293.story?page=2 [3/22/10]
8 whitehouse.gov/blog/2010/03/21/one-more-step-towards-health-insurance-reform [3/21/10]
9 investmentnews.com/article/20100322/FREE/100329992 [3/22/10]
Thursday, March 25, 2010
Thursday, March 18, 2010
WHAT'S GOING ON WITH THE ESTATE TAX?
Good question. Congress has elected to keep us in suspense.
0% estate taxes in 2010 ... for now, anyway. On January 1, the federal estate tax went away - at least for the time being and perhaps for all of 2010 as envisioned back in 2001. President Obama and Congressional leaders wanted the estate tax to stick around in 2010 at 2009 levels (estate taxes up to 45% with a $3.5 million exemption), but lawmakers were preoccupied with other matters.1,2
Will Washington really give families million-dollar tax breaks? If no estate tax is imposed in 2010, it could mean a savings of millions for wealthy families. There is talk of bringing the tax back retroactively - after all, the federal government could really use the money. Yet the further we get from January 1, the more difficult reinstating the estate tax for 2010 may become.
As American Institute of Certified Public Accountants vice-president for taxation Tom Ochsenschlager told MarketWatch, "They're still talking (in Congress) about making something retroactive, but at some point they can't do that ... is it even constitutional? There's a real question about that."
The unconstitutional argument goes like this: if Congress moves to retroactively apply the estate tax for 2010, an estate could take the mater to court and point out that Congress had all year to reinstate it but failed to do so.
That argument aside, some estate planners think Congress will get around to a retroactive measure - one that would put the 2009 estate tax levels back into place for 2010.
What taxes are in place now? Some taxes still apply to estates in 2010 even if the estate tax doesn't. People who give away more than $1 million during their life still face federal gift taxes - though in 2010, they max out at 35% instead of 45%.3
Also, all assets with capital gains are to be taxed at 15% above a $1.3 million federal exemption when sold by heirs in 2010. The big news here is that heirs don't get to use a step-up this year. When they compute the value of an inherited asset, they have to use the basis (the original price paid for the asset) instead of how much that asset was worth when the original owner died. (In addition to the $1.3 million exemption per estate just mentioned, there is another $3 million exemption available for assets inherited from a spouse.)3
What precautions may be wise this year? As a potential heir, you'll want to document the cost basis of any assets you might receive in 2010. Good recordkeeping is in order.
Additionally, you may want to search a trust or a will for so-called formula clauses anchored by words such as "that portion", "that amount" or "that fraction", especially if the will or trust was created some years ago with the presumption of a constantly increasing federal estate tax exemption.
These formula clauses are fundamental to bypass trusts created to defend estate tax exemptions for a couple. However, these clauses assume that there is an estate tax. With no estate tax in place, there is the possibility (depending on how the formula clause is worded) that a deceased spouse's assets would not be inherited by the surviving spouse, but instead go directly into the family trust - not the most useful result for the surviving spouse.3
What will 2011 bring? Well - if there are no changes - the estate tax and the generation-skipping tax would come back in 2011. Only the first $1 million of an estate would be exempt from estate taxes. Assets above the exemption would be hit with a 55% federal penalty.3 However, the Obama administration had talked of keeping the 2009 estate tax levels in place for 2010 and beyond, which would be better than returning to the pre-EGGTRA levels in 2011.
Citations.
1 marketwatch.com/story/money-for-nothing-congress-awol-on-the-estate-tax-2010-02-15 [2/15/10]
2 online.wsj.com/article/SB123846422014872229.html [3/31/09]
3 investmentnews.com/apps/pbcs.dll/article?AID=/20100214/REG/302149985/1031/RETIREMENT [2/14/10]
0% estate taxes in 2010 ... for now, anyway. On January 1, the federal estate tax went away - at least for the time being and perhaps for all of 2010 as envisioned back in 2001. President Obama and Congressional leaders wanted the estate tax to stick around in 2010 at 2009 levels (estate taxes up to 45% with a $3.5 million exemption), but lawmakers were preoccupied with other matters.1,2
Will Washington really give families million-dollar tax breaks? If no estate tax is imposed in 2010, it could mean a savings of millions for wealthy families. There is talk of bringing the tax back retroactively - after all, the federal government could really use the money. Yet the further we get from January 1, the more difficult reinstating the estate tax for 2010 may become.
As American Institute of Certified Public Accountants vice-president for taxation Tom Ochsenschlager told MarketWatch, "They're still talking (in Congress) about making something retroactive, but at some point they can't do that ... is it even constitutional? There's a real question about that."
The unconstitutional argument goes like this: if Congress moves to retroactively apply the estate tax for 2010, an estate could take the mater to court and point out that Congress had all year to reinstate it but failed to do so.
That argument aside, some estate planners think Congress will get around to a retroactive measure - one that would put the 2009 estate tax levels back into place for 2010.
What taxes are in place now? Some taxes still apply to estates in 2010 even if the estate tax doesn't. People who give away more than $1 million during their life still face federal gift taxes - though in 2010, they max out at 35% instead of 45%.3
Also, all assets with capital gains are to be taxed at 15% above a $1.3 million federal exemption when sold by heirs in 2010. The big news here is that heirs don't get to use a step-up this year. When they compute the value of an inherited asset, they have to use the basis (the original price paid for the asset) instead of how much that asset was worth when the original owner died. (In addition to the $1.3 million exemption per estate just mentioned, there is another $3 million exemption available for assets inherited from a spouse.)3
What precautions may be wise this year? As a potential heir, you'll want to document the cost basis of any assets you might receive in 2010. Good recordkeeping is in order.
Additionally, you may want to search a trust or a will for so-called formula clauses anchored by words such as "that portion", "that amount" or "that fraction", especially if the will or trust was created some years ago with the presumption of a constantly increasing federal estate tax exemption.
These formula clauses are fundamental to bypass trusts created to defend estate tax exemptions for a couple. However, these clauses assume that there is an estate tax. With no estate tax in place, there is the possibility (depending on how the formula clause is worded) that a deceased spouse's assets would not be inherited by the surviving spouse, but instead go directly into the family trust - not the most useful result for the surviving spouse.3
What will 2011 bring? Well - if there are no changes - the estate tax and the generation-skipping tax would come back in 2011. Only the first $1 million of an estate would be exempt from estate taxes. Assets above the exemption would be hit with a 55% federal penalty.3 However, the Obama administration had talked of keeping the 2009 estate tax levels in place for 2010 and beyond, which would be better than returning to the pre-EGGTRA levels in 2011.
Citations.
1 marketwatch.com/story/money-for-nothing-congress-awol-on-the-estate-tax-2010-02-15 [2/15/10]
2 online.wsj.com/article/SB123846422014872229.html [3/31/09]
3 investmentnews.com/apps/pbcs.dll/article?AID=/20100214/REG/302149985/1031/RETIREMENT [2/14/10]
Monday, March 15, 2010
Fiduciary No More
We in the financial planning community believe that something called a "fiduciary standard" is the very best framework for professionals to work with our clients. That's why we're so angry over something that happened in the Senate over the weekend: Senator Tim Johnson of South Dakota inserted an amendment into the new regulatory reform bill--and, with the casual stroke of a pen, eliminated an important and powerful consumer protection.
This amendment cuts out a part of the original bill that would have required everybody who gives investment advice to the public to act as a fiduciary. Senator Johnson wants the Senate to "study" the issue instead.
Why should you care?
The fiduciary standard is a legal concept, but its core idea is not complicated. To act as a fiduciary means we professionals have to put aside our own financial interests, and also put aside the business/financial interests of any company we work for, and give recommendations that are solely and completely in the best interests of people like you, our customers or clients.
In other words, our recommendations have to be made with only one concern: is this the best thing I (the professional) can do for you, given what I know about who you are and what you want and need?
So what does it mean NOT to be a fiduciary? Imagine that there were two kinds of health practitioners in the world. One group functions much like doctors do today: they work out of independent offices, meet with you, diagnose your ailments, prescribe a medical solution that they believe is the very best course of treatment, and you pay them directly for this service.
The other group of health care providers operates somewhat differently. They're employed in the branch office of a large multinational health conglomerate which requires its employees to recommend certain treatments which are most profitable to the company, so long as these treatments are considered to be "suitable."
These might not be the best treatments, but under a set of very complicated regulations, these less-than-ideal prescriptions are deemed to be legally-defensible ways to address certain medical problems. These other health care providers are paid by the company according to how many of these treatments they can sell.
Now imagine that these larger companies, because of the very high profits they're making on these treatments, are able to gain a lot of influence over the process that decides which treatments are "suitable." In fact, their executives sit on the governing board of the organization that makes these determinations.
Finally, imagine that something went horribly wrong. Several of the most popular treatments that these non-fiduciary medical professionals were eagerly peddling to their "patients" were not at all as their companies had portrayed them. The result: catastrophic consequences, pain and suffering throughout the world. An enormous mess.
To bring the analogy back to the financial world, these terrible treatments (investments) actually DID bring the global economy to the brink of financial collapse, a mess that required our taxpayer money to fix. These companies had become so entwined in the system that the government had no choice but to help them recoup the staggering losses they brought upon themselves.
Not surprisingly, an outraged public demanded that this must never happen again. To the real fiduciary practitioners, the solution is obvious: require everybody to act in the best interests of their customers/clients by imposing a fiduciary standard. No more shady "suitable" treatments.
We were encouraged when Congress drafted legislation which, among other things, would bring every provider of financial advice under a fiduciary standard.
So here's why professional financial services providers are angry. Now that the catastrophic global meltdown, TARP, massive losses in the stock market and the longest recession since the 1930s is beginning to fade from memory, those companies that provide "suitable" non-fiduciary advice have gone back to business as usual--and very quietly, a Senator from South Dakota has now inserted a provision into the reform bill saying that instead of imposing this fiduciary requirement, that instead Congress will "study" the issue.
The Senate has decided to leave fiduciary out of the final bill. Even the Wall Street Journal is outraged--here's a link to a strongly-worded column that clearly explains what happened: Click here to read article
And here's a link to another article which talks about how the legislative process favors the organizations that take the most money out of the pockets of their customers: Click here to read article
It would be nice if everybody called their Senator and Congressperson and said that they were just as angry as we are in the professional community. A groundswell of public opinion might make our elected representatives understand that we haven't forgotten TARP and all the rest of it. Right now, the only people lobbying on your behalf are the professionals themselves, and there apparently aren't enough of us to get the attention of the Congressional representatives who may be looking out for their own interests more than ours.
This amendment cuts out a part of the original bill that would have required everybody who gives investment advice to the public to act as a fiduciary. Senator Johnson wants the Senate to "study" the issue instead.
Why should you care?
The fiduciary standard is a legal concept, but its core idea is not complicated. To act as a fiduciary means we professionals have to put aside our own financial interests, and also put aside the business/financial interests of any company we work for, and give recommendations that are solely and completely in the best interests of people like you, our customers or clients.
In other words, our recommendations have to be made with only one concern: is this the best thing I (the professional) can do for you, given what I know about who you are and what you want and need?
So what does it mean NOT to be a fiduciary? Imagine that there were two kinds of health practitioners in the world. One group functions much like doctors do today: they work out of independent offices, meet with you, diagnose your ailments, prescribe a medical solution that they believe is the very best course of treatment, and you pay them directly for this service.
The other group of health care providers operates somewhat differently. They're employed in the branch office of a large multinational health conglomerate which requires its employees to recommend certain treatments which are most profitable to the company, so long as these treatments are considered to be "suitable."
These might not be the best treatments, but under a set of very complicated regulations, these less-than-ideal prescriptions are deemed to be legally-defensible ways to address certain medical problems. These other health care providers are paid by the company according to how many of these treatments they can sell.
Now imagine that these larger companies, because of the very high profits they're making on these treatments, are able to gain a lot of influence over the process that decides which treatments are "suitable." In fact, their executives sit on the governing board of the organization that makes these determinations.
Finally, imagine that something went horribly wrong. Several of the most popular treatments that these non-fiduciary medical professionals were eagerly peddling to their "patients" were not at all as their companies had portrayed them. The result: catastrophic consequences, pain and suffering throughout the world. An enormous mess.
To bring the analogy back to the financial world, these terrible treatments (investments) actually DID bring the global economy to the brink of financial collapse, a mess that required our taxpayer money to fix. These companies had become so entwined in the system that the government had no choice but to help them recoup the staggering losses they brought upon themselves.
Not surprisingly, an outraged public demanded that this must never happen again. To the real fiduciary practitioners, the solution is obvious: require everybody to act in the best interests of their customers/clients by imposing a fiduciary standard. No more shady "suitable" treatments.
We were encouraged when Congress drafted legislation which, among other things, would bring every provider of financial advice under a fiduciary standard.
So here's why professional financial services providers are angry. Now that the catastrophic global meltdown, TARP, massive losses in the stock market and the longest recession since the 1930s is beginning to fade from memory, those companies that provide "suitable" non-fiduciary advice have gone back to business as usual--and very quietly, a Senator from South Dakota has now inserted a provision into the reform bill saying that instead of imposing this fiduciary requirement, that instead Congress will "study" the issue.
The Senate has decided to leave fiduciary out of the final bill. Even the Wall Street Journal is outraged--here's a link to a strongly-worded column that clearly explains what happened: Click here to read article
And here's a link to another article which talks about how the legislative process favors the organizations that take the most money out of the pockets of their customers: Click here to read article
It would be nice if everybody called their Senator and Congressperson and said that they were just as angry as we are in the professional community. A groundswell of public opinion might make our elected representatives understand that we haven't forgotten TARP and all the rest of it. Right now, the only people lobbying on your behalf are the professionals themselves, and there apparently aren't enough of us to get the attention of the Congressional representatives who may be looking out for their own interests more than ours.
Thursday, March 4, 2010
Saving Limits
Save and invest, month in, month out--it sounds like a grind, especially now, when many Americans are cutting back and saving more for retirement. But if you turn it around, you realize that just being allowed to save money and keep for yourself some of what you earn is a privilege that not everybody enjoys.
A case in point is the North Koreans, who are now participating in a government-sponsored currency exchange program. All citizens of North Korea will be required to trade in all of their savings--that is, the bills and coins that they have collected from private activities like sewing clothes or growing food in their back lawns. These savings are always in the form of actual money, kept in jars or boxes, because the Korean banking system doesn't take individual deposits the way banks do in the U.S., and there is no stock exchange for local citizens--or, of course, access to global investment opportunities.
At the end of this month, the old North Korean money will no longer be accepted anywhere. It must be traded for new bills which depict the log cabin where the Dear Leader and former Communist strongman Kim Il Sung was born. Here's the catch. Each family will only be allowed to exchange 100,000 won--the equivalent of about $30. That, astonishingly, represents the most any private citizen will be allowed to have in total savings after the exchange, no matter how much they had before.
This is a great time to consider how lucky we are to live in a country where we are encouraged--and allowed--to save and invest for our future. Nobody will ever knock on our door and tell us that after a lifetime of work, the money we have set aside is no good anymore--except 30 dollars, or roughly the amount it costs to buy a large bag of rice. Compared to that, the grind of saving has the sweet taste of freedom.
Sincerely,
William T. Morrissey, CFP®
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
321 West Washington St., Suite 329
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
A case in point is the North Koreans, who are now participating in a government-sponsored currency exchange program. All citizens of North Korea will be required to trade in all of their savings--that is, the bills and coins that they have collected from private activities like sewing clothes or growing food in their back lawns. These savings are always in the form of actual money, kept in jars or boxes, because the Korean banking system doesn't take individual deposits the way banks do in the U.S., and there is no stock exchange for local citizens--or, of course, access to global investment opportunities.
At the end of this month, the old North Korean money will no longer be accepted anywhere. It must be traded for new bills which depict the log cabin where the Dear Leader and former Communist strongman Kim Il Sung was born. Here's the catch. Each family will only be allowed to exchange 100,000 won--the equivalent of about $30. That, astonishingly, represents the most any private citizen will be allowed to have in total savings after the exchange, no matter how much they had before.
This is a great time to consider how lucky we are to live in a country where we are encouraged--and allowed--to save and invest for our future. Nobody will ever knock on our door and tell us that after a lifetime of work, the money we have set aside is no good anymore--except 30 dollars, or roughly the amount it costs to buy a large bag of rice. Compared to that, the grind of saving has the sweet taste of freedom.
Sincerely,
William T. Morrissey, CFP®
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
321 West Washington St., Suite 329
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Subscribe to:
Posts (Atom)