Asset Planning, Inc Blog

We just want our clients to know that if you ever need a monthly statement or tax report from TD Ameritrade or Charles Schwab you can contact us or you can go on the TD Ameritrade or Charles Schwab websites and download the statements yourself. If you do not have a log on id for your accounts, please contact me (carols@assetplanninginc.com) and I will set you up for on-line viewing. The month end statements are usually available on-line 3 days after the month end. Normally this is not an issue, but it is tax season and we know you need your statements promptly. Also, if you do not feel comfortable doing this yourself, we can download the statements or reports for you and email, fax or mail them to you.

The pink slips are coming again. For the third straight month, over 500,000 workers have lost their jobs. The numbers are staggering as layoffs are announced. Home Depot announced the closing of Expo stores and 7,000 jobs. Sprint is cutting 8,000, and Texas Instruments 3,400 employees. The largest announcement came from Caterpillar: 20,000 jobs are lost. GM is cutting another 2,000 and ING cut 7,000 workers, including their CEO. Philips shed 6,000 and Pfizer is cutting 19,000 when it acquires Wyeth.

Corporations are slimming down to weather the coming months with leaner labor payrolls. Labor is the easiest expense to cut and can make a dramatic impact on the bottom line in any quarter. This will lead to better earnings quarters ahead as the companies have lower expenses against lower income. The first quarter of 2009 is going to be difficult to post a positive growth number but I applaud the large corporations that are taking fast, decisive action to protect the bottom line, even as the layoffs are painful. No one likes to lose a job or find out their friends or relatives are unemployed.

Now, the good news. Pfizer is spending 68 Billion to acquire Wyeth. This is the second drugmaker take over in the past three months. Five different banks are lending funds to Pfizer,as they will finance one third of the purchase. The banks are lending and companies with cash can pick up good bargains. Just like shoppers intend to do at Expo as the stores liquidate.

Sandy

In December, Secretary Paulson made the unilateral decision to guarantee $306 billion of CitiGroup's assets. The guarantee was in addition to the $25 billion Citi had already received in TARP funding. The $306 billion "guarantee" was not part of TARP and was extended without Congressional approval.

$306 billion is equal to what our government spent in 2007 for the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development, and Transportation combined. (The Economist)

Is it fair that Bank Of America made very bad business decisions to buy Merrill Lynch and Countrywide Financial and now the taxpayers are backing their losses? And, management keeps their jobs? Nancy Pelosi said it best when describing the bailout of GM and Ford that their failure and incompetence is being rewarded, instead of their success.

The number of financial institutions (and others) that are applying for TARP money is astounding. Billions of dollars are being handed out, without Congressional approval, and without a tracking mechanism to know what the banks are doing with the funds.

I guess this is how it worked at Goldman Sachs. Paulson's net worth is estimated to be near 800 million. Maybe he could make some loans with his own money.

Happy New Year!

Welcome to 2009 and the changes that take place for this tax year. The annual gift tax exclusion amount has increased to $13,000. Required minimum distributions from IRAs are not required this year - see my previous blog for details.

In 2001, the Economic Growth and Tax Relief Reconciliation Act was passed. On January 1, 2010, estate and generation skipping taxes are to be abolished. Both taxes are set to resume at their prior levels as of 2001 on January 1, 2011. Be very careful of the wording in your family trusts if they were drafted several years ago or if they contain a phrase that the credit shelter trust is to be funded in the full exemption amount. This means that in 2010, the entire amount of the trust could be left to the credit shelter trust and nothing to the survivor trust.

Credit shelter trusts are normally left to the children or grandchildren and the survivor trusts are for the surviving spouse. If you have a trust with a credit shelter trust or a marital deduction is set by a formula clause, this could disinherit the surviving spouse. You would want to have a maximum amount that can go to the credit shelter trust., and set a dollar amount or a percentage of the estate value. Seek advice from your estate planning attorney if you think your trust should be reviewed or amended. You will need to see your attorney to have the trust amended.

How did Bernie Madoff mastermind a Ponzi scheme for so long and make fifty billion dollars disappear? How was he able to hide these losses from SEC regulators and his clients? How does a former NASDAQ chairman do this and hide it for so long from the regulators? How do people know if their investments are safe?

A custodian is the firm that actually holds your securities, cash, bonds, and mutual funds.  Mr Madoff's firm was his own custodian. To open an account with him, you made your check out to Bernard Madoff Investment Securities. He allegedly had four sets of books- actually, the man must be exhausted from the moving of money on paper that he did. He made fake statements and falsified the account values on the monthly statements that were sent to his clients. Since the custodian and the money manager were one and the same, the clients had no way of knowing if their account values were correct. There were no third parties involved to catch him. His auditor was not one of the big accounting firms. His niece is married to an SEC auditor. He ran a hedge fund and the government does not regulate hedge funds. There was a lot of movement to get hedge funds to register with the SEC a year ago and the hedge funds won. They stayed unregulated.

If Mr Madoff never deposited the client monies into an account that was insured by SIPC or FDIC, his clients do not have insurance to fall back on. That would only make matters worse.

We use an outside custodian such as TD Ameritrade and Schwab to hold our clients investments. Asset Planning does not take custody of assets- meaning, we cannot ever hold securities on our own. We do not invest, nor have we ever, invested in hedge funds.

When a situation does not have transparency, there is cause for concern. Mr Madoff ran his hedge fund on a separate floor in a locked room where only three people had access. This is where the algorithms were running the money in a black box. No one understood what they were investing in, yet continued to pour millions of dollars into his scheme. The investors were let down by Mr Madoff and by the SEC, who was supposed to protect them from fraud like this.

Sandy

Many homeowners were shocked to see an increase in their property tax bills from last year, given the widespread drop in housing prices. Most homeowners saw their bills increase because the assessed value of their property is often different than the market value. This is due to Proposition 13 which rolled property assessments back to 1975 levels and capped the annual increase at 2 percent. A property can be reassessed if it changes hands or the living area is enlarged. Under Proposition 8 – (a 1978 initiative, not this years gay marriage initiative)- counties are required to reassess a property when the market value falls below the assessed value, but many times it is not automatic.

If you purchased your home when prices were much higher, chances are your assessed value is much higher than the current market value. Every county assessor's office offers a process to appeal your property assessment. The Los Angeles County website is: www.lacountypropertytax.com and the Orange County website is www.ac.ocgov.com/newpage/taxinfo.asp Theses websites are very helpful and have the forms and instructions for you to follow.

BEWARE: There are private companies posing as government agencies offering to lower their property tax for a fee. This is a SCAM, there is no fee for the county to review the appeal application.

It looks like good news for those taxpayers who are 70 /12 and older. Congress approved legislation that includes a one year suspension of the RMD for 2009. It is expected the president will sign it shortly. In short, you will not need to take the required distribution from IRAs and employer provided qualified retirement plans that are defined contribution plans. The next required distribution will be required in 2010. This applies to employees, IRA owners and after-death distributions to beneficiaries.

The provision is effective for calendar years beginning after December 31, 2008. The provision does not apply to any required minimum distribution for 2008 that is permitted to be made in 2009 by reason of an individual's required beginning date being April 1, 2009.

If you have any questions, please be sure to contact us or your tax professional.

Sandy

We are finally moving into our new offices. On Tuesday and Wednesday, the furniture and mounds of boxes are moving. Our telephones and email are expected to be working on Thursday, December 11th. Our telephone number is the same. The new address is 10833 Valley View Street, Suite 470 Cypress, Ca 90630. The office is just off the corner of Katella and Valley View, behind the El Torito.

Bear with us in responding to missed telephone calls and emails during our move.... we will respond as quickly as we can.

Sandy

Chase and Citibank are canceling credit cards that have not been used for a six month period or longer. Chase bank sent a letter to card holders, explaining that the cards have been canceled, after the fact. Citibank cards are being canceled without notice to the cardholders. This could be very embarrassing to people that use a card and find out it has been canceled. I believe the companies are worried over the looming credit card debt as the unemployment numbers rise. I am sure Chase and Citibank are not alone in this new practice.

I advise clients to always have three to six months net (take home) pay available, via cash or CDs, life insurance cash value or a home equity line. Many clients keep a credit card unused for emergency purchases or cash advances. These are the very cards that are in danger of being canceled, without the client knowing. The quick fix: go charge a purchase on any dormant credit cards you have. The charge will keep the card active and buying something will help the economy!

Sandy

The market likes certainty. The Big 3 were told to come back with a new plan, leaving the bailout question hanging for two weeks. When Henry Paulson changed direction and announced he would not spend more of the TARP money until January, the market turned negative and went south. That drove the market to new lows.

One client told me she is now addicted to turning on the TV at 12:30 daily and watching the market for the last 30 minutes. "It's like watching a building fire- horrible and irresistible to view. " Today, the fires were extinguished.

President Elect Obama announced Hilary Clinton as the new secretary of state (third woman in a row) and Tim Geithner as the new Treasury secretary. Ah, finally we see some decisive action! The market likes an action plan, a road to success or a least a path out of the destruction. The market rebounded 494 points on the Dow in the last hour. Less talk, more action!

Sandy