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Monthly Archives: September 2015

Understanding the Different Ways to Title Property

There’s satisfaction to be had in owning something valuable. In many ways, the property we possess serves as a testament to the sweat equity we apply to our daily lives. Property consists of rights and interests a person holds in anything of value that is capable of being owned. Real property (real estate) is land and everything permanently attached to it such as buildings, fences, pavement, storm drains and tress. Personal property covers all other assets, even the intangible ones.

Asset Protection for Physicians

Ownership is a surprisingly nebulous term. There are several different types of ownership, each with a unique set of features. Understanding the characteristics of each type of ownership is crucial for formulating a proper estate plan.

Types of Ownership

  • As the sole owner of a property, you can sell, mortgage or gift the property at your own discretion and are entitled to all of the income. You can also designate an heir in your will who will inherit the property if anything were to happen to you. The only exception would be a life estate, where a person’s interests cease when the owner dies.
  • Joint Tenancy with Right of Survivorship (JTWROS): This is common form of joint ownership between spouses, although non-married owners can also qualify. In this scenario if one of the owners dies, the property is automatically transferred to the surviving owner by operation of law.
  • Tenancy in Common: A form of ownership between two or more persons in which each owns part interest in the whole property. The proportion of ownership can be of any combination but it must be officially stated. Any income generated from the property is split based on these fractional shares. Each party can legally sell their share without the other party’s approval or consent. Unlike JTWROS, rights do not pass from one owner to the other(s) at death.
  • Tenancy by the Entirety: This form of ownership is similar to JTWROS in terms of survivorship but provides far more asset protection. However, it may only exist between married spouses. This permits spouses to own property as a single legal entity by giving each spouse an equal and undivided interest in the property. Consent from the other spouse is always required before making the decision to sell or rent the property. It’s important to note that Tenancy by the Entirety is not recognized in all states.
  • Community Property: Another form of ownership that can only be held between spouses. It generally does not include property acquired prior to marriage or to property acquired by gift or inheritance during the marriage. These laws generally presume that all property owned by a married couple while residing in that state is community property regardless of titling. However, it’s possible to have a written agreement to the contrary. Currently, only 10 states (Arizona, California, Nevada, New Mexico, Idaho, Texas, Washington, Louisiana, Wisconsin, and Alaska) recognize some form of community property laws, which should be considered if you plan on relocating to another state.

When planning your estate, it’s important to be informed about the laws controlling transfers at death. You can make things a lot less complicated for your grieving loved ones by seeing that your assets are automatically transferred to their respective beneficiaries without having to go through a probate court. An effective estate plan will ease the burden during this stressful time by eliminating the guesswork when honoring last requests. Having property correctly titled and keeping beneficiary designations up to date will do just that.

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References:

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal advice or services. Please consult the appropriate professional regarding your legal needs.

5 Ways to Keep Your Car Insurance Bill from Being a Disaster

Auto insurance is a familiar if vexing financial burden for American drivers.

Across the country, annual prices range from $934 in Maine to $2,699 in Louisiana, but one thing auto insurance shoppers have in common is that they can get a price break on their insurance bill.

Financial Advice for Doctors

If, that is, they follow these tips:

  • Be patient—and look around: Don’t pull the trigger on the first deal you get. Auto insurance websites such as FastQuotesDirect.com allow you to check multiple auto insurance quotes at one time. In addition, you can vet individual companies via your state’s insurance department website. Visit USA.gov for a direct link to your state’s insurance commission.
  • Get a group discount: You can get a good deal on car insurance in some offbeat places. Big-box retailers such as Costco offer discounts of 10% or so simply by signing up as a member (through Progressive Insurance, in that case). Or look into an affiliation discount through groups such as AARP, which can offer even deeper discounts for members.
  • Check your mileage: Mileage figures aren’t static. More Americans are working at home or have switched jobs that may lead to a shorter commute from work. In many states, that matters a great deal when it comes to car insurance rates. Check your current insurance policy—look for the number on the policy’s declarations page—and see if your average mileage has been reduced in recent months. If so, let your insurer know right away. It could save you a bundle, as auto insurers base their policy fees on how much you drive.
  • Get vocal about your vehicle’s safety features: Does your car or truck have antilock breaks, vehicle theft protection, and front and side airbags? Insurance companies love these features and will likely offer you a price break for having them. Chances are your insurance agent or your carrier will ask you about such features, but if they don’t, make sure to bring them up—and ask for a discount.
  • Consolidate your insurance: You can’t swing an engine block without seeing media ads for “multi-policy” discounts on auto insurance. Don’t be reluctant to get on board with consolidated insurance—you can save big bucks. Nationwide Insurance, for example, offers discounts of up to 25% for a combined auto, life, and home insurance package. Most insurers offer similar discounts.

Also, always mention your safe driving record when dealing with an auto insurance agent or company. That may lead to your best deal on vehicle insurance.

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Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

How to Keep Inflation from Killing Your Retirement

The best protection against inflation is a sound financial plan

When financial experts talk about retirement challenges, it’s usually savings, debt and taxes at the top of the conversation.

That’s as it should be, as each issue can have a significant impact on your ability to meet and surpass your retirement goals.

Medical School Debt

But there’s another lurking issue that can threaten a decent retirement: inflation. And retirement savers need to recognize it as the threat that it is, and craft a strategy to deal with it, one financial adviser says.

“Inflation is commonly referred to as the ‘silent retirement killer,'” says Joshua Kadish, a financial planner with RPG-Life Transition Specialists. “Everything from grocery bills to utilities to real estate is subject to inflation, and unless your retirement savings will take this adjustment into account, it could pose a threat to your retirement plans.”

If inflation is that big a threat, why do so many retirement savers downplay the issue?

The simple answer is there is a lack of education in the investing population, Kadish explains

“People are busy being sold products by the financial services industry, and there is not enough push to focus on the fact that a financial plan is much more valuable and important to future success than a particular investment,” he says. “Most people don’t understand things in percentages. They don’t realize that if long-term inflation has been about 4% that means that if you think you need $100,000 to live your life today, you better plan on spending $148,000 to buy the same basket of goods in 10 years and $219,000 in 20 years just to keep up with inflation.”

At a historic rate of 4% inflation, what costs $1 today will cost $1.48 in a decade, Kadish says. In 30 years it will cost $3.48. “This means that the money you’ve saved for retirement today will have to work even harder to buy the same basket of goods during your retirement that could last upwards of 30 years,” he says. “Unfortunately, we also know that the future levels of inflation may be higher, especially for health care, which we’ll need in our later years.”

Another part of the problem is that some investors take a “whistling past the graveyard” mindset with inflation.

“People may be hesitant to pay to have a plan done because they are afraid of the potential news or outcome,” Kadish says. “It’s similar to the number of people who don’t go to the doctor for regular checkups because they feel good now and don’t want any bad news like they may need to exercise, adjust their eating habits and lose 20 pounds to avoid diabetes or heart issues.”

Your key takeaway as a retirement investor? Kadish says to confront inflation head on.

“My advice is this,” he says. “Stop listening to all of the general guidelines out there when it comes to saving and investing and get your own plan. Get that full financial physical, become educated as to what your financial ailment and prognosis might be and then get a prescription to fix it.”

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Copyright © 2014 by Horsesmouth, LLC. All Rights Reserved

Leveraging Asset Location Strategies for Your Retirement

Provided By Matt Harlow, CFA, Chief Investment Officer at Larson Financial Group

As seen in the Georgia Medical Group Management Association’s Newsletter

Whether your retirement is right around the corner or several years away, it’s important to recognize how the assets in your portfolio are allocated to maximize tax efficiency. Tax efficiency is one of the more controllable aspects of investing, however it should not be the sole consideration when making decisions regarding your investments. A balanced portfolio will allow you to forecast your post-practice income with a greater degree of certainty.

There are 3 types of accounts that you can invest your money in from a retirement standpoint which are classified by how and when they are taxed. Understanding the different rules that apply for these types of accounts will allow you to develop a retirement plan that is commensurate with the desired level of risk that you are comfortable with undertaking.

 

Physician Retirement Planning

 

Taxable: Examples of this would be bank/brokerage accounts, trust accounts and holdings in stocks and bonds. Funds would be taxable based on interest, short-term gains, long-term gains and dividends. These type of accounts are preferable for short-term investments because of the liquidity that they offer.

Tax-Deferred: IRAs, 401(k)s and other pension plans are a few examples of tax-deferred accounts. Money in these accounts will grow tax-free but is taxed as ordinary income when withdrawn for retirement. Your tax bracket upon reaching retirement will largely be decided by the current tax rates set by the federal government if you hold the majority of your savings in a tax-deferred account.

Tax-Advantaged: Some examples of tax-advantaged accounts would be Roth IRAs, Roth 401(k)s and investment life insurance policies. Money in these accounts will grow tax free and can be withdrawn tax free during retirement as long as the guidelines for these accounts are followed.

Generally, we advocate that our physician clients keep no more than 50% of their retirement savings in tax-deferred accounts. There are a few different ways you can shift money from a tax-deferred account to a tax-advantaged account. One example is a Roth conversion, also known as backdoor Roth IRA, which allows you to fund a Roth IRA using money that is held in a traditional Roth account. However, in the case of a Roth 401(k), opening one of these accounts will disqualify you from having a traditional 401(k).

Research has shown that tax-efficient distribution of assets can add up to 0.75% to annual net returns. The primary objective of Larson physician financial advisors is to boost the after-tax returns of their physician clients by strategically investing specific asset classes in these different account types. Generally, we recommend holding broad-market equity investments in taxable accounts while holding taxable bonds within tax-advantaged accounts. Doing this generates higher and more certain returns by spreading the yield between taxable and municipal bonds.

Striking the right balance between assets in taxable, tax-deferred and tax-advantaged buckets should allow you to determine what tax bracket you want to fall in when you retire from practicing medicine. Several factors such as inflation, longer life spans and the rising cost of care lead to uncertainty when assessing options for physician retirement planning. However, maximizing the tax efficiency of your investments will allow you remove a major variable from the equation so that you can calculate your post-practice income with more certainty. Minimizing the total taxes paid will ultimately increase the longevity of a portfolio and allow you to keep a greater share of the wealth.

 

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Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.

Connecting the Dots

April 16, 2014 | By Jim Parker

Human beings love stories. But this innate tendency can lead us to imagine connections between events where none really exist. For financial journalists, this is a virtual job requirement. For investors, it can be a disaster.

“The Australian dollar rose today after Westpac Bank dropped its forecast of further central bank interest rate cuts this year,” read a recent lead story on Bloomberg.

Needing to create order from chaos, journalists often stick the word “after” between two events to imply causation. In this case, the implication is the currency rose because a bank had changed its forecast for official interest rates.

Perhaps it did. Or perhaps the currency was boosted by a large order from an exporter converting US dollar receipts to Australia or by an adjustment from speculators covering short positions. Markets can move for many reasons.

Likewise from another news organization, we recently heard that “stocks on Wall Street retreated today after an escalation of tensions in the Ukraine.”

Again, how do we know that really was the cause? What might have happened is a trader answered a call from a journalist asking about the day’s business and tossed out Ukraine as the reason for the fall because he was watching it on the news.

Sometimes, journalists will throw forward to an imagined market reaction linked to an event which has yet to occur: “Stocks are expected to come under pressure this week as the US Federal Reserve meets to review monetary policy settings.”

For individual investors, financial news can be distracting. All this linking of news events to very short-term stock price movements can lead us to think that if we study the news closely enough we can work out which way the market will move.

But the jamming of often-unconnected events into a story can lead us to mix up causes and effects and focus on all the wrong things. The writer and academic Nassim Taleb came up with a name for this story-telling imperative: the narrative fallacy.

The narrative fallacy, which is linked to another behavior called confirmation bias, refers to our tendency to seize on vaguely coherent explanations for complex events and then to interpret every development in that light.

These self-deceptions can make us construct flimsy, if superficially logical, stories around what has happened in the markets and project it into the future.

The financial media does this because it has to. Journalists are professionally inclined to extrapolate the incidental and specific to the systematic and general. They will often derive universal patterns from what are really just random events.

Building neat and tidy stories out of short-term price changes might be a good way to win ratings and readership, but it is not a good way to approach investment.

Of course, this is not to deny that markets can be noisy and imperfect. But trying to second-guess these changes by constructing stories around them is a haphazard affair and can incur significant cost. Essentially, you are counting on finding a mistake before anyone else. And in highly competitive markets with millions of participants, that’s a tall order.

There is a saner approach, one that doesn’t require you spending half your life watching CNBC and checking Bloomberg. This approach is methodical and research-based, a world away from the financial news circus.

The alternative consists of looking at data over long time periods and across different countries and multiple markets. The aim is to find factors that explain differences in returns. These return “dimensions” must be persistent and pervasive. Most of all, they must be cost-effective to capture in real-world portfolios.

This isn’t a traditionally active investment style where you focus on today’s “story” and seek to profit from mistakes in prices, nor is it a passive index approach where you seek to match the returns of a widely followed benchmark.

This is about building highly diversified portfolios around these dimensions of higher expected returns and implementing consistently and at low cost. It’s about focusing on elements within your control and disregarding the daily media noise.

Admittedly, this isn’t a story that’s going to grab headlines. Using the research-based method and imposing a very high burden of proof, this approach resists generalization, simplification, and using one-off events to jump to conclusions.

But for most investors, it’s the right story.

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Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor registered with the Securities and Exchange Commission.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.

Copyright © 2014 by Dimensional Fund Advisors LP. All Rights Reserved