Client Newsletter

The purpose of a bypass or A-B trust is to reduce estate taxes assessed by the IRS upon your death. An bypass trust can only be utilized my married couples. Every individual is allowed a $1,500,000 (2005 amount) exemption from estate taxes. Any assets exceeding the $1,500, 000 exemption are then taxed at a progressive rate ranging from 37% to 55%. However, any married person may leave at death an unlimited amount of assets to their spouse.

Many couples do not think that their estate will exceed $1,500,000 at their death to justify the use of an bypass trust. However, inflation has effectively pushed many estates' values above this $1,500,000 benchmark. For instance, a house worth $150,000 ten years ago may be worth $350,000 now. Furthermore, a couple may have a life insurance policy which provides for a death benefit of $500,000, which will be included in the couple's estate. Property which may have a nominal value to the Husband and Wife may have an entirely higher fair market value when appraised by the IRS at its "highest and best use". The couple may get an unexpected financial windfall, such as lottery winnings, proceeds from a lawsuit, or inheritance. Thus, often a couples' actual estate at the time of the second spouse's death is much higher than first expected, and an A-B Trust is necessary to avoid or reduce federal estate taxes.

Generally, most people do not like to do estate planning and think about death. However, your estate plan is a very important thing to get in place. By employing a bypass trust, you can minimize your federal estate tax burden and leave more to your heirs. Even if you do not have the assets to fully take advantage of the deductions, a trust will save your heirs the time and expense of going through the probate process. So planning while you are alive is crucial to leaving more to your loved ones.

It's a good idea to review your credit information periodically. You might spot credit inquiries or applications that you didn't make - a sign that you could be a victim of identity theft. I've had a couple of clients that have had some form or another of identity theft and highly recommend that you check your credit report. Or you might find errors in your personal data or payment history, errors that could cause lenders to deny you credit or charge you a higher interest rate.

By September 2005, all consumers will have access to a free copy of their credit report. The three major credit agencies have set up a centralized site to handle requests by phone, mail, and over the Internet. Access to this site started in Western states last year and is being rolled out across the country. But when you apply for a free copy of your credit report, you'll often be offered the chance to receive your credit score, for a fee. It's important to know the difference between the two.

Your credit report shows personal data and a record of your credit applications and credit usage, including your payment history. In summary, it shows how often you've applied for credit, how much you owe, and whether you make payments on time. Each of the three major agencies will have its own report on you. Your credit score is a single number, usually ranging from around 300 to over 800. The number is based on various factors in your credit history. Generally, the higher the number, the better your credit. You might receive a different score from each agency, depending on the model they use. If you're checking for fraud or mistakes, you need to see your credit report. This provides the details of your credit history and enables you to spot mistakes. On the other hand, knowing your credit score may not tell you much, other than whether it's high or low. The score can change from day to day, depending on how you use credit. Each agency might assign you a different score. And a lender considering you for credit may use a completely different model, producing yet another number.

Since the majority of my business clients use Quickbooks, I will have something on quickbooks in each newsletter going forward. Today we will focus on two reports that will help you measure your business. You can find both of these reports under the reports menu in quickbooks.

First up is the Profit & Loss, YTD Comparison. This report compares current year income and expenses against the prior year for the same time period. I find this is a useful report to compare against prior year and see how income and expenses are tracking against each other for the same time periods. With quickbooks drill through capabilities, you can click on any number and it will bring up the transactions behind that number. So if advertising, supplies or any other category is way up or down versus the prior year, just click on the advertising amount and the transactions that make up the number will come up in another report.

The second report that I find useful is the A/R Aging Summary. This report will show you all of your outstanding receivables by client name and the age of the receivable. This is extremely helpful to identify clients who owe you for past invoices as well as give you a call list if you are running low on cash and need to get some in the door.