Two Documents Your Estate Plan Must Have Now!!!

Power of attorney

LegalZoom defines power of attorney (POA) as, “a document you can use to appoint someone to make decisions on your behalf. The person you designate is called an ‘attorney-in-fact.’” There are three main elements for a valid POA: (1) the person signing the document (the principal) must be mentally competent and acting without undue pressure from anyone; (2) the document must contain the date of execution; and (3) the signature must be notarized or be witnessed by two unrelated adults. State laws vary, so see an attorney for advice.

There are several important reasons for having a POA. For one, if there is no designated agent, the state may step in and appoint a guardian, a decision over which the family will have no say. Also, it is critical to have a financial overseer if and when a senior’s mental health declines.

In practice, a POA is very flexible, suiting the needs of each individual family. It can be “special” or “limited,” meaning that authority is granted only for a set period of time or for a particular transaction. No other powers are given. Conversely, a durable power of attorney allows an agent to manage all the affairs of the principal for any length of time, although it does expire at the time of death. A springing POA goes into effect only when a specific, predetermined event occurs, i.e., the principal becomes incapacitated. It can be durable or limited. Also, the agent can be granted as many or as few powers as the principal wants.

Caution needs to be taken when choosing an agent, especially in regard to financial matters. Dishonest agents have used POAs as opportunities to steal from unsuspecting seniors. We encourage you and your loved ones to sign a POA.

In fact, it might be you who is chosen to take on the role of attorney-in-fact. Caring.com, an online resource for caregivers, offers the following tips for preparing to become a POA:

  • Create a caregiving team—people who can advise you and be the resource you need to make good decisions.
  • Consider all ramifications of a decision, not giving in to what others may think or pressure from doctors or professionals. Choose what is best for your family member.
  • Do some research on accounting, medical terminology, and counseling.
  • Give yourself permission to make mistakes.
  • Know the current state of affairs for the person you will be representing, both financially and medically.
  • Establish a cordial relationship with the rest of the family.

Health care directive

A health care directive is also referred to as a medical power of attorney or an advance directive. LegalZoom defines a health care directive as a “document that explains a person’s health care preferences when he or she is unable to make those choice for him or herself.” Some directives may designate a health care agent, a person given the authority to make medical decisions on the principal’s behalf.

A health care directive is not the same as a living will. A living will is limited to situations when the principal is terminally ill or permanently unconscious. It does not apply to any other situations where medical decisions might need to be made. However, a living will can be useful to give some guidance to the health care agent.

WebMD gives these guidelines about choosing, or helping a parent choose, a health care agent:

  • Choose someone you trust, who knows you well and who can handle stress and emotional turmoil.
  • Consider medical issues and your care options, then take the time to put them in an advance directive and/or discuss your values and preferences with the agent.
  • Don’t assume that a child or spouse knows what you want. Talk openly about your wishes.
  • It’s not possible to discuss every situation that would arise, so choose someone who knows what is important to you.
  • Check with your state about required documents. Make sure you complete everything.
  • Tell your family, doctors, and anyone else involved in medical care who your agent is.

We all hope our loved ones remain healthy and capable as long as possible, but the reality is that they will one day become compromised at some level. Be assure that getting your elders to choose now who will make decisions when they cannot is actually the best way to preserve their independence.

Schwartz Financial Weekly Commentary 11/20/17

The Markets

Are investors more like tigers or African wild dogs?

It appears investors – retail and institutional – have become rather like predators. They patiently stalk shares, waiting for a dip, and then they strike – buying stocks when prices fall.

Consider last week. Barron’s described it like this: “The Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170 points on Wednesday, but each time the blue-chip benchmark finished off its lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone bought the dips.”

Investors’ remarkable behavior led the publication to speculate, “What if higher volatility, instead of scaring investors away from the stock market, brings them in? In that case, this bull market could still have a long way to go.”

Buying low and selling high is a foundational principle of investing. However, it remains to be seen how successful buying dips will prove to be in a market that some believe is too highly valued.

One measure of valuation is the 12-month trailing price-to-earnings (P/E) ratio, which tracks a company’s current share price against its earnings during the previous 12 months. Last week, FactSet reported the trailing P/E ratio for the Standard & Poor’s 500 Index was 22. The five-year average is 18.2, and the 10-year average is 16.9. Some prefer to look at forward P/E ratios, which compare share price to expected future earnings. The forward P/E ratio for the Standard & Poor’s 500 Index was 18, while the five-year average is 15.7, and the 10-year average is 14.1.

Only time will tell whether investors’ dip buying will more closely resemble the hunts of tigers or those of African wild dogs. When hunting prey, tigers are successful 5 to 10 percent of the time. African wild dogs take down prey 85 percent of the time, according to BBC’s Discover Wildlife.

As always, much will depend on the investments selected.

Data as of 11/17/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.1% 15.2% 17.9% 8.1% 13.2% 6.1%
Dow Jones Global ex-U.S. -0.4 20.8 24.5 3.9 5.6 -0.4
10-year Treasury Note (Yield Only) 2.4 NA 2.3 2.3 1.6 4.1
Gold (per ounce) 0.0 10.8 4.7 2.8 -5.8 5.1
Bloomberg Commodity Index -0.6 -0.9 4.9 -9.6 -9.5 -7.0
DJ Equity All REIT Total Return Index -0.6 9.3 16.2 8.3 11.0 7.5
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

and now for something completely different. Online sales aren’t the only threat to traditional brick-and-mortar retailers. Direct-to-consumer (DTC – also abbreviated as D2C) companies have been implementing a brand new business model. They’re skipping retailers and selling direct to consumers. Early entries in the DTC space targeted product areas dominated by big, established companies that have been enjoying high profit margins. DTC firms often are offering better price points and far superior customer service, reports Forbes.

In the future, some may remember the emergence of DTC as the onset of the razor wars. In 2010, the world’s largest razor blade company had 70 percent market share in the United States. Its gross margins (sales minus the cost of the product) were as high as 60 percent, reported The Economist. Soon after, the company found itself competing with two subscription razor blade services offering no cost trials and money-back guarantees. The DTC business model proved to be attractive and the market share of the world’s largest maker of razor blades has fallen to 54 percent.

Will DTC have staying power? The Economist wrote:

“…a growing number of startups are reimagining everyday household items – from pants and socks to toothbrushes and cookware. These [DTC] companies bypass conventional retailers and bring their products straight to customers via their online stores. They began several years ago to catch the attention of venture-capital (VC) firms, which have poured in more than $3bn since 2012. But the success of some [DTC] firms has attracted a lot of wannabes, making this a crowded market and leaving some wondering whether the boom has reached its limits.”

While analysts ponder the viability of the new business model, the behemoths of consumer goods and retailing have begun buying DTC firms. Consequently, we may see a steady stream of new entrants to the market.

We hope you have a wonderful Thanksgiving celebration!

Weekly Focus – Think About It

“Intelligence alone does not get us where we need to go or even necessarily where we want to go. For that, the human creature must exercise harder-won capacities of wisdom, and wise action.”

–Krista Tippett, American journalist and author

Value vs. Growth Investing (11/17/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.10 17.03 0.97 7.01 20.08 10.29 16.01
US Core -0.19 16.75 0.46 5.93 19.72 10.29 16.66
US Growth 0.29 26.35 2.42 8.71 26.98 11.54 16.81
US Large Cap -0.20 18.16 0.90 6.55 21.40 10.56 16.02
US Large Core -0.69 18.17 0.24 5.18 21.08 10.71 17.05
US Large Growth 0.03 27.71 2.39 8.17 28.63 12.16 17.30
US Large Val 0.03 9.25 -0.10 6.11 14.75 8.72 13.73
US Mid Cap 0.81 15.28 1.47 7.86 17.35 9.70 16.23
US Mid Core 0.95 15.29 1.34 7.62 18.01 9.42 15.96
US Mid Growth 0.91 23.12 2.74 9.70 22.39 9.37 15.28
US Mid Val 0.54 7.55 0.16 6.06 11.35 10.17 17.42
US Small Cap 1.15 10.84 0.28 9.37 14.72 9.19 15.19
US Small Core 1.37 8.03 -0.01 8.25 12.15 8.92 15.18
US Small Growth 1.30 21.50 1.86 11.86 23.20 11.01 15.86
US Small Val 0.75 3.38 -1.23 7.82 8.85 7.52 14.39
US Value 0.18 8.50 -0.12 6.21 13.65 8.95 14.54
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

Keep Your Fork . . .

There was a woman who had been diagnosed with a terminal illness and had been given three months to live.  So as she was getting her things “in order,” she contacted her pastor and had him come to her house to discuss certain aspects of her final wishes.

She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.  The woman also requested to be buried with her favorite Bible.  Everything was in order and the pastor was preparing to leave when the woman suddenly remembered something very important to her.

“There’s one more thing,” she said excitedly.

“What’s that?” came the pastor’s reply.

“This is very important,” the woman continued, “I want to be buried with a fork in my right hand.”

The pastor stood looking at the woman, not knowing quite what to say.

“That surprises you, doesn’t it?” the woman asked.

“Well to be honest, I’m puzzled by the request,” said the pastor.

The woman explained.  “In all my years of attending church socials and potluck dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.”  It was my favorite part because I knew that something better was coming . . .like velvety chocolate cake or deep-dish apple pie.  Something wonderful, and with substance!  So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder, ‘What’s with the fork?’  Then I want you to tell them:  ‘Keep your fork.  The best is yet to come.’”

The pastor’s eyes welled up with tears of joy as he hugged the woman good-bye.  He knew this would be one of the last times he would see her before her death.  But he also knew that the woman had a better grasp of heaven than he did.  She knew that something better was coming.

At the funeral, people were walking by the woman’s casket and they saw the pretty dress she was wearing and her favorite Bible and the fork placed in her right hand.  Over and over the pastor heard the question:  “What’s with the fork?”  and over and over he smiled.

During his message, the pastor told the people of the conversation he had with the woman shortly before she died.  He also told them about the fork and about what it symbolized to her.  The pastor told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either.  He was right.

So the next time you reach down for your fork, let it remind you, oh so gently, that the best is yet to come.

PLEASE ESPECIALLY THIS YEAR, AFTER ALL THIS NATION HAS BEEN THROUGH, HAVE A VERY HAPPY THANKSGIVING!

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

 

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

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* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

Keep Your Fork . . .

There was a woman who had been diagnosed with a terminal illness and had been given three months to live.  So as she was getting her things “in order,” she contacted her pastor and had him come to her house to discuss certain aspects of her final wishes.

She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.  The woman also requested to be buried with her favorite Bible.  Everything was in order and the pastor was preparing to leave when the woman suddenly remembered something very important to her.

“There’s one more thing,” she said excitedly.

“What’s that?” came the pastor’s reply.

“This is very important,” the woman continued, “I want to be buried with a fork in my right hand.”

The pastor stood looking at the woman, not knowing quite what to say.

“That surprises you, doesn’t it?” the woman asked.

“Well to be honest, I’m puzzled by the request,” said the pastor.

The woman explained.  “In all my years of attending church socials and potluck dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.”  It was my favorite part because I knew that something better was coming . . .like velvety chocolate cake or deep-dish apple pie.  Something wonderful, and with substance!  So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder, ‘What’s with the fork?’  Then I want you to tell them:  ‘Keep your fork.  The best is yet to come.’”

The pastor’s eyes welled up with tears of joy as he hugged the woman good-bye.  He knew this would be one of the last times he would see her before her death.  But he also knew that the woman had a better grasp of heaven than he did.  She knew that something better was coming.

At the funeral, people were walking by the woman’s casket and they saw the pretty dress she was wearing and her favorite Bible and the fork placed in her right hand.  Over and over the pastor heard the question:  “What’s with the fork?”  and over and over he smiled.

During his message, the pastor told the people of the conversation he had with the woman shortly before she died.  He also told them about the fork and about what it symbolized to her.  The pastor told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either.  He was right.

So the next time you reach down for your fork, let it remind you, oh so gently, that the best is yet to come.

PLEASE ESPECIALLY THIS YEAR, AFTER ALL THIS NATION HAS BEEN THROUGH, HAVE A VERY HAPPY THANKSGIVING!

GOP Tax Bill (Currently)

“All things are ready, if our mind be so.
William Shakespeare, Henry V

You’ve probably heard that Republicans in Congress are working to enact the first major tax reform since the Reagan administration.  Rewriting our nation’s tax code is a major undertaking, and if successful, will impact everyone’s finances.  I’ve had a lot of clients ask me about it lately, so while I do not give tax advice, I thought it would be good to do a quick rundown of the Republicans’ tax plan and what the effects might be.

Taxation is a politically-charged subject, of course.  In this case, things are further complicated by the fact that tax reform is being coupled with tax cuts.  Add to that raging debates over everything from health care to our national deficit, and you can see why it’s so hard for meaningful reform to happen.  Everyone has an opinion, because everyone’s got a stake.

I have opinions of my own, of course, but I’m not a political analyst.  I’m your financial advisor.  So, I’ve tried to write this letter to be as neutral as possible.  For that reason, you’re about to see a lot of numbers.

Taxes are a big part of life, and while it’s impossible to know all the ramifications, I believe if we start mentally preparing ourselves for change, we’ll be better equipped to handle it when it comes.  Hence the quote by Shakespeare: “All things are ready, if our mind be so.”

So, without further ado, let’s have a Question & Answer session.  On the following pages are my answers to some of the most frequently asked questions I’ve been hearing on tax reform.  If you have any further questions, or would like to discuss more about how tax reform may affect you, please don’t hesitate to let me know.

Republican Tax Plan Q&A

Q: What exactly are Republicans trying to do – and why? 

Might as well start with the basics.  During last year’s presidential campaign, Donald Trump promised significant tax cuts, something long advocated by most Republican politicians.  But because Republicans now control the White House and both chambers of Congress, they decided to pair tax cuts with a more ambitious goal: rewriting the entire tax code.

Over the decades, our nation’s tax code has ballooned in size.  It contains so many provisions, credits, loopholes, and deductions that it takes a true professional – or a well-coded piece of software – to understand it all.  In fact, Republicans claim the tax code has inflated 169% over the past thirty years.1

Both parties generally agree tax reform is needed, but it’s there that consensus ends.  That’s because tax reform inevitably means changes…and even members of the same political party often disagree on what those changes should be.  That’s why there hasn’t been a significant overhaul of the tax code since 1986.

Q: What have Republicans done so far? 

On September 27, President Trump unveiled his version of tax reform, as decided on by members of his cabinet and certain key members of Congress.  From there, the action moved to the House.  (That’s because Article I of the Constitution dictates all bills raising revenue must originate in the House.)

After over a month of debate, the House Ways and Means Committee released the “Tax Cuts and Jobs Act.”  On November 6, the Committee began what’s called a “markup” of the bill, where members can propose changes and rewrites before the bill goes to the rest of the House for a vote.

On November 9, the Senate Finance Committee released their own version of the bill, which contains some significant differences.  Let’s start by examining the House version.

Q: What does the “Tax Cuts and Jobs Act” do, exactly? 

Okay, take a deep breath.  There’s a lot of ground to cover here.  Broadly speaking, the bill does the following:

  • Reduce the number of personal income brackets
  • Remove or restrict many different tax breaks
  • Abolish both the estate tax and the alternative minimum tax
  • Cut corporate tax rates

Let’s take each of these one at a time.

Personal Income Brackets

Currently, there are seven tax brackets.  This bill will reduce that number to four.  (This differs from President Trump’s original plan, which called for only three brackets.)  See the table on the following page for more information. 2

Current Tax Brackets Proposed Tax Brackets Income for Individuals Income for Married Couples
10% 12% $12,000-$45,000 $24,000-$90,000
15%
25% 25% Up to $200,000 Up to $260,000
28%
33% 35% Up to $500,000 Up to $1 million
35%
39.6% 39.6% Above $500,000 Above $1 million

For most individuals earning $12,000 or less, and couples earning $24,000 or less, the tax rate is essentially zero.

Naturally, whether people actually pay more or less will come down to a variety of factors, not just which bracket they fall in.  That’s because of changes to both…

Standard & Itemized Deductions

As the IRS explains it, the standard deduction is a “dollar amount that reduces the amount of income on which you are taxed.”3  Under the Tax Cuts & Jobs bill, the standard deduction would go from $6,350 to $12,000 for singles, and from $12,700 to $24,000 for married couples filing jointly.4

But when it comes to the standard deduction, there’s a catch: you can’t take it if you itemize deductions.  So, while the bill doubles the standard deduction, that benefit could be offset for many people because of changes to itemized deductions.

Here are some changes to common itemized deductions.

Mortgage interest: Currently, people can deduct up to $1 million on mortgage interest payments for newly purchased homes.  The bill retains this deduction, but lowers the cap to only $500,000.  Additionally, homeowners can only deduct mortgage interest on their principal residence.  This deduction does not apply to a second home.4

State and local taxes: A popular deduction is to write off state and local tax payments from federal tax payments.  Originally, the Republican tax plan called for removing this particular tax break altogether, and you may have seen that reported in the news.  This did not sit well with representatives from high-tax states, however, so a compromise was reached.  Now, the bill specifies that people can still deduct up to $10,000 on local property taxes, but can no longer deduct other state and local taxes, like income or sales taxes.4

Medical expenses, tax preparation fees, alimony payments, student loan interest and moving expenses:  All these tax breaks are eliminated under the bill.5

On the other hand, the bill expands the child tax credit from $1,000 to $1,600 for any child under seventeen.  Additionally, this credit would be available to more people.  Currently, married couples making over $110,000 a year are ineligible for the tax credit; the bill raises that level to $230,000.5

Eliminating the AMT and Estate Tax

The Alternative Minimum Tax (AMT) is a tax on a certain range of high-income people, specifically those who make between $200,000 and $1 million.  It was designed to “prevent taxpayers from escaping their fair share of tax liability through tax breaks8”; however, the AMT has often been derided as unfair and needlessly complex.  The House Republican tax plan would abolish the AMT, which is welcome news for many investors.

The estate tax, meanwhile, has long been in the cross-hairs of many Republicans, who believe it’s inherently unfair to tax someone’s estate after death, since they have already paid taxes on that estate while alive.  The bill would repeal this tax entirely, albeit not until 2024.

Corporate Tax Rates

One of the centerpoints of the bill is what it does for businesses.  Here are some of the most significant changes:

  • Permanently reduce the top corporate tax rate from 35% to 20%. Additionally, the bill would abolish the corporate version of the AMT.6
  • Allow businesses to write off any new equipment costs. However, this deduction expires after five years. 6
  • Decrease the pass-through rate to 25% from 39.6%.6 A pass-through is a type of business where business income is passed directly to the owners.  That means only the owner is taxed, not the business itself.  This is designed to prevent business owners from effectively having to pay taxes twice, on both their personal income and their business income.
  • Create a minimum tax on foreign earnings so corporations can’t just move their money overseas and not pay taxes. 6

Q: What does the bill NOT do? 

During the runup to the bill’s release, the media reported many possible changes, some of which didn’t end up making it into the final bill.  For example:

  • Previously, it was reported that some Republicans were considering lowering the cap on 401(k) pre-tax contributions. This is NOT in the current bill.
  • The bill also does NOT make any changes to the Earned Income Tax Credit, a break specifically for lower-income families.
  • Most importantly for investors, the bill leaves taxation on investment income untouched. This includes taxes on dividends and capital gains.  However, it should be noted that some investors may pay less in taxes on investment income because the plan would move them to a lower tax bracket.

Q: Okay, so what happens now? 

In two words: a lot.

In more words: as of this writing, Senate Republicans have just released their own tax plan.  (More on this in a moment.)  Assuming both bills pass in their respective chambers, the Joint Committee on Taxation would take over.  This is a small group of senators and representatives whose job is to meld the two bills into one before sending it to the White House for the president’s signature.

Here’s the thing: while all that sounds simple enough, politics make it anything but.

Currently, Republicans own a much slimmer majority in the Senate than they do in the House.  As a result, they have two options when it comes to passing a tax bill: recruit Democratic support, or use a process called budget reconciliation.

Given the unlikelihood of the two parties working together, Republicans are likely to use the second approach.  Reconciliation allows certain bills that change spending, revenue, or federal debt to be passed with a simple majority.  That means Republicans in the Senate can pass their bill with only 51 votes.  To use budget reconciliation, though, the bill must not increase the Federal deficit by over $1.5 trillion over ten years.7

While budget reconciliation effectively gives Republicans a way to hold off Democratic opposition, it also creates a problem.  They cannot afford any dissension in their own ranks.  If more than a few Republicans decide not to back the bill, reconciliation dies – and in all likelihood, the bill with it.  This is what happened when Senate Republicans tried to repeal the Affordable Care Act earlier in the year.

Here’s why this little civics lesson matters: the Senate Republicans’ plan contains significant changes from the House version, in order to win the support of both moderate and conservative Republicans senators, who tend to have different priorities.

Q: What differences does the Senate version of the bill contain? 

A few examples: under the Senate version, the new corporate tax rate described above does not go into effect until 2019, whereas the House version kicks in immediately.9  Additionally, the Senate bill does not repeal the estate tax, in order to appease members of the party’s moderate wing.

But those probably aren’t even the biggest changes.  Remember how the House plan reduced the number of individual tax brackets from seven to four?  The Senate bill retains those seven brackets, although the rates for some of those brackets have changed.  The top tax bracket, for instance, would decrease from 39.6% to 38.5%.9

Furthermore, the Senate version “fully removes the ability of households to deduct their state and local taxes” from their federal taxes.9  (The House version, you’ll recall, allows people to still deduct their state and local property taxes.)

These are major departures from both the House bill and President Trump’s original plan.  It remains to be seen how the two bills will be reconciled…or if they even can be.

Q: So that means we don’t really know what the final tax bill will look like? 

Exactly.  In the end, it could be fairly close to everything we talked about in this letter.  Or, certain provisions could look very different.

Q: Then why do I need to know about any of this? 

Preparation!  When it comes to your finances, it’s always good to avoid surprises.  By knowing which changes are being considered, we can start to prepare ourselves for how those changes will affect us.  As Shakespeare said, “All things are ready, if our mind be so.”

Or, as I like to put it: “No one ever wished they were less prepared.”

Q: What do we do now? 

My team and I will continue to monitor all the news coming out of Washington.  As both the Senate and House bills move down the pipe, we will keep tabs on any changes and how they may affect you.

This letter is not intended to be a complete, exhaustive breakdown of everything in the Republican tax plan.  So, here’s what you should do: stay informed, and write down any questions you have whenever they occur to you.  Hear something on the radio that doesn’t make sense?  Write it down.  Read something in the newspaper and want to know what it means?  Write it down.  Then, feel free to contact me with any questions.  As always, I’ll do my best to answer them.

Additionally, if you would ever like me to confer with your personal tax advisor, I would be happy to do so.

Finally, always remember that we at Schwartz Financial are here to help you feel confident about your financial future.  Please let us know if there’s ever anything we can do.

Sources

1 “A Better Way: Our Vision for a Confident America,” Speaker of the House, June 24, 2016.  https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf

2 Alice Parlapiano, “Six Charts That Help Explain the Republican Tax Plan,” The New York Times, November 2, 2017.  https://www.nytimes.com/interactive/2017/09/27/us/politics/six-charts-to-explain-the-republican-tax-plan.html

3 “Standard Deduction at a Glance,” Internal Revenue Service, https://www.irs.gov/credits-deductions/individuals/standard-deduction-at-a-glance

4 “What’s in the Republican tax reform bill,” The Washington Post, November 2, 2017.  https://www.washingtonpost.com/graphics/2017/business/tax-bill-q-and-a/?utm_term=.4b27a352d293

5 Jeanne Sahadi, “What’s in the House tax bill for people,” CNN Money, November 3, 2017.  http://money.cnn.com/2017/11/02/news/economy/house-tax-reform-bill-individuals/index.html?iid=EL

6 David Floyd, “Trump’s Tax Reform Plan,” Investopedia, November 9, 2017.  https://www.investopedia.com/news/trumps-tax-reform-what-can-be-done/

7 Bob Bryan, “Republicans just passed a huge tax reform test by the skin of their teeth,” Business Insider, November 2, 2017.  http://www.businessinsider.com/trump-gop-tax-reform-bill-deficit-debt-budget-2017-11

8 “Alternative Minimum Tax – AMT,” Investopedia, https://www.investopedia.com/terms/a/alternativeminimumtax.asp?lgl=myfinance-layout-no-ads

9 Richard Rubin, “Senate Tax Plan Differs from House,” The Wall Street Journal, November 9, 2017.  https://www.wsj.com/articles/senate-tax-plan-differs-from-house-on-individual-rates-timing-of-corporate-rate-cut-1510257621

 

 

Schwartz Financial ­Weekly Commentary 11/6/17

The Markets

“Taxes are what we pay for a civilized society.”

U.S. Supreme Court Justice Oliver Wendell Holmes’s statement is engraved on the front of the Internal Revenue Service building in Washington, D.C. Some people agree with the sentiment. Others believe it to be a logical fallacy.

It’s likely the tax plan proposed by House Republicans last week had all of them talking, regardless of position on the opinion spectrum. Some of the changes suggested in the proposal include:

  • Reducing current marginal income tax brackets from seven to four (12, 25, 35, and 39.6 percent). The New York Times reported, “While the lowest income rate would increase, typical families in the existing 10 percent bracket would most likely be better off because of a larger child tax credit and an increase in the standard deduction.”
  • Repealing the Alternative Minimum Tax.
  • Increasing the standard deduction to $12,000 for individuals and $24,000 for married couples, while eliminating personal exemptions (the $4,050 exemptions you claim for yourself, your spouse, and your dependents).
  • Repealing state and local tax deductions.
  • Reducing (and eventually eliminating) estate taxes.
  • Setting the corporate tax rate at 20 percent. Financial Times wrote, “This will not increase wages or growth by much, and nowhere near the wild claims made by its proponents. But a lower rate combined with a broader tax base is not a terrible idea…To pay for the cuts, the tax law writers have gone after corporate deductions…”
  • Eliminating medical expense deductions. The Hill explained, “Under current law, the IRS allows individuals to deduct qualified medical expenses that exceed 10 percent of a person’s adjusted gross income for the year. The bill would repeal that itemized deduction, effective in 2018.”

In addition to headline news about tax reform, investors contemplated the appointment of Jerome Powell as the next Chair of the Federal Reserve and embraced strong earnings. The Standard & Poor’s 500 Index, Dow Jones Industrial Average, and NASDAQ closed at record highs last week.

Data as of 11/3/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.3% 15.6% 23.9% 8.7% 12.8% 5.6%
Dow Jones Global ex-U.S. 0.9 21.6 22.9 4.0 5.4 -0.9
10-year Treasury Note (Yield Only) 2.3 NA 1.8 2.4 1.7 4.3
Gold (per ounce) 0.1 9.3 -2.6 2.8 -5.5 4.6
Bloomberg Commodity Index 1.2 -0.7 3.9 -9.6 -9.1 -7.1
DJ Equity All REIT Total Return Index 1.2 7.0 14.0 7.2 10.2 6.8
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

are you bullish about Pet Tech? Early in the last century, authors like Anna Sewell (Black Beauty) and Jack London (White Fang) wrote stories that encouraged readers to understand and empathize with animals. Today, entrepreneurs are developing devices to help people better understand pets. Here are a few innovations in the pet-tech space that may (or may not) become household necessities or in-demand holiday gifts:

  • Remote control pet interaction. You may be sitting in your office, miles from home, but that doesn’t mean you can’t pull out your smartphone and fling a treat to Fido or shine a laser for Boots to chase. That’s right, interactive pet cameras let you see, feed, talk to, and play with your pet when you’re far away.
  • Pet insight software. A tech writer at Slate wrote, “For the most part, [my cat’s] feelings, daily activities, and health are a black box to me.” Apparently, it’s a common issue. Entrepreneurs have invested $10 million to develop “deep learning software that can analyze the huge quantities of pet video…to learn more about animal behavior and how it’s linked to animal health issues and moods.”
  • Fitness trackers for pets. Pet owners who suspect their animals are too sedentary may want to invest in smart collars for their pets. Some collars track temperature, heart rate, heart rate variability, activity, calories burned, and more. Once a normal baseline has been established, pet owners may be able to spot anomalies that signal health issues.
  • Robotic pets with artificial intelligence. Perhaps, you just don’t have the time to feed, walk, and play with a pet. Maybe, you travel too much or dislike the household wear and tear associated with pets. If you want a pet that behaves perfectly and requires less care, you may want to consider a robotic alternative that’s “packed with an array of sensors, cameras, microphones, and internet connectivity, as well as far more advanced AI backed by cloud computing to develop the dog’s personality,” according to The Guardian.

It’s a high-tech world, after all.

Weekly Focus – Think About It

“Lots of people talk to animals…. Not very many listen, though…. That’s the problem.”

–Benjamin Hoff, Author of The Tao of Pooh

Value vs. Growth Investing (10/27/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.23 17.16 1.98 5.29 26.76 10.74 15.18
US Core 0.14 16.81 1.49 4.63 25.97 10.84 15.91
US Growth 0.64 25.93 3.58 6.55 32.69 11.71 16.01
US Large Cap 0.31 18.62 2.42 5.43 27.32 11.19 15.23
US Large Core 0.44 18.74 2.05 4.79 27.00 11.57 16.38
US Large Growth 0.59 27.44 3.97 6.31 33.11 12.40 16.52
US Large Val -0.12 10.31 1.10 5.05 22.02 9.53 12.80
US Mid Cap 0.21 14.39 1.28 4.70 24.64 9.69 15.33
US Mid Core -0.38 14.08 0.77 4.32 23.56 9.25 15.05
US Mid Growth 0.88 22.05 2.84 6.75 30.07 9.47 14.42
US Mid Val 0.12 7.20 0.10 2.82 20.06 10.25 16.51
US Small Cap -0.60 10.61 -0.47 5.63 26.99 9.09 14.21
US Small Core -1.20 7.24 -1.72 3.92 23.76 8.61 14.09
US Small Growth 0.43 21.39 1.74 8.64 35.56 10.72 15.03
US Small Val -1.16 3.62 -1.64 4.18 21.45 7.79 13.39
US Value -0.14 9.23 0.72 4.56 21.65 9.58 13.61
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Happenings:

Nothing Surprises Me

Having been a financial advisor for [number] years, I rarely encounter anything that surprises me; but last week, I was visiting with a retired client—I’ll call him “Joe”—who asked me if I knew anything about insurance.  What happened after that is what I’d like to share with you:

I told Joe that we offer insurance in many different forms, to satisfy the various estate planning needs of our clients, but we don’t really solicit for it, as you would expect insurance salespeople to do.  When I asked him why he wanted to know, Joe said that he had a policy that he’d bought many years ago and on which, in fact, he was still making a $50 monthly payment.  The death benefit was $50,000.  He told me the only reason he’d asked was because I’d done such a good job for him over the years with his investments.  Not knowing if I could help, I said, “Let me have a copy of your last statement and I’ll see what can be done.”

Well, to my surprise, I was able to show Joe insurance coverage that would double his death benefit and end his monthly payments to boot.  All because he asked!

I believe there are many policies out there just like Joe’s.  If yours is one of them, would you bet on your insurance company contacting you about it?  So long as you’re content with what you have, why would they want to double your life insurance benefit—especially if it means no more premiums for them?

Joe has increased the death benefit of his policy from $50,000 to $100,000 without any out-of-pocket expense—in fact; he is saving that $50 monthly payment—all because he decided to ask me.

So, if you have any old life insurance policies, don’t hesitate to see if they can be improved.  You have nothing to lose and everything to gain.  In case you want to check, just contact my office.

Regards,

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

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