Volume 13, Issue 7


Ahouse once filled with the constant, clamoring sounds of a growing family has grown silent. Family visits have become few and far between. The silence seems deafening. If these thoughts seem familiar, maybe you and your spouse have outgrown a home you once considered to be too small.

Life changes can raise housing questions regarding physical layout, maintenance, location of various resources, social interaction, and consistency with prior lifestyle. If you have lived in the same home for many years, the decisions about future housing can be difficult. Your family home may have provided continuity in terms of familiarity and community, and it may be paid for by the time of retirement. However, its size and maintenance requirements may have been more appropriate to the time when children were home and when your energy was greater. Also, the family home can feel isolating if its location limits access to social support systems (particularly when life-long friends have died or move away).

Although our specific housing needs change as we age, shelter, in any form, is always much more than mere physical comfort. It is a financial, psychological, and social base, which anchors our sense of stability. For this reason, it is common to find people who had moved to warmer climates in their early retirement years later returning to the familiarity of their original communities and the proximity of family and friends.

With many other soon-to-be seniors finding themselves in similar situations, retirement communities, also known as 55+ communities, have become a possible alternative for people looking to downsize their homes. These neighborhoods or complexes, which vary from condominium-style settings to single family homes, usually require that at least one member of the household be age 55 or older.

Retirement communities typically offer an active and independent lifestyle to those who do not require assisted living facilities (ALFs). The Housing for Older Persons Act of 1995 eliminated the requirement that these communities have “significant facilities and services designed to meet the physical and social needs of older persons.” This legislation has increased the popularity of such communities as an alternative for people age 55 and over who do not require assistive care.


Relocation of any kind requires a careful examination of the possible pros and cons. Before selling your home to move to the newest 55+ community, consider the following:

Security. Retirement communities may offer security that a typical neighborhood would not. Generally, they have security guards at the entrance of the neighborhood or building. Knowing this added protection exists, you may sleep more soundly at night.

Recreation. With people living longer than ever before, gone are the days when retirement brings to mind an idle existence. These days, retirement can be as active and as fun as you make it. Generally, retirement communities offer a recreation center that manages group activities that may be as vigorous as sporting events or as leisurely as card games.

Medical Facilities. Many retirement communities have medical facilities located within the property limits. You or your spouse may not require constant care; however, it can be comforting to know that qualified medical professionals are accessible at any time.

Maintenance. Although you might have once considered shoveling snow, mowing the lawn, and picking weeds pleasurable pastimes, they may now be tiresome. Oftentimes, these self-contained neighborhoods handle exterior maintenance—including lawn care and snow removal. A retirement community enables you to enjoy a yard without having to maintain it.

Costs. The services retirement communities provide come at costs that must be considered in addition to typical homeowners’ expenses. Usually, there are entrance fees and monthly maintenance costs (similar to condo fees), which may increase your purchase price by thousands of dollars.

Limited Socialization. While many people consider a retirement community’s socially oriented lifestyle an advantage, some consider it a disadvantage. If transportation is not readily available, the prospect of frequently being surrounded by the same group of people could seem confining.

Determining where you want to spend your “golden years” is a decision that requires serious consideration. However, whether you choose to stay in your current situation, decide to call a retirement community home, or opt to explore other living arrangements, it is important that you are comfortable with your choice.

Touching all the Bases WITH POLICY OWNERSHIP

While it is common to think of life insurance planning in terms of type and amount of coverage, a more complete analysis should also include policy ownership. In many cases, the proceeds of a life insurance policy may be unnecessarily included in your estate unless you plan ahead to avoid this event.

Without insurance, many estates fall below $2,000,000. This is the level at which an
individual’s wealth becomes subject to federal estate taxes for 2007. The proceeds of life insurance can push the value of your estate to a level where the Internal Revenue Service (IRS) will make substantial claims. Indeed, the federal estate tax is a sliding scale that reaches as high as 45% in 2007.

There are two ways to keep insurance proceeds out of your estate:

  1. Give your insurance policies to someone else, generally the beneficiary(ies).

  2. Transfer the policies to a trust.

Either option, if done properly and in a timely manner, will decrease your federal estate tax. You may not need to worry about changing ownership of a policy that names your spouse as the sole beneficiary. The unlimited marital deduction allows the policy proceeds to automatically escape estate taxation. However, you may benefit from transferring your policy out of your estate if the purpose of the insurance is to help pay estate taxes or provide for heirs other than your spouse.

The paperwork involved in changing insurance policy ownership is relatively simple, requiring a form provided by the insurance company. However, you do have to sign away all rights to your policies. That means the gift must be absolute and irrevocable. You cannot change your beneficiaries, and in the case of policies with cash value, you no longer have the right to borrow against them or sell them for their worth in cash.

Keep in mind that if the transfer is done within three years of your death, the policy proceeds are still considered a part of your estate, regardless of ownership. Thus, proper planning is necessary in order to help ensure the desired results.

Ownership of individual and, in most cases, group insurance can generally be transferred to anyone in or out of your family who is old enough to handle money. Depending on your particular circumstances, it may be advisable to give a policy directly to a beneficiary or, in the case of a minor, to a trust that is designed for the benefit of a child.

In all cases, it is important to carefully review the consequences before signing away insurance. For specific guidance, be sure to consult your qualified tax and legal professionals. Gifting insurance may have gift tax consequences if the transfer is to anyone other than your spouse. In 2007, the annual gift tax exclusion is $12,000 per gift to any single donee and $24,000 for gifts made jointly by husband and wife.

For those in higher tax brackets, one useful technique to shelter large policies from estate taxes—and to protect the interests of children as beneficiaries—may be to transfer ownership to an irrevocable life insurance trust (ILIT). When you die, the trustee named by you will distribute income to your beneficiaries or, if necessary, use the proceeds to pay estate taxes.

The issues of policy ownership are no less important than the decisions you make regarding what type of policy and how much insurance you need to fulfill your objectives. When planning your insurance program, take care to cover all the bases.

Note: According to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the federal estate tax will be repealed for exactly one year in 2010. In 2011, it will be reinstated at levels in effect prior to EGTRRA, unless Congress takes further legislative action.

Early Savings Plans: THE TURTLE AND THE HARE
  You have probably heard over and over that one of the best ways to begin a disciplined savings program is to pay yourself first. If you haven’t yet been convinced of the wisdom of this strategy, consider two friends, Early Turtle and Late Hare, who take different approaches to saving.

Early, who feels he needs extra time to reach his objectives, believes in paying himself first and deposits $100 each month for ten straight years into an account earning interest compounded monthly. After ten years, Early stops making deposits and simply leaves the account to grow.

During these ten years, Early’s good friend Late, who tends to procrastinate but feels he can always make up for lost time, intends to save what’s “left over.” However, he spends everything and there is nothing left over to save. Finally, in the 11th year Late decides that it’s “better late than never” and begins making monthly deposits of $100 into a similar account. Late continues making deposits for the next 40 years.

The chart to the right shows the savings growth under two rates of return, 6% and 8%, compounded monthly. Let’s take a closer look to see who wins the race, the turtle or the hare?

At a 6% rate of return, Late ($100,452) finally edges ahead of Early ($98,698) in year 40. However, in those 40 years, Early’s total investment is only $12,000 ($100 per month for the first ten years), while Late’s total investment is $36,000 (nothing for ten years, $100 per month for the next 30 years).

With deposits earning an additional 2%, something dramatic happens: At an 8% rate of return, Late is still chasing Early after 50 years, despite the astonishing fact that Late’s total deposits ($48,000) are now four times as much as Early’s ($12,000)!

Even more startling is the fact that at 8%, the gap between Late and Early widens every year. At 8%, Late can continue depositing $100 per month for the rest of his life and will never catch up to Early!

The lesson is clear: If you want to get ahead, pay yourself first! Make time and compounding interest your chief allies.


  In today’s tech-driven society, you can purchase computer software that will balance your checkbook, figure out your budget, track your investments, and even help take the sting out of filing your income tax return. Even with the best programs, you need to take initiative to make your financial plan a reality.

Whether or not you use computer software to help you get a better grip on your financial life, remember that the following basic strategies can help you achieve a comfortable level of financial security:

Annual Review. It is important to constantly review your financial situation and to meet with your financial professional at least once a year in order to get appropriate recommendations specific to your situation.

Pay Yourself First. Each month, transfer a set amount from earnings to savings or investments. A monthly savings of $1,000, assuming an earnings rate of 8%, will grow to over $180,000 in just ten years.

Reduce Consumer Debt. Avoid high credit card finance charges by paying off balances due monthly. If you must carry a balance, use only cards offering low finance charge rates.

Take Advantage of Tax-Deferred Savings. If you qualify, contribute to an Individual Retirement Account (IRA), 401(k) plan, or other qualified plan that offers tax-deferred savings to help fund your retirement.

Bring Your Estate Plan Up-to-Date. Have your will and any trusts reviewed by an attorney. Similarly, have your insurance agent regularly check your life and disability income insurance policies to assess your need for any new insurance.

Set Long-Term Financial Goals. Work within three time frames, setting one-year, three-year, and ten-year goals. Evaluate your progress each year and make adjustments, as appropriate, to achieve long-term success.

Make a commitment now to start this planning process. Your personal financial future deserves your full attention.

The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2007.