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Reverse Mortgages As a Planning Tool

Reverse Mortgages As a Planning Tool

Paying the taxes associated with IRA (or other qualified retirement plan) withdrawals is without question the downside of the whole arrangement. But for those who have small or no mortgages on their homes, a “less taxing” approach for generating retirement income has been gaining attention. The strategy, albeit with a cautionary note, involves reducing or delaying IRA withdrawals and replacing that income by tapping the home’s equity using a Reverse Mortgage.

Reverse Mortgages are in essence mortgage loans that work backwards. Instead of sending a check to the lender every month to pay interest and reduce debt, the mortgagee receives money from the lender and sees a corresponding increase in the mortgage balance. The proceeds can be received in a lump sum, in periodic payments over a period of time, or as credit line that may be used as needed.

The uniqueness and hence appeal lies in the fact that no repayment of the loan is required until: 1) the home is sold; 2) when the mortgagee dies; or 3) when the mortgagee has vacated the property for 12 or more months. Depending upon the type of Reverse Mortgage, repayment may be accelerated if the home owner uses the home as collateral to incur more debt, fails to pay property taxes, fails to insure the home, or fails to insure or maintain the home. The Reverse Mortgage can be paid off from other sources, or the lender can in some instances require the home to be sold to satisfy the Reverse Mortgage.

The trade-off in this strategy is between creating an ever growing liability that has no immediate out-of-pocket expenses versus taking money out of the IRA’s tax-free growth environment and paying income tax on the withdrawals.

To illustrate, let’s use a fictional Jim Smith, age 62 and single, as an example. Jim’s Traditional IRA has $1,000,000 that grows at 6% per year and his fully paid home has $2,000,000 in equity that appreciates at 5% annually. After considering Social Security and pension income, Jim estimates he will need an additional $27,000 to meet his pre-tax retirement spending goal of $80,000 per year.

If Jim simply takes the $27,000 per year from his IRA, at age 70 the IRA balance would be $1,352,532 and he must begin Required Minimum Distributions (RMD) each year beginning with $49,362. At the time of his death at age 90, his Traditional IRA will have a value of approximately $1,321,556. Jim’s house will have a projected value of $7,840,258, and his gross estate will be approximately $10,007,102.

Alternatively, if Jim uses an 8% Reverse Mortgage (ignoring origination expenses, which can be high) he will need approximately $22,950 per year to substitute for the taxable IRA distribution of $27,000 until age 70. By delaying withdrawals, Jim’s IRA then is worth about $1,640,967. Since his first withdrawal of $59,889 more than meets his income needs, further loans from the Reverse Mortgage could be stopped.

By the time Jim passes away at 90 and assuming he makes no payments, the balance of the Reverse Mortgage will have grown to approximately $1,188,264 and the value of his home would be approximately $7,840,258. In addition, the projected value of his Traditional IRA would be $1,688,655 at age 90. Jim’s gross estate would be approximately $8,340,648 after the Reverse Mortgage is paid off.

In essence, by using the Reverse Mortgage to delay IRA withdrawals Jim has spent down his estate without incurring the income taxes associated with either selling his home or taking more IRA withdrawals.

If his priority is to provide himself a higher cash flow, then by using the Reverse Mortgage in this manner he has increased it by over 20%. Among the downsides is that his heirs are left with a smaller inheritance and more income taxes. In general, high wealth clients who are advised to reduce their net worth for estate tax purposes may find a Reverse Mortgage beneficial. Obviously these are very general calculations for illustrative purposes only and do not take into account many variables such as inflation, real estate appreciation and loan costs.

A number of considerations need to be kept in mind. If Jim at age 70 decided to begin paying back the Reverse Mortgage with the extra income from his RMD, the mortgage balance at age 90 could be significantly less. Alternatively he might consider converting his Traditional IRA to a Roth IRA and use the Reverse Mortgage to help cover the associated taxes. Excessive postponement of IRA withdrawals can limit his flexibility when the RMD’s begin and has been called “An Income and Estate Tax Time Bomb”.

The decision to use a Reverse Mortgage can be complex and may vary for each person’s situation. Some of the factors to consider may include:

(1) the homeowner’s …

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Transferring Mortgages – What Do I Need to Know?

Transferring Mortgages – What Do I Need to Know?

When most people look for a mortgage or a new mortgage, they will try to get a mortgage with the features that meet their needs and saves them money. Also, they will look into a mortgage that will give them the ability to pay it off faster. When it comes to transferring a mortgage, there are a number of important details that you should be aware of before you make your decision so that you know that the final decision is the right decision.

It is not that difficult to transfer your mortgage from one financial institution to another. There are a number of benefits to transferring a mortgage such as: better interest rate, better service, increased repayment flexibility, or it is more beneficial to have all of your finances with one lender. Even with all of these benefits, it is still important to make sure that transferring a mortgage to another financial institution is right for you.

One of the best times to explore money-saving alternatives is when your mortgage is up for renewal at another financial institution. The first thing you should do when considering a mortgage transfer is to make sure you have a specific written rate guarantee such as a written 120-day rate guarantee. Other options you should consider include: fixed or variable rates, mortgage term that can be anywhere from 6 months to 10 years, flexible payment schedules that fits your cash flow, as well as flexible alternatives such as a Home Equity Line of Credit.

It is important that the lender you talk to has knowledgeable people who will help you get the right mortgage. In addition, you have to learn about any possible penalties if you close your current mortgage before its maturity date. It will help you calculate whether or not it is worth transferring the mortgage. Most lenders have stipulations in their contract where they will charge an early payoff penalty on closed mortgages if the mortgage is paid prior to the date of maturity. The applicable penalties would be equal to the greater of the interest rate differential or 3 months interest plus any applicable fees related to the discharge request.

When transferring a mortgage to another financial institution, generally most institutions will require such items as: void cheque, copy of your renewal statement, proof of property ownership, confirmation of income, and a copy of the fire insurance or homeowners\’ insurance statement. If you want to reduce the mortgage amount, consider the following: increase the frequency of payments, take advantage of increased payment options, take advantage of lump-sum payments, choose a shorter amortization, and check to see if lender will waive the mortgage transfer fee.

There are many benefits to transferring a mortgage. You will know if you will personally benefit from a mortgage transfer if you do your research, get all of the details involved with transferring the mortgage and any penalty fees associate with closing your current mortgage. This will help you determine if it is economical so that you can make a more informed decision and that it is the right that decision that meets your needs.…

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5 More Seller Finance Options to Consider When Selling Your Business

5 More Seller Finance Options to Consider When Selling Your Business

The need to use seller finance when trying to sell your privately held company has come back into vogue due to the lack of third party finance being readily available. Some techniques less known and used, however, are available but require a clear understanding between the seller and buyer and may then need good legal agreements to clarify, protect and define the responsibilities of each of the parties. Here are five options both a seller and buyer may want to consider.

Option One: if the seller of the business has created intellectual property or some proprietary idea that they don’t wish to sell as part of the business transfer, but the buyer needs that knowledge or invention in the business, the seller and buyer can enter into a licensing agreement. The buyer would pay an agreed fee as a royalty.

Option Two: Another means of a seller receiving payment from the buyer of the business can be via Consulting Agreements. These would be constructed according to what works for both parties but provides a way of maintaining the continuity of knowledge the seller has from owning and operating the business while the buyer acquires that knowledge.

Option Three: If the owner of the business wishes to sell because they have arrived at retirement age but the seller has children working in the business, part of the purchase price negotiations could be the buyer extending a Family Employment Guarantee. This meets the need of the seller because they don’t have to worry about their children no longer being able to work in the business and it comes with a payment the seller is comfortable accepting.

Option Four: Two important benefits to most business owners are health insurance and life insurance. Health insurance coverage; especially for business owners with a pre-existing illness means they cannot readily change their health insurance policy to another company. Negotiating the purchase price where the buyer will continue to allow the seller to keep the same policy and pay for it can be a great benefit and relief to the seller. Life insurance and indeed other forms of insurance can be handled in the same manner.

Option Five: One of the advantages of being an entrepreneur is that you can claim expenses that an employee is unable to claim. Membership at the best golf course in town, driving the latest model car, an annual vacation to Lake Tahoe and other perks sometimes become necessities for some entrepreneurs. Structuring the sale of a business to continue the sellers ‘perks’ can be an appealing option; even if it’s only for a year or two.

Seller finance does not have to be restricted to purely a seller note on the transaction. A seller can be used to receiving many business ‘perks’ they have enjoyed from owning and operating their business. Allowing the seller to continue enjoying those ‘perks’ can be a good strategy when buying a business.…

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How to Beat the Bailiff in 10 Easy Steps

How to Beat the Bailiff in 10 Easy Steps

Being pursued by a debt collector or a bailiff can be one of the most traumatic and stressful experiences imaginable for an individual or family.

In the current economic climate more and more creditors are employing the services of such to recoup unpaid and defaulted debt.

Unlike the bank bail outs, their is little fiscal intervention accessible for those who do not have the means to pay.

With prized possession at stake, the below tried and tested strategies set out, will both educate the debtor in all areas of bailiff avoidance whilst significantly alleviating a major portion of the potential heartache applicable, should your possessions be under duress.

1. Temporarily take your name off the electoral register. The electoral register is the first place a bailiff will look to confirm you are whom they are seeking. Think of it as their telescopic sight on their magnum forty five.

2. Change the name plate on your property door and buzzer; this kills the scent from the seeking bloodhound.

3. Don’t leave any windows open, bailiffs are by law, allowed to enter a property via any stray or open window. Should they achieve such, they are permitted to either clobber you with an on the spot citation or more worryingly appraise and tax the properties goods for resale.

4. Close all blinds and curtains within your home and property. If they can’t get access to the internals of the property, they may look through the properties windows to case the internal goods eligibility for sale before coming back on a second visit with a van to collect.

5. If you have a motor vehicle or car, I would strongly recommend that you place the car in exile at a hidden location. Similar to that witnessed by Napoleon Bonaparte departure to St Helena.

The reason why you should consider this option, is in case the creditor in sheer desperation tries to repossess the car or take a second charge on it. This can occur in the event that the creditor or bailiff fails to recoup the debt via your properties internal goods taxation.

6. Always communicate with bailiffs via email and in doing so, copy in all correspondence you send to them via your local MP’s office, senators office or lawyer. It is important that there is a solid communication stream collated should the dispute go nuclear.

7. If the bailiffs do inadvertently manage to get access to your property, by law they can only take non essential goods like TV’s and stereo’s.

A way to avoid getting these prized consumer goods taxed is to state that these items are in actual fact essential goods, critically required on a daily basis for your work as a media consultant. Obtain a letter from a friends media firm to corroborate this.

8. I would strongly urge that you withdraw any savings or monies you may hold from your bank account during any period of bailiff persueal.

This action will mitigate the horrendous possibility of having your bank account frozen or any attachment on earnings imposed.

Load the savings onto a series of pre pay master cards for daily monetary functioning.

Wages and salaries can also be loaded onto these master cards by your employer.

9. lastly but most importantly, the best nugget I can arm you with during this period of duress, is to implement the successful bailiff avoidance technique I personally used as seen below.

The first thing you need to know about handling bailiffs, is that they are all trained in a technique called NLP or neuro linguistic programming, whereby they can read body language to interpret whether or not the debtor is telling them a big fat porky. Think of it like a poly graph test with out the electronics.

Let me demonstrate if I may.

Upon being confronted at my door with the opening line of ” Christopher Dorman”

The brains natural response is to auto pilot a “Yes” response when one is asked to confirm his or her name. This is basic psychology 101.

If you provide the affirmative Yes response, you will be immediately clobbered with a citation and court would be calling or worse, the bailiffs will enter the property and case your goods eligibility for repossession

To be fair it is a natural reaction to confirm your name, but unless you are asked by a police officer, you are not obligated by law to provide such data.

I therefore strongly recommend that you do the following.

Bailiff ” Christopher Dorman”

Debtor ” Afraid not pal, if you leave your name and number, I’ll forward it on to his new address though”

Providing you provide this response with beautiful nuance, you will avoid the wrath of the collector

only …

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Liability Insurance How Much Is Enough?

On almost every television show you watch, you will see at least one advertisement for auto insurance. Every paper or magazine you read will also have the same thing. Auto insurance is important for every driver, and this article will help you out by giving you the best tips you can find.

To make sure you are getting the best deal on your car insurance, get quotes from at least three different insurers. You can choose to deal with individual insurance companies or you can go to an insurance broker, who can represent several companies and get you quotes from each one.

When buying a new or used car, don’t forget to factor in the cost of insurance. Your dream car may come with an insurance premium that pushes the monthly payment out of your reach. Do some research before you go shopping. You can find average rates for different car models online, or your insurance broker can provide this for you.

If you own an older model vehicle, drop your collision coverage. Most policies have a limited amount collision coverage, that will not pay for more than the blue book value. Investigate how much your vehicle is worth, and then figure out how much the added collision coverage will cost you. Paying the extra coverage amount is sometimes not worth your while.

If you have more than one vehicle, make sure all of your policies are in the same place. This make it much easier to keep track of. More importantly, you might be able to save a little money. The more policies you have with one insurance provider, the more likely you are to qualify for certain deals and discounts.

Find out all of the available discounts that your insurance provider offers. There may be some discounts available that you did not know about when you opened your policy. You may have to take a driver’s course of some kind but it will increase your driving skills and reduce your premiums.

Did you know that it isn’t only your car that affects the price of your insurance? Insurance companies analyze the history of your car, yes, but they also run some checks on you, the driver! Price can be affected by many factors including gender, age, and even past driving incidents.

If you want to save even more money, check into getting all your insurance needs through the same company. Most insurance companies will offer a discount on their insurance if you have more than one policy with them, such as your homeowner’s insurance or renters’ insurance. This can reduce your rates.

Pay your insurance in full when it is due rather than paying it in monthly installments. Your insurance company may charge you more if you choose to pay monthly because of the convenience of it. If you have to, take out a small loan to avoid paying fees to the insurance company.

You see how common having auto insurance is. It is something that no driver should be without. You have taken the time to read this article, so you must be looking for auto insurance for yourself or someone close to you. Take all the advise that you have read here and go make sure you are insured on the road.…

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Simple Tips To Follow To Get Auto Insurance

Auto insurance is a helpful tool for many drivers. It provides protection for drivers in the event of accidents. In many states it is also required by law. If you need any help selecting auto insurance, then the advice in this article will help you with your decision.

When insuring a teenage driver, save money on your car insurance by designating only one of your family’s vehicles as the car your son or daughter will drive. This will save you from paying the increase for all of your vehicles, and the cost of your car insurance will rise only by a small amount.

When you shop for auto insurance, make sure that you are receiving the best possible rate by asking what kinds of discounts your company offers. Auto insurance companies give discounts for things like safe driving, good grades (for students), and features in your car that enhance safety, such as antilock brakes and airbags. So next time, speak up and you could save some money.

Insurance companies figure up your monthly payments in part based on the risk you present as a driver. To lower this risk factor, you can make sure your car or truck is parked away in a garage. Not only does keeping your car in a garage help prevent theft, but it also helps prevent weather damage and other damages that may occur.

If you’re currently covered by a car insurance policy and happen to see the same policy for a better price, do not jump at the offer right away. A lot of drivers will instantly switch sides when they see the dollar signs, but they never bother to read the fine print. Companies lure you in with the promise of low payments, but leave you lacking in coverage, so always be weary of this fact.

Check out your actual insurance costs before heading to the car dealership. Different types of cars carry different premium amounts. Check with your agent on the types and models of cars you are looking at to see which one makes the most financial sense. Being armed with this information at the car lot, will help you make a better deal.

In many states it is now illegal not to have car insurance. If you do get into a bad accident, your auto insurance will pay a percentage of any damages found to be your fault. Not having auto insurance could not only get you a ticket, it could also mean that you are left with huge bills.

If your child receives their driver’s license and you need to get insurance, make sure to ask if your insurer offers a good student discount. Your child will be motivated to keep his grades up in order to keep driving, and you will save money on your monthly premium fee.

In conclusion, auto insurance is helpful for drivers, because it provides protections for drivers in accidents. Auto insurance is required by law in many states, and selecting it may be hard. Using the advice from this article, you can select auto insurance and reap the benefits that other drivers have.…

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Sleep Easier With The Proper Life Insurance Protection

None of us are able to forecast the future. We may have a good idea of what will happen if current conditions continue. But we are unable to predict the unexpected. Life insurance is an important way to provide for the unexpected–as it will affect those we love. Here are some tips to consider.

Many people buy term life insurance when they’re younger because it’s cheap. Others are persuaded to buy whole life insurance, which, unlike term, has a cash value and can presumably be viewed as an investment. If you’re in good health, term is generally the best value. Try to lock in term insurance for the longest possible timespan you can find. When it runs out, if you’re still in good health, keep looking for term. Most of the time, whole life will be more expensive, but as you age, term life will also get quite expensive to cover the inevitable health issues that will crop up. Remember: term life as long as it makes sense ratewise, then switch to whole life.

Purchase life insurance when you are young rather than when you are old. Putting off purchasing life insurance until later life to avoid paying premiums can end up costing you more. The earlier in life you purchase a life insurance policy, the lower your premiums will be and the less likely you are to be refused a policy.

When you are selecting your life insurance policy, it is important to determine how much coverage you actually need. The amount of money that will be needed after your death is going to be specific to your family’s situation, so you’re the only one who can calculate the needed coverage. Don’t let a salesperson push you into more coverage than you actually need.

Before investing in a life insurance policy, learn the pros and cons of each of the four types. These are term life insurance, whole life insurance, universal life insurance, and variable life insurance. In order to help you understand the differences, you may want to hire a financial professional. Not only can a financial professional explain each type of life insurance to you, but he or she can suggest which one best suits your needs.

Before purchasing life insurance it is critically important that you research the different types of insurance policies available and select the policy that is best suited for you and your family. There are a wide variety of insurance policies available for purchase. The four major types of insurance are term life, whole life, universal life and variable universal life.

When purchasing a life insurance policy, a great tip is to not make your insurance planning a complicated matter. You should aim to keep it as simple as possible. Since life insurance is meant to protect you, the policy you select should be the one that best fits your needs.

Life insurance is one of those things we want to buy, but hope will not be used–at least for a long time. These tips will provide guidance in choosing a life insurance policy to cover future provision for your family in case you are not there. Its greatest value is peace of mind for you and your loved ones.…