Ronald J. Paprocki, JD, CFP, CHBC

What is the best way to ensure that an estate passes to the heirs in the event of a second marriage?

	Even with the many favorable changes under the American Taxpayer Relief Act of 2012 (ATRA), comprehensive estate planning still remains a challenge. Fortunately, a relatively simple technique called the spousal lifetime access trust (SLAT) has proven especially advantageous and popular among those who have remarried and want to provide for children from a prior marriage.

	The concept of the trust is very straightforward. The SLAT is an irrevocable trust established for the benefit of a living spouse, with the remainder going to heirs, such as your children and grandchildren, at the time of the spouse’s death. Although the transfer of assets used to fund the trust is treated as a taxable gift, any gift-tax liability may be avoided or reduced with proper planning. In doing so, those assets will be removed from your taxable estate. In addition, a SLAT offers protection from creditors or an ex-spouse who is trying to reach your assets.

	Generally, distributions are made to your spouse during his or her lifetime as needed. To preserve a larger nest egg for your heirs, you may also choose to use funds outside the trust first for this purpose.

	What are the main tax consequences of this arrangement? The transfer of assets can be sheltered from gift tax by the lifetime gift-tax exemption. Under ATRA, the exemption is now up to $5.25 million in 2013. Thus, the assets included in the SLAT are not subject to federal estate tax. In addition, the SLAT is considered to be a “grantor trust” for income tax purposes. That means a couple must pay tax on the earnings on their personal tax return, but the assets can continue to grow inside the trust without any tax reduction. Be aware that the grantor will be required to file a gift-tax return with the IRS. But with the proper professional assistance, you can structure the trust to take full advantage of the $5.25 million lifetime exemption.

	There is, however, a potential estate-tax complication to consider. Frequently, a couple will establish a SLAT to benefit one another, even if one spouse is significantly younger than the other. In that way, protection is ensured should the younger spouse predecease the older spouse. Under special tax rules, so-called “reciprocal trusts” must be different in a meaningful way. If they are identical, the assets will be included in the taxable estate of the grantor. This can be avoided by setting up SLATs at varying times, employing different terms, and funding the trusts separately.

	Other planning aspects may also come into play. For example, if you set up a SLAT and then get divorced, you will lose access to the assets you have transferred to the trust. Remember that the trust is irrevocable, so you cannot take back the assets for any reason whatsoever.

	In order to prevent the IRS from questioning the gift that funds the trust, the SLAT needs to be carefully drafted to prevent those gifted assets from being brought back into your taxable estate after your death. It must be very clear to all parties that you no longer have any control over the trust assets and that you receive no direct benefit from the trust. It is also important to look at how your SLAT is funded. The assets put into trust should belong to you alone, and they should not be owned jointly with your spouse. In this manner, you are gifting property to your spouse; your spouse will have no retained right in the property; and you may avoid an IRS challenge to bring the trust’s assets back into your estate after you die.

	If this arrangement seems appealing to you, please be sure to consult with your estate tax planning advisers to determine whether you are an appropriate candidate for the SLAT strategy.

If interest rates increase, is it better to own an individual bond or a fund?

	Some investors prefer individual bonds to mutual funds since they believe that individual bonds protect them from rising interest rates. If rates rise, then the price of the bond falls, but the investor can hold the bond until maturity and receive his expected income and principal. A traditional bond fund or exchange-traded fund (ETF) doesn’t have predefined income or principal payments. But the income coming from a bond fund or ETF in a rising interest rate environment generally increases, while an individual bond’s income is fixed. Over time, the higher income paid out by the fund or ETF can compensate an investor for the initial price decline they realized when rates initially rose.

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A relatively simple technique called the spousal lifetime access trust has proven especially advantageous and popular among those who have remarried and want to provide for children from a prior marriage.

Preserve assets for heirs after second marriage

The following list of professionals, as well as their industry-focused professional designations and educational requirements, should serve as a guide in your search for advice: 

 The course provides basic background on tax preparation issues for individuals and sole proprietorships. 

 The 3-year program is intensive, with three 6-hour exams. Prerequisites for the designation include a bachelor's degree or comparable work experience, and 3 years of investment management experience. 

 The Certified Financial Planner Board of Standards is a regulatory organization for financial planners. It awards the CFP designation to individuals who meet its requirements. The curriculum covers insurance, income taxation, retirement planning, investments, and estate planning. In addition to self-study programs, there are classroom instruction programs offered at colleges and universities across the country. 

Certified Investment Management Analyst (CIMA).

 Three years of investment management consulting experience, an interview, and a preliminary exam are prerequisites for the course. The program covers due diligence, asset allocation, risk management, and other investment management consulting concepts. 

Certified Investment Management Consultant (CIMC).

 CIMC certification is a two-level, self-study course that covers investment management consulting. It also addresses asset allocation, formalizing investment policy, and active versus passive investment performance evaluation. 

Certified Specialist in Tax Sheltered Accounts (CSTSA).

 The CSTSA self-study program is for advisers who work with 403(b) plans. 

 The CLU self-study curriculum includes 10 courses-eight required and two electives. Three years of business experience and client service in the financial field are prerequisites for the course. 

 The CHFC self-study program includes 10 courses-nine required and one elective. Three years of business experience and client service in the financial field are required. 

This nine-module, self-study course is a primer on mutual funds. 

Chartered Retirement Planning Counselor (CRPC).

 The CRPC program is an 11-module, self-study program for advisers who provide retirement planning for individuals. 

Chartered Retirement Plans Specialist (CRPS).

 The CRPS program is targeted at advisers who work with qualified and non-qualified retirement plans. 

Master of Science/Financial Planning Concentration.

 This graduate-level program focuses on financial planning, wealth management, tax planning, retirement planning, and estate planning. Participants must have a bachelor's degree to enroll and complete 12 courses for 36 credits. 

As is the case with all professional designations, having one does not necessarily mean that you are good at what you do. Word of mouth, through referrals made by friends and colleagues, is an excellent way to meet potential advisers. Even though they may come highly recommended, it is always a good idea to interview a number of advisers to determine compatibility. Only in this manner will you be able to determine who you are most comfortable partnering with in guiding you toward, reaching, and ultimately maintaining true financial independence and long-term security. 

Q Our accountant is recommending that we use a SIMPLE (Savings Incentive Match Plan for Employees) IRA for our small office retirement plan. Is it as straightforward as the title implies? 

 The name does say a lot, and while the plan rules are quite simple, there are potential issues with its limited flexibility relative to timing. 

SIMPLE IRAs are required to operate on a calendar year basis, and employer contributions must be funded for the entire year. SIMPLE IRA plan sponsors must provide all eligible employees with a plan notice 60 days before the beginning of each plan year. Once the notice is provided, the SIMPLE IRA must run for the entire year and cannot be terminated, unlike traditional 401(k) plans that can be terminated at any time. 

is chief executive officer of MEDIQUS Asset Advisors, Inc. in Chicago. They can be reached at 800-883-8555 or 

In addition to registered investment advisers, there are a number of other financial-based professionals who may be in a position to assist you with many financial planning areas.

Deciphering the alphabet soup of financial advisers

Q It seems like everyone has caught the "gold bug." Is it really that good of an investment over time?

The other strong decade for gold was the 1970s. Some investors old enough to remember the 1970s associate the higher demand for gold with turbulent times. The decade was marked by political unrest, war, the 1973–'74 bear market, two worldwide oil shocks in 1973 and 1979, stagflation, Middle East conflict, and Cold War tensions. In some ways, the 1970s resembled the first decade of this century. 

Viewed in isolation, these periods suggest that gold offers a reliable source of returns during economic and market distress. Painted into a much larger picture, however, the details show that rising demand for gold in the U.S. was due not only to economic uncertainty, but also to changing monetary policy and federal legislation regarding individual ownership of gold bullion. 

If one disregards the 1971–'74 period when U.S. investors could not own it directly, gold's long-term performance drops substantially. From 1975 through 2011, gold produced a real annualized return of only 1.82%, while during the same time period, U.S. small cap stocks returned 10.6%, the S&P 500 returned 7.1%, and non-U.S. stocks returned 5.5%, according to multiple sources (Center for Research in Security Prices, Standard & Poor's, Bloomberg, Morgan Stanley Capital International). 

From a long-term perspective, gold has not experienced a reliable or sustained rise in value. In fact, its price appreciation has been limited to unpredictable, isolated episodes of high demand. Investors who attempted to time these episodes exposed their wealth to potentially higher risk and missed out on stock market growth. 

These characteristics make gold appear to be more of a speculative asset, like currency or collectibles. If you put gold in a safety deposit box and wait a few decades, it will not produce any current income, and its value will simply reflect the current spot market price. In contrast, investors who put their capital to work in the economy via stock ownership expect a potential return from cash flows as well as appreciation. 

The evidence raises doubt about gold as an essential component in a portfolio. Over time, gold has not delivered significant growth relative to equities. While in real terms, gold has preserved its value, it may not closely track inflation over shorter time periods. Moreover, gold's early and recent performance should not obscure the other decades in which it depreciated considerably. 

Some investors may prefer to hold a modest measure of gold in their portfolio, if only to feel better about uncertain times, or to include gold as one of several components in a broader commodity strategy. But long-term investors should think hard and carefully before committing a substantial portion of their wealth to gold. 

Q What are the current limits for annual and lifetime gifting? 

 The annual gift tax exclusion allows you to make gifts up to the exclusion amount to as many people as you wish in a given year without incurring a gift tax. For 2012, the annual exclusion amount is $13,000. Although the annual exclusion amount is subject to change, it has remained at $13,000 since 2009. 

The lifetime gift tax exemption applies to the amount of gifts you make during your lifetime, not including any gifts made that count toward the annual gift tax exclusion. For 2012, the lifetime gift tax exemption is $5,120,000, but it is slated to return to the previous limit of $1 million for the 2013 tax year.  

 is chief executive officer of MEDIQUS Asset Advisors, Inc. in Chicago. They can be reached at 800-883-8555 or 

If one disregards the 1971–'74 period when U.S. investors could not own it directly, gold's long-term performance drops substantially.

Gold investments lose their luster over time

Q What is the difference between using a credit card and a debit card? 

Keep in mind that not all credit cards are alike. They will vary widely in terms of issuer, scope of use, and contract terms. Here are some examples. 

While on the surface, it may not seem to matter, there are some important differences between debit and credit cards, and reasons why you should use one form of payment over the other.

Author | Ronald J. Paprocki, JD, CFP, CHBC

Articles

Preserve assets for heirs after second marriage

Deciphering the alphabet soup of financial advisers

Gold investments lose their luster over time

Credit or debit? Each card type has pros and cons