Volume 10 Number 1

From The Corner Office By Mitchell Freedman, CPA/PFS

Our aging and elderly population is being victimized by financial abuse at an alarmingly increasing rate. The abuse can be categorized into three areas: financial mistreatment; exploitation; and fiduciary, economic, or material abuse. In most cases such abuse is caused by someone known to the victim. The abuser can be a spouse, child, friend, care giver, etc. However, increasingly scams directed upon the elderly are perpetrated by individuals unknown to the victim. This article will explore some common scams committed by strangers.

Sweepstakes and lottery scam - The victim is told they have won a lottery. However, there are fees that have to be paid in order for the money to be released. Payment is made by the elder and then more money is asked for. This goes on until the victim stops paying and of course the prize is never received. The Nigerian money-laundering scam, which ensnares many elders works the same way.

Home improvement (contractor) fraud - Elder answers a knock at the door and an individual, sometimes in a uniform from a utility company or a well dressed individual is there. The contractor convinces the elder that they previously met and were told they needed some work performed. It could be trimming trees or repairing a roof, etc. The victim lets the person into the backyard and while being distracted an accomplice ransacks the house. The variation is that the utility man says that wiring has to be checked in the rear of the house. Same result!

Sweetheart scam - A young women gets romantically involved with an elderly man and then convinces the victim to provide her with: money for an ailing family member or a needed item such as a vehicle; a credit card with a PIN. The criminal takes as much money as she can get before she disappears.

Identity theft - Telephone solicitors use devious and effective means to extract Social Security numbers, Drivers License numbers, and credit card numbers to defraud their victims.

Phony charity scam - They come to the door or are telemarketers and they collect money for non-existent charities.

Several others, such as credit card fraud, bank examiner fraud, badge scam, and care giver con all rely on convincing the victim to provide information or money so that the abuser can extract additional information, money, and/or valuable assets from the victim.

We at MFAC can assist you or your parents to establish a plan to minimize and hopefully eliminate the risk of becoming another victim. These plans are part of our services that we call PrimePlus services. Give us a call if you are interested in discussing this further.

Tips and Alerts The Perils of Co-signing a Loan By Janet Gardner

Many of us have friends or family who ask us to co-sign a loan for them. You may want to help but there are many things to seriously think about before you do. Before agreeing, ask yourself why the person needs you to co-sign. Do they have a job? Does it pay enough to make the monthly loan payment?

Should the borrower default, the co-signer will be responsible for the entire amount of the loan. Generally, a lender will try to collect from the debtor first, but it can go after the co-signer at any time. Lenders often try to collect from whomever it's easiest to collect from. If you don't pay, you could be sued and your credit rating could be damaged. If you pledge your property to secure a loan, you could lose it. You can be legally responsible for damages should these items be repossessed.

Always make sure that whatever items being purchased (car, furniture, etc.) are in both of your names. This may give you access to the item if you have to take over the payments.

Ask the lender to agree, in writing, to notify you if the borrower misses a payment. This can give you time to deal with a potential problem. Make sure you get copies of all important papers. The lender is not required to give you these papers. You may have to get copies from the borrower.

Tax Notes IRS Issues Final Rules on Home Sales By Tom Trent, EA

As a result of the Taxpayer Relief Act of 1997, taxpayers can exclude up to $250,000 ($500,000 for a married couple filing a joint return) of capital gain from the sale of their home, as long as they used it as their principal residence for at least two out of the last five years. Generally, if you don't meet the two-year rule, there's no exclusion, but there are exceptions that allow for a partial exclusion for taxpayers who lose their job, have a medical emergency or have other hardships that force them to sell their home prematurely. On August 13, 2004, the Internal Revenue Service issued final rules clarifying those exceptions.

The final rules state that the primary reason for the sale or exchange must be a change in employment or health, or due to unforseen circumstances that the taxpayer could not have "reasonably anticipated" before purchasing and occupying the residence. They also stipulate that a preference for a different residence or an improvement in financial condition would not qualify. Additionally, the rules specify that the qualifying unforseen event can happen to the taxpayer, his/her spouse, certain family members, a co-owner of the residence, or "a person whose principal place of abode is in the same household as the taxpayer."

If a taxpayer qualifies under one of these exceptions, they receive a proportionate portion of the exclusion, based on the amount of time they lived in the home. For example, a single person who was forced to sell 18 months after purchasing her home would receive an exclusion of $187,500 (18 months / 24 months = 75% x $250,000).

Plan Today for your Family's Tomorrow By Stacie Benjamin

In the Fall 2003 issue of The MFAC Report, I quoted Ben Franklin's adage "Nothing is certain but death and taxes." At that time I focused on the latter, now it's time to talk about the first part. Hopefully, it's not going to happen tomorrow, next week or even next year, but eventually, you are going to die. Because it's inevitable, sooner or later you will have to confront your need for an estate plan. So, when will you do it: When you are going on a trip and need a will or trust before you leave. Or worse, when you are in the hospital, battling something that might take your life?

Many people work 80,000 hours (2,000 hours per year for 40 years) accumulating an estate but fail to spend even a few hours of consideration protecting their assets. Statistically, well over 50% of Americans have no plan at all. While estate planning is probably not the foremost thing on your mind, deep down you probably recognize the importance of having an estate plan. Waiting until you are in a rush or a panic is definitely not a good idea. You want to be able to think clearly and make sound decisions.

Another advantage to estate planning is that it gives you some control in order to possibly reduce death taxes. Making lifetime gifts, setting up trusts and changing the title to property are some things you can do.

Most estate plans are established with the help of both a financial advisor and an attorney. This team approach is a good idea since the attorney does the scribner's job of drafting documents that fulfil your wishes, while the financial advisor can provide input on the all important fiscal issues. We recommend that the attorney you choose be knowledgeable in the estate planning field. Make sure that you use competent and experienced advisors. Investing in a good plan can save you and your heirs many thousands of dollars later.

When meeting with your lawyer it is important that you honestly answer all of her questions. This enables her to make the right recommendations. Before signing the paperwork make sure you read and understand everything in order to avoid any errors. If you don't understand something, have it explained. These are your wishes that we are talking about.

Be sure to carefully think through all scenarios. You may encounter some things that you will not want to think about or want to deal with. However, it is important that you cover all avenues in developing your plan.

Also, as we stated in the Winter/Spring 2004 issue of The MFAC Report, it is extremely important that you keep your beneficiary designations updated. Life situations often change and you want to be sure that the person getting an inheritance is the right one.

Heard in the Hall

The Board of Directors of California Jump$tart Coalition has elected Mitchell Freedman to a two year term as Chair effective July 1, 2004. Mitch, a founder and Treasurer of CAJ$ since its inception said, "I am optimistic that the initiatives that are in process and new measures I will champion will help to turn the corner and demonstrate quantifiable improvement in the financial literacy of our state's young people." Mitch was a presenter for the CAJ$ "Financial Smarts for Teachers" program at San Jose State University April 22, 2004 and at California State University, Northridge May 18, 2004.

Mitch began his second year as Chair of the CalCPA Communications Advisory Committee at a meeting in Burbank on May 25, 2004. He attended the CalCPA Financial Literacy Committee meeting on May 7 and 8, 2004 in Sonoma. Mitch has been chosen to serve on the 2004 AICPA ElderCare/PrimePlus Conference Planning Committee. He attended a meeting of The All-Star Financial Group in Chicago on June 4 and 5, 2004 where he gave a presentation and case study about ElderCare/PrimePlus services. On June 11, 2004 he gave a presentation for the CalCPA Hollywood/Beverly Hills Discussion Group on ElderCare/PrimePlus Services. Mitch appeared on KCAL-9 on April 15, 2004 discussing last minute tax issues.

Practical Accountant published Mitch's article titled, "While AICPA Fiddles, Our Options Burn" in its June 2004 issue. Accounting Today published his article titled "The CPA's Role in the Battle with Financial Elder Abuse," in its March 15, 2004 issue. The CPA Journal published an article co-written by Mitch titled "Outsourcing by CPAs: Are we a Business or a Profession?" Mitch was also featured in several articles in recent months. The April 24, 2004 issue of Los Angeles Daily News featured him in an article, "Cash Coaching," and the May and June 2004 issues of Southern California Senior Life featured him in articles titled, "Stay Healthy with a Financial Checkup," and "Finding Senior Friendly Advisors, " respectively.