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2020 Newsletter

On your way to developing and maintaining good financial health, you know you must accumulate emergency funds for a rainy day. A good financial plan often begins with saving three to six months’ worth of income and progresses into developing the capacity to meet your personal financial goals in the short term, as well as the long term.

A solid financial plan can play a big role in building financial security for you and your loved ones. And yet, are you regularly reviewing your finances? Doing so becomes particularly important whenever you reach a new life stage. New additions in your life such as a spouse, homeownership, or the birth of a child make reviewing your financial plans a necessity. You may need to give your finances extra consideration upon reaching the following milestones:

First Job. When you obtain your first “real” job, it’s likely that you will be presented with employer-sponsored retirement savings plans. It is never too soon to begin saving for retirement, and taking advantage of your employer’s retirement savings plan as soon as possible will give your account the maximum amount of time and potential to grow. The combined effects of time and compound interest are powerful, and the sooner you start, the better. Try to contribute enough to your fund to take full advantage of any employer-provided matching contributions.

Also, learn about the insurance provided by your employer’s benefits plan including health, life, and disability insurance. If your employer’s plan offers insufficient coverage, or if a plan is not offered at all, consider obtaining coverage independently. If you change jobs, pay attention to the benefits. Benefits will often vary greatly from employer to employer, and changes in insurance coverage and retirement options must be factored into your personal financial plan. For example, funds in your retirement plans might need to be rolled over as you continue to save.

Marriage. Weddings are special occasions that become cherished memories long after the bouquet has been tossed and the rice has been thrown. They are also events that bring about financial changes. After getting married, you may consider opening a shared bank account, owning property jointly, and sharing auto or possibly medical insurance. You may also want to begin saving toward the purchase of your first home and start preparing to raise a family.

Obtaining and/or updating life insurance plans to reflect a name change, if applicable, and to include your spouse as your beneficiary will help to ensure that financial goals will continue to be met. Review retirement plans and goals to establish a savings plan that aims to fulfill your retirement needs. Getting married will also most likely affect your tax situation. Think about the most effective tax strategies that will help with annual filings, as well as your long-term goals.

New Home or Refinancing. Buying a first home is a happy event. Now, the money you may have spent on rent will build equity in a place that you own. Whether you are a first-time homeowner or you are looking to refinance, research the various mortgage types available to find the one that best suits your needs. In addition, you will have to find a homeowners insurance policy that will suit your coverage needs. This is also a good time to review life insurance policies to assure that mortgage obligations will remain covered.

Children. With the added joy and responsibility of a child comes the need for extra financial security. Update your medical plans to include the child. In addition, review your life insurance policy to ensure you have adequate coverage amounts, and include the child on the beneficiary list.

For an infant college is 18 years away, yet the sooner the family starts saving, the better. A college fund that has many years to earn interest and contributions is ideal. Children may also change your estate plan. Writing or reviewing your will becomes especially important to make sure the child will be provided for and suitable guardians will be named.

Starting Your Own Business. If you leave your old job to start your own business, you will have to assume responsibility for previously employer-sponsored benefits. It is important to maintain retirement, medical, and life insurance plans as you continue building financial security.

Retirement. Now is the time to enjoy the fruits of your labor. You may be considering relocating to a warmer climate and anticipating all of the adventures you will have there. However, your funds will still require attention as you continue to manage your money. Remember to maintain adequate health care coverage. Proper planning can help protect your hard-earned assets from being spent on potential medical expenses.

Perhaps one of the most secure feelings in life is knowing that you are financially secure and are prepared for whatever may happen. Through annual checkups you can assess financial goals, provide for your loved ones, and build for the future. As you approach each new life stage, you will find that additional consideration and planning are well worth the effort.


The possibility of sustaining a long-term disability from an accident or illness is something most of us would rather not contemplate. However, there is a way to protect yourself and your family should you lose your ability to earn an income. Disability income insurance can play a key role in your overall financial plan and provide a benefit to help replace a portion of your income in the event of a total disability.

Do I Really Need Disability Income Insurance?
While most people understand the necessity and value of life insurance, many may overlook the valuable role disability income insurance plays in building financial security. How will you support yourself and your family if you cannot work as a result of an accident or illness? For most, Social Security cannot be solely relied on to replace lost wages, because one must be severely disabled to qualify for disability benefits. Even then, it is necessary to wait at least six months for payments to begin. Also, Social Security payments may not sustain you and your family at your current standard of living.

You may be able to “get by” for a few months on your savings, but if the disability is prolonged, you may exhaust most—or all—of your savings. Further financial hardships would become inevitable. You may miss mortgage, car, and other credit payments, causing damage to your credit rating. Utility bills, tuition, grocery bills, and business/professional expenses will also continue despite disability and loss of income. The bottom line is that if you lose your ability to earn an income, it may be harder to make ends meet. Disability income insurance can be a sensible solution to help protect your financial security in the event you become disabled.

Types of Coverage Available
Depending on your income, the maximum coverage you can buy will typically replace 45% to 75% of your pre-disability earnings. The cost of the coverage will depend on such factors as the risk level of your occupation, your age, your health history, and the scope of coverage. Professionally employed individuals are typically in a lower risk category than those engaged in more physically demanding work. Individual disability income insurance is by application and is subject to underwriting approval.

It should also be noted that when you pay the premiums (vs. an employer-provided policy), the benefits from personal disability income policies is tax free. If your employer has a salary continuance plan, you should know the dollar amounts of coverage, the waiting period, and the length of payments, so you can coordinate your personal coverage with your employer-provided benefits.

When examining the contract provisions outlined in a potential disability income insurance policy, consider these items:

  • Definition of total disability—Definitions can include coverage in the event that you cannot perform any duties of your own occupation or any duties of any occupation. The “own occupation” definition offers better protection, particularly if you are a highly skilled professional.
  • A noncancelable clause—The insurance company cannot cancel or change your policy or increase premiums before you reach age 65.
  • Residual disability payments—The policy will pay benefits in proportion to your loss of earnings if you return to work at a less demanding job for a fraction of your former salary.
  • Future insurability—This benefit allows the purchase of future coverage without regard to medical insurability.
  • Benefits payable until age 65 or for life.
  • A reasonable waiting period—Waiting periods in disability income insurance policies vary. Typical waiting periods are 90 or 180 days. Shorter waiting periods are more expensive than longer waiting periods. Consider your liquidity, sick pay, and any money owed to you, so you can decide how long a waiting period you could reasonably afford.

It is important to note that there may be an additional premium charged for adding any of the above riders to a disability income insurance policy. Disability income insurance can help protect your most important asset—you and your ability to earn an income. Reviewing your disability coverage may help you determine what type of policy would best help protect you and your family.

“Gifting” Your Way to ESTATE TAX SAVINGS

If you have been fortunate enough to accumulate substantial assets during your lifetime, do you know that estate taxes could reduce the amount you’ll be able to pass on to your heirs? Federal estate tax rates can reach as high as 45% for estates greater than $2,000,000 in 2008. Therefore, it is very important to develop an estate planning strategy that helps reduce the impact of estate taxes. By making gifts of existing assets during your lifetime, you can help reduce the size of your estate and lessen your family’s future estate tax burden.

Gift-Giving Basics

  1. The annual gift tax exclusion allows a donor to give away up to $12,000 (subject to inflation indexing) in 2008, per recipient, without incurring a gift tax liability. If the donor is married and his or her spouse consents to “splitting” the gift, the annual gift tax exclusion increases to $24,000, even if only one spouse actually makes the entire gift.
  2. Making gifts during one’s lifetime shifts future appreciation of gifted property to the recipient.
  3. Taxable income may be shifted from the high tax bracket of a donor to the lower tax bracket of a recipient, age 18 or older.
  4. No gift tax is paid out-of-pocket until taxable gifts exceed the lifetime gift exemption ($1,000,000 for 2008). The federal gift tax is cumulative. If the gift qualifies for the annual gift tax exclusion, it does not count against your lifetime exemption.

What about Life Insurance Gifts?
Life insurance can often be the single largest asset in a gross estate. If this is true in your case, you may wish to consider how to shield the death benefit proceeds from federal estate tax liability. If, at your death, you own a life insurance policy, the death benefit proceeds will be included in your gross estate and could be subject to federal estate taxes (depending on the size of your estate).

An irrevocable life insurance trust (ILIT) can be set up to be the owner and beneficiary of a new policy. The use of this type of trust has been widely regarded as an effective means for keeping life insurance policies from the taxable estate of the insured. When properly drafted, this trust can eliminate the death benefit proceeds not only from your gross estate, but also from the gross estate of the trust’s beneficiary.

If you plan to use an existing policy, you must live for more than three years following the transfer to the ILIT. Otherwise, the policy proceeds will be included in your taxable estate. Also, keep in mind that if the transferred policy has a cash value, a federal gift tax may apply. For a new policy, the trust should be designated as the owner, applicant, and beneficiary.

The use of a tax reduction technique such as gift giving can have a positive effect on the reduction of the size of your estate. However, as with all tax planning matters, a qualified professional should be consulted to help ensure planning decisions are consistent with your overall goals and objectives.


Federal law provides a tax credit for expenses that are incurred in the adoption process—whether they involve adopting a child in the U.S. or from abroad. The tax credit can be subtracted directly from the amount of taxes owed. The tax credit, however, is not available for stepparent adoptions.

image4For 2008, parents adopting children without special needs from the U.S. are allowed a tax credit of up to $11,650 per child for expenses. And parents adopting a child with special needs from the U.S. can receive a flat $11,650 credit, regardless of expenses incurred. Parents who adopt children from other countries can take a similar credit only when the adoption is finalized.

The Internal Revenue Service considers qualified adoption expenses to include reasonable and necessary adoption fees, court costs, legal fees, and any other directly related expenses.

The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2007.



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