By John Napolitano, Financial Planning Association of Massachusetts

John Napolitano is president of the Financial Planning Association of Massachusetts and chief executive of US Wealth Management. He will be hosting a live Boston.com chat on Friday, Nov. 9 at 3 p.m.

We all eventually clean out a closet or basement, and find things that you forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. Living proof of this is your home state's unclaimed property list. In my home state of Massachusetts, it is estimated that one in 10 residents has unclaimed property.

FULL ENTRY

It's an emotionally charged topic, and there are a lot of financial topics to consider during a divorce. Here are a few including college expenses, moving costs, and life insurance.

FULL ENTRY

Yesterday, the local television news incorrectly analogized Hurricane Irene to the Four Horsemen of the Apocalypse. Apparently, the end of the world makes for good television ratings. While our worldly demise might not be imminent, the hurricane is likely to create a certain amount of property damage. Here are a few thoughts and generalities on homeowners insurance in case the hurricane damages your castle:

Review your policy – Spend some time reviewing your homeowner’s insurance policy. Especially read the Coverage section and the Exclusions section. This should give you an understanding of what is and is not covered.

Flooding – Generally, flooding caused “from above”, i.e. heavy rain through a hole in your roof will be covered by your homeowner’s insurance. Alternatively, flood damage “from below”, i.e. through the basement walls, is not covered. Water damage “from below” is covered by flood insurance and policies are available through National Flood Insurance.

Trees – Fallen trees or limbs may cause damage to your property. This damage and debris removal should generally be covered in a homeowner’s policy. Should a tree fall from a neighbor’s yard and cause damage on your property, you should still file a claim through your insurance company. Your insurance company will reimburse you and may subsequently make a claim against your neighbor’s insurance provider.

Personal property – Although not part of the dwelling, many homeowners’ policies include coverage for personal property damage. The amount of coverage for personal property damage is limited to a certain dollar amount. It is best to read your policy to determine your level of coverage.

Automobiles – Storm related damage to an automobile will not be covered by your homeowner’s insurance. Instead, this could be covered under your auto insurance policy.

Wind loss deductibles – In certain coastal areas, many insurance companies include wind deductibles as part of the policy. This is a separate and usually higher deductible from the standard homeowner’s deductible.

Living expenses – If you have significant damage to your dwelling caused by a covered claim and your home is uninhabitable, then your homeowner’s insurance should cover additional living expenses. However, if the damage is caused by flood damage from below, (which is not covered through the homeowners’ policy,) then the homeowner’s policy will not cover additional living expenses. Flood insurance generally does not cover additional living expenses.

Last week I received this estate tax and planning brief from Brett Kaufman. He is an attorney at Schlossberg, LLC in Braintree. I thought it was well written and covered the recent developments in the estate tax law and new planning opportunites. With Brett's permission, I have reprinted it here:

"On December 17, 2010, President Obama signed into law, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”), settling some major questions about the federal estate, gift, and generation-skipping transfer tax law until December 31, 2012.

The Tax Relief Act makes the following changes to the federal estate and gift tax system:

- Estate Tax. The estate tax has returned with a larger exemption of $5 million and a lower tax rate of 35%.

- Gift Tax. The estate and gift tax exemption now are reunified, so that everyone now has a lifetime gift exclusion amount of $5 million per person and a 35% gift tax rate for gifts over $5 million.

- Exemption Portability Between Spouses: The Act provides for "portability" between spouses resulting in a maximum exemption of $10 million ($5 million per spouse) for a married couple. Portability allows a surviving spouse to elect to take advantage of the unused portion of the estate tax exemption of his or her predeceased spouse, thereby providing the surviving spouse with a larger exemption amount on their death. However, such portability is assured only for two years and the availability of this portable exemption amount requires an election to be made on a timely filed federal estate tax return.

- Generation Skipping Tax (GST). For transfers made in 2011, the GST exemption is $5 million, indexed for inflation beginning in 2012. The GST tax rate for 2011 and 2012 will be at a 35% tax rate.

- Option for 2010 Deaths. The Act gives estates the option to elect not to come under the returned estate tax. It gives those estates the option to elect to apply (1) the estate tax based on the new 35 percent top rate and $5 million exemption, with stepped-up basis (which eliminates the Massachusetts basis uncertainty) or (2) no estate tax and modified carryover basis rules. Any election would be revocable only with the consent of the IRS.

- Estate Planning Valuation Discounting Vehicles. The Act does not limit any existing estate planning discounting vehicles such as Grantor Retained Annuity Trusts (GRATs), Family Limited Partnerships (FLPs), which had been originally proposed by Congress.

Unfortunately, the changes effectuated by the Tax Relief Act are a temporary fix since they will be effective for only two years. Unless Congress takes further action within the next two years, at the end of 2012 there will be a reinstatement in 2013 of pre-2001 rates (55% for estates and lifetime gifts) and exemptions ($1 million for estate and gift taxes, and approximately $1.35 million for GST taxes). We expect that this problem will become a major issue in the 2012 presidential election.

Coincidentally, Massachusetts has revised its probate laws by recently adopting the Uniform Probate Code (“MAUPC”) resulting in major changes to guardianships, estates and trust laws. The provisions of the new probate code concerning guardianships and conservatorships became effective on July 1, 2009; however, the rest of the provisions of the code covering estates and trusts will become effective on July 1, 2011.

The Tax Relief Act creates several new planning opportunities that may only be available for the next two years. Therefore, we urge you to review your current estate plan and consider the following options before it is too late:

1. Take Advantage of the New Increased Gift Tax Exemption. You should consider making larger gifts in 2011 and 2012 due to the increase in the gift tax exemption to $5,000,000 in 2011 and the continuation of the 35% tax rate. Since the Tax Relief Act is temporary and only in effect for two years, it may be that the additional $4,000,000 lifetime exemption amount will only be available in 2011 and 2012. Therefore, you should begin to consider how to take advantage of this potential “use it or lose it” opportunity. In addition to this limited opportunity to transfer a significant amount of wealth tax-free it is still important to remember that you can still take advantage of the $13,000 per person per year gift tax annual exclusion for 2011 and 2012. Also, gifts of tuition payments and payment of medical expenses (if paid directly to the institutions) are still tax-free and can be made at any time. Predictions are that the largest transfer of wealth in our history will occur over the next two years.

2. New Massachusetts Planning Opportunity. Massachusetts estate tax returns are required and taxes paid only if the decedent’s estate has a value greater than $1 million at death (subject to lifetime gifts explained below). Although the $1 million is referred to as an exemption, it is not a true exemption but really only a filing threshold to file a Massachusetts estate tax return. For example, if your estate at death was valued at $1,000,001 you would end up being taxed on the total value of the estate and not just $1 over the exemption amount. This tax treatment did not change because of the Tax Relief Act nor is it likely to change in the near future.

Because Massachusetts has no gift tax, a lifetime gift (no matter the size) does not create a Massachusetts gift tax. There is a catch to this in that any lifetime gifts will reduce the Massachusetts $1 million exemption amount solely for the purposes of determining if a Massachusetts estate tax return will be required to be filed. However, even with this reduction in the exemption amount, lifetime gifting can still result in huge estate tax savings for Massachusetts. For example, assume a person has a $900,000 estate at death. If the person had made $1,500,000 of taxable gifts during his lifetime, the Filing Threshold would be reduced to zero because more than $1,000,000 was gifted during his lifetime. Therefore, a Massachusetts estate tax return would need to be filed regardless of the amount of assets owned at the time of death. The estate would still be a $900,000 estate and the Massachusetts estate tax owed would be $27,600 (the Massachusetts estate tax on a $900,000 estate). If lifetime gifts had not been made, the taxable estate would have been $2,400,000 ($900,000 estate at death plus $1,500,000 of gifts), and the Massachusetts estate tax would have been $130,800 (the Massachusetts estate tax on a $2,400,000 estate). The lifetime gifts resulted in $103,200 of Massachusetts estate tax savings.

The Massachusetts estate tax savings are even greater with larger lifetime gifts. Therefore, large lifetime gifts will not eliminate your Massachusetts estate tax but will result in significant Massachusetts estate tax savings at no gift tax cost.

It is important to keep in mind that, although the federal estate tax law has changed, the Massachusetts estate tax law has not. Therefore, those of you who are not Florida residents, planning for a Massachusetts estate tax is still necessary.

3. Portability - Unused Exemption Amount. The Tax Relief Act creates a new concept of estate and gift tax exclusion amount called portability. Portability means that spouses, under certain circumstances, can share their unused $5 million estate and gift tax exclusion amount with each other. This portability allows spouses to effectively use a combined $10 million exemption. Again, portability only exists for the next two years and after that it is anyone’s guess. In prior years, a person's unused exclusion amount was not transferable to his or her surviving spouse. Starting in 2011, portability allows a surviving spouse to elect to use any exclusion unused by his or her deceased spouse in addition to his or her own $5 million exclusion. For example, if a husband dies in 2011, having made $2 million in lifetime gifts and leaving his entire $8 million estate to his wife, no tax is due at the husband's death, and an election is made on his estate tax return to allow his wife to use his $3 million unused estate tax exclusion. The wife's available exclusion amount is thereby increased to $8 million (her $5 million plus her husband's unused $3 million). Regardless of the size of the estate, an estate tax return for the decedent must be filed in order to make this election. There is no portability for any unused GST exemption.

This does not mean that we recommend our clients do away with the credit shelter/bypass trusts previously included in their estate plan. We still recommend that married couples continue to structure their estate plans to take full advantage of their estate and gift tax exemptions by using their credit shelter/bypass trusts and splitting ownership of their assets between themselves, there are several reasons for this:

- Appreciation of assets placed in the credit shelter/bypass trusts will escape estate taxation in the survivor’s estate;

- Creditor protection for credit shelter/bypass trusts and marital trust beneficiaries is achieved;

- Massachusetts does not recognize portability and credit shelter/bypass trusts will preserve the $1,000,000 Massachusetts estate tax exemption amount (this translates to a $99,400 estate tax savings for a married couple with a combined estate of $2 million);

- The GST tax exemption is not portable;

- Portability is dependent on the executor making an election to pass the remaining exemption amount to the surviving spouse and filing a timely estate tax return, that may not have otherwise been required. It could slip through the “cracks”.

4. Use of Existing Gifting Techniques. Presently, conditions for gifting have never been better in modern times. Under the new law we have a $5 million unified estate, gift, and generation skipping exemption (indexed for inflation) and a 35% combined estate, gift and GST tax rate. Add to that, historically low federal interest rates, relatively low asset values and no legislation at this time restricting the use of various effective wealth transfer tools, such as the Grantor Retained Annuity Trusts (GRATs), Family Limited Partnerships (FLPs), Intentionally Defective Grantor Trusts (IDGTs), Generation Skipping Tax Trusts for Grandchildren and/or valuation discounts on family controlled enterprises. This means that these gifting techniques will not only continue to be highly effective planning tools but now will be even further enhanced due to the increased exemption amounts.

5. Charitable Planning. The charitable remainder trust (CRT), continues to be a valuable estate planning tool, especially in the current state of uncertainty. The CRT is generally used as an income tax planning vehicle, permits you to transfer appreciated property to a tax-exempt trust, which in turn sells the property and reinvests the proceeds and pays you an annuity or unitrust amount each year thereafter. This strategy also provides an estate tax deduction for the remainder interest passing to the charity when the trust ends.

6. Life Insurance. The Tax Relief Act does not change the role of life insurance in your estate plan. There are still many important reasons for life insurance other than just being used to pay potential federal estate taxes. For example, life insurance will still be needed to fund business buy-sell agreements; to serve as an income replacement for a spouse or dependents of a family’s sole wage earner; as a means of leveraging annual exclusion gifts and providing liquidity to pay state estate taxes such as Massachusetts. Therefore, you should be careful about canceling or reducing your existing life insurance coverage. For any clients that own a significant amount of life insurance, an irrevocable life insurance trust (ILIT) still remains an important planning technique to exclude life insurance proceeds from your gross estate. Remember, we do not know where we are two years from now and you might not be insurable then.

7. Non-Tax Reasons for Estate Planning. There are still many non-tax reasons why you should have your estate plan periodically reviewed and updated. At a minimum, you need to have documents in place that adequately address the following issues:

- Your circumstances have changed;

- If you become physically or mentally incapacitated during your lifetime, who will take care of your personal and health needs? Who will manage your assets?

- Who will receive your property at your death?

- Who will be in charge of your affairs after your death?

- Does your estate plan address how to handle property that will be inherited by beneficiaries that may have spending problems, special needs, substance abuse problems, divorce issue or just too young to receive a significant amount of property? Protecting beneficiaries in these situations will remain an important estate planning goal.

Our RecommendationThe new developments in the estate, gift and GST tax and Massachusetts probate laws present an opportune time to consider and possibly take advantage of some of these valuable estate planning techniques that may not be as favorable in the future.

IRS CIRCULAR 230 NOTICE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. tax penalties. "

A recent report from the Associated Industries of Massachusetts (AIM) shows another setback for businesses in this state. Starting January 1, 2011, employers are projected to face a 40% increase in unemployment insurance costs. The average unemployment insurance costs are expected to increase from $646 to $904 per employee. This is the maximum rate increase allowed under current law. Last year, rates increased by an average $111 per employee.

Massachusetts has the highest unemployment insurance costs in the country. AIM and other groups have proposed reforms to help lower the burden and close loopholes in the current system. Neither the Patrick administration nor the legislature have made much effort to address the high costs and weaknesses of the system.

About a month ago, I received the annual bill for our homeowners’ insurance. The cost of our homeowners’ insurance is escrowed and included with our monthly mortgage payments. I had no idea how much we paid in the prior year, but the current invoice for $1,151 seemed reasonable at first glance.

A couple of weeks later I was cleaning out some old mail and found a copy of the prior year’s bill. The cost for the annual premium was $780. I was confused. I have never made a claim and there were no other changes in the coverage. What would cause this $371 , or 48% increase compared to the prior year? I called Liberty Mutual. The customer service agent informed me that the primary reason for the price increase was because our automobiles were not insured with Liberty Mutual.

Obviously this makes no sense and I protested. The customer service agent’s only response was to try and peddle me auto insurance policies, which I have no desire to change from my current carrier. I informed her that we would be leaving for another insurance provider without some rate relief. No avail. As such, I obtained a quote from another carrier for about $800 per annum and we are in the process of switching.

Reviewing insurance policies is a drag for everyone. However, this seemingly trivial act will save us some $350 this year. This is well worth the investment of time.

My company pays $1,200 per month for my health care benefits. I was told that this will be real income and taxed as such in 2011. Is this true?

Since the health care reform bill was enacted this question has come up often. In fact, the rumor that your health insurance will now be taxable is not true.

It is true that beginning next year employers will report the amount that they pay for your health insurance on your W-2. Employer-paid health insurance will be a line item, just like other line items you may be familiar with such as the amount you contribute to your 401(k). However this amount will not be included in taxable income. The figure is there for reporting purposes only to the IRS.

So rest easy, your will not be taxed on your company-paid health insurance.

When people buy a new home they often include a financing contingency and a home inspection contingency. These contingencies allow the buyer to back out of the deal if they cannot obtain a mortgage on the property or if the inspection turns up some deficiencies. However, you might also want to include a contingency that requires the seller to produce a copy of the home's CLUE report.

The Comprehensive Loss Underwriting Exchange (CLUE) report will tell you what kinds of insurance claims have been filed by previous owners. And why is this important to you as a buyer? First, the current owners may have neglected to tell you about past damage to the house. The CLUE report will tell you the exact date of loss, type of loss (water damage, mold, fire, etc) and amount of loss for all claims. And, perhaps more importantly, if the home does has a long history of substantive claims, you might be denied home owners insurance and without a certificate of insurance, you won't be able to take out a mortgage and close on the purchase. That's a pretty big deal. While outright denial of coverage is usually quite rare, you could find yourself only being able to get coverage in a high risk pool (or paying much more than you would for a policy on a house with a "clean" claims history.)

If you are a potential seller of a home, it pays to get a copy of your CLUE report before putting the house on the market. That way, you can fix any inaccuracies that might be contained in the report. To get a copy, which should cost about $20, visit choicetrust.com

The Affordable Care Act, signed by the President earlier this year, provides a $250 rebate to Medicare Part D recipients whose prescription drug expenses fall into the “doughnut hole”. This rebate is a non-taxable, one-time rebate for 2010 available to those who do not already receive assistance under the Medicare Extra Help program. Under Medicare prescription drug coverage (also known as Medicare Part D), prescription drug expenses below $2,830 and above $4,550 are covered by Medicare coinsurance. Amounts between $2,830 and $4,550 are not covered and must be paid 100 percent by the Medicare recipient. This gap in coverage is known as the “doughnut hole”.

The rebate checks will be sent to Medicare recipients automatically beginning in mid-June as their prescription drug expenses exceed $2,830. You can check your Explanation of Benefits statements to see if you have reached the $2,830 threshold. If so, you should receive a rebate check within 45 days after the program begins. Remember, this should happen automatically. Therefore, you do not need to provide any information or fill out any forms. Be cautious of anyone calling you to ask for personal information regarding this rebate.

If you believe that you qualify for the rebate and you do not receive it, contact Medicare at 1-800-MEDICARE (1-800-633-4227). For more information on Medicare Part D coverage and the rebate, visit the following Medicare web site links:

Medicare Part D: http://www.medicare.gov/navigation/medicare-basics/medicare-benefits/part-d.aspx

Medicare Part D Rebate: http://www.medicare.gov/Publications/Pubs/pdf/11464.pdf?Language=English

It used to be that kids were removed from their parents' health care insurance once they turned age 19. Coverage could be extended until age 23 if the child was a full time college student, but by the time most students graduated from college they found themselves without coverage unless they had a job with benefits.

However, a recent change announced by the White House now allows adult children to remain on their parents' plan until they are age 26. Under the new rules, insurance plans must offer coverage for plan participant's children up to the age of 26 and there is no requirement that the child has to live with their parents or attend college or even be a dependent -- they can even be married and still qualify for coverage. The only people who wouldn't be eligible for coverage would be those who work at a job where health care insurance is available. In that circumstance, the adult child would be expected to obtain coverage through their employer. In total, this change is expected to result in 1.2 million people gaining access to coverage.

So, who will bear the cost of this important coverage? All participants who currently have family insurance plans. Estimates vary, but the cost for family plans are expected to rise by about 1 percent.

Technically, this change applies only to new plans that begin after September 23rd of this year, but many insurance companies have voluntarily agreed to provide coverage right away (and not wait until September or January 2011 when plans typically renew their coverage).

Plans must provide a 30 day window for the adult children to enroll in their parents' plan so if you want to add your children to your policy, be sure to keep your eyes open for the opportunity. If you aren't sure whether your current plan covers adult children immediately or imposes some restrictions, check with your benefits department or plan administrator.

Many know that it is important to have a will but there is usually a lot of confusion about what wills can and cannot do. A will generally provides a person with an opportunity to control how his or her property and assets will be passed upon their death. Without a will, the decedent's property and assets will pass according to the state's laws of intestacy. The intestacy laws that apply are usually determined based on where the decedent resided and/or where the property/asset is located.

A will can generally be used to:

• Pass property/assets to heirs in a manner that differs from those stated in the state's intestacy law;
• Pass property/assets to those who would not normally inherit it under the state's intestacy laws;
• Prevent a person (other than a surviving spouse or minor child) who would normally inherit property under the state intestacy laws from inheriting it;
• Name a personal representative for the estate;
• Nominate a guardian for minor children;
• Name a custodian or guardian to hold or manage the assets of their minor children;
• Provide instructions on how to pass property in the event that a beneficiary child predeceases the decedent; and
• Establish a trust upon your death such as a Bypass Trust or Special Needs Trust.

A will cannot be used to avoid probate or to distribute non-probate assets - such as life insurance policies and IRA accounts. In addition, a will cannot be used to disinherit a surviving spouse if he or she is entitled to a share of the estate based on the state's intestacy laws.

Regardless of the size of your estate, I generally recommend that every adult have a will so they can control the passing of their property. If you have minor children, it is even more important to have a will so you can nominate a guardian for your children.

The American Recovery and Reinvestment Act created a 65 percent subsidy for COBRA health insurance premiums to people that lost their job between September 1, 2008 and March 31, 2010. This subsidy is paid by the federal government. Eligible workers can receive this subsidy for up to 15 months.

These provisions of the American Recovery and Reinvestment Act expired on March 31, 2010. Anyone losing their job subsequent to this date were no longer eligible to participate in the program. On April 15, "The Continuing Extension Act of 2010" was enacted. This piece of legislation extended the COBRA subsidy to workers who lose their jobs during April and May of 2010. The subsidy continues to be 65 percent of the health insurance premium cost and workers can receive the subsidy for up to 15 months.

The IRS website has a section devoted to information for employers and employees participating in this COBRA subsidy program.

If you are a senior paying Medicare premiums and you are considering doing a Roth conversion, you need to be aware that a large conversion can result in dramatically higher Medicare Part B premiums.  That is because Medicare Part B premiums vary according to your income.  Retirees with higher incomes pay higher Medicare premiums than people with lower incomes. 

The higher Medicare premiums are imposed on single filers who have an Adjusted Gross Income (AGI) of $85,000 and married filers with an AGI greater than $170,000.  The premiums reach their maximum for single filers with AGIs over $214,000 and married filers with AGIs over $428,000.

Those may sound like relatively high income limits but if you are single and convert a $200,000 IRA this year, you could see a huge increase in your Medicare premiums.  It is possible for Medicare premiums to increase by as much as $3,000 a year.  A married couple could see increases of $6,000 per year. 

Finally, remember that a Roth conversion can also have the negative impact of increasing the amount of your Social Security benefits that are taxable.

Last night I spent a little time looking at the health care reform legisilation that passed the Senate, a.k.a H.R. 3590 Patient Protection and Affordable Care Act.  I did this since I know that neither John Kerry nor unelected Senator Paul Kirk have read the bill.  While it would take days to read the entire bill, my cursory review of the legislation identified at least 19 tax increases. 

 

Just an FYI to Mr. Kerry and unelected Sen. Kirk, we already have a universal health insurance law here in Massachusetts.  As I read it, this legislation will provide no additional health insurance coverage to the residents here in Massachusetts, only additional taxes.  But I digress. 

 

The following are some of the highlights of the tax increases included in the bill:

 

Section 1501 - Requirement to maintain minimum essential coverage - Individuals will be required to maintain health insurance.  Those that do not will be assessed an annual tax penalty of $750.  The tax penalty is scheduled to escalate in subsequent years.  Consequently, Massachusetts residents that do not maintain health insurance will be assessed a tax at both the state and federal level. 

 

Section 9001 – Excise tax on high cost employer-sponsored health coverage – This provision levies an excise tax of 40 percent for any health coverage plan that is costs over $8,500 per year for single coverage and $23,000 per year for family coverage.   Since this was protested vigorously by unions and public employees, the Senate caved and granted a massive concession.  The tax is not levied on the individual receiving the tax free benefit, but is levied on the insurance company or plan administrators that provide the employee the benefit.  How absurd is that? 

 

Section 9008 - Imposition of annual fee on branded prescription pharmaceutical manufacturers and importers - This piece of the legislation imposes a $2.3 billion excise tax on the pharmaceutical industry.  The tax is allocated across the industry and is based on market share, not on income.  This tax starts immediately and is non-deductible for the corporation being taxed.   These companies will still be required to pay their federal income taxes.

 

Section 9009 - Imposition of annual fee on medical device manufacturers and importers - This section imposes a $2 billion excise tax on the medical device industry.   The fee is allocated across the industry based on market share, not on income.  This tax starts immediately and is non-deductible for the corporation being taxed.  

 

Section 9010 - Imposition of annual fee on health insurance providers - Another excise tax.  This one is assessed on the health insurance industry in the amount of $6.7 billion per annum and is also based on market share. How can the imposition of $11 billion in excise taxes (section 9008, 9009 and 9010) on the health care industry reduce costs to consumers?  Does anyone else suspect these companies will have to pass these costs over to consumers?

 

Section 9013 - Modification of itemized deduction for medical expenses – For those incurring significant medical costs, your ability to deduct these expenses will be decreased.  This legislation increases the adjusted gross income threshold for claiming an itemized deduction from 7.5 percent to 10 percent.  

 

Section 9015 - Additional hospital insurance tax on high-income taxpayers – This increases the Medicare tax on wages by 0.50 percent on individuals making in excess of $200,000 and married couples making over $250,000.  This will be effective starting January 1, 2013.  (As a side note, individual income taxes are already scheduled to increase in 2011, with the highest rate already increasing by 4.6 percent. This will be in addition to the tax increase as outlined here in Section 9015.)

 

Section 9017 - Excise tax on elective cosmetic medical procedures - The bill imposes an excise tax of 5 percent for any voluntary cosmetic procedures. 

 

The bill is now off to reconciliation and it may take some time for an agreement.  Fortunately, if elected, we know Mrs. Coakley will not vote for the bill.  She has made it clear that her only concern is that the bill ensures federally funded abortion coverage for all.  (Apparently, abortion is a noble cause worthy of her leadership.)  

 

Mr. Kerry’s yes vote is secured.  He has never paid any Medicare taxes.  Furthermore, the only additional taxes I see that he and his family will incur is the excise tax for voluntary cosmetic surgery.

Open enrollment for those covered by a Medicare health plan and prescription drug plan begins on Nov 15 and ends on Dec. 31. This is Medicare’s annual enrollment period that allows you to make changes to an existing plan that you are enrolled in or to choose a different plan. While you have until Dec. 31 to make any changes, you should do them sooner rather than later so you can ensure that everything is in place before your coverage starts on Jan. 1, 2010.

Choosing a Medicare health plan can seem daunting so focus on the following factors when evaluating your options: cost, benefits, doctor and hospital choice, convenience, prescription drugs, pharmacy choice and quality and performance.

It’s a good idea to review your plan even if you are happy with your existing coverage. Changes in premiums, alone, warrant a fresh look at your current plan. Health care costs seem to increase every year and Medicare premiums are no exception. The average premiums for Part D and the Advantage plans have gone up by about 7% and 22%, respectively.

Keep in mind that premiums are only one of the cost factors to consider when evaluating a Medicare plan. Other important cost factors include changes in deductibles and co-payments. As with premiums, these costs are increasing in many plans as well.

To learn more visit the Centers for Medicare and Medicaid Services on the web at www.medicare.gov for more information and tools you can use to evaluate and compare your existing plan with the other options available to you. You can also get Medicare information by calling 1-800-MEDICARE (1-800-633-4227).

Have you been thinking about starting your own business, but don't know where to start? Or have you already started your own business, but need some advice on how to take it to the next level?

Accountant and Managing Your Money blogger Jamie Downey, who specializes in the area of small businesses, will be here on Tuesday, Oct. 13, at 1 p.m. to take all of your questions about the world of small business.

During the past week, we’ve received a couple of questions about qualifying for the COBRA subsidy that was enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA). Before I answer those questions, here’s an overview of the subsidy and how it works.

Under the ARRA, individuals who are eligible for COBRA coverage because of involuntarily termination from their job may be eligible for a reduction in their COBRA premiums. The reduction would allow the individual to reduce their COBRA premiums by 65% for up to 9 months.

To be eligible for the reduced premiums you must satisfy the following:

* You must be eligible for COBRA coverage between September 1, 2008 and December 31, 2009;

* Your eligibility for COBRA coverage must be because you were involuntary termination from your job at sometime between September 1, 2008 and December 31, 2009. Keep in mind that you would not generally be eligible for COBRA coverage or the reduction in COBRA premiums if you were terminated because of gross misconduct;

* You must elect COBRA coverage when first offered or during the additional election period provided under the ARRA. The additional election period applies to those who were involuntarily terminated from their job between September 1, 2008 and February 17, 2009 and failed to initially elect COBRA coverage. Those individuals will have an additional 60 days to elect COBRA coverage and receive the subsidy.

The subsidy does have a phase-out. In The subsidy is reduced for those individuals whose modified adjusted gross income (MAGI) exceeds $125,000 dollars ($250,000 dollars for those filing joint returns) and is completely phased-out for those individuals whose MAGI exceeds $145,000 dollars ($290,000 dollars for those filing joint returns).

FULL ENTRY

On October 9, 2009, Michelle’s Law (H.R. 2851) goes into effect. Passed on October 8, 2008 by President Bush, Michelle’s Law allows full-time college students to take a medical leave of absence without losing the health insurance coverage they receive as a dependent under their parent’s health insurance plan. Prior to the passage of this law, students between ages 19 and 24 could receive coverage under their parent’s health insurance policy, as a dependent, as long as they remained a full-time student. Students who lost their full-time status due to illness or injury were left with the choice of going without coverage under their parent’s plan (because they no longer qualified as a full-time student) or to continue coverage under COBRA, which could be prohibitively expensive for many families. This law prevents the loss of coverage under those situations.

Michelle’s Law was created based on the predicament faced by Michelle Morse. Michelle was a full-time college student who was diagnosed with cancer while attending college in New Hampshire. As Michelle went through chemotherapy treatments, her physician recommended that she reduce her full-time course work at school to deal with the debilitating treatments. However, doing so would cause her to lose her health insurance coverage because her family could not afford the premiums under COBRA. Faced with this no-win situation, Michelle decided to maintain her full-time status. Michelle passed away as result of her battle with cancer. To ensure that other students would not have to go through what Michelle did, Michelle’s family took the issue to their state’s legislature, who passed a law protecting students like Michelle. Other states followed and in 2008 President Bush signed it into federal law.

Here are the details about Michelle’s Law:
- The law applies to full-time students who are covered as dependents by their parent’s health insurance.

- Students are allowed to take up to 12 months off for a “medically necessary” leave of absence without losing their coverage. This also applies to students who reduce their course work to a less than full-time status because of medical necessity.

- In order for this law to apply, the leave of absence, reduction in course work, or change in full-time status must:
* Be medically necessary as determined by the student’s physician;
* Commence while the student is suffering from the illness or injury; and
* Cause the student to lose their dependent health insurance coverage.

For more information about Michelle’s Law visit http://www.michelleslaw.com/.

I was laid off last week and want to elect COBRA coverage for health insurance at the reduced premium. However, I am eligible to apply for coverage through my husband’s employer plan. Can I still sign up for COBRA at the reduced rate?

Unfortunately, you do not qualify for COBRA coverage at the reduce premiums because you are eligible to receive insurance coverage through your husband’s plan. Under the American Recovery and Reinvestment Act (ARRA) passed earlier this year, individuals who are eligible for insurance coverage through another group plan such as a spouse’s employer’s plan or Medicare, are not eligible for the reduced premium coverage under COBRA.

Those who are eligible for the reduction of COBRA premiums under the ARRA are known as “assistance eligible individuals” (AEI). According to the Department of Labor, an AEI is defined as an individual who:

* Is eligible for COBRA continuation coverage at any time during the period from September 1, 2008 through December 31, 2009 because of an involuntary termination of employment (that occurred at some time from September 1, 2008 through December 31, 2009);

* Elects COBRA coverage when first offered or during the additional election period provided by ARRA; and

* Is not eligible for other group health coverage (including a new employer’s plan, a spouse’s plan or Medicare).

Also, if your annual income is more than $125,000 dollars (or $250,000 dollars for couples filing jointly on your federal return) you may need to repay some or all of the premium reduction.

For more information about this COBRA subsidy please click on the links below to read our other blog postings on this topic and to visit the Department of Labor’s web site.

http://www.boston.com/business/personalfinance/managingyourmoney/archives/2009/03/just_laid_off_g_1.html

http://www.boston.com/business/personalfinance/managingyourmoney/archives/2009/03/more_cobra_subs_1.html

http://edlabor.house.gov/blog/2009/02/health-coverage-for-the-unempl.shtml

Yesterday the Wall Street Journal reported that term life insurance rates, after years of falling, are now reversing course and starting to go up. It may be time to re-evaluate your life insurance need and lock in the proper amount.

Consumers have benefited over the last 20 years as term life rates have been falling. This was largely due to improved mortality tables and more competition in the industry from the introduction of web-based insurance sales. But that trend changed earlier this year as many companies announced premium increases, largely thanks to the recent credit crisis. With tighter credit lending, insurance companies have had to pay more to borrow money to maintain their required cash reserves. In addition insurers are receiving lower returns on their investments just like the rest of investors, which makes it harder for them to maintain reserves and cover their expenses.

Now is a good time to take a look at your life insurance coverage. If your policy doesn't provide enough coverage, is annually renewable or has a level term that ends too early, you should think about adding to or replacing your policy. Applications can take weeks to get approved and your rate is not locked in until you receive approval so don't delay. In addition your health and age affect your rating, more good reasons to get the coverage you need as early as possible. However it is very important not to cancel your current insurance until a new policy is in place.

Open enrollment for those covered by Medicare health and prescription drug plans begins on Nov. 15 and ends on Dec. 31. This is Medicare’s annual enrollment period that allows you to make changes to an existing plan that you are enrolled in or to choose a different plan.

While you have until Dec. 31 to make any changes, you should address them sooner rather than later so you can ensure that everything is in place before your coverage starts on Jan. 1, 2009.

Choosing a Medicare health plan can seem daunting so focus on the following factors when evaluating your options: cost, benefits, doctor and hospital choice, convenience, prescription drug coverage, and pharmacy choice.

FULL ENTRY

A recent study by the Employee Benefit Research Institute (EBRI) found that the average 65 year old man would need to have $122,000 in current savings available to have a 90% chance of being able to cover his health care costs in retirement. And, if that figure isn't high enough for you, that amount is required for people who are fortunate to have a previous employer subsidizing the premiums. If that same man does not have any coverage from a previous employer, he must set aside $196,000 to cover his health care costs in retirement.

And the news is even worse for women. A 65 year old woman with some employer subsidized assistance would need to set aside $140,000. Without employer subsidized premiums, that amount jumps to $224,000. Nearly a quarter of a million dollars just to cover health care expenses.

Dare you ask about the expenses for a married couple? I hope you are sitting down. The figures are $235,000 for a couple with some employer provided assistance and $376,000 for those paying their own way.

And these projections could actually turn out to be on the low side because these figures do not include the savings necessary to cover long term care expenses. Also, if you retire before age 65, as many people do, you can expect to pay even more.

EBRI is a private, non-profit research institute based in Washington DC that focuses on health, savings, retirement and economic security issues. I have found a lot of great information on their website: www.ebri.org

Insurance to protect against the loss of a piece of jewelry valued at $5,000 can cost as little as $50 per year. Most people would agree that that is pretty inexpensive given how frequently people seem to lose things such as rings and earrings.

However, the Allstate Insurance Company reports that only 7 to 8 percent of the company's 7.4 million home insurance policyholders buy the additional insurance to cover expensive jewelry (or art, or silverware, etc). Allstate thinks that most people simply assume that coverage is provided under a regular homeowner's policy. However, many policies have a $1,000 limit on stolen items, no matter how expensive the item was. Also, some people probably intend to get the coverage but forget to compile a list of the jewelry they want to insure and then getting appraisals is something they never get around to doing.

If you own some expensive jewelry that you probably couldn't afford to replace if it were lost or stolen, you should talk to your agent about adding a rider to cover the items. For more information on this topic, check out this recent NY Times article.

Many people buy hybrid cars hoping to save money in the long run by spending less on gas. But did you know that hybrids can be very expensive to insure?

According to Insure.com, a 2009 Camry hybrid would cost an average 40-year-old driver $1,957 to insure while a similar conventional 2009 Camry would cost just $1,302 per year. That's an extra cost of more than $600 per year.

Why the extra cost? A study by the Highway Loss Data Institute found that repair costs were higher for 11 out of 12 hybrid cars and SUVs than for their gas-only counterparts. The study further points out that hybrid cars can't usually use after market parts, the labor charges per hour are higher and they take longer to repair.

And owners of some of the newest "microcars" have reported difficulty getting any kind of insurance. A recent article in the Wall Street Journal detailed how some owners of the new Smart Cars had to buy commercial insurance policies because traditional carriers didn't offer policies for those types of cars. The article stated that small cars often cost more to insure than larger ones because they are involved in more accidents and incur bigger claims -- especially for injuries. Small cars are also reported to have higher theft rates and be used more often in street racing.

The Federal Deposit Insurance Corporation (FDIC) is hoping to receive permission from Congress to insure greater amounts of deposits. Currently, individual deposits up to $100,000 and retirement accounts up to $250,000 are fully covered by the FDIC.

Even before this proposal was drafted, savers were been able to obtain additional coverage by titling their accounts in certain ways. However, savers were often confused by the different types of accounts and bank employees weren't always very clear in explaining the rules.

Under the new proposal, up to $250,000 in deposits could be insured and the cost of the increased coverage would be incurred by the member banks in the form of higher premiums. This would be good news for investors who have previously distributed their money across many banks in order to obtain full insurance protection. Mutual fund companies, however, are generally not in favor of this proposal because they think it might give banks an unfair operating advantage. To read more about this proposal, check out this recent NY Times article. Also, to learn more about how FDIC deposit insurance works and to estimate the amount of coverage available for your deposits, visit the FDIC website.

If my husband becomes eligible for Medicare, do I have 18 or 36 months of coverage from COBRA? Is this time a state by state variable or is it a federal guideline under the Department of Labor. The Department of Labor seems to say it is a 36 month option.

An employee becoming eligible for Medicare is a COBRA Qualifying Event and the spouse and dependent child(ren) of the employee are entitled to COBRA coverage for 36 months. However, it is important to note that not every employer is required to provide COBRA coverage. Exemptions exist for certain church-related organizations, firms with less than 20 employees and other categories of employers.

I suggest talking with your husband's benefits department and asking if COBRA coverage is available and for what period of time. Also, it probably wouldn't hurt to get the response in writing. It might seem obvious, but even if the employer has more than 20 employees, you can only get COBRA coverage if the employer offers health care coverage. Also, if your husband's employer only offered health coverage to certain groups of employees, and your husband was not a part of that group, you and your dependents would not be entitled to coverage.

If your husband worked for a large employer and was a full time employee with health care benefits, you should be all set but you should definitely double check because getting and keeping this coverage is very important. Remember that your coverage under COBRA will end if:

you fail to pay your premiums when due,
you reach the 36 month limit,
your husband's employer decides to discontinue its group coverage, or
your husband's employer ceases operations.

My husband wants me to resign and relocate so we can be together, but I'm not sure how I can retain the same security my employer provides. How can I began to assess this difficult decision?

There are certainly a lot of factors to consider in this situation. Here are my thoughts from the "financial front":

Does your employer provide the health insurance for the family?

If yes, you need to confirm that your husband can get coverage for you and any other family members at a reasonable cost or plan to arrange for COBRA coverage (which will likely cost more than what you are currently paying.)

Does your employer provide you with life insurance benefits?

You don't want to find yourself without life insurance because you have left your job. If you rely on employer-provided coverage, get a private policy instead. But apply now so you won't be without coverage for any period of time.

Does your employer provide you with disability insurance?

If you leave your job, you would lose this very important coverage and the odds of suffering a disability are much higher than most people think. Most people would never think about going without life insurance but disability insurance is actually more important because you are much more likely to be disabled than to die. In fact the average person has a one in five chance of being disabled for a period of time before age 65.

Does your employer offer a retirement plan with a company match or, even better, a pension?

If your employer offers a great retirement plan which would be difficult to find elsewhere, you might want to think hard about leaving this benefit behind.

Have you prepared a realistic budget?

This is essential. If you don't have a firm grasp on your expenses, how do you know that you can afford to live on just one income even for a couple of weeks? It could take several months for you to find a suitable job in your new location. Do you have a sufficient "supplemental income" fund available to tide you over?

Do you have an adequate emergency fund and income reserve?

Assuming that you don't have a job waiting for you somewhere else, do you have an emergency fund equal to three to six months of your typical expenses? If your finances are shaky now, leaving a job voluntarily is probably not a smart move.

How does your credit look?

If your credit isn't in the best of shape, it might be wise to postpone a move and work on improving your credit. A poor credit history can impact your ability to get a new job.

Obviously, money and finances shouldn't be the only factors considered, but they certainly are important. Good luck.

Did you know that according to a recent study, 2 out of every 3 homes are underinsured? That is a pretty striking number and, as high as it is, I am actually just a little surprised that it is not higher.

Not too long along ago, I was talking with a neighbor about a massive home renovation that they had completed nearly a year ago. This person had almost doubled the size of their home but she had not contacted her insurance agent to notify him about the changes to her home. If she had suffered a fire, she definitely would not have received enough money from her insurer to rebuild her home. She could have been on the hook to pay hundreds of thousands of dollars to rebuild and all because she didn't think to call the agent and notify him of the work she had done. And I am sure that this is a very common occurrence. Living through a large scale renovation can be very stressful, and checking in with your insurance agent on a regular basis is probably not at the top of anyone's to-do list.

It is important to note that this problem is not unique to people who have taken on huge remodeling projects. Even people who have not made drastic improvements to their home can find themselves underinsured.

This is because homeowners insurance has changed quite a bit over the years. Guaranteed replacement cost coverage used to be fairly common. When you had this coverage, the odds were good that you would be able to rebuild your house exactly as it was with very little cost to you.

Now, it is very hard to find guaranteed replacement cost coverage. Instead, insurers offer replacement cost coverage. It sounds like the same thing, but it isn't. With replacement cost coverage, your insurer will cap the amount they are willing to pay to rebuild at 120 or 125 percent of the policy's coverage amount. That means that it is your job to ensure that the coverage amount is adequate.

How do you do that? Start by contacting your agent and asking them to recompute your coverage limit. This will probably involve anwering a detailed questionnaire. Expect the agent to ask about square footage, number of bedrooms and baths and any "upgrades" like hardwood floors, granite countertops, etc. And don't stop with the inside of your home, if you have extensive landscaping or a pool, be sure to tell the agent about that as well.

If you have a top-of-the-line custom built home, you shouldn't rely on an over-the-phone conversation. The high end insurers are generally willing to send someone to your home to do a custom appraisal. If you still think that number is low, you can talk to builders in your area and get an estimate from them.

The important thing is to not overlook this important area. Make sure you call your insurance agent if you are taking on any kind of home improvement project. Your premiums may go up, but at least you won't find yourself unable to replace your current home in the event of a disaster.

What can you tell me about health insurance provided under COBRA? If I leave my job, am I entitled to coverage for 18 months or 36 months? Also, is COBRA a good deal?

The Consolidated Omnibus Reconciliation Act (COBRA) is a federal law that gives you (and your family) the right to continue to keep group health insurance benefits for a mandated period of time. Before COBRA was enacted, when employees left their jobs, the employee and their family lost health insurance coverage almost immediately. Oftentimes, families were without coverage for just a period of weeks or months while the primary wage earner was between jobs but that was often when disaster would strike. COBRA was created to address this situation and it gives employees (and their families) the chance to buy health insurance through the employer even after the employee no longer works for the company.

A qualifying event is the event that renders an employee (or their dependents) eligible for COBRA benefits. Generally speaking, there are 4 "categories" of qualifying events:

1) An employee dies.

In this situation, the employee's spouse and dependent children would qualify for coverage for 36 months.

2) An employee is terminated, laid off, takes a leave of absence, or has their working hours reduced.

In this situation, the employee, the employee's spouse and the employee's dependent children are eligible for coverage for 18 months.

3) An employee divorces or legally separates from their spouse.

In this situation, the employee's spouse and dependent children are eligible for coverage for 36 months.

4) An employee's dependent child is no longer considered a dependent under the group health plan.

In this situation, the employee's child is eligible for coverage for 36 month.

If you lose your job, it is very important that you sign up for COBRA coverage because it is generally the least expensive and most comprehensive coverage you will find. The premium for COBRA coverage is just 102% of the cost of the group health coverage -- usually much less than you would pay for individual health coverage.

If you are terminated by your employer, you will receive a letter notifying you of your COBRA rights and then you will have 60 days to elect coverage. No matter when you enroll, your coverage is retroactive to the date you lost your employer provided coverage. Remember, you must elect the coverage in writing and you must be diligent about paying the premiums. Don't miss even one payment because you could end up losing your coverage.