Congress has authorized $300 million to support state rebate programs for residential ENERGY STAR appliance products. Texas has been allocated about $23,000,000 for rebates. Each State has the latitude to design and administer their own rebate programs.

In Texas there will be rebates for new ENERGY STAR Refrigerators, Freezers, Air Conditioners, Clothes Washers, Dishwashers, Heat Pumps and Water Heaters purchased between April 16th and April 25th. To find out more about the how to take advantage of this program and to get a reminder email sent to you with instructions on how to claim the rebate click here.   (email reminder for Texas rebate only)

Most people fail to appreciate the full importance of a will, especially if they feel their estate is too small to justify the time and expense of preparing one. And even people who recognize the need for a will often don't have one, perhaps due to procrastination or a disinclination to broach the subject of mortality with loved ones.

Here are five basic reasons why you should have a will:

Reason 1. To Choose Beneficiaries

The intestate succession laws of the state in which you live determine how your property will be distributed if you die without a valid will. For example, in most states the property of a married person with children who dies intestate (i.e., without a will) generally will be distributed one-third to the spouse and two-thirds to the children, while the property of an unmarried, childless person who dies intestate generally will be distributed to his or her parents (or siblings, if the parents are deceased). These distributions may be contrary to what you want. In effect, by not having a will, you are allowing the state to choose your beneficiaries. Further, a will allows you to specify not only who will receive the property, but how much each beneficiary will receive.

    Note: If you wish to leave property to a charity, a will may be needed to accomplish this goal.

Reason 2. To Minimize Taxes

Many people feel they do not need a will because their taxable estate does not exceed the amount allowed to pass free of federal estate tax. These assumptions, however, should be reviewed given the current state of change in the federal estate tax laws. The federal estate tax laws in 2009, 2010 and 2011 are vastly different, for the moment and, therefore, it is important to have your will reviewed and updated as necessary this year.

Most wills were written with the existence of a federal estate tax. However, due to a loophole in the law, both the federal estate tax and the generation skipping transfer tax were repealed at the end of 2009, leaving 2010 without either of these taxes. There is still the gift tax, with the exemption of $1,000,000 during your lifetime, but the tax rate is reduced to 35% in 2010. (In 2009, this rate was 45% and 2011, it will increase to 55%. For both years, the gift tax exemption remains at $1,000,000.)

The federal estate and generation skipping transfer taxes, however, are both scheduled to return in 2011 at much less favorable rates than seen in the past 10 years. In 2011, the estate tax exemption amount will be $1,000,000 with a tax rate of 55% on the remaining estate. This compares to the 2009 exemption amount of $3,500,000 with a tax rate of 45%. Many professionals believe that Congress may retroactively reestablish the 2009 estate tax structure for 2010. This, however, remains to be seen.

Having your will reviewed during these changing times is important as the tax consequences have changed and unanticipated taxes could arise. (For instances, inherited assets subject to capital gain taxes.)

Further, your taxable estate may be larger than you think. For example, life insurance, qualified retirement plan benefits and IRAs typically pass outside of a will or of estate administration. But retirement plan benefits and IRAs (and sometimes life insurance) are still part of your federal estate and can cause your estate to go over the threshold amount. Also, in some states, the estate or inheritance tax differs from the federal laws. A properly prepared will is necessary to implement estate tax reduction strategies.

    Tip: Changes in the estate tax laws and in the size of your estate may warrant a re-examination of your estate plan.

Reason 3. To Appoint a Guardian

If for no other reason, you should prepare a will to name a guardian for minor children in the event of your death without a surviving spouse. While naming a guardian does not bind either the named guardian or the court, it does indicate your wishes, which courts generally try to accommodate.

Reason 4. To Name an Executor

Without a will, you cannot appoint someone you trust to carry out the administration of your estate. If you do not specifically name an executor in a will, a court will appoint someone to handle your estate, perhaps someone you might not have chosen. Obviously, there is an advantage, and peace of mind, in selecting an executor you trust.

Reason 5. To Help Establish Domicile

You may wish to firmly establish domicile (permanent legal residence) in a particular state, for tax or other reasons. If you move frequently or own homes in more than one state, each state in which you reside could try to impose death or inheritance taxes at the time of death, possibly subjecting your estate to multiple probate proceedings. To lessen the risk of this, you should execute a will that clearly indicates your intended state of domicile.

Back to top

Each year, many taxpayers overlook tax credits, even though they often qualify for one or more of them. Though both tax deductions and credits save you money, they do it in different ways. A deduction lowers the income on which tax is figured. The tax credit is even better because it lowers the tax itself. Take time now to review your records and see if you qualify for one of these tax credits; many are new or expanded for the 2009 tax filing year.

First-time Homebuyer's Credit

A credit limit of $8,000 for qualified first-time homebuyers is available in 2009. Further, long-time residents who owned and used the same principal residence for any 5 consecutive years of the last 8 years prior to purchasing a subsequent new principal residence, may now qualify for a tax credit of up to $6,500. Contact us for further information regarding this credit.

Energy Improvements Qualify for Expanded Tax Credits

People who weatherize their homes or purchase alternative energy equipment may qualify for either of two expanded home energy tax credits: the Residential Energy Property Credit and the Residential Energy Efficient Property Credit.

• Residential Energy Property Credit: The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
• Residential Energy Efficient Property Credit: This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property.

American Opportunity Credit Helps Pay for First Four Years of College

More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

New Vehicle Purchase Incentive

New car buyers can deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and eligible taxpayers may claim the deduction for taxes paid on multiple purchases. However, the deduction is limited to the tax on up to $49,500 of the purchase price of each qualifying new vehicle. Qualifying new vehicles must be purchased, not leased, after Feb. 16, 2009, and before Jan. 1, 2010.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) helps low- and moderate-income workers and working families. Working families with incomes below $48,279 (married filing jointly in 2009) and childless workers with incomes under $18,440 often qualify. Ordinarily, you must have earned income as an employee, independent contractor, farmer or business owner. Some disability retirees are also eligible. There is only a slight increase in these income levels for 2010; for example, working families with incomes below $48,362 (married filing jointly) and childless workers with incomes under $18,470, may quality in 2010.

Child Tax Credit

If you have a dependent child under age 17 at the end of 2009, you probably qualify for the child tax credit. This credit, which can be as much as $1,000 for each qualifying child, is in addition to the regular $3,650 personal exemption for 2009 you can claim for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2009 returns. Don't confuse the child tax credit with the child care credit.

Note: In IRS Publication 972, there is a Child Tax Credit Worksheet to help you determine if you can claim the tax credit.

Credit for Child and Dependent Care Expenses

If you pay someone to care for your child so you can work or look for work, you probably qualify for this credit. Normally, your child must be your dependent and under age 13. Though often referred to as the child care credit, this credit is also available if you pay someone to care for a spouse or dependent, regardless of age, who is unable to care for himself or herself. In most cases, you need to obtain the care provider's social security number or taxpayer identification number and enter it on your return.

Note: Form 1040 filers claim the credit for child and dependent care expenses on Form 2441. Form 1040A filers claim it on Schedule 2.

Saver's Credit

The saver's credit helps low-and moderate-income workers save for retirement. You probably qualify if your income is below certain limits and you contribute to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2009 are $27,750 for singles and married filing separately, $41,625 for heads of household and $55,500 for joint filers. These income limits are adjusted annually for inflation, however, will remain unchanged for 2010.

The credit, up to $1,000, is based on a percentage (10-50%) of each dollar placed into a retirement plan, up to the first $2,000. The lower the adjusted gross income, the higher the credit percentage; resulting in the maximum credit of $1,000 (50% of $2,000).

Tip: Also known as the retirement savings contributions credit, the saver's credit is available in addition to any other tax savings that apply. You still have time to put money in an IRA and get the saver's credit on your 2009 return. 2009 IRA contributions can be made until April 15, 2010. Use Form 8880 to claim the saver's credit.

Caution: Like other tax credits, the saver's credit can increase a taxpayer's refund or reduce the tax owed. Though the maximum saver's credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer's credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver's credit, and its instructions have details on figuring the credit correctly.

Other Credits Available

IRS.gov has information on these additional credits:

• Foreign tax credit, claimed on Form 1040 Line 47
• Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
• Adoption credit, claimed on Form 8839
• Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
• Credit for prior year minimum tax, claimed on Form 8801

Tax Credits Can Save You Money

These credits can increase your refund or reduce the tax you owe. Usually, credits can only lower your tax to zero. But some credits, such as the EITC and the child tax credit, can actually exceed your tax. Though some credits are available to people at all income levels, others have income restrictions. These include the EITC, saver's credit, education credits and child tax credit.

Tip: If you qualify, you can claim any credit, regardless of whether you itemize your deductions. Any credit can be claimed on Form 1040.

Tax credits help you pay part of the cost of raising a family, going to college, savings for retirement, or getting daycare so you can work or go to school.

Back to top

As people move into their 50s and 60s, priorities change. The hours spent on home improvements and the sheer time necessary to maintain a full-sized home seem to be a little more of a burden. As kids move on, there’s all that unneeded space.

Men and women tend to turn on the gas in the last 15-20 years of their working lives to make sure their retirement savings will be adequate to their needs. That’s why the idea of downsizing is a good one to start early. It’s also a good time for a financial check-up as well.

A CERTIFIED FINANCIAL PLANNER™ professional may not be able to help you sort out what dishes and furniture to sell or give away, but he or she would make a good first stop in developing a complete downsizing strategy involving assets, investments, career and overall financial lifestyle planning. With life expectancies lengthening, many people 50-55 years of age could conceivably be at only the midpoint of their lives.

What is the chief advantage to downsizing? Handled correctly, it can save a lot of money. Selling a larger home – possibly one that still has a mortgage – in favor of a smaller house or condo that’s completely paid off can save potentially tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.

Here’s a checklist of considerations in downsizing your life:

Get advice first: As mentioned, downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. A CFP ® professional can give you a push by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.

Downsize potential health issues: No matter what the final effect of health reform on pocketbook issues, your out-of-pocket and premium-based health costs over time will be cheaper if you take steps to better maintain your health. Make weight and other personal health maintenance issues a new priority as you move into your pre-retirement years.

Plan for a retire-career: You might be working for a company or organization that has a mandatory retirement age or you have a year in mind when it might finally be time to pack up and go. And there’s nothing wrong with a retirement devoted to travel and leisure activities. But if you think you won’t be able to afford to quit working completely or if doing nothing will eventually drive you nuts, consider getting some career counseling, personality testing and do some research now that will help you train for a new full- or part-time career for after you retire from your present job.

Start thinking about real estate and new places to live: Today’s retirees don’t necessarily have to move to predictable retirement destinations. Telecommuting allows many people to continue working lives and education from anywhere. For many people, the magic combination might involve cheaper real estate, desired weather and activities, travel options and access to good doctors and quality health care facilities. Decide what kind of home you could see yourself living comfortably in at age 70 or 80. This combination of factors might happen in a surprisingly large number of places based on individual preference. To get you thinking and hone your expectations, start with resources like U.S. News & World Report’s online “Best Places to Retire” selection tools.

Talk to your family: It’s really important to discuss not only your expectations for later in life with your family members, but it’s important to get their feedback on what they consider good ideas for you. There may come a day when you need to rely on others for help, and it would be a good idea to identify how realistic that is. Also, if you’re talking about downsizing certain assets or property that might have been in your family a long time, it’s important to discuss that with others who might be affected by that decision.

Start weeding: Physical downsizing isn’t something that’s done in a month. Give yourself a year to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what you hope to give to friends and family members and what you’ll donate, trash or sell. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system that fits you so you won’t forget any decisions you’ve made along the way. Also, you might want to set up a separate area for family photos and other keepsakes that have high emotional value and set up a hopefully egalitarian system for who will get what either when you move or when you die.

Don’t start upsizing later: When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard with this – that’s why thoughtful downsizing should prevent a lot of spending for stuff you’ve already chucked. Oh, and make a permanent life decision if possible not to start re-using credit cards or mortgage debt if you can possibly avoid it in your later years.

February 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.

Back to top

Trusts are commonly misunderstood by the general public. A trust can fill many different needs but are most often used as part of an estate plan.   In the first part of this series, I will attempt to explain the basic legal concept of a trust (I am not an attorney) as well as cover the basic types of trusts.

When I think of a trust, I think of it a lot like a corporation. It is the creation of a separate legal entity which can own physical property.   Just like a company can own a piece of property, a trust can be titled as the owner of property.   The person who sets up and funds the trust is known as the Grantor (or possibly Trustor, Donor or Settlor). The person who is in charge of operating the trust is the Trustee. The people who benefit from the trust are Beneficiaries. The Grantor, Trustee and Beneficiary can all be the same person or they can be different.  

As an example, Grandpa could set up a trust and be the Grantor. His daughter could be the Trustee, and his grandchildren could be the Beneficiaries. In this example, Grandpa wanted to make sure his grandchildren went to college. His grandchildren are very young, and grandpa is not well. He is not sure he will be around to make sure the checks are written for tuition. In addition, he wants to make sure that he only pays for college while his grandchildren are full-time students earning a minimum 2.5 GPA. He could tell his grandchildren his wishes and give them the money outright to take care of it, but he has concerns that they might spend it on normal expenses or not enforce the full-time student status and GPA requirements.   The trust in this case can help Grandpa meet his desired goals and provide some guidance and safeguards to ensure that his wishes are carried out, even if he is not around to make sure it happens.  

Testamentary vs. Inter Vivos Trusts 

A trust can be set up either inter-vivos (during life) or testamentary (at death in a will). The most common type of inter-vivos trust is a “Living Trust”.   A Living Trust generally is set up and funded with major assets (real estate, brokerage accounts, etc) to be an alternative to the probate process.    

During life, if someone wants to transfer a piece of property to someone else, they simply sell it. If they are no longer alive, they cannot sign their own name to transfer property.   Probate is the legal process of transferring ownership from a deceased person to heirs. The will is the set of instructions and the court must oversee the transfer of assets. The court then gives authorization to transfer property to the heirs. 

With a Living Trust, the trust owns the property, so when someone dies, there is no need to transfer title of that property. If the Trustee dies, the trust has provisions for a successor trustee. The Trustee changes per the trust document, and title of the property never changes.   The Living Trust completely bypasses the probate process.

If a trust is set up only upon death, then it is a testamentary trust. In order to set up a testamentary trust, the estate must go through probate. A testamentary trust may not even be created unless a certain set of circumstance is met. For example, a trust could be created only if there are minor children who are heirs. So if one spouse dies, no trust is created, but if both spouses were to die, then a trust would be created for the children. Testamentary trusts are generally set up for estate tax purposes or, like in illustrated in the previous example, to provide for beneficiaries which either cannot   or should not have full control of the inheritance. 

Revocable vs. Irrevocable Trusts  

A revocable trust is just as it sounds—a trust which can be cancelled or amended. If someone wants to change the provisions of the trust or simply wants to undue or eliminate it, a revocable trust allows for that.   A revocable trust can become an irrevocable trust if a certain event takes place (such as the death of the Grantor).   Since the trust is revocable, and the Grantor has retained full right to amend or change the trust, all of the assets of the trust are considered the property of the Grantor. That means that when a trust is revocable, the assets of the trust are taxable to the Grantor and included in the Grantor’s estate at death.  

With an irrevocable trust, changes cannot be made. The trust in effect becomes a stand-alone entity. The advantage of an irrevocable trust is that for income tax purposes and estate tax purposes, the assets of the trust are usually not considered assets of the Grantor. This means that annual gifts (which qualify for the annual gift tax exclusion) can usually be made to an irrevocable trust. Outside of a Living Trust, most trusts are irrevocable.  

In the blog posting, I will be discussing one of the most misunderstood and common types of trusts. Find out by reading part 2 of 3 in the Demystifying Trusts series, “The Advantages and Disadvantages of a Living Trust.”

Back to top

Under the American Recovery and Reinvestment Act of 2009, $300,000,000 has been made available to the States for rebate programs each State can customize. The financial distribution is roughly $1 for each State resident. In Texas, that means approximately $23,000,000. Because each State has different rules and most of our clients are in Texas, we have only included Texas specific information. If you are not a Texas resident, then go to the U.S. Department of Energy’s website and click on your State for specific information.  If you reside in Texas read on.

What are the Texas Rebate Guidelines?

- Consumers must purchase a new ENERGY STAR appliance and be replacing the same type of older appliance.
- A maximum of two appliances (not same type) can qualify per household.
- Texas is offering an additional rebate of $75 for recycling of the old appliance.
- The purchase must take place between April 16th and April 25th, 2010.
- Rebates can be reserved approximately 2 weeks prior to April 16th. If there are unreserved funds left by April 16th they will be distributed on a first come first served basis.

Qualified Appliances

Appliance            Rebate      add $75 for recycling
Refrigerator          $240
Freezer                 $180
Room A/C             $45
Clothes Washer    $150 or $180*
Dishwasher           $110 or $140*
Central A/C           $600, $800 or $1,000*
Heat Pump            $1,200 – $1,600*
Water Heater        $190 – $640*         

*depending on appliance type and energy efficiency of model purchased
To see a detailed listing of rebates for each appliance type go to the SECO rebate website.
Click here to see if a specific model is ENERGY STAR qualified.

Undefined Guidelines

The State Energy Conservation Office (SECO) has not defined how the following items will be administered, but indicated that they will be required for claiming the rebate.

- Proof of replacement
- Proof of installation
- Proof of recycling (if applicable)
- Phone number and website to reserve the rebate (if applicable)

Team Oliver is here to help!

Team Oliver is offering to send email reminders to anyone who is interested in getting timely information and instructions for claiming this rebate. Once the details of how to reserve a rebate are published and the date reservations begin is nearing, Team Oliver will send out an email with information and instructions on how to reserve your rebate.  Based upon the overwhelming response to the “Cash for Clunkers” program and the relatively low level of funding ($1 per person) we do not believe rebate reservations will be available for very long and that by the time the rebate purchase period begins all the rebates will have been spoken for.

If you would like to receive a reminder email with detailed instructions please email ben@teamoliver.com. All you need to do is put “Appliance Rebate” in the subject line or body of the email. If you know anyone else who might want an email please feel free to forward our information.

In the meantime, it is our recommendation to do your research on what appliance(s) you might want to replace. You should “shop” for the appliance now to gauge what you want. The window for reservation and purchase is short. It would be a shame to get a rebate and then overpay for an appliance or not get the features you really need or want.

Back to top

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

Important Consumer Disclosure