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From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Wealth Preservation and Transfer Taxes

Estate planning involves many strategies generally designed to preserve assets, minimize estate taxes, and distribute property to your heirs according to your wishes. Bear in mind that not everyone has to pay estate taxes. Your entire estate can pass to your spouse free of estate tax. For transfers to other beneficiaries, estate taxes are based on the taxable value of your estate. Anticipating your potential tax liabilities can help you plan appropriately. Each individual is eligible to use a federal tax credit, known as the unified credit, to shield transfers from gift and estate taxation, but certain restrictions and limits exist.

The Unified Credit
The unified credit allows the reduction of gift or estate tax by “sheltering” (that is, protecting from taxation) certain asset transfers. In 2003, the actual federal tax credit equals $345,800, and with that credit, up to $1,000,000 in property may be shielded from gift or estate taxation under the applicable exclusion amount. Since a husband and wife each have their own tax credits, with proper planning, this allows the potential for shielding $2 million of property from transfer (i.e., gift and estate) taxes.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)—the tax act enacted by Congress on June 7, 2001—stipulates that the unified credit and the applicable exclusion amount will increase over the next six years according to the schedule below. In 2010, the estate tax will be repealed for exactly one year. Unless Congress takes further legislative action, the estate tax will be reinstated in 2011 at levels in effect prior to the passage of EGTRRA.

The lifetime gift tax exemption of $1,000,000 will remain constant in the upcoming years.

Gifting Options
As an estate planning strategy, gifting attempts to remove from a person’s assets that will appreciate in the future. And not all gifts are subject to gift tax. In 2003, each individual can give up to $11,000 (the annual exclusion amount) to as many donees as he or she would like, without incurring any gift tax.
Married couples, filing jointly, may gift up to $22,000. Gifts to one person in excess of the annual exclusion will be subject to gift tax. The amount in excess of the annual exclusion will count against your lifetime exemption.

The benefits of gifting depend on your personal situation, but substantial gifts generally accomplish two objectives: 
1) reduce the amount of your taxable estate; and 
2) shift the burden of income taxes to the donee. These practical realities are in addition to the personal satisfaction that accompanies a gift that may benefit a loved one or favorite charity. If transferring wealth is an important estate planning goal, consult a qualified legal and tax professional to plan the appropriate strategies for your personal situation. Starting early and staying current can help you best help your heirs. 

Appraising Your Appraiser
An appraiser assigns value to your property, and potentially minimizes your exposure to certain risks, such as tax penalties. An inaccurate appraisal could hinder your ability to receive a fair price for property, increase the likelihood of a tax audit, or result in an inequitable division of property or inappropriate insurance coverage. Your financial decisions may depend on your appraiser’s research, analysis, and reporting.

Hiring an Appraiser
Choosing a qualified professional involves time and preparation. Because appraisers tend to specialize in certain areas, such as antiquities, coins, stamps, jewelry, silver, etc., you want to find someone with relevant expertise and a proven track record. For help with a referral, consider contacting the following professional organizations:
International Society of Appraisers (ISA) www.isa-appraisers.org 206-241-0359
Appraisers Association of America (AAA)www.appraisersassoc.org 212-889-5404
American Society of Appraisers (ASA) www.appraisers.org 703-478-2228
Other resources include libraries, museums, auction houses, and the Internet, as
well as recommendations from friends and colleagues.

Once you find someone with the necessary experience, conduct an interview to ensure his or her appraisal practices meet your standards, as well as generally accepted standards in the field. Consider askingthe following questions:

1. What are your work experience and education qualifications?
Ask for references and review the candidate’s résumé or curriculum vitae, making note of work history, and both formal and continued education, as well as membership in a professional organization. Some professional organizations require members pass examinations and comply with a code of ethics. Valuation should be based on standard appraisal principles and procedures, learned through formal training. Authenticating an item is just one aspect of appraising.
 2. What is your area of expertise? Make sure your candidate’s expertise matches your needs; however, keep in mind that finding one person who is an expert in all areas may be quite difficult. The International Society of Appraisers recognizes over 220 areas of specialization. For items that fall outside his or her expertise, the candidate should be willing to consult with otherqualified professionals.
3. How much will the appraisal cost?
Appraisers generally charge by the hour, per diem, a flat rate, or per item.
Other charges may include reimbursement for additional expenses, including travel and photographs. Consider rejecting any proposal that includes a “contingency fee” based on a sale, or a fee based on a percentage of the valuation. Generally considered unethical, these types of appraisals could have tax consequences for you—the Internal Revenue Service (IRS) rejects all appraisals performed with these conditions.
4. How do you report your findings?
An appraiser should prepare a signed written report that documents the valuation of an item, including his or her evaluation methodologies and credentials.

The Written Report
Keep in mind that, at some point, attorneys, judges, the IRS, estate executors, insurers, and trustees may base decisions on your appraisal. It should be comprehensive and professionally prepared. The following key elements are generally included in an appraisal report:

Statement of Purpose.
As discussed earlier, an appraisal has a variety of uses, which may include helping you assess your insurance needs or substantiate a tax deduction. The purpose of your appraisal and its expected use should be clearly noted.

Description of Property.
This includes a physical description that details such features as the size, weight, color, age, material composition, origin, and condition of the appraised item, as well as the method of acquisition (often helpful for tax purposes). The appraiser also generally attests to an item’s authenticity, and notes the date it was viewed.

Statement of Disinterest.
The appraiser should verify that no conflict of interest exists. If the report has been prepared for tax purposes, the appraiser must provide a tax ID number and also disclose if the IRS has ever disqualified him or her. The appraiser also generally includes an explanation of the applicable fee structure. A reminder: The IRS rejects appraisals, wherein the appraiser charged a contingency fee, or a fee based on a percentage of value.

Method of Valuation.
An explanation of valuation methodology offers a basis for the appraiser’s conclusion. In general, appraisers make assessments based on such factors as replacement value, fair market value (FMV), or comparable sales. For example, an appraiser determining the value of a work of art may consider the sale prices of comparable works of art. The appraiser often includes a market analysis that references historical performance, and may also project future value.

The Provenance.
In some instances, particularly with artwork, a history of ownership may be included. Further documentation, if applicable, might chronicle noteworthy exhibitions or publications.

Statement of Value.
The report should clearly state a dollar amount representing the valuation of the appraised item, and be signed and dated by the appraiser. It is also standard practice for the appraiser to include his or her credentials, which may take the form of a résumé or curriculum vitae.

Stay Current
In order to keep pace with the potential for changing market values, consider reviewing an appraisal every three years. As your financial strategies change, make sure you base your decisions on the most up-to-date and accurate information regarding the value of your possessions. What you cherish as
“priceless” may have a price tag that can help you plan your financial future. 

Education and Deductions and Credits in 2003

The rising cost of education is a national concern. To help taxpayers manage the financial burden, the federal government provides certain tax benefits. However, with legislative changes and inflation adjustments, staying on top of the opportunities available to you can be challenging. For 2003, the Internal Revenue Service (IRS) provides the following student loan deductions, education credits, and college tuition deductions.

Student Loan Deductions
The income limits for student loan deductions increased in 2002, and will remain the same in 2003. Furthermore, the IRS eliminated the 60-month limitation period. Prior to tax year 2002, only interest payments made within the first 60 months of loan repayment qualified for the deduction.

Now, single taxpayers with modified adjusted gross incomes (MAGIs) of $50,000 or less ($100,000 for married couples filing jointly) are eligible to deduct up to $2,500 of interest paid on a student loan that covered qualified education expenses, such as tuition, room, and board. Single filers with MAGIs less than $65,000, and joint filers with MAGIs less than $130,000, qualify for partial deductions. This represents a significant increase from tax year 2001 when the phase out applied to single filers with MAGIs between $40,000 and $55,000, and to joint filers with MAGIs between $60,000 and $75,000.

Education Credits
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provided a boost to the Hope Scholarship Credit and the Lifetime Learning Credit. Income eligibility limits rose, and are now subject to annual inflation adjustments. For 2003, eligibility phases out for married couples filing jointly with modified adjusted gross incomes of $83,000 ($41,000 for single filers). In addition, the Hope Credit, which provides a $1,500 tax credit for college education expenses during a student’s first two years, will also be eligible for yearly inflation adjustments. Beginning in 2003, the Lifetime Learning Credit, which applies not only to undergraduate study, but also to graduate
and professional education pursuits, now covers 20% of the first $10,000 in expenses. If a student qualifies for both credits in the same year, you may claim either credit but not both.

College TuitionDeductions
For those whose income exceeds the Hope Scholarship and Lifetime Learning
Credit limits, an above-the line deduction applies to qualified higher education
costs from 2002 through 2005. The deduction “sunsets” after 2005 (unless Congress acts to extend it). The deduction is a dollar for dollar amount, up to a maximum, and can be claimed only by those with AGIs below a certain amount as seen below. Whether it’s your child’s education or your own, proper planning can help fund the search for knowledge.

A tax professional can help you develop a strategy that targets your needs and opportunities. Higher education may be a distant dream you hold for a child, or a financial imperative staring you in the face. Either way, you can take immediate steps to begin meeting this challenge. The information above provides a brief summary of certain tax benefits for higher education. As always, you must consult with your own tax advisor to determine if you are eligible for any of the tax benefits listed above. 
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047