Definitions: Medical Power of Attorney, Durable Power of Attorney, or Living Will

Q: Where can I get a will and durable power of attorney for that would be legal in the state of Maryland? How many witnesses have to sign these docs. and does it have to be notarized?

Medical Power of Attorney, Durable Power of Attorney or a Living Will.....what is the difference among the three?...

A: You can either work with a local attorney, or you should be able to find suitable documents online.

A medical power of attorney names someone to make decisions on your behalf for all medical decisions should you become incapacitate. The DPOA does the same for financial assets. A Living Will only covers end of life issues such as whether or not you would want to be kept alive with a feeding tube.

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Medicaid and a Three-Way House Split

Q: Hi Jeff, found your financial column interesting. What if my mom sells her house and splits the money three ways (me, my brother and her) and goes into an apartment. Then a few years later needs assisted living. Will they make us pay back what she gave us?

A: It's a gift so it will cause her to be disqualified for the number of months the gift would have otherwise paid for...assuming she applies for Medicaid within 5 years.

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Putting a Variable Annuity in a Trust

Q: I have been told that I should form a Trust, gift substantial funds to the Trust and buy a variable annuity. I would not be taking any income from it but upon my death the proceeds would go to my son...

The one I am looking at has a "lock up" clause that would lock in the value on the anniversary date if it is higher than the amount I put into it. The costs seem to me to be around 2% which is high on $300,000.00.

Would I be better off to buy a no load fund or funds and have the trust pay the taxes each year on the dividends and capital gains, or to get the annuity. The fellow I am dealing with says that I would be saving substantial taxes by using the annuity.

A: The fellow you are talking to is only trying to sell you an annuity.

First, it's true that an annuity inside an irrevocable would prevent the trust from having to pay taxes on the earnings each year. What he didn't tell you is that those taxes are only being deferred and would all be due at once when you die. So you will end up losing 30-40% of it.

Secondly, the earnings are taxed at ordinary income rates, not the lower capital gains/dividends rates.

Third, what is your main reason for the trust?

Can you tell me more about your situation?

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Retired Ohio Department of Aging Communication Specialitst

Q: As a retired Ohio Department of Aging communication specialist, I commend you on the service your do by providing this information. As a free-lance writer I've researched the issue and have attended any number of sales "lunches," and you are "spot on" in your analysis. I've researched some of the "letters" added to their names alleging their specialty and it confirms what the media found.

Thanks for your frank articles for seniors.

A: You're welcome.

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How Does the Pension Protection Act Affect "Craft" Employees?

Q: Hi Jeff, I am a Verizon Company employee. There is a lot of rumor and speculation about how the pension protection act will affect those of us “craft” employees who are covered by a Union contract and there a many people who are retiring because they’ve been told that in January 2008, we will start losing pension money because the company will be allowed to calculate differently our pension amounts. Do you know anything about this?...

A: The issue is that a different discount rate will be gradually phased in. The higher the rate of return used in the calculations, the less the company must set aside to provide the benefit per employee they've promised. When you take a lump sum, you get that 'set aside' amount. So if a higher discount rate is used, the lump sum amount decreases.

The real issue is how much it will affect you. For some employees, it could be the equivalent of a year's salary, others not that much. So you need to see how it affects you and factor that into your calculation.

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Can I Use Property Sale Money for College Tuition and Still Avoid Capital Gains?

Q: I found your article on exchanging real estate tax free when searching for help in reducing our capital gains tax on an investment property we will be selling in the next three months.

Our situation is as follows...

My husband is a retired military officer, currently in the private practice of law. I do not work. We have two children, ages 18 and 15. Our 18 year old will begin college in the fall at a private university costing approximately $45k/year. Due to my husband's income as well as property and investments that I inherited, our children do not qualify for any financial aid for college.

We will be netting approximately $150k on the sale of an investment property, and have been advised to do a like-kind exchange for more investment property. However, I would like to have that money available for tuition payments and not tied up in property.

Is there any way we can set up a fund to pay for tuition using these proceeds and avoid the huge tax we would pay on the capital gains of this property?

A: Not that I know of...

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"Oversight Needed on Equity-Indexed Annuities"

Q: I recently read an archived version of your article titled “Oversight Needed On Equity-Indexed Annuities” from October 24, 2005. In the conclusion, you mentioned that there are many better ways to achieve market returns with low risk. Could you point me towards a resource showing some of the options?...

Obviously with return comes risk. The appeal of the no loss guarantee of the Equity Indexed Annuities is strong. I would prefer to have the actual cost of that guarantee stated more clearly.

A: The problem with EIAs is that you must be very careful because the way they work is often not how they are explained. The costs can’t be determined, nor are there any actual performance statistics. Moreover, the insurance company can change the variables from year to year.

It’s like buying real estate with a partner, but you are the one that puts up all the money. Then the partner has complete control over what you make and can change it from year to year, since you’re pretty much locked in.

There’s absolutely no reason to buy a 20 year product. If you want to compare apples to apples, you must look at a 20-year period being in the market. It doesn’t matter what happens between year 0 and year 20, only where the market is at after 20 years.

Go back and look at the markets. You’ll find that there isn’t a single 20-year period in modern history where the returns were negative. In fact, the returns were very good.

Here is a link to a Special Report that will provide some background on how to determine if you need an advisor and if so, what to look for in one. You should find it very helpful:

A Special Report: Financial Self-Defense

Let me know if I can be of further help.

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So Much for 3% Guarantee on an Equity-Indexed Annuity

Q: Our financial advisor advised and sold my wife, who was 64 at the time, two equity-indexed annuity contracts. The markets, as you know, were jumpy, and we had lost a considerable amount in the last major downslide, so these EIA's looked attractive...

However, the long term of the contracts concerned us. The financial advisor said that we wouldn't be holding it that long, and would be taking out 10%, penalty free, each year and investing it in other areas. In addition, in his description of the product, he indicated that regardless of the market, we would be guaranteed a 3% gain each year.

Well, the first year our index (S&P 500) did not perform well and we did not gain anything from the index. When we took a look at our investment after the anniversary date, we saw that there was no increase of 3 percent as we had thought. A few words were spoken with this financial advisor and he said we misunderstood and that the 3% was to the insurance part of the contract. This we did not understand at all.

I should explain that at the time of purchase, we thought we understood the financial advisor as having a plan to get us out of the EIA contracts without penalty, however, after some further discussion, we now understand that what he had in mind is not possible. Quite frankly, I cannot tell you what he had in mind to start with.

We are now learning and reading more about how this was not a wise investment. Your article on equity-indexed annuities addresses that well, as has some other financial advisor friends of mine.

Based on all this input, I have started an inquiry to the insurance company carrying the EIA to see if there is some way to terminate these contracts without penalty. The argument being that the financial advisor probably shouldn't have sold this product to a retiree, or potentially had misrepresented it.

In addition, I have made an inquiry to our state insurance department to see if they are currently taking any action to see that these EIA's are being sold properly, and to see if there is any recourse at this time to terminate our contracts without penalties.

I guess my question to you is, is there any recourse that you are aware of that we could use to terminate these contracts? I'm not ready to accuse the financial advisor of fraud, but there is a question in our minds as to just how clear he was describing these contracts. Probably not a solid basis to do anything legally, but I am just wondering if others have been able to get out of them without hurting themselves financially.

A: There are a few things you need to understand. You were taken advantage of. Whether the advisor knew what he was doing or not, that doesn't change the fact that you were taken advantage of.

Secondly, it is the advisors responsibility to understand what he is selling. He obviously didn't.

You should probably also seek legal recourse. What EIAs are you in?

What state do you live in? I may know an attorney that I can refer you to.

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How Can My Aunt Avoid Capital Gains on Her House?

Q: My 76 year old Aunt lives in Maryland near me. Her husband died and her house is ready to be sold. What can she do to avoid paying large capital gains tax on the sale of the house? She does not want to buy something else and is living in a senior citizen apartment.

A: She has a $250k capital gain deduction on the sale of her primary residence. If the gain is more than that, I would talk to the accountant doing her husband's final tax return to see if there is a way to use his $250k credit.

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Did You Miss the Dateline Special on Equity-Indexed Annuities?

In case you missed it, here's the link to watch "Tricks of the Trade: A Dateline hidden camera investigation sees what insurance agents say -- and what they don't -- when they think they are alone with a senior."

I've been writing articles about the dangers of annuities for years now. Dateline caught on tape some of the tricks these salesmen use to get their hands on your money. You don't want to miss seeing this special report.

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Find a wealth of information at Jeff's website.

Dateline on Equity-Indexed Annuities

Dateline will be airing a hidden-camera investigation segment this Sunday that focuses on how Seniors across the nation are being taken advantage of by unscrupulous insurance agents selling a product called an Equity-Indexed or Fixed Index annuity.

I have been writing a weekly financial advice column for over 4 years and have consistently warned investors about the hidden dangers of these products. I have been contacted by so many investors across the nation that I wrote two, in-depth Special Reports that focus solely on helping the investor understand how these products actually work so they can make an informed decision before buying one. I've been contacted by attorneys nationwide as a result of those reports and asked to serve as an expert witness.

You can find my in-depth Special Reports (provided to investors free of charge) at these URLs:


www.guardingyourwealth.com/SpecialReports/Allianz.htm


www.guardingyourwealth.com/SpecialReports/GeneralEIA.htm


Always At Your Service,

Jeffrey D. Voudrie, CFP
President
Legacy Planning Group, Inc.
423-913-2950
www.guardingyourwealth.com

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