Category: WEALTH

Checks

Checks are negotiable instruments asking a bank to pay a specific amount of money from a specific account to a bearer or payee. The account is ideally in the depositor’s name with the bank. The depositor or check maker and the payee can be either natural persons or legal entities. A check must contain all the features to be considered valid. Check number, account number, MICR, date of issue, payee, amount of currency, and signature of drawer are the basic pre-requisites of a check. A check is usually valid for six months after the issue date unless indicated otherwise. However, the validity may vary in different countries.

Checks come in several types. In the U.S., checks are regulated by the Uniform Commercial Code, Article 3. Two very common types of checks are order checks and bearer checks. An order check is payable only to the named payee or his endorsee. It begins with “Pay to the order of”. A bearer check is payable to anyone who is in possession of the document. Such a check usually does not specify a payee and is payable to bearer or “To the order of cash”. This type of check is payable to someone who is not a person or legal entity. When checks are drawn from savings and loan association, they are called “negotiable order of withdrawal”. If checks are cashed from a credit union, they become share drafts.

Checks are used to pay wages also. Such instruments are referred to as payroll checks. A check sold by a post office or merchant such as a grocery for payment by a third party for a customer is called postal order or money order. If a check allows the person signing it to make an unconditional payment to someone as a result of paying the account holder for that privilege, it is referred to as a traveler’s check. Such a check can be replaced in case of theft or loss and are very popular with travelers.

Checking Accounts

A checking account is one of the basic services provided by the financial institutions. It allows individuals and businesses to deposit money and withdraw funds from account by check, electronic cards or ATM or transfer. Here the account holder can use checks in place of cash to pay debts.

Almost all banks offer their customers one or another form of a checking account service. Some may require a minimal initial deposit before establishing a new account, along with proof of identification and address; where as a student or other low-income applicant can opt for a no-frills checking account which does not charge fees for the use of personal checks and other services.

Checking account owners are responsible for keeping a regular track of their available funds, even as bank issue their accounting statements periodically. There are some banks that will protect checking account holders by making the proper payments and notifying the check writer that an overdraft has taken place.

There are different types of checking accounts like: basic checking, interest bearing, joint checking, express, lifeline, senior/student checking and money market. These accounts have their own ways of functioning. Basic checking account holder does not need to maintain a high balance where as interest bearing requires a minimum balance to open the account. Coming to the joint checking account it can be owned by two or more people. There are accounts that are designed for low-income consumers, senior citizens also like lifeline, senior checking accounts.

Other than different kinds of checking accounts there are benefits added to these accounts. Following are a note of these benefits. These checks provide a paper trail or written proof that you paid someone. Having these checks it can be put forth as proof for tax purposes and when you are paying a person or company by mail. It is safer than cash, cheaper than money orders, gives a lots of access options and there are no transaction limits.

Thus a checking account can be more than just a place to keep your money; it makes your financial life managing much simpler and easier.

CD Rate Maturation

A certificate of deposit (CD) is a savings certificate that allows the buyer to receive interest over time. Every certificate of deposit bears a maturity date on which the debt becomes due for payment along with interest. The maturity period varies depending on the agreement made between the customer and the bank/financial institution. Maturity periods on certificates of deposit range from a few weeks to several years. The more the maturity period, the higher the interest rate earned by the investor.

The buyer cannot withdraw the amount under CDs before the maturity period is up. The money should remain in the account with the bank until maturity. Such withdrawals before maturity are subject to a substantial penalty. For example, the penalty will be the loss of six months’ interest if it is a five-year CD. However, brokered CDs that can be sold off in the secondary market through brokers or dealers are not subject to any penalty fee if they are sold prior to maturity date. But in case of indexed CDs, the investor cannot sell it in the secondary market before maturity. An indexed CD’s rate of return depends on market index.

This illiquid nature of a CD before the maturity period can be overcome through ‘CD Laddering.’ CD laddering is the process of purchasing several CD’s at one time with different maturity dates of one year, two years, three years, four years, and five years. In this CD ladder one certificate matures every year for the next five years. For example, let’s say that a customer has $10,000.00 to invest. He can buy 5 CD’s for $2,000 each with different maturity dates mentioned above. That means the customer has a $2,000 CD maturing in one year, another in two years, and so on up to the last one, which matures in five years. Whenever a certificate matures, the customer rolls it over into another CD. This strategy allows the customer to take advantage of higher rates of interest while still retaining frequent access to part of their funds.

CDs require the buyer to be patient before collecting on their investment. It is necessary to wait until the maturity date to make a profit. It is best not to constantly think about a CD, and just let it accumulate interest until it is mature.

Buy Annuity

The financial world offers various forms of gains on your investments. These returns on investment depend largely on the sum of money you are willing to devote and the amount of risk you are agreeing to take. If you have sound knowledge of investments in capital markets, you can profit from the ups and downs of equities. However, if you do not want to take much risk and are looking for a sizeable income annually as well for a stipulated amount of time, you could buy an annuity.

The term ‘annuity’ can be defined as a contract between a person and a financial company. This type of investment is ideal for those investors who value periodic gains at comparatively lower risks. Typically, when a person buys annuity, the financial firm guarantees to disburse a fixed amount of remuneration every year for a stipulated term of years or till the person is alive. Annuity is generally offered by insurance companies and financial institutions like banks. Almost anybody can buy an annuity and benefit from its yearly returns.

There are different types of annuities offered in the financial markets. Some annuities pay a fixed amount to only the person who bought it till he is alive. In the event of death, even premature or accidental, the annual payment is withdrawn, legally. However, there are other forms of annuity that provide benefits to a spouse or other beneficiary as entitled by the person who bought it. Similarly, there are ranges of annuity that offer fixed benefits and varying returns on investment. Nevertheless, they must be carefully considered while weighing all options before entering into a contract with the financial firm. In the event of early or premature withdrawals, they attract penalties. The investor must also be cautious about certain factors like high sales commissions and expense ratios that occur while buying annuity.

Everything You Ever Wanted To Know About IRAs

IRA stands for Individual Retirement Account. An employee can save money by putting aside a percentage of his income every month in an IRA. It is like a personal savings account. One can withdraw money from this account at the time of retirement or quitting a job. Like 401(k), IRA is also a tax-deferred account.

There can be different types of IRAs. One can set up an IRA on his own or an employer may provide it. When you withdraw money from an IRA, it is generally taxed. But one has to pay lower taxes at that time as after retirement one is often in a lower income category. On the other hand, money is deposited in an IRA before it is taxed. This implies that one can save a substantial amount of tax through IRA. But there are certain restrictions also.

The contributions made to the IRA are tax deductible only if one is not covered by any other retirement plan. Also, there are certain restrictions related to the amount one can contribute to an IRA if one is below a particular age.

There are certain provisions such as SEP IRA, which helps a self-employed individual or a small business to make contributions into an IRA instead of a pension fund account. Of late, educational IRAs have become very popular. It allows one to help a child to pay for his or her education expenses.

In case of a simple IRA, both employers and employees make contributions. It is less expensive to operate. Many companies prefer this type of IRA. Though most retirement plans can also be rolled into IRAs, there are certain things such as real estate which cannot be held by an IRA unless it is held in the form of a real estate investment trust.

Asset Protection Services

Asset protection planning means understanding and using lawful ways to protect your assets from claims of future creditors. These techniques can ward off potential creditors from going after you. If creditors do go after you, good asset protection planning will make it difficult or impossible for future creditors to grab hold of your assets or collect judgments against you.

There are companies that provide the best asset protection services at an affordable rate along with do-it-yourself kits. Many companies deal in asset protection services available online and offline. You could choose the service that gives you the more satisfaction.

Planning a strategy to protect your assets is not an easy task. A good consultant will research various protection strategies and select one that will preserve your assets and minimize potential liability. Companies that deal in asset protection services can suggest the best strategy to protect the assets and equip you with ways to deal with your assets properly with tips and information. The services also include how to maximize the use of exemptions allowed by the state and federal legislatures.

There are companies that provide the best asset protection services at an affordable rate along with do-it-yourself kits. Many companies deal in asset protection services available online and offline. You should choose the service that gives you the more satisfaction.

Planning a strategy to protect your assets is not an easy task. A good consultant will research various protection strategies and select one that will preserve your assets and minimize potential liability. Companies that deal in asset protection services can suggest the best strategy to protect the assets and equip you with ways to deal with your assets properly with tips and information. The services also include how to maximize the use of exemptions allowed by the state and federal legislatures.

The scope of asset protection services is to provide legal advice with the utmost professionalism and most reliable up-to-date plans. The cost of these services depends on experience and professionals expertise.

1031 Exchange Services

In a 1031 Exchange, the main services come from a qualified intermediary (QI), also known by names like facilitator or accommodator. The services are offered on fee-for-service basis. The services from the QI include paperwork, oversight, escrow services and making a bona-fide exchange agreement under section 1031 of the Internal Revenue Code.

For Deferred Exchange treatment, the IRS and the Treasury Department have very rigid requirements. Therefore, to pass these requirements, the services from an experienced professional are essential.

To get the services right, it is essential to ascertain the credentials of the service provider before hiring. In a 1031 Exchange, physical possession or receipt of the money resulting from sale of the property is not allowed, and money is held by the QI only. Therefore, his credibility in terms of bonding, background, reputation and financial strength of are crucial.

The QI is supposed to put the exchange fees in a separate account for the taxpayer, and not commingle that money with any other exchange.

There are several private agencies that maintain a database of qualified intermediaries across the United States. They can be of use in selecting the right intermediary with a good reputation, high level of bonding, competitive fee schedule, financial strength, expertise and integrity.

In the exchange process, the quality of the services is marked by speed, accuracy and safety. A good QI will have concern for the safety of the client’s funds. Through unique exchange accounts he can ensure that the funds cannot be deposited or withdrawn without signatures from both the exchanger and the company. Many taxpayers had the bitter experience of exchange funds misused by unscrupulous intermediaries. Every aspect of the exchange has to be managed according to the IRS rules and regulations.

The build-to-suit exchange is now becoming popular, where the QI is a major player. Also called construction or improvement exchange, this variant has the QI himself acquiring fee ownership of the replacement property and making improvements to it.

After the necessary improvements are done, within the exchange period of 180 days, the ownership is then transferred to the Exchanger.

This new variant of the exchange gives the investors a high degree of flexibility and the opportunity to improve upon an existing property or construct a new replacement property itself. Thus, the range of services provided by the QI and associates are unlimited from the word go.

1031 Exchange Forms

Typically, the 1031 Exchange involves forms like brokers’ price opinion, exemption and nonresident waivers, affirmation of residency, declaration of trust, IRS 8824 like kind exchanges, lien waivers, mortgage interest deductions, multifamily mortgage applications, notice of trustees sale, personal financial statements, power of attorney, promissory note, quit claims, schedule of income property, signature affidavit AKA statement or tax information release forms.

IRS Form 8824 has three purposes. It is not very complicated to fill if the three main purposes are understood correctly. The first one is to help the taxpayer report the dates of sale and replacement property closings, together with identification dates. This is to verify 45/180 date requirements. This information has to be in Part One.

Second is for the taxpayer to highlight their sale and purchase numbers (sale price, selling expenses, adjusted basis, depreciation taken, cost of replacement property) in order to make clear whether there was a full or partial exchange. This information should go in Part Three.

The third purpose is to show the new tax basis of the replacement property. The exchange being a deferral of taxes, the gain incurred by the taxpayer in the old property has to show up in the new property through an equal amount of lesser basis. This information must be there in Part Four.

The information in IRS Form 8824 makes the job of the IRS easy, to review a taxpayer’s prior 8824 Forms to ascertain the appropriate amount of taxable gain and see whether taxes are paid as and when the taxpayer decides to sell and not exchange.

But the exchanger or investor need not be baffled by the forms. The companies hired by the investor would provide the guidance and assist them in filling them out. The follow-up is also their responsibility.

Other forms include General Forms and the Official Identification Form to identify Replacement Properties to be returned not later than 45 days after the close of the Relinquished Property. W-9 Form is to request a Taxpayer ID for the investor. Form 593-C is meant for California Residents doing any sort of exchanges.

Forms related to funding issues include Request for Verification of Funds. This is to obtain a statement of the balance in the account, for the client himself or third parties, lenders, etc. The Miscellaneous Disbursement Request form is for releasing disbursements for appraisals, inspection fees, loan fees, etc.

Request for Return of Exchange Funds is for releasing the remaining exchange funds after the exchange is completed, and not for requesting closing money. Earnest Money Deposit Request is for the closing agent, and not for requesting closing money.

There are two major forms of tax-deferred exchanges–simultaneous exchange and delayed exchange. Numerous variations of these two fall into one category or the other.

The most basic type of exchange is the simultaneous exchange, known as In Lieu Exchange. To illustrate, in simultaneous exchange, the seller wants to sell the property A, agreeing to accept Property B in lieu of cash payment. If the Buyer already owns Property B, then the two parties simultaneously transfer their respective properties adhering to the value rules.

In the case of the buyer not owning property B, the buyer must purchase Property B and transfer it to the seller simultaneously with transfer of Property A to the buyer. To preserve the tax-deferred status of the transaction for the seller, he must not receive any cash or debt relief.

The other is delayed exchange known as a Starker exchange. This delayed exchange is done using a Qualified Intermediary (QI). In this type, the seller closes the sale of his property and escrows the proceeds of the sale with a QI. Here the seller is handicapped from taking possession of the proceeds in order to enjoy the tax-deferral status of the transaction.

After closing the sale of his property, the seller gets 45 days to identify the property or properties to be exchanged and should submit that in writing to the QI. The identified properties have to be purchased within 180 days of the sale of the relinquished property.

Commodities

Like a stock exchange, a commodity exchange is also an organized market that functions under established rules and regulations. This market is meant for the purchase and sale of commodities. The commodities, which are generally traded in at the commodity exchanges, include natural produce of the soil, mineral products like lead, copper and some manufactured products like cotton goods, hides, skins, and sugar.

All of commodities do not lend themselves to dealings on the commodity exchanges. Generally speaking, products, which possess certain predefined characteristics, are dealt in at the exchanges. The commodity must be homogeneous, that is to say, all units of the lot of a particular commodity must be perfectly identical so that all dealers may mean the same commodity when they mention it in their dealings.

The commodity concerned should be such as will lend itself to grading. Unless it can be classified into recognized and well-known grades, trading will not be very quick, for every time the quality will have to be ascertained. In commodity exchanges, grades of commodities serve as a sufficient indication of the intention of the dealers. Commodities must be durable so as to last for the period of a future contract (ordinarily more than one year). If it perishes rather quickly, contracts for its purchase and sale will be frustrated.

The trading in the commodity must be sufficiently large so as to support the cost of facilities for the purpose provided by the exchange. In other words, there must be steady demand for the commodity. There must be frequent fluctuations in the price of the commodity. If that is not so, the speculators will have no incentive to speculate in it at the exchange. The supply of the commodity must be free and open, and should not be monopolized or controlled by one or a few persons. In addition, the government must not control the supply, and its price must not be regulated by government action.

1031 Exchange

Section 1031 in the Internal Revenue Service is a boon for a prospective investor, selling an investment property and wanting to make a profit by reinvesting in a similar property elsewhere in the country. This wonderful concept works on the principle of gain rolling from the old to the new.

There is widespread ignorance on the modalities about this exchange; as a result, 30-40 percent of property owners end paying tax during the sale. Exchange 1031 not only fructifies into essential tax savings, but also makes possible the swapping of property in the fairest manner at places of choice. No wonder that the 1031 Exchange excites the property market so much.

The new income-generating replacement property gives the investor the double gain of added income and savings from tax that would have otherwise gone to the IRS coffers.

Besides saving the buyer from a huge tax burden coming in the guise of capital gains, the instrument offers maximum immunity and flexibility in reinvesting the money gained from the sale in a replacement property within a given period.

The exchange being time-bound is no kid’s play either. In every exchange of this kind, Qualified Intermediaries (QI) plays a crucial role connecting the buyer and seller. The Federal Tax Code makes service of QI mandatory since 1991 in any exchange.

The federal nature of the 1031 Exchange regulations make the Qualified Intermediary play a wizard in guiding and structuring the exchange, satisfying all parameters and suiting the goals of the clients. It is the QI who does the paperwork required by the IRS to document the exchange. The QI carefully prepares all documents and serves the parties with copies of the exchange agreement, novation agreement and escrow instructions.

The Exchange Agreement reads like a contract between the Exchanger and a Qualified Intermediary. The Exchanger explicitly agrees to transfer his old property to the Intermediary, in lieu of a new property to be supplied by the latter within 180 days. The contract outlines all terms and conditions under which the exchange of properties should take place.

For a 1031 Exchange to take effect, both the old property as well as the new property should be in the category of investment property, capable of generating income. The examples could be rental property, bare land, vacation homes or more.

As soon as the old property is sold, within 45 days the seller has to come out with a list containing two or three probable properties fit for replacement. And the whole process of purchasing the new property or replacement property from the list must be over in a period of 180 days.

The exchange becomes bona-fide only when the title stays intact and whosoever held title to the old relinquished property gets the title of the new property.

In between the sale and purchase of property, the seller of the old property would get no access to the money he accrued from the sale, as the money will be vested with the ‘Qualified Intermediary’ till the exchange gets over.

This 1031 Exchange process has matured and had many names in the past including Like Kind Exchange, Deferred or Delayed Exchange, Simultaneous or Concurrent Exchange, Starker Trust or Exchange, Alderson Exchange, Reverse Exchange, Two, Three, or Four Party Exchange and Baird Exchange.