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Background

The 2007 credit and loan crisis is often viewed as being the direct result of faulty consumer lending practices. Subsequently, many saw the need to have one centralized federal agency that focused on the protection of consumers regarding financial products and services, such as mortgages, credit cards, and student loans. In 2010, the CFPB was established by Congress through the Dodd-Frank Wall Street Reform and Consumer Protection Act.

What is the CFPB’s mission?

The CFPB is charged with protecting consumers from unfavorable financial industry practices through the enforcement of federal consumer protection laws. In addition, the CFPB:

• Supervises banks, credit unions, and other financial institutions
• Educates consumers on how to avoid deceptive and unfair lending practices
• Monitors financial industry developments
• Issues regulations and guidelines for financial service providers
• Collects and tracks consumer complaints in one centralized database

Recent headlines

The CFPB has recently found itself in the news for taking action on a variety of consumer financial protection issues. Some of the more high-profile headlines include:

• Issuing a new mortgage rule that requires a lender to ensure a borrower’s ability to repay a mortgage loan
• Releasing a report aimed at developing more affordable student loan repayment options for private student loans
• Issuing a new rule that eases credit-card qualifications for stay-at-home spouses and partners

Where to get more information

For more information on how the CFPB works, visit the CFPB website at

www.consumerfinance.gov.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Insurance policies must allow young adults up to age 26 to remain covered on their parent’s health insurance.

Insurers cannot deny coverage to children due to their health status, nor can companies exclude children’s coverage for pre-existing conditions.

Lifetime coverage limits have been eliminated from private insurance policies.

State-based health insurance Exchanges intended to provide a marketplace for individuals and small businesses to compare and shop for affordable health insurance are scheduled to be implemented by October 1, 2013.

Insurance policies must provide an easy-to-read description of plan benefits, including what’s covered, policy limits, coverage exclusions, and cost-sharing provisions.

Medical loss ratio and rate review requirements mandate that insurers spend 80% to 85% of premiums on direct medical care instead of on profits, marketing, or administrative costs. Insurers failing to meet the loss ratio requirements must pay a rebate to consumers.

The ACA provides federal funds for states to implement plans that expand Medicaid long-term care services to include home and community-based settings, instead of just institutions.

The ACA provides funding to the National Health Service Corps, which provides loan repayments to medical students and others in exchange for service in low-income underserved communities.

Medicare and private insurance plans that haven’t been grandfathered must provide certain preventive benefits with no patient cost-sharing, including immunizations and preventive tests.

Through rebates, subsidies, and mandated manufacturers’ discounts, the ACA reduces the amount that Part D Medicare drug benefit enrollees are required to pay for prescriptions falling in the donut hole.

Major provisions coming in 2014

Several important provisions of the ACA are due to take effect in 2014, such as:

U.S. citizens and legal residents must have qualifying health coverage (subject to certain exemptions) or face a penalty.

Employers with more than 50 full-time equivalent employees are required to offer affordable coverage or pay a fee.

Premium and cost-sharing subsidies that reduce the cost of insurance are available to individuals and families based on income.

Policies (other than grandfathered individual plans) are prohibited from imposing pre-existing condition exclusions, and must guarantee issue of coverage to anyone who applies regardless of their health status. Also, health insurance can’t be rescinded due to a change in health status, but only for fraud or intentional misrepresentation.

Policies (except grandfathered individual plans) cannot impose annual dollar limits on the value of coverage.

Individual and small group plans (except grandfathered individual plans), including those offered inside and outside of insurance Exchanges, must offer a comprehensive package of items and services known as essential health benefits. Also, nongrandfathered plans in the individual and small business market must be categorized based on the percentage of the total average cost of benefits the insurance plan covers, so consumers can determine how much the plan covers and how much of the medical expense is the consumer’s responsibility. Bronze plans cover 60% of the covered expenses, Silver plans cover 70%, Gold plans cover 80%, and Platinum plans cover 90% of covered expenses.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

“For many of us, the financial planning we do is focused on our golden years,” said Shobe.  “We work hard to accumulate assets to support retirement, manage risk, and support heirs and charities.”   But Shobe says long-term care expenses can derail financial plans.

According to the U.S. Administration on Aging, there are more older adults living in Louisiana than ever before.  The state’s older population is increasing faster than its general population.  Although Louisiana’s total population grew only 1.4% from 2000 to 2010, its 65+ population increased 7.9%.

Shobe’s firm brought in a national insurance consultant to discuss the state of long-term care and what’s expected in the coming years under the new health care law.

Jeff Roy, insurance consultant with Raymond James Insurance Group, presented examples of family planning scenarios, the toll a long-term care event can have on those plans, and the options to manage the possible risk.

Studies show almost 70% of individuals over 65 will need some type of long-term care for three years, and 20% will need care for more than five years. More than two-thirds of those needing care will require nursing home services. Medicare does not cover long-term care, and the national cost for nursing home care averaged over $90,000 a year in 2012.

Shobe says with sound financial planning, families can anticipate and plan for long-term care needs.  “We talk to families who are concerned about this every day,” he said.

As one of the oldest independent Registered Investment Advisory firms in the southeast, The Shobe Financial Group team members have combined industry experience of over 230 years.  The firm provides fee-based planning services, including comprehensive wealth planning, retirement planning, business planning, and investment management. It is one of the oldest Baton Rouge, Louisiana-based independent Investment Advisory firms.  Offices are located at 8280 YMCA Plaza Drive, Baton Rouge, Louisiana 70810.  For more information call 225-763-7010 or visit http://www.shobe.com.   Securities offered through Raymond James Financial Services Inc. Member FINRA/SIPC.

Who must pay the new tax?

The NIIT applies to individuals who have “net investment income,” and who have modified adjusted gross income (MAGI) that exceeds certain levels (see the chart below). (Estates and trusts are also subject to the new law, although slightly different rules apply). In general, nonresident aliens are not subject to the new tax.

What is MAGI?

For most taxpayers, MAGI is simply adjusted gross income (AGI), increased by the amount of any foreign earned income exclusion.

AGI is your gross income (e.g., wages, salaries, tips, interest, dividends, business income or loss, capital gains or losses, IRA and retirement plan distributions, rental and royalty income, farm income and loss, unemployment compensation, alimony, taxable Social Security benefits), reduced by certain “above-the-line” deductions (see page one of IRS Form 1040 for a complete list of adjustments).

Note that AGI (and therefore MAGI) is determined before taking into account any standard or itemized deductions or personal exemptions. Note also that deductible contributions to IRAs and pretax contributions to employer retirement plans will lower your MAGI.

What is investment income?

In general, investment income includes interest, dividends, rental and royalty income, taxable nonqualified annuity income, certain passive business income, and capital gains–for example, gains (to the extent not otherwise offset by losses) from the sale of stocks, bonds, and mutual funds; capital gains distributions from mutual funds; gains from the sale of interests in partnerships and S corporations (to the extent you were a passive owner), and gains from the sale of investment real estate (including gains from the sale of a second home that’s not a primary residence).

Gains from the sale of a primary residence may also be subject to the tax, but only to the extent the gain exceeds the amount you can exclude from gross income for regular income tax purposes. For example, the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence is generally excluded for regular income tax purposes, and is therefore also excluded from the NIIT.

Investment income does not include wages, unemployment compensation, operating income from a nonpassive business, interest on tax exempt bonds, veterans benefits, or distributions from IRAs and most retirement plans (e.g., 401(k)s, profit-sharing plans, defined benefit plans, ESOPs, 403(b) plans, SIMPLE plans, SEPs, and 457(b) plans).

Net investment income is your investment income reduced by certain expenses properly allocable to the income–for example, investment advisory and brokerage fees, investment interest expenses, expenses related to rental and royalty income, and state and local income taxes.

How is the tax calculated?

The tax is equal to 3.8% of the lesser of (a) your net investment income, or (b) your MAGI in excess of the statutory dollar amount that applies to you based on your tax filing status. So, effectively, you’ll be subject to the additional 3.8% tax only if your MAGI exceeds the dollar thresholds listed in the chart above.

Congratulations!

Please join us in congratulating Corey Luckett who has earned the Certified Financial Planner™ (CFP®) certification from the Certified Financial Planner Board of Standards, Inc. This is the most esteemed of financial planning certification. Candidates must fulfill educational, ethical, and experience criteria in order to earn this designation, and must complete ongoing requirements to maintain it.

This brings the total number of CFP’s at Shobe Financial to 7, with 2 more in pursuit of this certification.

 April Conference

In late April, many members of the Shobe planning team will be attending a conference in Dallas. As with all conferences, the goal and purpose for our participation in such activities  is to continue to advance our knowledge, remain in front of industry trends, and bring home new ideas and information to best serve our clients.  This event is the week of April 22, but don’t worry – our office will remain opened, and we will be accessible.

Last year’s presidential election, along with the more recent fiscal cliff and debt ceiling negotiations, have put the spotlight on our nation’s tax policy, deficit, and entitlement programs. For some, entitlement programs are necessary–a social compact for America in an era of longer life spans, the decline of employer-provided pensions and health insurance in retirement, and a widening gap between the haves and the have-nots. For others, the current level of entitlement spending is jeopardizing our country’s fiscal health and creating an “entitlement lifestyle.” No matter where you stand in the debate, do you know the basic facts on our country’s largest entitlement programs?

Where the money goes

All entitlement spending isn’t created equal. The “Big Three” of Social Security, Medicare, and Medicaid account for more than two-thirds of all federal entitlement spending. Social Security and Medicare are primarily age-based programs, whereas Medicaid is based on income level. According to the U.S. Bureau of Economic Analysis, in 2010, the federal government spent a total of $2.2 trillion on entitlement programs, with the Big Three accounting for $1.6 trillion of this total. The largest expenditure was for Social Security ($690 billion), followed by Medicare ($518 billion) and Medicaid ($405 billion).

A history of growth

Alexis de Tocqueville, the famous French political thinker who traveled to the United States in the early 1830s and wrote about the uniqueness of our young nation’s individual self-reliance in his famous book, Democracy in America, would likely be surprised to observe the growth in spending on entitlement programs that has occurred in the United States over the past 50 years. According to the Bureau of Economic Analysis, in 1960, U.S. government transfers to individuals totaled about $24 billion in current dollars. By 2010, that figure was $2.2 trillion, almost 100 times as much.

Current status

Let’s look at our two main entitlement programs–Social Security and Medicare.

Social Security. Created in 1935, Social Security is a “pay-as-you-go” system, meaning that payments to current retirees come primarily from payments into the system by current wage earners in the form of a 12.4% Social Security payroll tax (6.2% each from employee and employer). These payroll taxes are put into two Social Security Trust Funds, which also earn interest. According to projections by the Social Security Administration, the trust funds will continue to show net growth until 2022, after which, without increases in the payroll tax or cuts in benefits, fund assets are projected to decrease each year until they are fully depleted in 2033. At that time, it’s estimated that payroll taxes would only be able to cover approximately 75% of program obligations.

Medicare. Created in 1965, Medicare is a national health insurance program available to all Americans age 65 and older, regardless of income or medical history. It consists of Part A (hospital care) and Part B (outpatient care)–which together make up “traditional” Medicare; Part C (Medicare Advantage, which is private insurance partly paid by the government); and Part D (outpatient prescription drugs through private plans only). Medicare Part A is primarily funded by a 2.9% Medicare payroll tax (1.45% each from employee and employer), which in 2013 is increased by 0.9% for employees with incomes above $200,000 (single filers) or $250,000 (married filing jointly). In addition, starting in 2013, a new 3.8% Medicare contribution tax on the net investment income of high-earning taxpayers will take effect.

Looking ahead, Medicare and Medicaid are expected to face the most serious financial challenges, due primarily to increasing enrollment. The Congressional Budget Office, in its report Budget and Economic Outlook: Fiscal Years 2012 to 2022, predicts that federal spending on Medicare will exceed $1 trillion by 2022, while federal spending on Medicaid will reach $605 billion (state spending for Medicaid is also expected to increase). According to the CBO, reining in the costs of Medicare and Medicaid over the coming years will be the central long-term challenge in setting federal fiscal policy.

Reform

There has been little national consensus by policymakers on how to deal with rising entitlement costs. At some point, though, reform is inevitable. That’s why it’s a good idea to make sure your financial plan offers enough flexibility to accommodate an uncertain future.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Top gift, estate, and GST tax rate

In 2012, there was a 35% top tax rate for gift, estate, and GST taxes. It was scheduled to increase to 55% in 2013. ATRA 2012 provides a permanent 40% top rate, starting in 2013.

Applicable exclusion amount

You have an applicable exclusion amount that can protect a certain amount of property from the federal gift tax and estate tax. The basic exclusion amount was $5,120,000 in 2012 ($5 million as indexed for inflation), but was scheduled to drop to $1 million in 2013. ATRA 2012 permanently extends the basic exclusion amount at $5 million as indexed for inflation.

Portability of exclusion

The estate of a person who died in 2011 or 2012 could transfer the decedent’s unused applicable exclusion amount to his or her surviving spouse, who could use the unused exclusion, along with his or her own basic exclusion amount, to shelter property from gift and estate tax (referred to as portability). The provision was scheduled to sunset in 2013. ATRA 2012 has permanently extended the portability provision.

GST tax exemption

You have a GST tax exemption that can protect a certain amount of property from the GST tax. The GST tax exemption was $5,120,000 in 2012 ($5 million as indexed for inflation), but was scheduled to drop to $1 million (as indexed for inflation) in 2013. ATRA 2012 permanently extends the GST tax exemption at $5 million as indexed for inflation (it is $5,250,000 in 2013).

State death taxes

In 2012, your estate could take an estate tax deduction for death taxes (estate tax or inheritance tax) paid to a state. In 2013, it was scheduled to change back into a credit for state death taxes, as available back in 2001. However, ATRA 2012 permanently extends the deduction for state death taxes.

Conservation easement exclusion

An estate tax exclusion is available for qualified conservation easements. In 2012, the exclusion was generally available if the property was located anywhere in the United States. In 2013, the exclusion was scheduled to be available, as in 2001, only if the property was located within a limited number of miles from a National Wilderness Preservation System or an Urban National Forest. ATRA 2012 permanently extends the provision that the property can generally be located anywhere in the United States and the mileage requirements do not apply.

Estate tax deferral for closely held business

Where the value of a closely held business exceeds 35% of the value of the adjusted gross estate, payment of estate tax attributable to the business can be deferred for up to 5 years and then paid in installments over 10 years, all at favorable interest rates. In 2012, a closely held business could have 45 partners or shareholders. In 2013, the permissible number of partners or shareholders was scheduled to drop to 15, as in 2001. ATRA 2012 permanently extends the provision allowing up to 45 partners or shareholders.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.