February 15, 2007
Synergy Financial Group
George Van Dyke
Hybrid Cars: Being Green May Take More Green
401 Washington Ave #703 When it comes to safeguarding the environ- better numbers claimed by the Environmental
Towson, MD 21204 ment, hybrid cars (vehicles that combine Protection Agency, es-
410-825-3200
gasoline engines and rechargeable batteries) pecially if you're a low-
gvandyke@[Link]
do have a positive impact. But how does own- mileage, short-trip urban
[Link]
ing one affect your wallet? While it may be too driver. And fuel savings
soon to tell, it seems that being green may are a function of gas
take more green than you'd expect. prices: The higher the
In today's marketplace, the price per gallon, the more (and the faster)
demand has never been Higher prices you'll save. At lower gas prices, it takes longer
higher for the kind of
leadership that an independent The sticker prices for new hybrids average to recoup your higher investment in the car.
financial advisor can give. An several thousand dollars higher than those for
independent financial advisor Maintenance costs
is a professional practitioner comparable cars with conventional engines.
who functions in a conflict free As a result, your initial out-of-pocket cost to Since maintaining a hybrid is essentially the
environment. Being an purchase a hybrid can be significantly higher same as maintaining a conventional car,
independent practice, we are
able to offer unbiased advice than for a conventional car. If you finance the these costs aren't a significant variable in the
on all investment matters. We purchase, that can translate into higher savings equation. However, hybrid car batter-
face absolutely no pressure to monthly loan payments or longer-term loans. ies can cost $1,000 to $3,000 or more. While
promote proprietary products. they're covered by generous warranties (up to
This means that we don't Tax credits offset the cost … for now eight years), should you keep the car beyond
devote any time to quotas or
sales goals. The federal government offers a tax credit (up the warranty, you might have to replace an
to $3,400) for purchasing a new hybrid vehi- expensive part.
I hope this newsletter finds you
in good health for this Holiday cle; the amount of the credit you receive de-
Resale value
Weekend. Feel free to forward pends on the car's make and model. While
this to friends and family. this credit can at least partially offset a hybrid An important consideration in the cost-
All the Best, vehicle's higher purchase price, timing is eve- effectiveness equation is the resale value of
George VanDyke rything: Once a carmaker sells 60,000 hybrids the vehicle you purchase; if the car holds its
(of any model), the credit for all that manufac- value, it'll cost you less in the long term. Be-
turer's vehicles begins to phase out. At least cause hybrids are relatively new, the jury is
one manufacturer (Toyota) has already ex- still out in terms of whether they'll deliver
ceeded the 60,000 mark. greater relative resale values than their con-
In this issue: ventional counterparts. If they do, owning a
The credit won't reduce your tax liability below hybrid may offer significant savings. However,
Hybrid Cars: Being Green May zero and, if you're eligible for other credits, hybrid technology is still improving, and this
Take More Green must be taken last in line. If the amount of the may adversely affect the resale value of the
credit exceeds your tax liability, the difference current models: Will a buyer want a used hy-
Rate Changes and Your
Portfolio: Awaiting with Interest generally can't be carried over to another brid when new model hybrids may be more
year. And the credit won't reduce your alterna- fuel efficient?
Common Types of Trusts tive minimum tax (AMT) liability, if you're sub-
Ask the Experts
ject to it. It's not all about the money
Saving at the pump In the final analysis, deciding to purchase a
hybrid car won't be all about the money you
One of the biggest selling points for hybrid could save. Each gallon of gas you burn puts
cars is their fuel economy--more miles per 19 pounds of carbon dioxide into the atmos-
gallon, which means you'll save a bundle at phere, and carbon dioxide is linked to global
the pump, right? Well, not always. It depends warming. So, if you go hybrid, you may not
on how and where you drive. While you'll get save enough money to burn, but you will save
good gas mileage, real-world results indicate gas, and the planet you save may be your
that hybrids don't always get the significantly own.
Page 2
Rate Changes and Your Portfolio: Awaiting with Interest
Over the last two years, we've grown used to more on their own execution, or that might
rising interest rates. Ever since mid-2004, the actually benefit if the economy were to slow?
Federal Reserve Board has regularly in-
creased the federal funds target rate. How- Another area to consider is dividend yields. If
ever, that pace has begun to moderate. It's income is your primary investment focus, is
not necessarily safe to assume that interest the dividend rate from your stocks competitive
rates will be flat or drop, but it's no longer a with bond yields? Has your tax situation
given that they'll automatically go up, either. changed? If so, does your new status have
What does this mean when it comes to your any implications for your preference for capital
portfolio? gains, dividends, or interest payments?
Balance bond yields and values Remember the rest of the world
As interest rates rose, you may have noticed Interest rates also
that the prices of any bonds you own probably can affect the
dropped. That's because bond prices tend to strength of the dollar
move in the opposite direction of interest compared to other
rates; when rates go up, prices go down, and currencies. If the
vice versa. More stable interest rates should dollar weakens, that
also translate into more stable bond prices. could favor U.S.
companies that do
If you own short-term bonds, U.S. Treasury much of their busi-
bills, or a short-term bond mutual fund, you ness overseas. It
might talk with your financial professional also might mean it's
about whether the current interest-rate outlook time to reexamine the balance between your
represents an opportunity to diversify into in- U.S. and international holdings. However, be
termediate or longer-term maturities that offer careful; in some cases, stock mutual funds
a higher yield. devote part of their holdings to foreign compa-
The bond seesaw nies. That could mean that the portion of your
However, be aware that if interest rates con- portfolio that's in foreign investments might be
Why do bond prices tinue to rise, longer-term bonds will feel the larger than you realize.
tend to go up when impact on prices more than short-term bonds
interest rates go down, will. A drop in value could eliminate the ad- Consider your asset allocation
and vice versa? vantage of any increased yield. Also, you'll
need to think about the yield curve: the differ- This might also be a good time to reexamine
Because whenever how your assets are divided among various
interest rates are ence between the yield on short-term securi-
ties and the yield on long-term securities. Is types of investments. If you're concerned
falling, bonds that are about stability, you could increase the amount
issued today will the difference great enough to compensate
you for the additional risk of a longer-term you've invested in bonds or cash. If you feel
typically pay a lower confident that you can ride out any volatility
interest rate than a security?
and are more focused on long-term growth,
similar bond that was Take stock of your situation you might keep an eye on stocks you'd like to
issued when rates were buy, especially if they're available at bargain
higher. That means that Whenever interest rates begin to flatten out, prices. It's a good idea to periodically revisit
older bonds with higher it's usually because the Fed believes the your asset allocation. The end of the year,
coupons are more economy has begun to slow. That has implica- combined with a possible shift in the Fed's
valuable to investors, tions for the stock portion of your portfolio. outlook, could provide an opportune time to
who are willing to pay a Consider how you've balanced your stock take a broad look at your portfolio.
higher price to get that portfolio. Think about whether you own stocks
greater income stream. If you decide changes are needed, you can
that might be especially sensitive to a slowing make gradual alterations by:
The opposite is true economy and possible cutbacks in spending
when interest rates are by consumers. Will people be traveling as • Adjusting only a portion of your bond or
rising. much? Will they be buying new homes, cars, stock holdings
or appliances? Conversely, are there compa-
nies or industries that you think will do well • Shifting allocations over a period of time,
given the current economic and interest rate using dollar-cost averaging
environment? Are there companies whose • Directing only new money into assets that
products or services are relatively insensitive may benefit from current interest rates
to interest rates, whose prospects depend
Page 3
Common Types of Trusts
Whether you're seeking to control how your QTIP trust
assets are distributed after your death, avoid
probate, plan for incapacity, minimize transfer A QTIP (qualified terminable interest property)
taxes, or protect assets from potential credi- trust (also called a marital deduction trust) is,
tors, trusts can help you accomplish many like the bypass trust, used by spouses to mini-
estate planning goals. Their power is in their mize estate taxes. It holds assets of the first
versatility--many types of trusts exist, each spouse to die that are in excess of that Whether you're
designed for a specific purpose. Here are spouse's lifetime exemption. Transfers to a seeking to control
some brief descriptions of the most common proper QTIP are tax free under the marital how your assets
types. deduction, even though assets do not pass are distributed after
outright to the surviving spouse. Trust assets your death, avoid
Living trust are held for the surviving spouse's benefit, probate, plan for
then pass to descendants as part of the sur- incapacity,
A living trust (also called an inter vivos trust) is viving spouse's estate (and may be sheltered minimize transfer
a trust you create during your lifetime rather from estate tax by the surviving spouse's life- taxes, or protect
than after your death by the terms of your will time exemption). For maximum estate tax assets from
(that type is called a testamentary trust). Liv- savings, a QTIP trust is often paired with a potential creditors,
ing trusts are revocable--you keep control bypass trust. This is known as an A/B trust trusts can help you
over the trust assets, and can change the arrangement. accomplish many
trust or even dissolve it at any time. This type
estate planning
of trust is useful if you want assets to avoid Because the first spouse to die names the
goals.
probate and shield them from public scrutiny, ultimate beneficiaries, a QTIP is often used to
and/or if you want to provide for someone else provide for children of a previous marriage.
to manage your assets should you become
incapacitated. Living trusts, however, will not Irrevocable life insurance trust (ILIT)
minimize taxes or protect assets from The proceeds of your life insurance policy will
creditors. be subject to federal estate tax if you own the
policy, or your estate receives the proceeds.
Irrevocable trust
Often, this asset pushes an estate over the
An irrevocable trust is one that, once created, exemption amount.
you generally can't change or dissolve, and
you must give up total control over the trust An ILIT, created to hold a life insurance policy
assets. But, irrevocable trusts can provide and its proceeds, is a separate legal entity.
certain tax advantages and asset protection. Using an ILIT removes the proceeds from
The following are all irrevocable trusts de- your estate because the trust entity owns the
signed to achieve particular objectives. policy and is the named beneficiary of the
proceeds.
Bypass trust
Charitable remainder trust
When a person leaves his or her entire estate
to a surviving spouse, assets pass free from A charitable remainder trust allows you to give
federal estate tax because of the marital de- money or property to charity while continuing
duction. When the surviving spouse dies, his to receive income (fixed or variable) from the
or her estate passes free from estate tax to property for life or for a period of time up to 20
the extent of his or her lifetime exemption years. You and/or other beneficiaries receive
(currently $2 million). If this is the case, a cou- distributions from the trust annually, and the
ple's combined taxable estates may be higher charity receives the remaining assets when
than need be because the lifetime exemption the trust ends. You get an immediate income
of the first spouse to die has not been used. tax deduction for the charitable interest
(subject to the usual limitations), as well as gift
A bypass trust (also called a credit shelter and estate tax deductions. You also avoid
trust) can solve this problem. The first spouse capital gains tax on the donated assets.
to die funds the trust with assets equal in
value to the exemption amount. Those assets A word of caution
"bypass" the surviving spouse's estate A trust is not a do-it-yourself arrangement.
(though the surviving spouse can receive all Trusts must be properly structured and care-
income and some principal), and pass to de- fully drafted to achieve the desired results. Be
scendants estate tax free at the surviving sure to consult an experienced estate plan-
spouse's death. ning attorney.
Ask the Experts
How does an UGMA/UTMA custodial account work?
An UGMA/UTMA custodial Custodial accounts have several unique fea-
account is a special type of tures. Any money or property placed in the
account that allows a minor account is considered an irrevocable gift to
child to legally hold money the child. (Gifts qualify for the federal annual
or other property, such as gift tax exclusion, which means you can gift
stock or real estate, that the child would not $12,000 per year to the account without incur-
otherwise be able to hold in his or her own ring gift tax.) Withdrawals from the account
name. It's governed by a particular state's can only be made for the child's benefit.
Uniform Gifts to Minors Act (UGMA) or Uni-
Synergy Financial Group
form Transfers to Minors Act (UTMA). Most Any income earned by assets in the account
George Van Dyke is taxed to the child under the "kiddie tax"
401 Washington Ave #703 states have enacted an UTMA because it
allows for more types of property to be held in rules--for children under age 18, the first $850
Towson, MD 21204 of investment income is tax exempt, the next
410-825-3200 the account, and the account can remain
open longer than with an UGMA. $850 of investment income is taxed at the
gvandyke@[Link]
child's rate (usually 10%), and anything over
[Link]
A custodial account can easily be opened at a $1,700 is taxed at the parent's rate. For chil-
bank or other financial institution using a com- dren 18 and older, the first $850 of investment
George Van Dyke is a Financial
Consultant with Synergy Financial
mon form. Central to the operation of a custo- income is tax exempt, and anything over $850
Group of Towson Maryland. dial account is the custodian, who is responsi- is taxed at the child's rate.
Securities offered through Linsco ble for contributing money or property to the
Private Ledger (LPL) - Member
account, managing these assets, and with- When the child reaches the relevant age
NASD, SIPC. LPL does not provide
legal or tax advice. The information drawing from the account when necessary. (generally 21 or 25 for UTMA accounts, and
contained in this report should be
Typically, the custodian is the parent, but it's 18 for UGMA accounts) the custodianship
used for informational purposes
only. possible for another person or even a bank ends and the child receives sole control of all
(for a fee) to act as the custodian. the assets in the account.
Synergy's mission is to build,
preserve and protect the capitol of
our clients by offering a
comprehensive and professional
level of advisory and planning
services as well as providing
exceptional customer service.
How does an UGMA/UTMA custodial account compare to a 529
Our investment objective is to
plan when saving for college?
provide serious investors with a
very acceptable after tax (where
applicable) total return over a long Both an UGMA/UTMA custodial account and your child. Second, withdrawals can only be
term horizon. In order to achieve a 529 plan can be used to save for college. made for your child's benefit, not yours. And
our client's goals, we recommend But after comparing a few key features, the once your child reaches age 21 or 25 (for
investing in a diversified portfolio of
high quality securities spread over 529 plan probably comes out ahead. UTMA accounts) or age 18 (for UGMA ac-
multiple asset classes. We place counts), the custodianship ends and your
emphasis on creating tax efficient Taxes--Income in a 529 plan grows tax de- child receives sole control of all assets in the
portfolios and managing risk.
Through modern asset allocation ferred, and withdrawals used to pay college account. This is a drawback for some parents
techniques, portfolios are expenses are completely tax free at the fed- who believe their child may not use the money
assembled to match each
investor's individual investment eral level (and possibly at the state level too). for college. By contrast, as account owner of a
goals and risk tolerance. We But any income earned by assets in a custo- 529 plan, you can change the beneficiary at
believe that strict adherence to a
disciplined approach increases the dial account (for a child under age 18) is taxed any time, you control the funds all the time,
likelihood of generating consistent under the "kiddie tax" rules--the first $850 is and you can withdraw money for purposes
returns and limits the risk of
significant loss. tax exempt, the next $850 is taxed at the besides college (though you will pay a 10%
child's rate (usually 10%), and anything over federal penalty on the earnings portion).
$1,700 is taxed at the parent's rate.
Financial aid--Under the federal aid formula,
Investment flexibility--With a custodial ac- 529 plans are considered a parent's asset (if
count, you have complete control over the the parent is the account owner) while custo-
investments you decide to place in the ac- dial accounts are considered a child's asset, a
count (assuming you're the custodian). But less favorable classification. This is because
Copyright 2007 Forefield Inc. with a 529 plan, you're limited to the invest- children must use 35% of their assets for col-
All Rights Reserved. ment offerings preselected by the plan. lege expenses (20% starting July 1, 2007),
Control--Assets contributed to a custodial but parents must use only 5.6% of theirs.
account are considered irrevocable gifts to
