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Money December 2014

Dollar Sense

Potpourri: Stuff You Need to Know About Your Money, Threats to Your Identity, and Your Estate (Plus a Few Freebies!)

By Teresa Ambord

In some cases, life insurance is part of an estate. If that’s your situation, you may have more assets than you thought, and your heirs may end up paying estate tax if you don’t plan well.

Changes to Social Security for 2015

If you receive Social Security, by now you know that the annual increase will once again be slim. A 1.7% raise in benefits is expected to average about $20 per recipient. Here are some other changes you may be a little less familiar with. For those who collect Social Security and also work, the amount you can earn before you lose a single dollar of benefits has gone up slightly.

  • If you are under full retirement age, you can earn $15,720 per year (or $1,310 per month). After that, you will lose one dollar in benefits for every dollar in earnings above the limit.
  • In the year you reach full retirement age, you can earn $41,880 for the year ($3,490 per month) before you begin to lose benefits. Above that limit, you will lose one dollar for every three you earn.

    Note, this only applies to the months before you reach full retirement age, so this is when a birthday early in the year pays off.

 

Medicare Costs

Most people do not pay for Part A. If you do have to purchase Part A, your cost will drop to $407 per month in 2015, down from $426 per month in 2014.

Part B Medicare premium will not increase in 2015 for most people, but will remain at $104.90 per month. Your Part B deductible will also remain unchanged, at $147 per year.

 

What else do you need to know?

If you already receive benefits from Social Security or the Railroad Retirement Board, you will, in most cases, get Part A and Part B starting with the first day of the month you turn 65. If your birthday is on the first day of the month, Part A and Part B will start the first day of the prior month.

If you are not already receiving Social Security or Railroad Retirement Board benefits you must sign up to receive Part A and Part B. This would apply, for example, to people who are still working and have opted to delay benefits.

 

As always, Medicare C (Advantage) costs vary by plan.

More details are available at: http://www.medicare.gov

 

Start the New Year with a Plan to Avoid Scams

Even if you never touch a computer, your assets can still be stripped away by cunning thieves. One Washington state resident went through years and years of the effects of identity theft, and she had little or no connection to the Internet. But in spite of being an astute, hard-working citizen, she had one fateful flaw.

She received mail in an unlocked mailbox, as 60% of Americans do. That also meant she received bank statements, credit card bills, and other information through the mail. A clever thief was able to steal enough information and piece together bits of data that she kept the victim on the hook for years.

It’s less convenient, of course, but if you have an unlocked mailbox, especially if it is at the street instead of right at your front door, consider getting a post office box.

 

Updating Your Estate Plan

The new year is a good time to take another look at your estate plan, or create an estate plan if you haven’t done so. In October 2014, the IRS raised the amount of money that is exempt from estate tax, to $5,430,000 for those who pass away in 2015 (in 2014 this limit was $5,340,000). If you pass away with an estate exceeding the limit, the remainder is likely subject to a hefty estate tax, which, in 2014 was set at 40%, and may remain at that level for now.

Chances are, you feel certain your assets fall far below the limits. If, however, you own a family business, your estate just might exceed the limit and be subject to taxes. It’s a sad fact that heirs sometimes are forced to sell a long-established family business or a cherished family home in order to pay the oppressive estate tax. That can be prevented with some strategic planning and the help of a trusted adviser. Also, in some cases, life insurance is part of an estate. If that’s your situation, you may have more assets than you thought, and your heirs may end up paying estate tax if you don’t plan well.

Whether or not you are wealthy or a person of modest means, an estate plan is more about making sure your money goes where you want it to go, to the people you want to have it, and ideally, as little of it as possible to the IRS.

  • Have there been changes in your family since the last time you looked at your will? Births, adoptions, deaths, divorces, new marriages?
  • Are the people you named in your will or as beneficiaries still the people you want to receive your money?
  • Who are the named beneficiaries of your pension plans and insurance policies? Suppose you have a small pension from a job you left long ago. If so, do you remember who you named as the beneficiary? Perhaps you named your spouse as the beneficiary, and since that time, have divorced. State laws vary, but unless you change the beneficiary, there is a good chance your ex-spouse might end up with your pension, and your current spouse will be left in the cold, at least in regard to that pension. Don’t leave it to chance.

Estate planning doesn’t have to be complex, but does require professional guidance. Take a lesson from two high-profile celebrities who died in recent years. They were clever enough to amass fortunes, but not financially savvy enough to preserve that money for their heirs to enjoy. Or perhaps they relied on bad advice. In both cases, the IRS gets a huge bite in the form of estate tax.

In 2013, “Sopranos” star James Gandolfini passed away at age 51. His $70 million fortune would normally have passed directly to his wife, without estate tax. For reasons unknown, he willed 80% of his wealth to his sisters, which means the money was greatly decimated by estate tax. Experts speculated that he should’ve let the money pass to his wife and trusted her to make monetary gifts to his sisters. Instead, the IRS gets the money.

Michael Jackson died in 2009 and his heirs are still wrestling with the IRS, mostly because of a dispute in the value of his estate. His fortune is valued at somewhere between $80 million and $500 million depending on whether you ask his heirs or the IRS. Jackson left money in trusts for each of his children. But his mistake was in the nature of the trusts. He used revocable trusts, which meant he retained control of the money. It also means the money in the trusts became part of his estate upon his death, and therefore subject to estate tax. If he had created irrevocable trusts instead, that money would be deemed to be “completed gifts,” and would not be part of the estate, and not subject to the big IRS bite.

In both cases, the IRS was or will be the biggest beneficiary. And you can bet, the tax agency will not so much as say “thank you.”

 

Bonus: Looking for a freebie on your birthday or someone else’s?

Below are just a few freebies you might like, from popular eateries. Before you go there, check with the restaurant, as some may have changed their policies. Also, pre-registration may be required.

Applebee’s purchase an entrée and get a free birthday dessert. http://www.applebees.com/about-us/email-sign-up

Arby’s a free 12-ounce milkshake with purchase. You can also sign up to receive coupons.  http://www.heyitsfree.net/arbys-birthday-freebie/

Benihana advertises a $30 off gift certificate. By some reports this has changed to a buy one get one free offer. You’ll need to check with the restaurant near you. http://profile.benihana.com/registration/

Boston Market: Free individual dessert with purchase of any create your plate meal. http://www.bostonmarket.com/controller/contact?form=/emailClub?page=emailClub

Chili’s offers a free brownie sundae. http://www.heyitsfree.net/chilis-birthday-freebie/

Cinnabon gives the birthday person a free mochalatta drink. http://www.heyitsfree.net/cinnabon-birthday-freebie/

These links are just a teaser. You can find the complete list at: http://www.heyitsfree.net/birthday-freebies/

The list is updated regularly, but just in case, check with the restaurant to make sure the freebie has not changed.

Enjoy!

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

Meet Teresa