Gerald Loftin
is a Financial Consultant practicing in
Norwood, MA. He offers Investments, Insurance Financial Consulting and Retirement Planning.

Mr. Loftin is a Registered Representative of the Commonwealth Financial Network, member NASD,SIPC

He can be reached at 781-278-9488.

Visit Renaissance Financial Services on the web at:

Winning at the College Financial Aid Challenge

Everyone knows that college costs rise every year. Fortunately, financial aid rises as well. Opportunities for financial aid are greater than ever and widely accessible. Make sure that your finances are in order when it’s time for you to apply for aid.

• Start planning in your child’s sophomore year.
• Reposition assets that are in your child’s name.
• Suggest aid-friendly gifting strategies to relatives.

For most students and their families, available financial aid went up 11.5% for the 2002-2003 academic year to a record $90 billion. In fact, over the past decade, “total aid has increased by 117% in constant dollars,” notes the College Board. Most families can take advantage of financial aid. In fact, at four-year public colleges, more than 60% of students receive some form of aid; at private colleges, that figure jumps to 75%.

To help your family qualify for as much aid as possible, start thinking about aid well before you have to complete your first financial aid form. Here are a few tips to get you started:

1. Start planning for aid before your child’s junior year. Your child’s junior year is just as critical for you as it is for your child. When college aid officers review a family’s financial need, they scrutinize the family’s income and assets in the calendar year that begins when the student is a high school junior. If you start planning early, you have an opportunity to reposition assets or adjust income so that you may qualify for more aid.

2. Consider shifting assets and income before you have to complete aid forms. You’ll have to complete financial aid forms in January of the year your child starts college. But you’ll be reporting your income and assets for the previous year — the calendar year that actually begins in the middle of your child’s junior year of high school. In financial aid terms, that year is considered your “base income year.” To help you qualify for more aid, you’ll want to postpone receiving income or shift some assets before that year begins. In essence, then, you’ll need to start thinking about ways to increase aid when your child begins his or her junior year of high school — and preferably even a year or two before then.

3. Don’t assume you’re ineligible. Every family’s circumstances are different. A number of factors — such as having several children in school at the same time — can dramatically increase your eligibility for aid. Even families with incomes of up to $120,000 per year may find themselves eligible at private schools, and families with incomes of up to $75,000 may find they can receive aid at public universities. But there are no specific guidelines. Consult your investment professional or a college planning specialist to gauge whether you’ll qualify for aid.

4. Think twice about putting savings in your children’s names. Colleges expect children will contribute 35% of their savings to the cost of their education, but parents are expected to contribute only 5.65% of theirs. For that reason, putting assets in your child’s name, such as a Uniform Gifts/Transfers to Minors Act account, can reduce the amount of aid for which your family will qualify. Because parents control the assets in 529 savings plans and certain Coverdell Education Savings Accounts, money in these accounts may be considered in financial aid formulas as the parents’ assets and will have less of an impact on aid.

5. Encourage grandparents to help pay for college in the right way.
Many grandparents know that if they make payments directly to a college to help pay for a grandchild’s tuition, those payments are exempt from any gift taxes. The money can be removed from their estate without losing any portion of the lifetime credit they can use to escape a portion of estate taxes. But colleges look at such payments as an additional resource that families have to pay for college. Every dollar that a grandparent contributes, then, can reduce an aid package by a dollar. (Even trusts set up for a grandchild are viewed as a student asset and may reduce the aid package.) Grandparents can still receive estate tax and gifting benefits if they make contributions to a 529 plan you or they have established for the child.

6. Don’t spend too much time looking for third-party scholarships. If you take money from a third-party group such as a foundation that supports female timpanists, colleges will view that scholarship as an additional resource for your family and reduce the amount of aid they grant to you dollar for dollar. If aid is possible, spend your time planning ways to receive the highest possible aid award from colleges. Clearly, if you have no hope of receiving aid, you should tap every source you can.

Next month I'll discuss how you can apply for aid, including the application process, and some sources for grants and loans.

Ask Gerald...

Send your question to gloftin@blackbostononline.com
or fax it to 1-781-278-9489
Be sure to insert
"Financial Matters"
in the subject field of your email.

We'll post your question along with Gerald's answer on this page next month.

Be informed and improve your financial health!


Start Building Your Credit Today

Do You Have the Right Mortgage?

Put Your Trust in Trusts

The REIT Stuff

The 411 on Reverse Mortgages - Part I

The 411 on Reverse Mortgages - Part II

Family Style Affirmative Action Using Retirement Plans and Life Insurance

Your Annual Financial Check-Up

Tax Prep Tips

Divorce and Your Finances

Socially Responsible Investing

Patience is a Virture

Raising Financially Savvy Kids

Business Retirement Planning

Charitable Planning

Protecting Yourself Against Identity Theft

The ABCs of Investing

What You Should Know About Long-Term Care

New Tax Law Creates Opportunities

How to Save for College……and do it TAX-FREE!

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Start Building Your Credit Today

As part of a comprehensive wealth accumulation discussion, I talk with individuals about the importance of home ownership. In many cases accumulating enough funds for the down payment/closing costs and securing a loan are key areas that have to be addressed. Should credit problems become a stumbling block, I often recommend a secured credit card as the best way to start building/repairing your credit. If you are a student, you may qualify for a student credit card. Not only does a good credit history determine your credit worthiness but landlords, banks and even employers read this report to assess your track record of financial responsibility.

Credit cards are not a luxury. They are required financial tools. If you travel, you need a credit card to book flights, reserve hotel rooms and rent cars. Plus the “convenience” of buying consumer items is very much credit card orientated.

Before you obtain an unsecured credit card, loan or mortgage you first need to prove your "credit worthiness". The way to do this is to establish good credit history and one of the easiest ways to get started is getting a secured credit card.

A secured credit card is backed by your personal savings. Unlike an unsecured credit card you will need to make a deposit before receiving your card. This can be submitted instantly by including your bank details when completing a secured credit card application. Generally, once a deposit is made to a secured credit card company your deposit is safe and also makes monthly interest. The secured credit card is then mailed to you typically between 5-10 business days.

There are numerous secured credit cards on the market. You should pick the one that will best fit your particular financial situation. Like all consumer purchases it is best to shop around. There are various interest rates, security deposit requirements, and fees. To get your secured credit card you should be ready to spend from $50 to $500 out of your pocket.

Credit may vary between cards but is usually around 20% of your total deposit. For instance, if you were to deposit $500 you would receive a credit line of $600. You will be able to use your major secured credit card for virtually all purchases. Providing you make your minimum payments on time, the growth of your credit will get reported to all the main credit bureaus every month. Equifax, Experian, and TransUnion are the major credit bureaus. In some states, you are entitled to a free copy of your credit report annually.

Soon you will have established a “positive” credit history to receive an unsecured credit card with a higher credit limit or even that mortgage loan.


Do You Have the Right Mortgage?

Often I am asked questions concerning home mortgages due to the current historically low interest rate environment many of my client’s have taken advantage of to refinance mortgage debt, move up to a larger home and buy a second or even third property. One of the easiest ways to figure out if your current mortgage is best suited to your particular situation is by asking yourself, “How long will I be in the house?” You probably can’t answer with absolute certainty, but you can play the odds.

Let us assume, for example, you are single and plan to buy a small condo but you can easily envision yourself married in a few years; or you’ve just started a family and plan to trade up to a new home in five to seven years. In both of these cases an ARM (Adjustable Rate Mortgage or Variable Rate) would probably best meet your financial needs. On the other hand, maybe you’ve had your family and want to settle into a place with a good school system that your kids will need for the next 12 years. Here, a fixed rate mortgage will probably best suite your need.

Where a fixed rate mortgage locks in a rate for the length of your loan (between 10 and 30 years), an ARM rate is fixed for a short period of time (usually between 1 to 10 years) and then varies every year after that period. The longer the rate is fixed, the higher the interest rate you’ll get. Generally speaking, ARMs will cost you less in the short-term.

The risk with an ARM is that if you stay in the property longer than the allotted fixed period the initial low interest rate could rise. What is worse, you could end up paying much more than you bargained for than if you had just went with a fixed rate originally.

Let’s say you need a mortgage of $150,000. A 30 year fixed rate of 6% will give you a mortgage payment of $900 a month whereas a 5/1 ARM at 4.875% will give you a mortgage payment of $794. This is a savings of $106 per month and $6,360 over the first five years of the loan. You could use this additional money to fund your child’s education, reduce monthly debt or add it to your retirement savings. This $6,360 could be worth over $76,000 if invested at 10% annually for 25 years. Why give more of your hard earned savings to a bank if you don’t have to.

The general rule is if you plan on owning your home for 7 years or more, a fixed rate mortgage is probably best. However, if you think you will be moving before 7 years, then an ARM might make more sense. Be sure to shop around for the most competitive rate you can find.

Take care,





No longer just for the super-rich, trusts are becoming an important method of estate planning for more and more people concerned with the management and distribution of their legacy.

A trust is a written, legal arrangement that allows you to arrange for the transfer of property or assets in order to take care of a third party. There are three parties involved in the execution of a trust. First, there is the donor (also known as a grantor or a settlor) who provides the assets to be passed along, and who also decides the terms of the trust.

The donor chooses the beneficiary or beneficiaries, the person, people, or entity who will receive the proceeds of the trust. The donor also appoints the trustee, which essentially acts like the executor of a will. The trustee controls the assets in the trust, oversees the investments, and is in charge of making payments to the beneficiary. Trustees can either be a person or a corporation—an actual trust company or a bank. Some trusts have both types. The individual trustee may better understand the donor’s intent or family situation, and the corporate trustee knows how to invest money.

When you sign over assets to a trust, you no longer own them. The trust does. If you are also the trustee, however, you have complete control to buy, sell, or give away the assets as you like. With certain trusts, one person can hold multiple roles. The donor, for example, can also be the beneficiary if the purpose of the trust is to pay for the donor’s support if he becomes incapacitated. Some trusts let you be donor, beneficiary, and trustee at the same time.

Trusts offer many benefits for many purposes

You control how the assets in the trust are invested and distributed. You specify how much your beneficiaries receive, and on what schedule. You can restrict your trust so that beneficiaries only receive money if they need a college education, or if they buy a house. These ground rules are set up in the trust document, which is legally bound to follow your wishes to the letter.

A trust can protect and provide for you if you should ever become sick or unable to care for yourself. You can protect your minor children in case your spouse remarries after your death. Your estate also benefits. Certain types of trusts allow you to transfer assets tax-free or avoid inheritance taxes. Because a trust does not go through probate court, you and your beneficiaries save time and retain your privacy as well. Trusts can also potentially avoid conflicts between surviving relatives.

You can limit how the assets are used by the type of trust you establish. For example, support or special needs trusts allow you to provide support for a child or a spouse with a serious illness or disability. Spendthrift trusts let you limit the amount of money an irresponsible family member receives at one time. A generation-skipping trust permits you to leave money for a grandchild, and the parent can access it without getting taxed. A charitable trust allows you to help your favorite charity or your alma mater—and you can receive tax benefits, and sometimes an annuity, during your lifetime. There are even blind trusts, usually held by politicians or public officials, where a trustee makes investment decisions without the owner’s knowledge to avoid any possible conflicts of interest.

Trusts can be revocable or irrevocable. With the former, you can change, add to, or cancel the terms of the trust, its beneficiaries, and its assets, as well as who serves as trustee, at any point up until your death. However, the big drawback is that the holdings will be considered part of your estate, and are therefore susceptible to taxation.

Irrevocable trusts, like they sound, cannot be canceled or changed once executed, so you had better be certain everything is set up as you wish. This type of trust, however, keeps the assets within it from being counted as part of your estate, and it may be useful in keeping the assets away from your creditors.

But don’t do it yourself

Trusts may not be the solution to every situation. First of all, trusts are complicated to set up, so you should definitely consult a financial professional or a lawyer experienced in estate planning. Beware of con artists selling do-it-yourself trust kits or financial companies that sign you up for mass seminars to sell you other investment vehicles.

You’ll probably need more than one trust to accomplish every single one of your goals, so the need for a professional is undeniable. With the new tax laws, estate tax levels and rules are going to change every year until 2010, and it’s in your best interests to make sure the trust document follows federal and state laws. Of course, you should discuss your situation with a qualified financial professional who can best advise you.




Despite a troubled economy these days, the real estate sector still percolates along at a relatively healthy pace. You don’t have to be Donald Trump or Mort Zuckerman to potentially benefit from investing in real estate.

All you need to do is check out a real estate investment trust (REIT). A REIT (pronounced “reet”) is a corporation that invests in, and usually manages, real estate properties that generate income. When a company incorporates as a REIT, it pays low or no federal corporate or state income tax. REITs are required by law to annually distribute at least 90 percent of their taxable income to shareholders who in turn pay taxes on dividends and capital gains. REITs are forbidden from passing along their tax liabilities to investors.

A REIT allows individual investors to essentially reap the financial benefits of being a landlord without all the risks involved with developing and managing properties. Unlike a regular hands-on landlord, investors don’t get much say in certain crucial matters such as how properties are managed, who the tenants are, or when holdings should be sold.

The health of the stock or bond markets has little effect on the performance of a REIT since it is influenced by a different set of variables. Investors look to REITs because they may provide high levels of income with long-term moderate growth. The returns of a REIT tend to fall between those of stocks and bonds, and often have relatively secure yields that outpace inflation. The returns on REITs have held their own against dot-coms, the Enron and Worldcom meltdowns, and even September 11. In fact, over the past twenty years, REITs have averaged a 13.8-percent annualized return, which stacks up pretty formidably against other asset classes.

Because of their stable returns, REITs usually suit investors looking to diversify their portfolios and minimize risk. They have a high degree of liquidity, meaning they can be sold on the stock exchange and converted to cash when necessary.

Congress created REITs in the 1960s in order to enable individuals to invest in large-scale real estate projects. It figured the easiest way to do this was to set up a system that was similar to purchasing other securities: through publicly traded stock on a securities exchange. According to the National Association of Real Estate Investment Trusts, there are around 300 REITs in the U.S., with a combined $300 billion in assets; about 200 of them are publicly traded.

A board of trustees, often with backgrounds in real estate sales and development, determines how a REIT invests. It also hires management personnel, who are often given an ownership stake in the REIT to ensure that properties are being managed to benefit every investor. The board analyzes the balance between the supply of new buildings and the demand for them. When the amount of office space grows too fast for the market to snap up, rents decrease and property values can decline, which can badly affect the REIT’s performance.

As you would do with any other investment, consult with your financial professional before you invest. He or she will be able to help you determine if a REIT has a place in your investment portfolio.




The 411 on Reverse Mortgages - Part II

Last month I provided information regarding Reverse mortgages and how it could be leveraged financially by older homeowners.

How much can you borrow?

Reverse mortgage programs vary greatly. The amount you can borrow and the amount that must be repaid can vary from one plan to another. Before applying for a reverse mortgage, decide how much money you need to borrow. The amount you are eligible to receive is based on your age, the appraised value of your home, and the interest rate the lender charges. Generally, the older you are, the more cash you can receive. Also, the greater the value of your home and the lower the cost of the loan, the more cash you are likely to receive.

If you choose a credit line rather than monthly payments or a lump sum, you can take cash when you need it up to the amount of your credit line. Some reverse mortgages include a credit line that steadily increases over time.

How much does it cost?

The total amount you will owe at the end of the loan will be how much cash was paid out to you by the lender plus all the interest that has accumulated on that loan. However, you can never owe more than the value of the home at the time that the loan is repaid. Most reverse mortgages are “non recourse” loans, which means that the lender cannot try to claim your (or your heirs’) income or other assets — only the value of the home. The application costs should include only the cost of an appraisal for your home and the cost of a credit report. Any other costs are usually paid for with an initial payment from the loan itself and become part of the total balance you owe. (Many of these other costs are like those found in regular mortgages: interest charges, origination fees, title search, and so on.)

Types of reverse mortgage plans

Home Equity Conversion Mortgage (HECM) loans
HUD, working through the Federal Housing Administration (FHA), insures reverse mortgage plans under the Home Equity Conversion Mortgage program. These mortgages are available from HUD-approved lenders across the country. A list of HECM lenders is available from the Fannie Mae Public Information Office, at 1-800-7FANNIE (1-800-732-6643).

Fannie Mae loans
Fannie Mae, a quasi-governmental agency, offers its own reverse mortgage program, the Home Keeper Mortgage. In addition, Fannie Mae offers the FHA-insured HECM loan discussed above.

Lender-insured loans
Also known as conventional reverse mortgages, lender insured loans offer monthly loan advances or loan advances plus a line of credit. Be sure to check out the financial strength of the company offering the loan. Charges tend to be higher than those of FHA or Fannie Mae plans, but it’s also possible to find higher maximum loan advances. Some loans include an annuity that continues making monthly payments, even if you sell your house. (These annuity payments may be taxable and can affect your eligibility for Supplemental Security Income and Medicaid.)

Public sector loans
Many state and local governments offer loans, secured against the value of the home, to provide money for paying property taxes or for repairing or improving homes. These are somewhat limited in scope, and generally available only to low- or moderate-income homeowners. Contact a representative from your city or state government for details.

Choosing a reverse mortgage plan

Before shopping around for reverse mortgage plans, you’ll need to decide the following:

- How much money you need?
- How long you will need the money?
- What form you would like the payments to take (lump sum, monthly payments, credit line)?

Put together a list of lenders offering reverse mortgages. Reverse mortgages are offered through banks, mortgage companies, savings associations, and credit unions, as well as through the government agencies discussed above.

Contact three or more lenders (also called originators). Speak with loan officers by phone to get an idea of the options available. Ask for information by mail, including a breakdown of all costs and options a

Meet with lenders and ask questions. The Federal Truth in Lending Act requires lenders to inform borrowers about the plan’s terms and costs, including the Total Annual Loan Cost.

Ask if the reverse mortgage is insured. For insured mortgages, loan advances will continue and you may remain in your home as long as you live, even if the amount borrowed exceeds the value of the home. Fixed-term, uninsured loans are available in a few states, but are risky, since the balance is due at the end of the term. If you are unable to refinance when that time comes, you could be forced to sell your home to repay the loan.

Don’t choose without counseling

Reverse mortgages can be an excellent option for some people, but you should be very careful to study all your options. It is strongly recommended that you take advantage of one of the readily available forms of consumer counseling before taking out a reverse mortgage.

If you seek FHA-insured or Fannie Mae reverse mortgages, you will automatically receive financial counseling from an independent, third-party agency at little or no cost. You will also be told about alternatives and options that may be more appropriate for you than the reverse mortgage.

If you are looking at other kinds of reverse mortgages, contact a HUD-approved housing counseling agency that will advise you at little or no cost. You may also want to discuss the loan with an investment professional or an attorney specializing in elder law who is familiar with reverse mortgages.



The 411 on Reverse Mortgages - Part I

Many older people are house-rich and cash-poor. They own a home, free and clear, that may be worth hundreds of thousands of dollars. Yet they have little income and can’t afford repairs, taxes, health care, or living expenses. They could sell their house and find a less expensive place to live, of course. If they have lived in the home a long time, have friends and family living nearby, and feel comfortable and secure in the neighborhood, moving may be a very unpleasant option. For these people, a reverse mortgage maybe the answer.

What is a reverse mortgage?

Reverse mortgages, also known as home equity conversions, allow homeowners over age 62 to convert home equity into cash, while continuing to live in their homes. In contrast to the conventional “forward mortgage,” where you repay debt each month and eventually own your home, a reverse mortgage offers you a loan against the value of your home. This means that the amount of debt increases over time as payments are made to you and as interest compounds. A reverse mortgage can provide cash as monthly payments, a lump sum, or a line of credit. The monthly payments may be for a specific number of years or for as long as you live in your home. If you use the loan to buy an annuity, the payments can continue for the rest of your life, no matter where you live. These funds are not considered income for tax purposes and do not affect your Social Security or Medicare benefits (Supplementary Security Income and Medicaid can be affected). You retain title to your home and you are responsible for taxes, repairs, and maintenance. The loan is repaid with the funds received when the home is sold — either when you move or when you die. In some cases, you can keep receiving monthly payments as long as you live, even if you do have to move out of your home. Your loan might also become due if you fail to pay your property taxes, fail to keep up your homeowner’s insurance, or fail to maintain the property. The lender may also be able to make extra payments to you to cover those expenses.

Who should take a reverse mortgage?

- A reverse mortgage might make sense for you if you plan to stay in your home for several years.
- If you plan to stay only a short time, the up-front costs can make a reverse mortgage as expensive as a short-term loan.
-You are willing to use up some or all of the value of your home.
- A reverse mortgage leaves fewer assets for your future use or for the benefit of your heirs.

Who is eligible?

To qualify for most reverse mortgages, borrowers must be at least 62 years old and the home being borrowed against must be the owners’ principal residence (where they spend the majority of the year). If the home has more than one owner, all must become borrowers. The homeowners must either own the home free and clear or have only a small remaining debt which is to be paid off immediately using a cash advance from the reverse mortgage. Most borrowers start by paying off their remaining debt. Single-family, one-unit dwellings are eligible for all reverse mortgages. Multi-unit owner-occupied dwellings, condominiums, and manufactured homes are eligible for some but not all reverse mortgage programs. Mobile homes and cooperatives are not eligible.


Family Style Affirmative Action Using Retirement Plans and Life Insurance

Whether you’re age 25 or 65, planning for a financially secure future is an evolving process. As you get closer to retirement, you’ll have a good understanding of how far your retirement assets will really go. Will those assets take care of you and your spouse? Will there be enough left to provide a legacy to your children or even their children?

With proper planning, the assets in a traditional Individual Retirement Account (IRA) could help you create a source of income for several generations of your family. To create this type of legacy with your IRA, you’ll need to apply what’s known as the “Stretch IRA” technique.

Stretch IRA refers to the two-pronged strategy of 1) withdrawing from your IRA only the required minimum distributions each year after you reach age 70 and 2) making the proper beneficiary designations.

The mechanics behind a Stretch IRA are fairly simple. The process begins when your retirement money is distributed to you.

Six steps to a good stretch:

1. Open an IRA
2. Name your spouse as your primary beneficiary
3. After your death, your spouse rolls remaining assets to his or her own IRA
4. Your spouse names a son or daughter as beneficiary
5. After your spouse’s death, your son or daughter receives minimum distributions from the IRA and names his or her child as beneficiary
6. Distributions continue until the beneficiary IRA is exhausted

One cautionary note: make sure your beneficiaries know what your plans are and that each beneficiary knows what they are supposed to do. If a beneficiary cashes out, your plan won’t work.

Benefits of the Stretch IRA

There are several ways that traditional IRA owners and their beneficiaries may benefit by employing the stretch technique:

1. More money may be passed along by the IRA owner to the next generation.
2. If the owner’s situation changes while living, he or she still has the right to liquidate as much of the IRA as needed.
3. If the beneficiary’s situation changes after the death of the owner, the beneficiary can always
take a full or partial liquidation instead of the minimum required distributions.
4. Payments to beneficiaries are paid out as death distributions. Therefore, there is no 10% penalty even if the beneficiary is under age 59.

Is a Stretch IRA right for you?

The stretch technique may or may not be a good idea for you. It depends on what you have determined your retirement needs are. Generally, traditional IRA owners who don’t need to live on their IRA assets, who want to minimize taxes paid in retirement, and who wish to create a legacy may want to consider this strategy. Should you find that you wish to create a greater legacy for your children and their children or if you don’t have the liquid assets available, you can always purchase life insurance which provides a federal and state tax-free death benefit. As a starting point, you should talk with your investment professional or tax adviser.




Your Annual Financial Check-Up

Each year, you should perform this check-up to make sure your financial house is in order. The following checklist can serve as your financial laundry list for a review every year.

1. Know what you have. Prepare a net-worth statement along with a balance sheet. What do you own? How do you own it? And where is it? Keep a copy of this offsite, maybe with a trusted friend or family member who might also serve as your executor. Keep a statement of your year-end position detailing your assets. It is suggested that you keep year-end statements every year.

2. Does the above list make sense? Do you have an investment strategy or are you investing on a whim? Are your assets aligned with your goals? If not, start making changes now. Remember that a good plan is worthless if you are not taking action.

3. Review your tax situation. Check your deductions, Alternative Minimum Tax (AMT), and life changes. Review your assets for capital gains and/or losses. Consider gifting appreciated stock to charity so that you can take an income tax deduction on the value of the stock and avoid paying capital gains taxes on the appreciation.

4. Know your company benefits and how they may best benefit you. If you are married or have a significant other, review benefits for overlaps or gaps. Look for the most cost-efficient and appropriate choices that match your needs. Don't get caught at the 11th hour of your open enrollment period and default to last year's choices. Use your benefits wisely.

5. Make a record of household and/or office contents, possibly using a video recorder or camera. Keep the written record, pictures, or video somewhere other than your house! Even the best records won't do you any good if they are lost in the same catastrophe.

6. Take your photo negatives to your safety deposit box or other safe place. In the event of a fire or other disaster, people often say that losing a lifetime of photos is the most devastating loss of possession. Most homeowner policies will even pay for replacement cost.

7. Prepare and/or review wills and associated documents such as Durable Powers of Attorney and advance Health Care Directives. Also, do the people who need to act on your behalf know your wishes or have copies of the above documents?

8. Check your Social Security earnings history. Social Security automatically sends a history statement a few months prior to your birthday each year. If you have not received yours, request one. Also follow up every three years by requesting and checking this statement for errors and omissions. It is much easier to correct a problem within a three-year span than to recognize and correct a mistake made 30 years ago.

9. Review your insurance policies. Has your homeowner's policy increased in coverage as the value of your property increased? Is the level of content insurance adequate? Do you have replacement cost coverage? What is the limit of liability coverage? Given your level of net worth, do you need an "umbrella" liability policy? What happens to your family in the event of disability or death? Are you insured? Is it adequate? Have you read the fine print? Are your beneficiaries current?

10. Check your credit report. See who is requesting credit information about you. Check with Equifax (1-800-685-1111), Experian (1-888-397-3742), or TransUnion (1-800-680-7293). Don't wait until you need a mortgage to identify problems or mistakes. Also call the credit agencies above to request removal of your name from credit bureau mailing lists and stop unsolicited pre-approved credit card offers.

11. Write a letter of instructions and talk with your family. Put together a map that will allow your family to take over your finances and ensure that your wishes are carried out. List trusted advisers along with their phone numbers. It's also not a bad idea to sit down with your family and let them know what you have. While how much you share with your family depends on how much you trust them, you can at least let them know that an inventory exists and where to find it.

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Your best tax-prep tip: Take your time and use a calculator!

I’m not a tax expert, but if you do your taxes yourself, you might find these tips helpful. Every year, over 4 million math errors are made on federal tax returns. Of course, we all know the outcomes of these mistakes: delays in processing refunds rightfully due to you or, worse, the dreaded audit. Nobody likes to do taxes, and we tend to rush through filling out the forms. But a little care and an eye toward the following problems may save you many headaches down the road.

1. Make sure you have the correct social security numbers for you, your spouse, and your kids if you’re claiming them. It sounds silly, but almost 1.2 million of us mess this up each year.

2. Don’t forget to sign your return. And date it. Without a signature, the IRS will consider the return invalid and mail it back to you. However, interestingly enough, the IRS tends to be less picky about this if you happen to be mailing them a check!

3. Crunch the numbers twice. Every year, hundreds of thousands of people miscalculate their income and the amount of personal exemptions. This increases your risk of coming up with an incorrect amount for either your amount due to the IRS or your refund.

4. Proceed carefully on the tax tables. Yes, there are too many of them, and yes, they’re hard to read without a telescope. But when you enter the wrong amount, you may end up overpaying or being under-refunded. If you don’t have 20/20 vision, you might want to use a tax-prep software package, which will figure those amounts out for you automatically.

5. Don’t seal the envelope until you know all the required documentation is included. You’d be surprised how often people forget to include W-2s, 1099s, and other proof of income or deductions.

6. Make sure you check your previous annual returns for any carryover credit you may have. You have five years to carry forward such credits (like unmatched investment losses), so you might as well use them to reduce your current year’s liability.

7. Don’t forget the baby-sitter. The child care tax credit can be worth up to $4,800 for you—but you have to include your provider’s social security or federal identification number on your return. And there’s a box that must be checked next to your children’s names on your exemptions list.

8. Remember your refinancing. If you were among the many who took advantage of last year’s lower interest rates and refinanced your mortgage, you can write off points you pay over the life of the loan. And start a tickler file for your 2003 return and drop a reminder in it that you can write off points next year as well.



Socially Responsible Investing: Investments that "Really" Let You Sleep At Night

Socially responsible investing (SRI) was born of the “avoidance investing” of the 1920s in which individuals shunned the so-called “sin stocks” of the Prohibition Era—shares of companies connected with alcohol, tobacco, or gambling. Almost half a century of war, protest, and reform would produce the first investment vehicle fund in the mutual fund industry. As the first investment vehicle to adopt broad standards of social responsibility in choosing its investments, it ushered in a new type of investment philosophy that has been the subject of much myth and controversy for almost three decades.

Taking a stand

The cornerstone of SRI is social screening—the inclusion or exclusion of corporate securities in investment portfolios based on social or environmental criteria. SRI is a catchall phrase, which, at its broadest, refers to all investment and money management activities undertaken according to certain social values instead of, or in addition to, purely financial considerations. Differing political, social, and ethical viewpoints among investors spawn differing opinions on what is socially responsible, allowing for as many different SRI investment vehicles as there are socio-environmental issues and individuals. There is no single definition, no single prototype, leaving the potential number of different SRI vehicles limitless. Potential screens range from the standard tobacco, alcohol, gambling, and pornography screens, to animal testing and cruelty-free issues, gay and lesbian rights, international citizenship, pollution, abortion, and contraception.

Many managers integrate SRI research into their investment process, making sure that they adhere to very rigorous investment disciplines first, and then meld in social research second. The intersection of the two processes leads to a portfolio that is disciplined and rigorous from an investment thought process, but happens to have a social overlay. First and foremost, most managers probably agree that clients want investment performance and that neither investment results nor investment disciplines can take a back seat to social screenings.

Philosophical differences

Which brings us to the long-standing rub on SRI—ethical objectives vs. investment performance. The great debate that morals and money do not mix still rages, with many experts asserting that performance should not be subordinate to personal values and social concerns when it comes to investing. For nearly three decades, pundits have suggested that the two disciplines should be mutually exclusive and that to apply ethical objectives to a portfolio is to sacrifice investment performance. But academics studying the topic have yet to find a clear-cut relationship, positive or negative, that links social criteria and stock performance.

A myth debunked

So how do socially responsible funds stack up? An enlightening survey commissioned by a leading mutual fund sponsor revealed that investors are more aware of socially responsible investment vehicles today than ever before—and are more likely to invest in them. The survey, conducted by Yankelovic Partners, found that 43 percent of investors were familiar with the idea of socially responsible investing, up from 30 percent in 1996. Twenty-five percent of those surveyed said they had invested in such vehicles, an increase of 14 percent from 1996. Even in the turbulent stock markets of 2000, social screened investments of all types continued to equal or exceed their non-screened counterparts when it comes to performance and ratings.

Poised for growth

Increased SRI awareness has led to increase SRI offerings. In a report from the Social Investment Forum (SIF) released in November 1999, socially responsible investing assets under management in the U.S. came in at just under $1.5 trillion, up from $529 billion in 1997, an increase of 183 percent. The report also confirmed that all segments of social investing—socially screened investment vehicles, advocacy efforts, and community investment—combined for over $2 trillion, an increase of 82 percent from 1997. SRI now accounts for roughly 13 percent of assets under management in the U.S.—one out of every $8 invested. As more and more investors find they can satisfy their consciences and their investment objectives at the same time, that percentage will only climb higher, positioning socially responsible investing for even greater growth well into the 21st century.

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Divorce and Your Finances

With over 1.1 million divorces occurring each year, it is becoming essential for many individuals to be familiar with issues concerning divorce – planning ahead, knowing what steps to take, and moving forward as an informed and confident single person.

Planning for life after divorce

Once you and your spouse decide to divorce, there are many questions you need to answer. Do you know the tax implications of alimony and child support? Are you thoroughly familiar with the various investments and savings accounts you own with your spouse? Have you decided how to divide your property? It is strongly suggested that you seek the advice of professionals who will work as your advocate and save you money over the long term.

Professional assistance

Make sure your attorney is well versed in divorce tax issues in order to help you avoid costly tax pitfalls. A financial planner can help you develop realistic projections of living expenses – especially important if your spouse handled most of the finances – and can also advise you on which assets to keep, how to invest your settlement money, and how to follow a budget that will adapt to your new lifestyle.

Other ways to plan

1. If you still have underage children, make sure you and your children are fully insured, including health, disability, and life insurance.
2. Review and revise your will, name a guardian for children under the age of 18, add a living will and power of attorney.
3. Report your new status in writing to all institutions that gave you credit, and cancel joint credit cards. Establish your own credit if you haven’t already done so.
4. You also should learn all you can about your spouse’s finances, including savings accounts, retirement plans, pensions, and investments. Locate any financial documents indicating income, assets, and debts, and make copies of all recently filed financial statements.

Important tax issues

  • You recognize no gain or loss on the transfer of property (such as real estate or stocks) to your spouse, incident to a divorce proceeding.
  • In general, your tax filing status depends on your marital status on the last day of the tax year (December 31 for most taxpayers).
  • Generally, legal fees incurred in a divorce proceeding are non-deductible expenses, but tax advice fees can be deducted.

After the divorce – moving forward

1. Get all your paperwork in order, including your final divorce decree and settlements papers. Make several copies, and put the originals in a safe deposit box.
2. Develop a budget and start recording what you spend each month.
3. Evaluate your current financial situation and begin investigating investments that would be appropriate for your new lifestyle.

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