Friday, December 13, 2013

New Simplified Home Office Business Use Deduction

The IRS has provided a new, optional, “Safe Harbor Home Office” expense deduction effective for tax years beginning on or after January 1, 2013!

The deduction allowed is $5 per square foot of the “qualified use” space up to 300 square feet.  The maximum deduction is $1,500.  

·    A home office is considered the taxpayer’s primary place in which he or she conducts trade or business.
·    The home office may or may not be part of or attached to the taxpayers residence.  It may be a separate structure on the property used exclusively, on a regular basis, as a home office.
·    A home office is where the taxpayer will meet clients, customers or patients during the normal course of business.
·    Home-related itemized deductions are claimed 100% (without allocation) on Schedule A (for example, mortgage interest and real estate taxes).
·    No depreciation deduction or later recapture on sale of the home is allowed if the “safe harbor method” is used.
·    Of course, even under the simplified method, it is the taxpayer’s responsibility to ensure  good records which prove the exclusive use of the home office continue to be maintained to substantiate the claim.

This deduction is an alternative to the calculation, allocation and substantiation of actual expenses required under the IRS code section 280A.  If the deduction is greater using the 280A method you can still use that method.  Taxpayers are allowed to change their treatment from year to year.

Monday, November 18, 2013

Need for a Will

A will is important because if you do not designate who will inherit your property, a state statute will. The statutory distribution scheme (known as “intestate distribution”) will often provide for results differing from your wishes. If you have property in several states, the rules in each state may be different concerning who will be entitled to your properties.

Typically, intestate law divides the decedent's estate between the surviving spouse and living children; however, many people are surprised by the actual division made by state law. Even if the decedent does not have children, the spouse may not inherit the entire estate.

Perhaps most importantly for those of you with minor children, a will gives you the opportunity to designate a guardian for your children if your spouse does not survive you. You have better understanding than a court as to who of your relatives or friends will best be able to care for your children, both emotionally and financially. Your will can put this designation in place, identifying the best person for each type of function.

Moreover, because your children are minors, the court will require a fiduciary (e.g., a guardian or trustee) to be appointed to receive and manage that property the children inherit. This can be a cumbersome and expensive process, requiring court supervision throughout the time the children are minors.

A will can also simplify the probate process for your survivors. For example, you can designate a personal representative (also known as an executor) to handle the transfer of properties in your estate. You can direct how taxes and debts should be paid. You can waive state limitations on funeral expenses payable from your estate and enable your estate to take maximum advantage of estate tax savings.

We do hope that this explanation is a sufficient beginning to enable you to understand the practical necessity of having a Last Will.

Please contact one of our Wealth Advocates at Wade Financial Group to arrange an appointment to discuss this matter in more detail.

Four 401-K Tips

We recently spoke on WCCO explaining four tips everyone should consider when looking at their 401-K.  As the stock market continues new highs breaking two records today, Monday November 18th 2013, with the Dow Jones hitting a record 16,000 and the S & P 500 hitting 1,800 it is worth checking in on your current 401-K.  Click here, WCCO Interview, to check out the four tips and listen to the interview.

Thursday, November 07, 2013

Film Festival Reviews

Wade Financial Group founder Jerry Wade has been attending the Savannah film festival for over 5 years and is an avid film enthusiast.  Because of Jerry's passion for film it was only natural that Wade Financial Group recently helped sponsor the Twin Cities Film Festival.  Below we have an inside look of the top movies from each of these recent festivals.  Jatin Setia’s, the founder of the Twin Cities Film Festival, and Jerry Wade each give their top five movies from this year’s festivals.

Jerry’s Savannah Film Festival Top Five

1.      The Pretty One
When a woman's identical prettier twin sister dies, the woman assumes her sister's identity, moving into her apartment and the big city.

2.      About Tim
At the age of 21, Tim discovers he can travel in time and change what happens and has happened in his own life. His decision to make his world a better place by getting a girlfriend turns out not to be as easy as you might think.

3.      The Book Thief
While subjected to the horrors of World War II Germany, young Liesel finds solace by stealing books and sharing them with others. Under the stairs in her home, a Jewish refugee is being sheltered by her adoptive parents.

4.      Philomena
A world-weary political journalist picks up the story of a woman's search for her son, who was taken away from her decades ago after she became pregnant and was forced to live in a convent.

5.      Nebraska
An aging, booze-addled father makes the trip from Montana to Nebraska with his estranged son in order to claim a million dollar Mega Sweepstakes Marketing prize.

Jatin’s Twin Cities Film Festival Top Five

1.     We Are What We Are
As an unrelenting downpour continues to flood a small town, the local authorities begin to uncover clues that bring them closer to the secret that the Parkers, a seemingly wholesome and benevolent family, have held closely for so many years.
2.     Winter in the Blood
Virgil wakes in a ditch on the hardscrabble plains of Montana, hungover and badly beaten. He returns home to his ranch on the reservation, only to find that his wife, Agnes, has left him. Worse, she's taken his beloved rifle. Virgil sets out of town find her - or perhaps just the gun - beginning a hi-line odyssey of inebriated and possibly imagined intrigues in town with the mysterious "Airplane Man", a beautiful barmaid, and two dangerous Men in Suits. Are they real? Or spirits guiding him away from his true path?
3.     The Armstrong Lie
Four years ago, Oscar-winning documentarian Alex Gibney was commissioned to film Lance Armstrong's second comeback, for the 2009 Tour de France. Years later, following Armstrong's cheating confessions, Gibney returned to his original source material, discovering in the process an electrifying, red-handed portrait of a liar in action.
4.     August: Osage County
A dark, hilarious and deeply touching story of the strong-willed women of the Weston family, whose lives have diverged until a family crisis brings them back to the Midwestern house they grew up in, and to the dysfunctional woman who raised them.
5.     Mandela: Long Walk to Freedom
Based on South African President Nelson Mandela's autobiography of the same name, which chronicles his early life, coming of age, education and 27 years in prison before becoming President and working to rebuild the country's once segregated society.

Thursday, October 31, 2013

Who’s impacted by the Fed’s announcement yesterday?

Yesterday, the Federal Reserve announced that it would continue its current policies: buying $85 billion in Treasury and mortgage-backed securities each month, and keeping short-term interest low.

This has the most direct impact on the bond market. Investors of all stripes hold bonds, but particularly retirees who are typically looking for income and relative safety. The irony is, this year the bond market has been anything but safe. It’s been highly volatile as the market contemplates a change in Fed policy. Many bond portfolios have generated negative returns as bond prices have fallen.

What can an investor do? There are some strategies that a professional financial advisor can put in place to help. As we’ve discussed in previous blog posts, our strategy has been to focus on bonds with shorter maturities in order to avoid price volatility.

For investors looking for income, we’ve implemented different strategies—beyond bond portfolios—to try to meet that goal. While interest rates are beginning to rise, they’re still extremely low by historical standards, so alternatives such as our Paid in Advance® strategy may offer a more suitable answer for income-seeking investors.

--Nick Asmus, Wade Financial Group Investment Department

Tuesday, October 29, 2013

Earnings calls—a chance to look under the hood

Yesterday, Apple disclosed its third-quarter earnings…and opinions are all over the map! (Disclosure: Wade Financial Group owns stock in Apple.)

This often happens. Earnings calls give a snapshot of the company, and there’s a lot of different data, that can be interpreted in a number of different ways. It’s a science…and an art.

Apple is a case in point—you could look at different aspects of the earnings call and take away completely different stories. 
  • Sales of iPhones and iPads are up over last year—great! 
  • Guidance on future profit margins did not meet analyst expectations—not so good. 
  • What are the possible new products? 
  • What are the expectations for holiday sales? 
  • What else is the company saying?
Earnings calls like this give investors a chance to “open up the hood and examine the engine” on a company. Individual investors can take the time to investigate fully and form their own opinion, independent of the market. For instance, bad news could send the stock sliding…which could be a buying opportunity, if you’re able to recognize it.
But, it takes a lot of time and energy—not to mention objectivity—to do that thorough work. And not just on one company, of course—on a full investment portfolio.  Just reading the headlines and trying to jump on market bandwagons is not going to cut it.

That’s why it’s so important to engage a professional, who is looking at these stocks and companies day in and day out…so you don’t have to.

--Nick Asmus, Wade Financial Group Investment Department

Thursday, October 24, 2013

What can an individual investor learn from Icahn’s $800 million Netflix profit?

Earlier this week, the news spread like wildfire: Carl Icahn had sold part of his stake in Netflix—making $800 million in the process. How did he do it?

Icahn follows a contrarian, value investing philosophy—similar to Wade Financial Group’s ConVal® process. The main idea is simple—buy quality companies when their price is low, and then sell when the price recovers.

This much easier said than done. It’s easy for individual investors to get caught up in the emotions, and not want to sell their stock. They’re proud that they “made” so much money (because the stock price has risen) and maybe a little greedy…thinking that if they just stay in a little longer, they can make even more.

Trouble is, no one can tell exactly when a stock has hit its peak…so the investors are liable to get caught holding too much of a stock when its price starts to slide.

As an investor, you have to spread your risk. Remember, it’s not what you make, it’s what you keep that counts. An independent financial advisor can help take the emotion out of investing, and help you make those difficult decisions.

That’s how Icahn made this money—he not only got in when the stock price was low, he got out when the stock price was high. Where is the Netflix price going to go from here? Who knows. Maybe he could have made a bit more by staying in. Maybe he got out at just the right time.

Regardless, I think his $800 million profit will help him feel good about his decision.

One final thought—a common theme I see with many investors is that they hold too much stock in the company where they work. They’re proud to be employees. They love the company, its products, and their friends working at the company. They think the company is on the right path. This opens them up to a lot of risk:
  • That they’re over-invested in a single company, which by itself is extremely risky
  • Not only their investments, but their day-to-day income is tied up in that same company!! What happens if something goes wrong!
Overinvesting in one company—even a company you love—is a bad financial idea, but a trap that many fall into.

--Jerry Wade, CFP®, CFS
Chief Investment Officer
Chief Wealth Advocate

Thursday, October 17, 2013

How is your advisor making money?

If there’s one common denominator that links many Wade Financial Group clients, it’s that they came to us as a result of another person—sometimes a financial advisor, sometimes not—who gave them bad advice...and occasionally that person profited from the deal.

Recently we met with a person who had had just that experience. He and his wife had been working with a family friend as an advisor, who had sold them an annuity for his IRA.

Now, that just doesn’t make sense on the face of it. The advantage of an annuity is that it’s tax-deferred…but the IRA is already tax-deferred. So, the couple was paying extra in fees for zero added advantage.  Meanwhile, the “family friend” made a nice fat commission on the sale of that annuity.

Another example: in the news, we’re seeing reports of some doctors and dentists who are suggesting financing arrangements to their patients. The patients, who trust their care providers and need the money for health procedures, accept it. Only later do they find out that they’re in the hands of a predatory lender. In the example quoted in The New York Times, the patient was paying 23 percent in annual interest, with a 33 percent penalty rate kicking in if she missed a payment!

While many doctors and dentists have rightly refused to participate in these financing arrangements, you can understand their motivation to work with these lenders: they get paid 100% upfront for their work. That’s a powerful motivation.

All of these point to a larger story that we see repeated all the time at Wade Financial Group: people get hurt financially by someone they trusted—maybe without understanding the incentives behind that person’s actions.

How can you avoid this?

At a basic level, you have to understand how the person who is advising you is making money. That’s why I strongly recommend that people work with a fee-only, fiduciary financial advisor, such as Wade Financial Group. Being “fee only” (not “fees plus commissions” or some other arrangement) means that the advisor is not making commissions based on what they recommend. Their compensation is tied to the overall wealth of the client—so they’re incentivized to act in the best interest of the client.

And as a fiduciary, the advisor is legally bound to act in the best interest of the client.

As a consumer, you should insist on transparency surrounding how the person you’re working with is being compensated. If they can’t tell you—or won’t—that should be an immediate red flag.

Tuesday, October 15, 2013

What does the Nobel Prize mean for investors?

Two of the three winners of this year’s Nobel Prize in economics have developed investment approaches that are critical to investment success.

Let’s look at the work of Eugene Fama and Robert Shiller, and figure out what the implications are for individual investors.

Eugene Fama
Overall, I take away two main points from Fama’s work: 

  1. Buy value versus growth stocks. These are stocks that may not be the Wall Street darlings you hear the pundits discussing, but they have a lower price-to-earnings ratio. This may be less exciting, but they may make more money in the long run.
  2. “Size matters.” Smaller companies tend to be more profitable.
 One company has pioneered investing with this approach: Dimensional Fund Advisors (DFA). They only work with Registered Investment Advisors (RIAs), not individual investors. If you’re an individual investor, I recommend that you work with an RIA like Wade Financial Group to get access to these funds.

Robert Shiller
If you follow my blog, you’ll know that one of the tools I use is the Shiller Price-to-Earnings ratio, known as the Shiller P/E ratio. This compares stock prices with company earnings. What does this mean for you?

Currently, the Shiller P/E ratio is very high—which suggests to me that the market is overvalued and we could see a drop, as I wrote about last week. Shiller P/E suggests that now is the time to lighten up on U.S. stocks…if you want to avoid buying high and selling low, that is!

Bringing it all together...

Looking at the work of these two economists together, here's where I'm seeing opportunities:
Currently, I’m looking at small, value stocks outside the U.S. (Brazil and India are where I’m seeing the opportunities). These have a low Shiller P/E.
I don’t want to buy into U.S. stocks any further right now, given the high Shiller P/E. Where's the market going to go? We can only guess, but I want to avoid getting caught in the “market buzzsaw” by buying high, and selling low!

--Jerry Wade, CFP®, CFS
Chief Investment Officer
Chief Wealth Advocate


Thursday, October 10, 2013

Danger Ahead for Gen X and Y!

A lot of attention is being paid to generational differences between the wealthy, particularly the differences between prosperous Gen X and Y’ers, and their boomer parents. Several recent studies have looked into this, notably the Fidelity Millionaire Outlook, which looks at the financial behavior of millionaires of different generations.

Understandably, the younger generation wants to find their own path. I’ve experienced this firsthand, with two of my kids. When they each bought a house, they chose their own agents, and their own mortgages. I was more than willing to help with my professional expertise, but they wanted to make their own choices.

The danger is that this deep level of engagement, which is fantastic, is often not matched with a deep knowledge of financial matters….and that, like all people, Gen X and Y’ers tend to be trend followers. Without the benefit of professional advice, they may be more likely to buy high and sell low—and see the financial damage that results.

Some of the Fidelity study results bear this out. It’s really easy to feel knowledgeable and successful in an up market like the one we’ve been experiencing. Mistakes are masked…if you’re in the market, you’re most likely making money. The study shows that Gen X and Y’ers are making an average of 30 trades per month…probably following the advice of pundits like Jim Cramer.

These folks are paid to make bold and knowledgeable-sounding predictions…but they aren’t paid by how accurate those predictions are! I would advise investors to look at sites like, which tracks the performance of pundit recommendations. I’d also suggest that they read a great whitepaper produced by Davis Distributors, Timeless Strategies for the Successful Investor.

Predicting the day-to-day movement of the market is next to impossible…and a high level of self-directed trading is, to me, a huge red flag. Many of my current clients are former self-directed investors, who did some damage to themselves, and then luckily realized in time that they needed professional help.

If you’re looking for a financial advisor, I’d suggest that you check out the Consumer Advocacy page on our website. There are many types of advisors, and they are not all created equal!

Gen X and Y’ers are correct to shy away from commission-based advisors who get paid based on the products they sell you. But, professionals can help you avoid getting hurt by the next market downturn. Picking a NAPFA-certified, fee-only, fiduciary financial advisor, whether that’s Wade Financial Group or another firm, is the best move you can make…and then you can focus on your career and family!

--Jerry Wade, CFP®, CFS
Chief Investment Officer
Chief Wealth Advocate 

UPDATE: Jerry Wade was interviewed on WCCO radio on this subject on Thursday, October 10. Listen to the full audio.

Tuesday, October 08, 2013

Is the stock market overvalued?

According to a recent survey of company CFOs, nearly half believe that the stock market is overvalued. At Wade Financial Group, we have the belief that what goes up, must come down. We’ve seen 50 percent drops in the stock market twice in the past 15 years—in 2000 and 2008. We’re now riding a 5-year rise in the market…which means that we may be poised for ugly results over the next 5-10 years.

Let’s look at the Shiller Price-to-Earnings ratio, commonly called the Shiller P/E ratio. This is an equity valuation that divides the market price per share by the earnings per share. Here's a chart from, looking at the ratio.

At the time of this writing, the Shiller P/E ratio is 23.6 (the red line), which is higher than the average of 16.49 (the gray line). What does that mean? Company stock prices are high compared to company earnings.

Global investment companies like PIMCO look at that; PIMCO just this summer released a forecast that annual returns will be in the area of 4.2% over the next five years, and a dismal 1.5% over the next 10 years.

As we mentioned before, we’re riding a 5-year rise in the markets…which means we may face a possible correction that will hurt investors:

What happens when you buy at the peak? Let’s look at history. What would you have earned if you bought stocks at the peak of the tech bubble in 2000 and just held them until today?
  • 10.5% total return over 13 years
  • 0.81% per year—before fees and taxes
If you bought today, my feeling is you would have the similar returns over the next 5-10 years.

What can investors do?
If you’re looking for income, there are a few areas I am recommending to my clients:

  1. Carefully selected high yield bonds
  2. There are mutual funds where you can buy $1 worth of tax-free muni bonds for 0.85 cents.
  3. Carefully selected dividend stocks in US
  4. Consider selling covered calls for a more reliable income stream.
  5. Global bonds
If you’re looking for long-term return, I would consider emerging markets, which have been beaten up badly in the past few years. We've blogged before about the opportunity we're seeing with emerging markets. Their Shiller P/E ratio is in the 10-15 range—or below average. While there are no guarantees in investing or in life, this may signal a higher return over the next 5-10 years.

--Jerry Wade, CFP®, CFS
Chief Investment Officer, Wade Financial Group

UPDATE: Jerry was interviewed on this subject on WCCO radio, on Tuesday, October 8. Listen to the full audio of the interview.

Monday, September 30, 2013

How will Obamacare affect you?

On October 1, state health care insurance exchanges are scheduled to open, in the first major implementation of the Patient Protection and Affordable Care Act—also known as the ACA or Obamacare.

There’s a lot of conflicting information in the media about how the exchanges will impact consumer health insurance. The highly reputable CFP Board’s Consumer Advocate blog has published several helpful articles, discussing the known or expected impacts for three distinct groups: 

For Medicare recipients, the impact will be smaller. The law makes no changes to Medicare eligibility or enrollment, and reduces the “doughnut hole”—the gap in prescription drug coverage. By 2020, the gap is scheduled to be eliminated. The law also includes free preventative care, including some vaccines and screenings.

We will continue to monitor the changes in health insurance, and will pass along helpful resources to you as we have access to them.

From Bob Smrekar, AIF®
Wealth Advocate

Friday, September 20, 2013

Jerry Wade quoted in Investment News

Investment News interviewed Jerry earlier this week for an article about how advisors are once more seeing opportunity in emerging markets.

Describing them as a “screaming long-term buy,” Jerry shared some of our recent moves in that area, which we discussed in an earlier blog post.

Read the full Investment News article. Investment News is a national newspaper covering the financial services industry.

Tuesday, September 17, 2013

Tom’s Tax Tip #3: Defer and accelerate income and expenses to your advantage.

The timing of purchases and sales of assets affect whether they are subject to special long-term tax treatment or considered part of ordinary income. People with variable income from year to year should pay special attention to when they pay bills or accept income.
For example, some expenses can be prepaid or paid early to maximize a deduction, such as property taxes.

Bonuses and stock awards could be deferred from one year to the next if you are likely to be in a lower tax bracket in the future year. 

This ability to move income from one period to the next underlies the benefit of tax-advantaged retirement savings: Defer payment of taxes in high-tax earning years until the low-tax, lower income retirement years.

This is part of an occasional series of tax tips from Tom Brunberg, head of Wade Financial Group’s Year Round Tax Planning Service.

Friday, September 13, 2013

Investment update: Seeing a potential opportunity in emerging markets

Last week, we recognized a potential long-term opportunity in emerging markets…and we seized it.

A price gap—now almost a 50 percent difference—has grown between U.S. and emerging market equities and bonds.

At this point, we believe that emerging market equities and bonds are undervalued…and therefore present a long-term investing opportunity.

Sensing this, we took immediate action, adding emerging market exposure to our Paid to Wait®, Foundation, and Lifestyle Income Bond accounts.

For our Foundation accounts, this move was in addition to our normal rebalancing schedule, as we felt we needed to act quickly and proactively. We will perform the full rebalancing on this account as scheduled.

Also, for those clients with Wade Financial Group-managed 401(k)’s, we performed our regularly quarterly rebalancing a month early, so that we could increase exposure to available emerging market funds.

This move exemplifies our Contrarian Value (ConVal®) investment approach, with its focus on identifying and purchasing undervalued assets as we invest with a long-term view.

We continue to eye potential opportunities in emerging markets and elsewhere, and will continue to research and seize potential investing opportunities on your behalf.

Friday, September 06, 2013

Tom’s Tax Tip #2: Keep good records

Tom's Tax Planning Tips
Adequately documenting your income and expenses is essential for correct analysis and calculation of the taxes you owe. Throwing receipts into a desk drawer or relying upon memory is a sure way to understate deductions and overpay taxes.

Monthly statements from banks, brokers, mutual fund managers and others who provide financial information should be filed for easy retrieval and safely stored.

Remember, the IRS can go back a minimum of three years in a tax audit, and even six years in some serious violation cases, from the date a return is filed.  It's prudent to not only maintain good records to file correctly, but to keep them for at least six years after the filing date in case of an audit.

This is part of an occasional series of tax tips from Tom Brunberg, head of Wade Financial Group’s Year Round Tax Planning Service.

Friday, August 30, 2013

From the Investment Department: Bond Market Outlook (8/30/13)

Investors have experienced a choppy, volatile bond market in 2013. For many bondholders this has led to negative total returns for the year.  For example, the AGG (or iShares Core Total US Bond Market ETF), which is widely seen as a proxy for the U.S. investment-grade bond market, is down -3.5% year to date.

We have had a defensive posture in our Lifestyle Income Bond (LIB) strategy since the beginning of the year, focusing on 1) keeping maturities short and 2) investing in high-yield bonds. We also entered 2013 with a floating rate fund that invests in bonds whose interest payments reset upward as interest rates rise. These moves have helped counter the down performance of bond funds, such as industry legend Bill Gross’s Pimco Total Return Fund (PTTRX), now down -3.5%; and the Pimco Real Return Fund (PRRIX), down -9.03%. Year to date, our LIB account is down -0.38%, net of the highest management fee charged, and is up 0.61% gross of fees.

While bonds will still provide an essential long-term anchor for many portfolios, we expect that the volatility and instability will most likely continue in the short term. At this time, it appears that the 10-Year Treasury Yield is heading towards a rate of 3.00%. Reaching that level will drive down bond prices still further.

With this outlook in mind, we still favor bonds with shorter maturities, as well as over-weighting high-yield individual bonds and floating rate bonds. For both our Foundation and our LIB models, we have also invested in the Pimco Credit Absolute Return Fund (PCARX), a more conservative fund that seeks to generate return in any market.

In addition, we are adding a stake in the Pimco Emerging Local Bond Fund (PELBX), as our ConValTM process has identified emerging market bonds as undervalued. Expect to hear more about our investments in emerging markets in an upcoming blog post!

If you have any further questions please feel free to contact your wealth advocate or our investment department.

Tuesday, August 27, 2013

Take time now. Reduce your taxes later on.

Tom's Tax Tips
Everyone agrees that the tax code is too complex. While the need for tax reform is a common refrain in Washington, the likelihood of a substantial change is low. Too much is invested in the status quo. While everyone complains about the other guy's deduction, they are loathe to give up their own.

Remember that our complex, often confusing tax code benefits those who take the time to learn its details and use it to their advantage. I will offer occasional tax planning tips designed to help ensure that you pay only the taxes you owe.

Tip #1: Remember that tax planning is a year-round exercise

In some ways, tax planning is similar to maintaining real property: Proper diligence ensures that repairs are kept small, with minimal damage.

Tax planning and actions to reduce taxes can be made throughout the entire year — January through December — to ensure you pay only the taxes you owe.

If you are self-employed, or if your income fluctuates, you should consider using quarterly tax payments requirements to review your investment assets and each asset's impact on gross earnings; as well as your current income from self-employment.

For example, you might want to sell securities to establish short-term losses or long-term gains, alter or fund retirement plans, or incur or defer medical expenses based upon balances in a flexible medical savings accounts.

Don’t wait until April of next year to make decisions! Instead of being reactive, proactively plan now to take advantage of all the possibilities.

From Tom Brunberg, head of Wade Financial Group’s Year Round Tax Planning Service.

Wednesday, July 03, 2013

Investment update: Interest rates rise, driving up mortgage rates…and bond yields

Markets continue to react to Federal Reserve Chairman Ben Bernanke’s comments last week, in which he said that the Fed could start reining in its stimulus policies if the economy continues its slow improvement. As 10-year Treasury bond yields rose to a two-year high, mortgage rates surged—also reaching their highest level in two years, and threatening to slow down the housing market’s recovery. 30-year fixed mortgage rates have risen almost a full percentage point since their record low this winter. 

Mortgage buyer Freddie Mac said last Thursday that the average rate on the 30-year fixed loan jumped to 4.46%, the highest level since June 2011 and the largest weekly increase since April 1987. That's up from 3.93% from the previous week

The average rate on the 15-year mortgage jumped to 3.50% from 3.04%. That's the highest since August 2011. A year ago, the rate on the 15-year mortgage was at 2.94%. 

Not only is this unwelcome news for homebuilders, home buyers, and those looking to refinance, these higher rates will also increase costs for public projects such as bridges and roads. 

We have been expecting that interest rates will rise eventually, which is why we have emphasized bonds with shorter maturities in our LifeStyle Income Bond (LIB) accounts. Bonds with shorter maturities have the benefit of flexibility—if interest rates continue to rise, we can reinvest in bonds with higher yields. We have also hedged against rising interest rates by investing in funds focused on floating rate loans, which increase their interest payments as rates rise. 

Experts differ on what rising interest rates will mean for the broader economy. We will continue to monitor the situation and keep you updated!

From Bob Smrekar, AIF®

Monday, June 24, 2013

In a crisis, would you know where the important documents are?

Think of the people for whom you are an emergency contact: a spouse; a parent; a child; a close friend….Do you have the knowledge you might need to help these people in a crisis?

In many situations, you would need immediate access to key documents. That’s why it’s wise to locate and organize these materials proactively, rather than waiting until an incident or situation makes it imperative to find them. When you’re dealing with a crisis, you certainly don’t want to be in a dusty attic, frantically shuffling through an enormous box of papers, or at the back of a long line at a government office, trying to replace a critical document that has gone missing.

Download our checklist of estate planning documents
Download and fill out this checklist of your critical documents, and ask your close friends and family to do the same. Finally, make sure that everyone knows the location of these key checklists.

This is just one of the organizational tools we use as part of our Estate Planning Service. If you’re concerned about how to organize, protect, and transfer your legacy to your heirs, talk to your Wealth Advocate today. An investment in estate planning now can prevent stress-filled chaos later on.

From Bob Smrekar, AIF®

Thursday, June 20, 2013

Minnesota's Gift Tax: What You Need to Know

#1: We’re Here to Help 

Before going into the details about the new developments in gift and estate taxes, I want to let you know that your Wade Financial Group team is here to help sift through the new laws and their implications for you. There is still a great deal of uncertainty surrounding these new laws. We are expecting future clarifications and refinements. We will continue to monitor developments as they occur and consider implications for your personal situation.

If you have questions about your planned gifting, please call your Wealth Advocate. Your Wealth Advocate will guide you through your options and their tax impacts, so you can make an informed choice.

About the Law

This spring, Minnesota enacted a gift tax. Effective July 1, “taxable gifts” over a lifetime credit of $1 million per individual will be taxed at 10 percent. A taxable gift is a gift amount over the federally set exclusion amount, currently set at $14,000 for individual gifts.

Under this new law, individuals may continue to make nontaxable gifts of up to $14,000 per recipient, per year, without being subject to any tax or reporting requirements. Gifts made directly to spouses, charities, and medical and educational institutions remain not taxable. Spouses may continue to make joint gifts (known as gift splitting), and have a joint lifetime credit of up to $2 million in taxable gifts before they have to pay the Minnesota gift tax.

Minnesota estate tax laws have also changed. The new laws will be in effect for individuals dying after December 31, 2012. Adjusted taxable estates will now include taxable gifts made within three years of death. The legislature left unclear whether this means taxable gifts made on or after January 1, 2010, or those made after June 30, 2013. This question will likely be resolved by either future legislative or court action.

Further, the new estate tax extends to non-Minnesota residents who die while owning interests in “pass-through entities” (e.g., S-corporations, single-member limited liability companies, partnerships, and grantor trusts), which hold real estate or tangible personal property located in Minnesota. The non-residents will be deemed to own the property outright and will be required to file a Minnesota estate tax return.

Let’s look at some sample situations to clarify these complicated gift rules.

Example Scenarios

Scenario 1
In 2014, Tom and Rita wish to give their four adult children $10,000 each. What gift taxes will apply?

Answer: None. Each gift is under the $14,000 annual exclusion amount set by the federal government, so there is no “taxable gift” as determined by the federal government or Minnesota’s new gift tax law. This also means that these gifts will not be included in Tom and Rita’s taxable estates.

Scenario 2
In December 2014, Tom and Rita wish to give $1 million to each of their four adult children. Earlier that year, they had already made gifts of $28,000 to each child. What gift taxes would apply?

Answer: Since Tom and Rita already have used their $14,000 annual exclusion amounts for the year, the entire $4 million ($1 million per child) is considered “taxable gifts.” Tom and Rita will need to file federal and state gift tax returns and note they are splitting the gift—they have each made total taxable gifts of $2 million.

They are still within the $10.5 million joint federal estate and gift tax credit, so no federal gift tax is payable. However, with the $4 million taxable gifts, they have exceeded their $2 million joint lifetime credit for the Minnesota gift tax, triggering a 10 percent tax on the amount that is above the credit. They pay $200,000 to the state of Minnesota (10 percent of $4 million, minus $2 million credit).

Furthermore, should Tom and Rita pass away within three years of making the gift, the $4 million will be included as part of their Minnesota taxable estates for tax calculation purposes.

Scenario 3
Tom and Rita wish to pay for their grandchild’s college tuition, which totals over $44,000 yearly. What gift taxes would apply?

Answer: None. As long as Tom and Rita pay the college directly, this is not a taxable gift for federal or Minnesota purposes, and thus would not be subject to the gift tax or included as part of their taxable estates.
(Important notes: If they made the mistake of giving the grandchild the money and had the child pay the school, the amount over $14,000 would be considered a taxable gift. Also, the exclusion only applies to amounts paid for tuition, not room and board, or other fees.) 

Scenario 4
Rita wishes to make a large gift to her favorite charity, which is a registered nonprofit. What gift taxes would apply?

Answer: None. As long as Rita gives the gift directly to the charity, this would not be considered a taxable gift. It would not be subject to the gift tax or included as part of her taxable estate. One important note here is that the law has left unclear whether taxable gifts (e.g., over $14,000 in a calendar year) to political organizations would be subject to the gift tax.

Again, remember that we are here to help guide you through these laws and how they impact your estate plan. Call your Wealth Advocate if you’d like to discuss your personal gifting and how the new law might apply to you.

By Tammy Davis Cownie, J.D.
Manager, Estate Planning Services; Wealth Advocate

Wednesday, May 29, 2013

No surprise here: good financial planning pays off

As your Chief Wealth Advocate, it’s always been my belief that those who prepared a comprehensive, written financial plan were more likely to reach their goals…and a recent survey has now confirmed it. 

A survey of American consumers by the Consumer Federation of America and the Certified Financial Planner Board of Standards revealed that those people who had a comprehensive financial plan were more likely to
  • Save more of their income
  • Accumulate more in investments 

A comprehensive financial plan provides a firm foundation as you work towards achieving your financial goals. This is exactly why we’ve chosen to focus on comprehensive, customized financial plans as an crucial component of our Wealth Management service.

Some firms use a “financial plan” as a quick, freebie service designed to get clients in the door (or, worse, into high-commission-paying products!). At Wade Financial Group, we work with you to develop a highly personalized, detailed plan around your unique goals and financial situation…so that you can have confidence that you’re on the right financial track!

From Jerry Wade, CFP®, CFS Chief Investment Officer Chief Wealth Advocate

Friday, May 03, 2013

New Appointment Strengthens, Enhances Your Wade Financial Group Team

Tammy Davis Cownie: Outstanding Wealth Advocate, Estate Planner

Wade Financial Group is proud to announce a strong new addition to our team: estate planning lawyer Tammy Davis Cownie. This expansion of our talent base reinforces our commitment to you, our clients, as well as to providing our hallmark “You First” client service.

Tammy joins us as a Wealth Advocate, with exemplary credentials in creating and defending client wealth. Her previous experience includes:
    Estate Planning Lawyer Tammy Davis Cownie
  • Building and preserving client assets during her 19 years as a Vice President and Personal Trust Relationship Manager at the Private Client Reserve of U.S. Bank.
  • Intensive estate-planning expertise, with experience as an estate tax attorney for the Internal Revenue Service.
  • Significant income tax planning experience.
  • Licensed to practice law in Minnesota and Wisconsin since 1988, with a law degree from Marquette University.
Tammy’s hiring was the result of an intensive, months-long vetting process. Our requirements for the position were that the individual possess extensive estate-planning experience and exceptional advisory skills, as well as fit seamlessly with our foundational “You First” values. Also of critical importance was the ability to make a long-term, full-time commitment to serving our clients. Tammy emerged as a perfect match.

“In making my decision to join the Wade Financial Group team, I was looking to join a culture of creativity and integrity, with a founder strongly committed to attention to detail and excellence. Having been in my previous position 19 years, I was looking for a firm where I can become a principal and make a long-term commitment,” Tammy says.

About Tammy, Wade Financial Group founder Jerry Wade says, “I was impressed with what Tammy has done to move forward in her career. The fact that she sought and achieved a master’s degree in Clinical Psychology and a Mediation certification is extremely impressive. Tammy chose to enhance her financial advisory skill set with additional communications skills that can greatly enhance the client satisfaction experience. While we are already one of the most exceptional estate planning firms in the Twin Cities, having an on-staff estate lawyer will take our service to the next level.”

Attracting the level of talent that Tammy brings is a strong affirmation of our firm, and of the vibrant, client-centric culture here at Wade Financial Group. 

As always, thank you for choosing us as your steadfast protector of wealth. We look forward to continuing to provide you with the rock-solid wealth management advice required to navigate today’s financial markets.

Tuesday, April 30, 2013

Tom Brunberg to lead Tax Department for Wade Financial Group

Wade Financial Group is proud to announce that, effective April 1, 2013, W. Thomas Brunberg has assumed leadership of the Wade Financial Group Tax Department, including our tax consulting services and Year Round Tax Planning Service.

Through these services, Wade Financial Group offers clients consultation and advice on minimizing tax impacts. Wade Financial Group is not an accounting firm and does not provide tax preparation or legal advice. We work together with the client’s CPA to implement our creative ideas for potential future tax savings, using our holistic view of our clients’ finances.

Tom brings more than 30 years of experience as a Certified Public Accountant. He has a substantial history of working with Minnesota’s wealthiest families, and is a Life Member of the Minnesota Society of CPAs.

Founder and CEO of Brunberg, Blatt and Company, Inc., a leading Minneapolis provider of tax and accounting services, Tom has served hundreds of high net worth individuals, with previous experience as Managing Tax Partner at the Minneapolis office of Pannel, Kerr, Forster (now PKF International) and Tax Manager at Ernst & Young.

Tom has been involved with Wade Financial Group since its founding, even providing office space in the company’s early days.

“I’ve known Jerry Wade since the late ‘80s,” Tom says. “I’ve always recognized him as highly ethical, skilled, and smart. That’s why I’ve been committed since day one to help him grow his wealth management practice.”

After selling his company to his partners, Tom gradually increased his time spent at Wade Financial Group, coming on board full-time in April 2012.

“My goals are to bring my tax expertise to bear for Wade Financial Group’s clients, and also to help Jerry continue to grow the culture of excellence and teamwork at the firm,” Tom says.

Founder Jerry Wade says, “Tom’s energy, creativity, and perspective as a tax veteran has been invaluable to our clients. His value will be magnified even more as he moves into this increased leadership capacity.”

Tom is available to Year Round Tax Planning Service clients as a first point of contact for any tax-related question. He can be reached at or at the Wade Financial Group main line: (763) 797-9577.

As always, thank you for choosing Wade Financial Group as your steadfast protector of wealth. We look forward to continuing to provide you with the rock-solid wealth management and investment advice required to navigate today’s financial markets.