The Problem with Beneficiaries in Your Will

willYou think that you have your love ones protected, you have a Will. Well maybe not! Many people who have a Will believe that their assets will be passed say to a spouse or other family members. And while this is true there are some things that you should be concerned about.

  1. Beware that your beneficiaries listed on your life insurance, 401K, IRA and even your brokerage account ARE AHEAD of your beneficiaries shown in your will. These assets will pass to the beneficiaries BEFORE the Will even goes to probate.
  2. In general, all Wills go through the probate process and distributions can take months or even years. In addition you’ll need an attorney. Suggestion – check to see if a revocable trust better meets your needs, the trustee can directly distribute your assets without probate.
  3. Beware of naming an “Estate” as a beneficiary in your life insurance, 401K, IRA and brokerage account. This may have unintended consequences and should only be done with the help of an estate planning attorney.

Do not delay whatsoever in clarifying your beneficiaries. You may find that the beneficiaries that you set up years ago in your employer 401K plan no longer represent your wishes.

How Good is Your Hospital – Finally a National Ratings System

We are all consumers and before I purchase anything of significance I look up reviews on line to make sure I’m getting the right product. One area of frustration has always been the healthcare industry, specifically hospitals. The assumption is that most insurance plans will cover, most if not all, of the hospitals in your area. Therefore we aren’t really shopping for price as much as quality of care.

This last week Medicare, by far the largest medical insurance payee, released its first ratings of more than 3,500 hospitals across the country. The ratings, based on patient reviews range from 0 – 5 stars. Medicare notes that “As for the stars themselves, a one-star rating doesn’t mean that you will receive poor care from a hospital It means that hospitals that received two or more stars performed better on this particular measure of patient experience of care.” This site no only rates hospitals in various categories but allows you to compare hospitals in a specified area.

While on the Medicare site you’ll also see:

  • Nursing Home Compare
  • Home Health Compare
  • Dialysis Facility Compare
  • Medicare Plan Finder
  • Supplier Directory

Here is the Medicare Ratings Site.

Here is a sample of hospitals in my area:


Beware of High Dividend Foreign Stocks or Funds in Your IRA/401K

Foreign TaxDo you know how the Foreign Tax Credit works, you should, it can cost you a lot of money.

Here is another tax tip for those investors who are looking for dividends and have foreign dividend paying investments in a tax deferred account. When you own a stock in a company based in a foreign country you may have to pay a foreign tax on a dividend or capital gain. These tax rates are all based on US treaties.  Whether you know it or not these foreign taxes are automatically deducted from your dividend payment before you even receive it in your account.

The good news is that the IRS will give you a tax credit for all Foreign Tax paid, it actually goes on 1040 Line 48. However, this ONLY works if you hold these investments in a taxable account. if you have these investments in a tax deferred account, you will still pay the foreign tax, but not get the Foreign Tax Credit. 

Here are some examples of foreign withholdings on Dividends:

Australia – 30%

Brazil – 15%

Canada – 15%

Chile – 35%

Chine – 10%

France – 25%

Germany – 26%

Ireland – 20%

Japan – 10%

South Korea – 27.5%

UK – REITS only – 20%

Keep in mind that this is a Tax Credit, it reduces your actual taxes not just reduces your income.

Be careful under what account you invest in foreign company’s that pay dividends.

Get a Free 12 Month Government Loan at 0% Interest for $15-$25,000 – Really!


If you are over 66 (and under 70) and not yet getting Social Security you can easily get a $15 – $25,000 loan from Social Security. It’s actually very easy to do and there is no penalty whatsoever. You just have to completely pay it back within exactly 12 months and no longer. It is best done at the very start of the year so that your 1099-SA (Social Security tax form) will show a full repayment in the same year. Just file form SSA-521.  

I actually did this in 2014. I filed and received my Social Security benefits effective January 2014 and stopped my benefits, repaying it all in December 2014. Each month I received my $2,600 benefit (the maximum payment allowed in 2014). Separately I paid my $104/mo Medicare payment and did not have any Federal Tax withheld. The net effect was that this money was invested in the market, I didn’t calculate exactly how much I made off of this loan but my overall investments were up double digits for the year. This was probably the easiest $2,000 or so I ever made.  

Unfortunately you can only do this one time!  

As you probably know from reading my other articles, I have no intentions of taking my Social Security benefits until I’m 70 years old since they grow tax free at 8%/year plus a cost of living increase compounded.


Understanding the Big Difference in Tax Lots when Selling of Stock

Let’s say that you are adjusting your portfolio allocations or trimming a position in a stock or fund you’ve been accumulating. If I want to sell, say 100 shares of my holdings in DIA, an ETF that tracks the Dow Jones Index. I can just enter the number of shares to sell, click the sell button and your sale goes through. Behind the scenes your broker might use the first in, first out method (FIFO). This simply means that the first shares purchased are also the first ones to be sold. Since each purchase you made has a cost per share at the time, your gain or loss is calculated for tax purposes.

 Now let’s say that you are looking for a special tax treatment on your sale, for example you’d like to choose between a short-term loss vs. a long term gain (let’s just assume you would never have any “Long Term Losses”. If this is the case you’ll want to make sure your broker will allow you to specify the specific tax lots that you’d like to sell. There are some years when, at year end, I’m looking to take “advantage” of some losses and dump some stocks that are no longer performing. I’ll pair these losses with selling some gains in stocks that have appreciated. I’ll buy back the stocks that had gains, but I want to take advantage of the losses. Don’t worry; this is not a “Wash Sale” since it was a gain.

 Here is an example showing various tax lots that make up a single position in an account. Notice how you can specify the exact number of shares to sell from each tax lot to control the tax consequences.

Tax Lots



The Tax Shock for Widowhood (or Widowerhood)



The lost of a spouse in retirement can result in the following tax shock:

  1. No longer able to file as Married Filing Jointly, may have to file as Single, the highest tax bracket.
  2. Loose 50% of the Personal Exemptions.
  3. Loose 50% of the Standard Deduction.
  4. Loose 33% of dual Social Security benefits.
  5. Possible loss of spouse’s private pension, depending on plan.
  6. Higher tax bracket may raise the marginal tax rate.

As you get older and are either retired or are planning your retirement you will undoubtly work out a retirement plan that should also include a tax plan. Bad tax planning is almost as bad a bad retirement planning. There are major tax filing issues for those who become a widow(er), the loss of both a personal exemption and a 50% less standard deduction. After a death, you can bet that the survivors’ marginal tax rate will increase and you need to plan for this in your calculations.

First let’s look at what happens in the tax years after a spouse passes away;

  • In the tax year of the passing, if you did not remarry by December 31st, you can claim Married Filing Jointly, and your normal 2 exemptions. You may only do this one time.
  • After the initial tax year, if you have a dependent child living in your house and your spouse died in one of the past two years you may qualify as a Qualified Widow(er).
  • With the above dependent child or any qualified other dependant, after the 2nd year , may qualify to file as Head of Household.
  • With no dependent child, you immediately become Single status for tax purposes, the most expensive tax bracket there is.

Here is how it affects the Standard Deductions in 2014:

Filing Status

Single $6,200

Married Filing Jointly $12,400

Married Filing Separately $6,200

Head of Household $9,100

In addition for tax year 2014, the personal exemption amount is $3,950 per person, losing a spouse provides ½ the former exemption. Let’s also assume that both husband and wife were collecting Social Security, the passing of a spouse typically reduces the total annual Social Security amount by 33%.

When you do your retirement planning make sure you also look at tax planning for a surviving spouse and leave instructions behind on how best to deal with this issue.