Transfer on Death (TOD) Registration By Tish Michelson

The Uniform TOD Security Registration Act provides non-probate transfers of specifically registered investment securities from owner to named beneficiaries at the owner’s death. The letters T.O.D. stand for “transfer on death” signaling that the investment or account is to be re-registered on request after the owner’s death in the name of the beneficiary.

State law, rather than federal law, governs the way securities may be registered in the names of their owners. Most states (48 out of 50) and the District of Columbia and US Virgin Islands, have adopted the Uniform TOD Security Registration Act, although some have modified it. In addition, brokerage firms may decide whether or not to offer TOD registration.

Transfer on Death (TOD) registration allows you to pass the securities you own directly to another person or entity (the “TOD beneficiary”) upon your death without having to go through probate. By setting up your account or having your securities registered this way, the executor or administrator of your estate will not have to take any action to ensure that your securities transfer to whomever you have designated. The TOD beneficiary will have to re-register the security or account in their own name once the owner has died. The re-registration typically involves sending a copy of the death certificate and completing an application.

The TOD registration enables avoidance of probate without the risk of problems caused by joint and survivor security titles. Control of an investment registered in TOD beneficiary form, including the right to change or cancel the death beneficiary, lies solely with the owner.

What are Ishares? by Karla Hopkins

iShares® are a brand of exchange-traded fund (ETF). iShares® are the largest ETF provider in terms of both number of products and amount of assets. Each iShares® ETF tracks a different stock market or bond index. They are designed to emulate the performance that specific index. iShares ® have existed since the 1990s; they were created by Barclay’s Global Investors and are currently owned by the BlackRock Investment Company. iShares ® are intended to be a trading option for investors interested in tracking benchmarks of a type of market as opposed to investing in an individual corporation via stock shares or group of corporations via mutual fund shares.

ETFs are funds that trade like stocks, but contain multiple assets similar to mutual funds. Unlike mutual funds which are bought and sold at a set price once per day, ETFs trade at varying prices throughout the day. Also, iShares® disclose the contents of their portfolios daily, rather than quarterly like mutual funds, which allows investors a greater degree of transparency.

The benefits of iShares® include greater diversification, greater options, lower expense ratios, tax efficiency and increased liquidity. Diversification is intrinsic to each iShare®. For example, if you buy the S&P 500 Index Fund ETF – that particular iShare® owns fractional shares of all 500 companies in the S&P 500 Index. You now have an investment whose performance mirrors that specific index – without making 500 purchases and paying 500 commissions. There are numerous categories of iShares® in which to invest such as: growth, value, industry, sector, international, real estate, fixed income and precious metals. The expense ratios of iShares® are between .09% and .75% - which are significantly lower than mutual fund ratios. There is a tax efficiency built into iShares because they are built on specific indices (such as the Dow Jones Industrial Average) and turnover of the investments comprising the iShare® is virtually non-existent – therefore there are no capital gain distributions with their corresponding taxes. Because they are ETFs, iShares® can be bought and sold throughout the day. You can place market, stop, and limit orders, purchase on margin and sell the security short. These options allow iShares® to offer even more liquidity and be even more flexible than regular index funds.

iShares® - and ETFs in general – should be considered a good supplement to mutual funds, money markets, bonds and CDs as the backbone of a diverse portfolio. While unlikely to skyrocket in value, it is also rare that their value will plummet.

After Our Fall Over the Fiscal Cliff: by Karla Hopkins

2012 was a year of negation and election. Many of us were watching with trepidation for our congressional leaders to come to agreement on the terms of our federal budget and especially changes that would impact our tax liabilities in 2012 and future. Now that we have gone over the dreaded fiscal cliff: what does the landscape look like?

Here are a few highlights on the changes which will be important for you to consider for 2013:

• A 3.8% additional tax on the lower of net investment income or the amount of modified adjusted gross income over the $250,000/$200,000 threshold. Net investment income includes, interest, dividends, rents, and gains.

• Additional .9% Medicare Tax for employees (not employers) on compensation over a $250,000/$200,000 threshold. Because the threshold amounts are based on filing status and combined wages for a joint return, not all employees will have the correct amount of withholdings.

• The top federal tax rate will return to 39.6% for a married couple with in excess of $450,000 of income and a single taxpayer with $400,000 of income.

• Capital gain rates will return to 20% based on a threshold again of $450,000/$400,000.

• Phase outs of personal exemptions and itemized deductions will return for taxpayers over a threshold of $300,000/$250,000 in income.

• The payroll tax holiday has ended. Employees' FICA withholdings will return to a 6.2% rate from the reduced 2012 rate of 4.2%.

• Personal tax credits including the $1,000 child tax credit and advanced opportunity college tax credit are extended.

• The elective contribution to a 401(K) plan has been increased to $17,500.

• The elective contribution to an IRA account has been increased to $5,500.

Because many of these changes came so late in the year (and are still being worked out in Washington), it will be critical in 2013 for all taxpayers to play an active role in their tax planning during the year. Follow our newsletters and blogs for the most up-to-date information and as always, contact our office with questions and we will gladly assist you with your tax planning.