Increasing Your Return on Life.®

Frank Talk - 2nd Quarter Newsletter (2016)

Published: 05/10/2016

Table of Contents


Written by: Frank Fantozzi

Happy Spring, Friends!

In many respects, First Quarter 2016 will be remembered for multiple unpredictable events from the drama witnessed in the race for the Whitehouse, to NCAA Tournament upsets, early April snowstorms across much of the Midwest and Northeast, and, of course, the volatile start we experienced in the financial markets. Where many of these events are concerned, we can exercise little or no control. Snow can be forecast, but can’t be prevented from falling. As voters, we have no control over a primary taking place in another state. And, as far as March Madness goes, who could have predicted that UNC’s double-clutch, game-tying 3-pointer (with less than five seconds to go) would be triumphantly answered by Villanova’s stunning, Championship-winning 3-pointer at the buzzer?

Interestingly, the financial markets represent one area where we can exercise a level of control. While no one can predict or effectively time the markets, investors can take steps to manage the amount of risk their portfolios are exposed to in any given period through professional advice that considers their individual goals, investment timeframe, and risk tolerance.

Consider this: an investor with a portfolio that simply mirrors a leading equity market index, such as the S&P 500, can expect to experience every bump along the road, during periods of volatility. And those bumps can hurt more than many people may realize over time. That’s because the greater the loss experienced, the higher the gain required to compensate for any loss in value. For example, a one-time loss of 50% in a portfolio valued at $100,000 would require a gain of 100% just to return to the original value before the loss occurred. To do so would require adopting a highly aggressive strategy. However, a strategy focused on aggressively chasing above-average market returns can potentially lead to even greater losses in volatile markets, resulting in a vicious cycle focused on chasing returns rather than a well-conceived strategy that seeks to manage risk.

Your PFS Team helps you manage risk in any market climate

At Planned Financial Services, our focus on helping to manage risk through professional asset allocation and active portfolio management seeks to limit your exposure to risk in all market climates. The experience and insight our team brings, combined with a disciplined planning process and the use of sophisticated Riskalyze software, allows us to effectively align your portfolio’s objectives with your individual tolerance for risk. While no growth-oriented strategy can (or should) eliminate all short-term market fluctuations, unlike a buy-and-hold or index strategy, our approach adjusts for market conditions, helping to manage the level of volatility your portfolio is exposed to in any given period with a goal to provide a smoother, more confident path to pursuing your individual objectives.

We believe an approach built on unbiased advice that is timely, relevant, actionable, and personalized to your goals and circumstances is more important than ever in today’s challenging marketplace. For additional thoughts and insights on factors and conditions driving current economic and market activity, be sure to read our Financial Markets Overview below and plan to join us on May 24th for our:

8th Annual Cleveland Economic Summit

You and your guests are invited to join us for our 8th Annual Cleveland Economic Summit on Tuesday, May 24, 2016 from 4:00 pm to 6:30 pm. Our late afternoon program will begin with a networking and cocktail reception featuring heavy hors d’oeuvres at one of Northeast Ohio’s most coveted treasures, the world renowned Cleveland Botanical Garden (Clark Hall). Complimentary parking will be provided at the onsite parking garage.

This year’s program will feature two distinguished speakers: LPL Financial Vice President and Market Strategist, Ryan Detrick, and Horizon Investments Chief Global Strategist and Washington-insider, Greg Valliere. They will join me in providing Ohio investors, business leaders, and taxpayers with keen insight on today’s dynamically-charged political and global economic landscape. You and your guests can expect to gain in-depth analysis and perspective on the key factors that will impact your business and investment decisions in the coming year, including:

  • Election Year Policies & Politics: Sizing up the Washington factor and 2016 election cycle. What’s really at stake for local investors, taxpayers, and business leaders?
  • Global Market Outlook: The increasing impact of geopolitical forces on your investment portfolio and business strategy, and why oil, China, and South Korea should matter to you.
  • Interest Rate Environment: Will the Fed’s latest thinking help or hurt the recovery?

Please RSVP to reserve seats or a corporate table by May 18, 2016 to Michelle Velotta at 440.740.0130 ext. 221 or Space is limited so don’t delay!

Behind the Scenes at PFS

EO’s Octane magazine Features 10 Tips for Family Business Success

In March 2016, The Entrepreneur Organization (EO) featured my article: Top 10 Tips for Family Business Success in the most recent edition of EO’s Octane magazine. The magazine provides insights into the minds of entrepreneurial business leaders, and leverages their experiences to help entrepreneurs in every stage of their journey learn and grow. The value of this quarterly publication is derived from shared experiences, lessons learned, best practices, and tips from peers in varying industries and locations around the world. For more than a decade, I’ve been an active member of the Entrepreneur’s Organization, a global business network of 11,000+ leading entrepreneurs in 155 chapters and 48 countries.

Click here to access the March 2016 online edition of Octane magazine, or download a PDF of the article: Top 10 Tips for Family Business Success.

Join Us in Welcoming the Newest Addition to the PFS Family!

On Leap Day, PFS wealth advisor Cynthia Yang, CFA®, MA, and her husband Eric welcomed their new little bundle of joy, Gloria, weighing in at 7lbs., 11oz. on February 29, 2016. We’re happy to report that Mom, Dad, and baby are all doing well. Predictably—one out of three are getting adequate sleep.

Barron’s Top Independent Advisors Summit

Planned Financial Services was honored to be among an elite group of wealth advisory firms selected to attend* Barron’s Top Independent Advisors Summit in March. The Summit is an invitation-only event where experienced and successful independent financial advisors, industry executives, and investment companies gather to share advances and innovations in the industry while addressing some of its more pressing challenges like the new Department of Labor’s forthcoming rules on fiduciary guidance on retirement brokerage accounts, requiring a possible move to advisory accounts.

The conference not only offered a unique opportunity to share ideas and network, but provided highly detailed and thought-provoking perspectives from other advisor s on managing investments, serving client needs, and practice growth. In fact, much of the content was delivered by members of Barron’s Top Independent Advisors, making this conference a valuable opportunity to share thoughts and hear what is on the minds of leading practitioners in the industry as we move forward in today’s fast-paced and ever-changing business and investment environment.

EY Entrepreneur of the Year Nominee

I was recently honored to be recognized as a Northeast Ohio nominee for the prestigious EY Entrepreneur of the Year award, sponsored by Ernst & Young (EY). According to EY, awards are given to entrepreneurs who have demonstrated excellence and extraordinary success in such areas as innovation, financial performance, risk and personal commitment to their businesses and communities. Recognized as one of the most prestigious business award programs in the country, the EY Entrepreneur of the Year awards celebrate the country’s most innovative business leaders; award recipients will be announced in early June 2016.

PFS Business Structure Assessment

We continue to move forward with our exploration of business structures that can help to provide the greatest flexibility in meeting the changing and growing needs of our clients. As we mentioned earlier this year, we believe this assessment is necessary to enable us to effectively accommodate upcoming changes in the regulatory landscape, including the Department of Labor’s (DOL) new fiduciary rule, and overcome certain limitations on the part of broker-dealers in supporting our clients. (This is similar to the initiative we undertook in 2004, when we switched from WS Griffith Securities to LPL Financial as we outgrew the capabilities of WS Griffith.) While we do not expect our broker dealer relationship to change, how we provide registered advisory services can.

 As we assess the best possible structure to serve your growing needs, we continue to focus on:

  •  Providing the flexibility our clients require to be able to custody assets at other custodians (outside of LPL Financial), as necessary.
  • Retaining our ability to provide broad choice in investment and asset classes, especially in the alternative investment area, to help our clients better manage risk and thus add value and consistency across their portfolios.
  • Creating parity and uniformity in fees and services across all client accounts. Modifications to our business structure will enable us to unify trading and registered investment advisory fees. This will ensure that clients who joined us as a result of our acquisition of Plax & Associates, as well as new clients who may join us as a result of any future acquisition, enjoy the same high level of service, access, and advice from our dedicated team.

We will continue to keep you posted on developments as we move forward with this initiative in 2016.

Website Development Update

We’re looking forward to the upcoming launch of our two dynamic website platforms to enhance the PFS client experience for you and the friends, relatives, colleagues, and business associates you refer to your PFS team. Please keep an eye out for our launch communications in the weeks ahead!

  • The new Planned Financial Services site will retain its current site address, (, and update automatically upon launch. The site will provide individuals and families with an enhanced online experience, including a broad range of educational content, market research, and client scenarios delivered through different mediums, including video.
  • Our new corporate retirement plan site will focus on bringing Simplicity in a Complex WorldTM, and will be rolled out simultaneously for our business and corporate clients.

The new sites will also be optimized for mobile access, making it easy for you to interact with us and access account information via your smartphone or tablet. Watch for updates and information about the site launches and any new content we add that may be of interest to you in the coming months.

Financial Markets Overview

We would love to say that this earnings season, which “unofficially” began on April 11, 2016, will bring better results than recent quarters, but that appears very unlikely. In fact, consensus estimates are calling for a 7% year-over-year decline in S&P 500 earnings for the quarter, the worst decline since the Great Recession and the third straight quarterly decline based on Thomson data (based on FactSet data, it’s the fourth). By most definitions, corporate America is in the midst of an earnings recession. On a brighter note, this quarter may mark an inflection point regarding the trajectory of earnings because the pressure on earnings from oil weakness and U.S. dollar strength is starting to abate.

In 2015, the combination of oil weakness and U.S. dollar strength wiped away high-single-digit S&P 500 earnings growth. Oil fell from over $100 per barrel in 2014 to as low as $26 in February 2016; while the U.S. dollar’s gains, which erode profits earned overseas, reached 20% during the second quarter of 2015. However, these drags have already begun to abate and are poised to potentially stage powerful reversals.

The reversal has begun quicker for the dollar. After annual increases between 12% and 20% during each of the four quarters of 2015, which delivered estimated 3–6% hits to S&P 500 earnings, the U.S. Dollar Index gained just 2% during the first quarter of 2016. If the dollar stays flat between now and year-end, 2–3% year-over-year declines will be an earnings tailwind during the remaining three quarters of the year.

The oil reversal should take longer to play out, but the annualized declines have started to moderate and could reverse during the second half of the year if oil prices move reasonably higher from current levels. If oil prices remain at current levels the rest of the year, year-over-year declines in average oil prices would continue through 2016. However, should oil prices return to the mid- to high $40s as we expect, oil may potentially begin to experience annual gains during the third quarter of this year.

Consensus estimates are already reflecting energy’s return to year-over-year earnings gains in the fourth quarter of 2016, and oil prices are currently up about 40% off of their February 2016 lows, so the wait for better earnings news from the sector may not be too far off. Corporate America has already lost its ability to use currency as an excuse, while the oil excuse is beginning to lose credibility. Hopefully, less reliance on these excuses will enable markets to obtain better and more useful information about business conditions.

What we’re watching and why

Whether earnings declines potentially trough this quarter, should these two drags continue to fade, is the key question for us this earnings season. Given how far 2016 estimates have fallen (down

5.6% year to date), they may at least hold steady as companies report results (a rise is seen as unlikely). Remember, many of these management teams delivered their 2016 expectations to investors in late January and early February 2016 when recession fears peaked, stocks and oil bottomed, and the U.S. dollar was near recent highs. Conditions are better now, suggesting the tone of guidance may be more positive. Some other things we will be keeping a close eye on this earnings season include:

  • Profit margins - Wage pressures have increased gradually and have started to impact profit margins. We will be watching for signs of further pressures that could lead to margin compression. To date, corporate America has done a terrific job maintaining high profit margins.
  • Capital allocation decisions - We would like to see companies deploy more capital to invest in future growth, which investors may view as a positive signal for the future. We are fine with companies returning capital to shareholders, but we would like to hear that companies are making capital spending a bigger priority.
  • Emerging markets demand - China, which has been seeing some improvement in economic conditions, is always worth watching. But U.S. companies may continue to be impacted by weakness in the commodity-producing regions and geopolitical hotspots overseas such as Brazil, Russia, and South Africa.

We believe energy, financials, and healthcare are the key sectors to watch.

  • For energy, we would like to see evidence of further U.S. production cuts beyond the 8% drop already experienced.
  • The quarter may prove difficult again for financials given lower interest rates and financial market volatility.
  • Healthcare results should be strong again, but scrutiny over high drug prices may persist.


A few thoughts on divergent profit measures…

The large gap between operating earnings and GAAP earnings has been receiving a lot of attention from the financial media, and becoming a concern among some investors that it may signal even more earnings troubles ahead. The biggest reason for that gap has been the energy downturn, which has led to significant downward adjustments of oil and gas reserves valuations. The impacts of the energy downturn are well known and the associated risks were seemingly more than priced in when oil prices bottomed earlier this year. The gap between earnings measures was the effect, not the cause, and does not suggest increased earnings quality concerns are warranted, in our opinion.

Other similar periods that saw significant divergences in these earnings measures included the bursting of the internet bubble and the financial crisis, when acquisitions, intellectual property, and financial assets were significantly devalued. During these periods, the gap between the operating measure and GAAP earnings has ranged as high as 30% depending on the data source used for the operating earnings calculation.

In summary

Earnings results will not be exciting, but the quarter may mark a trough in the earnings trajectory as the drags from oil and the dollar begin to abate. We continue to believe mid-single-digit earnings growth in the second half of 2016 is achievable, consistent with consensus estimates, and we hope to get more support for that view over the next four to six weeks.

We believe the key to weathering challenging market conditions is a commitment to a well-formulated plan and a long-term focus, which includes avoiding the temptation to adopt a herd mentality or make decisions based on emotions, both of which can easily derail your strategy as you pursue your life plans.

At Planned Financial Services, your Return on Life® is our top priority. We continue to make necessary adjustments to client portfolios, while providing clients with the education and information needed to retain a long-term perspective and focus on their individual goals along the way.

We thank you for your continued trust in your experienced team and remind you that if you need additional help or someone you know needs our advice, we are only a phone call away at 440.740.0130. We are always honored to help our clients’ friends and business associates take greater control of their future with the guidance from the PFS Team. We welcome and are grateful for the many introductions our clients continue to provide.

Real People…Real Answers.

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Financial planning services offered through Planned Financial Services, a Registered Investment Advisor and separate entity from LPL Financial.


Protect Yourself from Tax Identity Theft

Written by: Sarah Horrigan

You may not even know your tax identity has been stolen until you file your return. Only then do you find out that someone has already claimed a refund — in your name. This type of fraud is a serious problem, and is getting worse. Here’s what you need to know.

A growing problem

Almost 2.9 million incidents of tax-related identity theft occurred in 2013, up from nearly 1.8 million the previous year, according to the U.S. Treasury Inspector General for Tax Administration. The IRS has reported that, from 2011 through October 2014, it stopped 19 million suspicious returns and protected over $63 billion in fraudulent refunds.

While that’s just a tiny fraction of the total number of individual returns filed and billions refunded, the impact of tax identity theft can be significant. Such theft typically takes the form of:

Refund fraud. Here, thieves steal legitimate taxpayers’ names and Social Security numbers (SSNs) and use them to file fraudulent returns, claiming they’re owed refunds. Most thieves try to file early enough in the year so that their victims haven’t yet filed their returns. Because the name and SSN on such returns appear legitimate, the IRS may issue refunds to fraud perpetrators.

Phishing scams. You might receive an email, phone call or letter purportedly from the IRS that asks you to provide your SSN or other personal information. If you provide it, thieves may use that information to take out credit in your name or sell it to others.

Fending off fraud

Nothing can guarantee complete immunity from identity theft, but you can reduce its likelihood. For starters, protect your SSN. Provide your SSN and other personal information only when absolutely necessary — and only when you’ve verified the identity of the requesting party.

Next, understand that the IRS doesn’t use email or social media to request personal information (such as your SSN or bank account password) or to provide a refund or initiate an audit. Instead, the agency most often contacts taxpayers through the U.S. Postal Service. One exception is that the IRS may call first when notifying a taxpayer of an audit, and then follow up with a written letter. If you receive an email claiming to be from the IRS and asking for personal information, don’t reply, open any attachments or click on any links. 

So if you receive a phone call or letter claiming to be from the IRS, contact the agency to determine whether the claim is legitimate. (Several options are available at With a phone call, you also can ask for an employee badge number.

Alarm bells ring

If you receive an IRS notice stating that another return has been filed with your information or that you received wages from an employer other than your actual one, it’s possible that your identity has been stolen. Call the IRS Identity Protection Specialized Unit at 1-800-908-4490 to check the legitimacy of the letter and follow up.

And, if you receive a notice from the IRS stating that you’ve been a victim of identity theft, follow all the instructions included in the letter. Typically, this will require completing the Identity Theft Affidavit.

Dealing with the aftermath

Although prevention is best, even careful taxpayers can be victimized by tax identity theft. If it happens to you, contact the IRS — and your financial advisor, who can help you get your financial life back on track.

© 2016

Should You Undo a Roth IRA Conversion

Written by: Elisabeth Plax

Converting a traditional IRA to a Roth IRA can provide tax-free growth and the ability to withdraw funds tax-free in retirement. But what if you convert a traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover that you would have been better off if you hadn’t converted it? Fortunately, it’s possible to undo a Roth IRA conversion, using a “recharacterization.”

Reasons to recharacterize

There are several possible reasons to undo a Roth IRA conversion. For example:

  • You lack sufficient liquid funds to pay the tax liability.
  • The conversion combined with your other income has pushed you into a higher tax bracket.
  • Your income is likely to drop in retirement, reducing or eliminating the benefits of a Roth IRA.
  • The value of your account has declined since the conversion, which means you would owe taxes partially on money you no longer have.

Generally, when you convert to a Roth IRA, you have until October 15 of the following year (if you extend your tax return) to undo it. Then, you must wait to once again convert to a Roth IRA until the later of 1) the first day of the year following the year of the original conversion, or 2) the 31st day after the recharacterization.

Keep in mind that, if you reversed a conversion because your IRA’s value declined, there’s a risk that your investments will bounce back during the waiting period. This could cause you to reconvert at a higher tax cost.

Recharacterization in action

The following example illustrates the process. Nick has a traditional IRA with a balance of $100,000. In December 2016, he converts it to a Roth IRA and normally would owe $33,000 in federal income taxes in April 2017. However, Nick extends his return and, by September 2017, the value of his account has dropped to $80,000.

On October 1, Nick recharacterizes the account as a traditional IRA and files his return to exclude the $100,000 in income. On November 1, he reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA, and reports that amount on his 2017 tax return. This time, he owes $26,400 — deferred for a year and resulting in a tax savings of $6,600.

Keep your options open

If you convert a traditional IRA to a Roth IRA, monitor your financial situation. If the advantages of a Roth IRA diminish, talk to your financial advisor about your options.

© 2016

Taxable vs. Tax-Advantaged Accounts - Where you hold your investments matters

Written by: Jeremy Bok

When investing for retirement or other long-term goals, people usually prefer tax-advantaged accounts, such as IRAs, 401(k)s or 403(b)s. Certain assets are well suited to these accounts, but other investments make far more sense for traditional taxable accounts. Knowing the difference can help bring you closer to your financial goals.

Understand how they’re taxed

Where you own assets matters because of how they’re taxed. Some investments, such as fast-growing stocks, can generate substantial capital gains, which occurs whenever you sell a security for more than you paid for it. When you’ve owned that position for over a year, you face long-term gains, taxed at a maximum rate of 20%. In contrast, short-term gains, assessed on holding periods of a year or less, are taxed at your ordinary-income tax rate — maxing out at 39.6%.

Meanwhile, if you own a lot of income-generating investments, you’ll need to pay attention to the tax rules for dividends, which belong to one of two categories:

Qualified. These dividends are paid by U.S. corporations or qualified foreign corporations. Assuming you’ve met the applicable holding period requirements, qualified dividends are, like long-term gains, subject to a maximum tax rate of 20%.

Nonqualified. These dividends — which include most distributions from real estate investment trusts (REITs) and master limited partnerships (MLPs) — receive a less favorable tax treatment. Like short-term gains, nonqualified dividends are taxed at your ordinary-income tax rate.

Choose tax-efficient options

Generally, the more tax efficient an investment, the more benefit you’ll get from owning it in a taxable account. Conversely, investments that lack tax efficiency normally are best suited to tax-advantaged vehicles.

Consider municipal bonds (“munis”), either held individually or through mutual funds. Munis are particularly attractive to tax-sensitive investors because their income is exempt from federal income taxes and sometimes state and local income taxes as well. Because you don’t get a double benefit when you own an already tax-advantaged security in a tax-advantaged account, holding munis in your 401(k) or IRA would result in a lost opportunity.

Similarly, tax-efficient investments such as passively managed index mutual funds or exchange-traded funds, or long-term stock holdings, are generally appropriate for taxable accounts. Over time, these securities are more likely to generate long-term capital gains, whose tax treatment is relatively favorable. Securities that generate more of their total return via capital appreciation or that pay qualified dividends are also better taxable account options.

Take advantage of income

What investments work best for tax-advantaged accounts? Taxable investments that tend to produce much of their return in income, for one. This category includes corporate bonds, especially high-yield bonds, as well as REITs, which are required to pass through most of their earnings as shareholder income. Most REIT dividends are nonqualified and therefore taxed at your ordinary-income rate.

Another tax-advantaged-appropriate investment may be an actively managed mutual fund. Funds with significant turnover — meaning their portfolio managers are actively buying and selling securities — have increased potential to generate short-term gains that ultimately get passed through to you. Because short-term gains are taxed at a higher rate than long-term gains, these funds would be less desirable in a taxable account.

Think beyond taxes

The above concepts are only general suggestions for taxable and tax-advantaged accounts. You may, for example, need more liquidity in your taxable account than you do in your IRA account. In this case, you might decide to hold a high-turnover equity fund or high-yield bond investments in the taxable account because you value flexibility more than favorable tax treatment.

Just keep in mind the benefits and risks — including the risk that your investments will lose value — associated with any investment decision, and know that tax issues can be complex. Ask your financial advisor to help you make the best choices for your situation.

© 2016

International Estate Planning: How to Avoid Tax Traps

Written by: Frank Fantozzi

Estate planning can be challenging, even for U.S. citizens. But if either you or your spouse — or both — aren’t citizens, things can get even more complicated. To avoid tax traps, you’ll need to plan ahead.

Citizenship status

Your estate- and gift-tax treatment depends on whether you and your spouse are citizens, resident aliens (RAs) or nonresident aliens (NRAs). Residency is based on the concept of domicile. Although the rules are complex, in general you become domiciled in a place by living there (even if only recently), with the intent to make it your permanent home.

The IRS looks at several factors to determine your domicile, including where you spend most of your time, your community ties, and the locations of family members, residences, business interests and property. If you obtain a green card, you will almost certainly be considered an RA.

Why does this matter? Citizens and RAs are subject to U.S. gift and estate taxes on all their worldwide assets and, with the exception of the marital deduction (see below), are entitled to the same exemptions and subject to the same rules. NRAs, on the other hand, are subject to U.S. estate taxes only on certain assets and are liable for gift taxes only on tangible assets located in the United States. But their exemptions are far less generous.

Noncitizens watch out

If you or your spouse is a noncitizen, don’t assume that you’re entitled to the unlimited marital deduction. A key estate-planning tool for married couples, this deduction allows spouses to transfer any amount of property between each other — during life or at death — free of gift or estate taxes.

But the deduction isn’t available for transfers to a noncitizen spouse (even an RA), unless the property is held in a qualified domestic trust (QDOT). A QDOT incorporates certain protections to ensure that its assets stay in the United States and will eventually be subject to estate taxes. For example, if the noncitizen spouse withdraws any trust principal, it’s immediately taxed as part of the grantor’s estate. If you don’t want to use a QDOT, there are other strategies, such as using a citizen spouse’s lifetime exemption (currently, $5.45 million) or making annual exclusion gifts. Currently, the annual exclusion for gifts to a noncitizen spouse is $148,000.

Warnings for nonresidents

NRAs have some advantages over U.S. citizens and RAs: They’re subject to U.S. estate taxes only on U.S.-situs assets, such as real estate and tangible personal property located in the United States, stock in U.S. corporations, U.S. bank deposits, U.S. government bonds and certain other intangible assets. Moreover, they’re exempt from gift taxes on gifts of intangible assets, wherever they’re located. But NRAs also have a major disadvantage: While citizens and RAs enjoy a $5.45 million gift and estate tax exemption, NRAs are allowed an exemption of only $60,000.

For example, Graciela is a Spanish citizen with a net worth of $5 million. She owns a $1.5 million home in California and, although she visits frequently, she isn’t a U.S. resident. When she died in 2016, her estate owed $521,800 in U.S. estate taxes. If Graciela were a citizen or RA, her estate tax liability would be zero.

If you’re an NRA with U.S. property, one tax-minimization strategy is to become a citizen or RA to take advantage of the larger exemption — provided doing so won’t trigger even larger taxes on your non-U.S. property. Another is to own as much wealth as possible in intangible assets and to give those assets to your heirs during your life. There may even be opportunities to convert U.S. tangible assets into intangible assets. For example, you might be able to transfer real estate to a partnership and then make tax-free gifts of partnership interests.

Look for opportunities

If you or your spouse is a noncitizen, it’s essential that you consult an estate planning advisor. There may be strategies that can save you thousands of dollars in gift and estate taxes.


Sidebar: New strategies for modern families

American families are growing increasingly diverse. Many now include unmarried parents of adopted children and married parents with unadopted stepchildren. If your family looks more like Modern Family than Father Knows Best, you have special estate planning considerations.

Adopted children are placed on an equal footing with biological children in most situations for estate planning purposes. However, stepchildren generally don’t have any inheritance rights with respect to their parents’ new spouses unless the spouse legally adopts them. To give stepchildren a share in your estate, either adopt them or amend your estate plan to provide for them expressly.

Second-parent adoptions — where unmarried people adopt their partners’ biological or adopted children — also have estate tax implications. Forethought is critical for couples who can’t (or choose not to) obtain a second-parent adoption but want the “nonparent” to have custody of a child should the “parent” die. Typically, both partners need to name each other as guardian in their wills and the nonparent’s will needs to spell out any property to be inherited by the child.

© 2016

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.  Financial planning offered through Planned Financial Services, a registered investment advisor and separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Investing involves risk including potential loss of principal. No strategy, including asset allocation, can ensure success or protect against a loss. Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. All investing involves risk including loss of principal. INDEX DESCRIPTIONS The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

A portion of this material was prepared by a third-party publisher for use by the representatives.

Want help? Let's talk.