What’s the Difference Between Capital Gains and a Dividend?

Investopedia published an article that asks “Capital Gains vs. Dividend Income: What’s the Difference?” The article looks at the differences between capital gains and dividend income, and their tax implications.

Capital is the initial sum invested. A capital gain is a profit you get when an investment is sold for a higher price than the original purchase price. An investor doesn’t realize a capital gain, until an investment is sold for a profit.

On the other hand, dividends are assets paid out of the profits of a corporation to the stockholders. The dividends an investor receives aren’t capital gains. This is treated as income for that tax year.

A capital gain is the increase in the value of a capital asset—either an investment or real estate—that gives it a higher value than the purchase price. A capital loss happens, when there’s a decrease in the capital asset value as compared to the asset’s purchase price. There is no capital loss until the asset is sold at a discount.

A dividend is a “reward” or “bonus” that’s given to shareholders who’ve invested in a company’s equity. It is usually from the company’s net profits. Most profits are kept within the company as retained earnings, representing money to be used for ongoing and future business activities. However, the rest is often disbursed to shareholders as a dividend.

Taxes. Capital gains and dividends are taxed differently. Dividends are going to be either ordinary or qualified and taxed accordingly. However, capital gains are taxed based on whether they are seen as short-term or long-term holdings. A capital gains is deemed short-term, if the asset that was sold after being held for less than a year. Short-term capital gains are taxed as ordinary income for the year. Assets held for more than a year before being sold, are considered long-term capital gains upon sale. The tax is on the net capital gains for the year. Net capital gains are calculated, by subtracting capital losses from capital gains for the year. For many, the tax rate for capital gains will be less than 15%.

Dividends are usually paid as cash. However, they can also be in the form of property or stock. Dividends can be ordinary or qualified. Ordinary dividends are taxable and must be declared as income, but qualified dividends are taxed at a lower capital gains rate. When a corporation returns capital to a shareholder, it’s not considered a dividend. It reduces the shareholder’s stock in the company. When a stock basis is reduced to zero through the return of capital, any non-dividend distribution is considered capital gains and will be taxed as such.

Reference: Investopedia (April 11, 2019) “Capital Gains vs. Dividend Income: What’s the Difference?”

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What Does the Research Show for Retiree IRAs?

The study by the Employee Benefit Research Institute examined what happened to 7.5 million IRA accounts owned by those age 60 or older in 2012.

Of those, 81% were still open in 2015, and of those open, 68% had higher balances at the end of that period than at the start.

FedWeek’s recent article, “Study Finds Encouraging Pattern among Retiree IRAs” reported that aside from the smallest accounts, those with fewer than $1,000, the pattern was consistent across all of the different account sizes.

The median increase–the point where half are above and half are below–was 12%.

Even among account holders past age 70½—when certain distributions are required—49% of the IRA accounts grew over the three year period.

An account holder is typically required to withdraw a minimum distribution known as a “Required Minimum Distribution” or “RMD,” which is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from an IRA account, when you reach age 70½. You have to take your first RMD for the year in which you turn age 70½. However, the first payment can be delayed until April 1st of the year following the year in which you turn 70½.

The study found that those individuals making annual withdrawals before age 71 had bigger balance declines, than those who recently reached the required minimum distribution age of 70½.

Those large balance declines are thought to be because the second group was more likely to be making a withdrawal primarily because they’re required to do so.  Therefore, they took the minimum required, the research said.

“Only when owners reached ages 85 or older, did a significantly higher percentage of accounts fail to have a positive balance after three years, either due to depletion or account closure,” it added.

Reference: FedWeek (June 6, 2019) “Study Finds Encouraging Pattern among Retiree IRAs”

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Should Retirement Include a Small Bit of Work, on Your Terms?

A college student who worked as a seasonal employee for a tax preparation company was surprised to learn that most of his co-workers were older people, mainly older than 60 and one older than 70. As a young person, he thought they were working because they were desperate for an income, says the Napa Valley Register in the article “Consider a Retirement Job.” As he got to know his fellow workers, he learned that he was very wrong.

Most of them had retired from bigger and far better jobs. They took the seasonal tax work just to stay active and earn a little extra cash. The young man never thought much beyond that, until he began his own career as a financial planner and learned just how valuable a retirement job could be.

Retirees with a side job have more success in retirement, and it’s not just because they have some extra spending money. They have regular interactions with people of all generations, and they have a structure to their days that makes most senior’s lives more productive and fulfilling.

When we think of retirement jobs, most people think of a big-box store greeter. That’s not a bad deal, but it’s far from the only option to retirees. Some people decide to drive for a company like Uber or Lyft, which gives them a great deal of control over their schedules.

Did you know that there are driving services that don’t require you to drive people? You can drive as a courier, run errands or bring people food from restaurants, like DoorDash and Grubhub or, if you are fit enough for heavy bags, from grocery stores, like Peapod.

Other service jobs include house sitting or pet sitting. Online vacation rentals have led to an increase in home maintenance and housekeeping services needed.

Another option is to continue in your present job, but do it less, and on your own terms. For a teacher, that might mean substitute teaching. For professionals, becoming a consultant, often for the same people you worked with in the past, but on your terms, is also a part time option.

Retirement is when many people turn to their hobbies and make them into businesses. That could be crafts, painting, photography or woodworking. If you’ve always wanted to pursue a creative life, this is the time.

There are many different opportunities for retirement jobs. The important thing is to find something you love to do, that brings in some money and that works with your retirement lifestyle. Do what you love, and don’t settle for anything less.

Reference: Napa Valley Register (June 2, 2019) “Consider a Retirement Job.”

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What Should I Look for in a Trustee?

Selecting a trustee to manage your estate after you pass away is an important decision. Depending on the type of trust you’re creating, the trustee will be in charge of overseeing your assets and the assets of your family. It’s common for people to choose either a friend or family member, a professional trustee or a trust company or corporate trustee for this critical role.

Forbes’s recent article, “How To Choose A Trustee,” helps you identify what you should look for in a trustee.

If you go with a family member or friend, she should be financially savvy and good with money. You want someone who is knows something about investing, and preferably someone who has assets of their own that they are investing with an investment advisor.

A good thing about selecting a friend or family member as trustee, is that they’re going to be most familiar with you and your family. They will also understand your family’s dynamics.  Family members also usually don’t charge a trustee fee (although they are entitled to do so).

However, your family may be better off with a professional trustee or trust company that has expertise with trust administration. This may eliminate some potentially hard feelings in the family. Another negative is that your family member may be too close to the family and may get caught up in the drama.They may also have a power trip and like having total control of your beneficiary’s finances.

Trust companies will have more structure and oversight to the trust administration, including a trust department that oversees the administration. This will be more expensive, but it may be money well spent. A trust company can make the tough decisions and tell beneficiaries “no” when needed. It’s common to use a trust company, when the beneficiaries don’t get along, when there is a problem beneficiary or when it’s a large sum of money. A drawback is that a trust company may be difficult to remove or become inflexible. They also may be stingy about distributions, if it will reduce the assets under management that they’re investing. You can solve this by giving a neutral third party, like a trusted family member, the ability to remove and replace the trustee.

Talk to your estate planning attorney and go through your concerns to find a solution that works for you and your family.

Reference: Forbes (May 31, 2019) “How To Choose A Trustee”

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What are the “Six L’s” of Small Business Planning?

Failing to conduct long-term personal planning can create a reality, where a business owner under-insures and underinvests outside her own companies.

Think Advisor’s recent article, “The 6 L’s of Small-Business Planning” says that a successful business essentially becomes a security blanket. That’s because business owners don’t adequately prepare for events that could change the course of their financial well-being. It’s critical to address the important events that can disrupt everything personal and business.

Liquidity: If a business owner has to write a big check for some unexpected repairs after a storm, the money must come from somewhere. Small businesses rarely have substantial liquidity, because so much of their capital is tied up in the company. Therefore, a line of credit is the most frequent solution for owners with this situation.  You should instead try to ensure that you have access to cash in the short term, if necessary.

Long-term disability: In many instances, business owners are the main contributors to their small company’s success. If they can’t work, the whole company can suffer. She should have a plan to protect against this scenario. First, it is important to identify who can step into a leadership role for a short time. If the disability is long term, examine the ways in which it might affect the company’s value and succession plan. You can purchase business overhead insurance or policies that offer income replacement. You can also create buy-out agreements, so key employees can buy out the disabled business owner.

Loss of life: In the event that an owner suddenly dies, you should have life insurance to fund a buy/sell plan. Without a plan, you may become forced to work with your deceased business partner’s spouse.

Long-term care: Baby boomers with business wealth may wonder what will happen if they need significant medical care, which is a legitimate concern. There’s an additional consideration: the elderly parents of business owners. If an owner steps away to help provide care for an ailing parent, the potential disruption to the company may be significant. Look at where the capital is going to come from, to offset the cost of long-term care for family members, because you don’t want a forced liquidation of business assets.

Longevity: Consider the impact to the company, if the owner has an unusually long life. This should include an examination of how that person’s role will change and who will succeed them through phases of potentially decreasing interest and capacity.

Legacy/legal: Look at what the business owner envisions as her legacy for the future. There are numerous types of trusts, gifts and legal vehicles can be used to help make certain that the business won’t be ruined by taxes, when ownership is passed to the next generation. Talk to an estate planning attorney about doing this the right way.

At each annual business review, review your plans to see if they can still be effective responses to the six Ls of small business planning.

Reference: Think Advisor (May 28, 2019) “The 6 L’s of Small-Business Planning”

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How Do I Avoid Probate for a CD?

There are three categories of property, but just one requires probate to access it when the owner dies.

nj.com recently published an article that asked “When I die, how can I avoid probate for this account?” The article explains that there is property that passes by operation of law. This type of property is anything owned jointly with right of survivorship.

Sometimes you’ll see these types of accounts labeled with “JTWROS”—joint tenancy with right of survivorship.

With joint tenancy with right of survivorship, when one co-owner dies, the property automatically passes by law to the surviving co-owner. There’s no probate involved. This is the type of set up that married couples usually have for most of their accounts and property, such as the family home.

A second type of property is assets that are controlled by a contract. This includes life insurance, retirement accounts, and any non-retirement accounts that have beneficiaries designated upon death.

These designations trump the decedent’s will. Therefore, it doesn’t matter if the will says to give the life insurance proceeds to someone else. The beneficiary designated on the policy will receive the proceeds. Those proceeds also pass outside of probate directly to the named beneficiary. These types of accounts are often known as as “POD” (payable on death) or “TOD” (transfer on death) accounts.

The third type of property is the catch-all: everything else. This will include accounts that are owned solely by the person who died, with no POD or TOD designation.

In order to avoid the probate process to access a CD or any other account in only a spouse’s name, you can either make the account jointly owned by husband and wife with right of survivorship, or have your spouse designate you as a beneficiary upon death. Both options avoid the need to probate the will to access that CD account.

Talk to an experienced estate planning attorney about getting the titles to your property straight, as well as any other questions you have about your estate plan.

Reference: nj.com (June 6, 2019) “When I die, how can I avoid probate for this account?”

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What Does ‘Getting Your Affairs in Order’ Really Mean?

the time is now

That “something” that happens that no one wants to come out and say is that you are either incapacitated by a serious illness or injury or the ultimate ‘something,’ which is death. There are steps you can take that will help your family and loved ones, so they have the information they need and can help you, says Catching Health’s article “Getting your affairs in order.”

Start with the concept of incapacity, which is an important part of estate planning. Who would you want to speak on your behalf? Would that person be the same one you would want to make important financial decisions, pay bills and handle your personal affairs? Does your family know what your wishes are, or do you know what your parent’s wishes are?

Financial Power of Attorney. Someone needs to be able to pay your bills and handle financial matters. That person is named in a Financial Power of Attorney, and they become your agent. Without an agent, your family will have to go to court and get a conservatorship. This takes time and money. It also brings in court involvement into your life and adds another layer of stress and expense.

It’s important to name someone who you trust implicitly and whose financial savvy you trust. Talk with the person you have in mind first and make sure they are comfortable taking on this responsibility. There may be other family members who will not agree with your decisions, or your agent’s decisions. They’ll have to be able to stick to the course in the face of disagreements.

Medical Power of Attorney. The Medical Power of Attorney is used when end-of-life care decisions must be made. This is usually when someone is in a persistent vegetative state, has a terminal illness or is in an irreversible coma. Be cautious: sometimes people want to appoint all their children to make health care decisions. When there are disputes, the doctor ends up having to make the decision. The doctor does not want to be a mediator. One person needs to be the spokesperson for you.

Health Care Directive or Living Will. The name of these documents and what they serve to accomplish does vary from state to state, so speak with an estate planning attorney in your state to determine exactly what it is that you need.

Health Care Proxy. This is the health care agent who makes medical decisions on your behalf, when you can no longer do so. In Maine, that’s a health care advance directive. The document should be given to the named person for easy access. It should also be given to doctors and medical providers.

DNR, or Do Not Resuscitate Order. This is a document that says that if your heart has stopped working or if you stop breathing, not to bring you back to life. When an ambulance arrives and the EMT asked for this document, it’s because they need to know what your wishes are. Some folks put them on the fridge or in a folder where an aide or family member can find them easily. If you are in cardiac arrest and the DNR is with a family member who is driving from another state to get to you, the EMT is bound by law to revive you. You need to have that on hand, if that is your wish.

How Much Should You Tell Your Kids? While it’s really up to you as to how much you want to share with your kids, the more they know, the more they can help in an emergency. Some seniors bring their kids with them to the estate planning attorney’s office, but some prefer to keep everything under wraps. At the very least, the children need to know where the important documents are, and have contact information for the estate planning attorney, the accountant and the financial advisor. Many people create a binder with all of their important documents, so there are no delays caused in healthcare decisions.

Reference: Catching Health (May 28, 2019) “Getting your affairs in order.”

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What is a Medicaid Annuity?

A common situation happens to many elderly people—needing long-term nursing home or assisted living care—without having the money to pay for it. These people may think about applying for Medicaid, the joint federal-state program that offers health coverage to eligible low-income seniors, but because they have a little too much money to qualify, they try to do a Medicaid “spend down.”

U.S. News and World Report’s recent article asks “What Is a Medicaid Annuity?”.  While many people have heard “spend down” as a strategy for qualifying, Medicaid spend downs are often as bad as they sound. If you have a situation where your father needs Medicaid to pay for a nursing home but your mother’s health is OK. You can drain their savings to make your father poorer and eligible, but then your mom will have even less on which to live.

That’s why some people use a Medicaid-compliant annuity.

A regular annuity is a fixed sum of money that’s usually paid every year indefinitely for the rest of a person’s life. When people purchase a typical annuity, it’s frequently deferred. That means the payout doesn’t happen for some time.

However, Medicaid-compliant annuities are immediate annuities—paid out immediately. A Medicaid-compliant annuity gives you a lump sum of cash, in exchange for a guaranteed income stream that will help your spouse who isn’t moving into a nursing home maintain his or her quality of life.

Medicaid-compliant annuities aren’t a do-it-yourself project or an investment strategy. Talk to an elder law attorney. He or she will educate you on how it works for Medicaid planning. There are tax issues and life expectancies to consider.

Also, you should be careful: don’t confuse a Medicaid-compliant annuity with what an insurance agent may call a “Medicaid-friendly” annuity.

A Medicaid-compliant annuity can be a good solution, especially for couples when one of them requires nursing home care, and the other doesn’t.

Reference: U.S. News and World Report (May 29, 2019) “What Is a Medicaid Annuity?”

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Do I Need to Update My Estate Plan if I Relocate for Retirement?

Anyone who moves to another state, for retirement, a new job or to be closer to family, needs to have a look at their estate plan to make sure it is valid in their new state, advises the Boca Newspaper in the recent article “I’ve Relocated To Florida…Should I Update My Estate Plan?”

If an estate plan hasn’t been created, a relocation is the perfect opportunity to get this important task done. Think of it as preparation for your new life in your new home.

Because so many retirees do relocate to Florida, there are some general rules that make this easier. For one thing, most wills that are valid in another state are recognized in Florida. There’s a specific law in the Florida statutes that confirms that “other than a holographic or nuncupative will, executed by a nonresident of Florida… is valid as a will in this state if valid under the laws of the state or country where the will was executed.”

In other words, if the estate plan was prepared by an estate planning attorney and is legally valid in the prior state, it will be valid in Florida. Exceptions are a holographic will, which is a handwritten will that is signed by the person with no witnesses, or a nuncupative will, which is a verbal statement made in front of witnesses.

However, just because your will is recognized in Florida, does not mean that it doesn’t need a review.

There are distinctions in Florida law that may make certain provisions invalid or change their meaning. In one well-known case, a will was missing one sentence—known as a “residual clause,” a catch-all that distributes assets that are otherwise not specified. The maker of the will wanted everything to go to her brother. However, without that one clause, property acquired after the will was created was not included. The court determined that the property that was acquired after the will was created, would go to other relatives, despite the wishes of the decedent.

Little details mean a lot when it comes to estate plans.

It’s important to ensure that the last will and testament properly expresses intentions under the laws of your new home state. As you review or begin the process, this might be the time to speak with your estate planning attorney about whether any trusts are applicable to your estate. A revocable living trust, for example, would avoid the assets placed in the trust having to go through probate.

This is also the time to review your Durable Power of Attorney, designation of a Health Care Surrogate, Living Will and nomination of a pre-need Guardian.

Estate planning gives peace of mind, knowing that the legal side of your life is all taken care of. It avoids stress and unnecessary costs and delays to your family. It should be reviewed and updated, if needed, at big events in your life, including a relocation, the sale or purchase of a home or when you retire.

Reference: Boca Newspaper (May 1, 2019) “I’ve Relocated To Florida…Should I Update My Estate Plan?”

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8 Places Seniors Can Travel on the Cheap

You worked hard all your life, scrimped and saved, raised the family and dreamed of one day having the time and money to travel. Now that you have retired, you want to see it all – everything you wanted to see before but could not because of other obligations. Of course, if you blow your entire travel budget for the year on one trip, you will likely be unhappy at the prospect of having to wait a year until the next adventure.

If you can find great deals and know some inside information, you can stretch those travel dollars. Here are 8 places seniors can travel on the cheap.

Las Vegas, Nevada

The perennial favorites of people of all ages, Las Vegas is a shimmering oasis in the middle of nowhere, surrounded by stark, unforgiving desert. Slot machines, world-class shows and all-you-can-eat buffets attract people from all over the world. Because there are so many hotels in Vegas, you can always find one running a ridiculous sale. Some of the best entertainment costs nothing – just go people-watching on the Strip.

Branson, Missouri

A quick online search will reveal a plethora of people offering free guides to save you a bundle, while vacationing in this Midwestern mecca for family fun. Thick forests cover the landscape, separated by many lakes for fishing, boating and other water sports. The amusement parks can be a bit pricey, but you should look for senior discounts and off-season deals. Many popular entertainers divide their time between Las Vegas and Branson.

Greenville, South Carolina

This community embraces the older traveler, with free trolleys that accommodate wheelchairs. Greenville has around 70 public art installations. You can view the largest exhibit of Andrew Wyeth watercolors open to the public – also at no cost. There are food trucks serving regional and international food at palatable prices.

Astoria, Oregon

Lewis and Clark ended their expedition here, at the mouth of the Columbia River. There are plenty of historic attractions for sightseeing. Lodging and eateries tend to be reasonably priced. Some Queen Anne and Victorian mansions are now B&Bs. The geography offers a stunning backdrop.

Pensacola, Florida

If you long to go to Florida but want an alternative to Orlando or Miami’s crowds and high prices, the western panhandle town of Pensacola might be a good choice. Hotels and restaurants are generally more reasonably-priced than the tourist hot spots. This Gulf Coast town tends to have a more laid-back vibe, where you can stroll along birding and wildlife trails or on the beach.

The seafood is amazing and fresh. Aviation buffs can watch U.S. Navy Blue Angels air shows or play on flight simulators at the National Naval Aviation Museum. The museum does not charge admission. The outdoor market downtown has music, crafts and food on the weekends.

Lake Geneva, Wisconsin

This scenic town is between Chicago and Milwaukee. If you want to escape the summer heat of southern destinations, Lake Geneva could be a good option. There are many reasonably-priced pubs and diners. Historic mansions line a 20-mile walking path along the lakeshore.

Cheyenne, Wyoming

If rodeos and western things make you happy, you might want to check out this capital city. Cheyenne offers free narrated tours in carriages. Hotel rates are surprisingly low. You can check “hand-feeding a buffalo” off of your bucket list.

Hot Springs, Arkansas

This location is easy on your wallet for dining and lodging, while boasting stunning scenery. You can take a dip at a spa from the 1800s and visit the Gangster Museum of America.

Travel keeps our brains engaged and gives us something to look forward to in life. If you are on the fence about where to spend your hard-earned money, think of travel as an investment in your health and take that trip!


AARP. “How Seniors Can Stretch Their Travel Dollars.” (accessed May 30, 2019) https://www.aarp.org/travel/travel-tips/budget/info-2019/inexpensive-us-trips.html

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