DaVinci Financial DesignsJim Agostini, CFP®Managing Partner & RegisteredPrincipal1001 Pinnacle Point DriveSuite 310Columbia, SC 29223Office 803-741-0134Mobile 803-530-5375jim.agostini@dav-fd.comwww.davincifinancialdesigns.com

4Federal Income Tax Filing Season Is Here

Estate Planning Strategies in aLow-Interest-Rate Environment

Questions and Answers about Social Security

I'm going on a cruise--do I need to purchasetravel insurance?

Federal Income Tax Filing Season Is Here

See disclaimer on final page

The due date for 2012 federalincome tax returns is April 15,2013. Whether you'repreparing your own taxes orpaying someone else to dothem for you, you'll want tostart pulling things togethersooner rather than later. Thatincludes gathering a copy oflast year's tax return, W-2s,

1099s, and deduction records.

Filing for an extensionIf you're not going to be able to file your federalincome tax return by the due date, file for anextension using IRS Form 4868, Application forAutomatic Extension of Time To File U.S.Individual Income Tax Return. Filing thisextension gives you an additional six months(to October 15, 2013) to file your return. Don'tmake the mistake of assuming that theextension gives you additional time to pay anytaxes due, though. If you do not pay any taxesyou owe by April 15, 2013, you'll owe intereston the tax due, and you may owe penalties aswell. Special rules apply if you're living outsidethe country or serving in the military outside thecountry on April 15, 2013.

There's still time to contribute to an IRAYou generally have until the due date of yourfederal income tax return (April 15) to makecontributions to either a Roth IRA or atraditional IRA for the 2012 tax year. Thatmeans there's still time to set aside up to$5,000 ($6,000 if you're age 50 or older) in oneof these retirement savings vehicles. It's worthconsidering, in part because contributing to anIRA can have an immediate tax benefit. Thatbenefit comes in the form of a potential taxdeduction--with a traditional IRA, if you're notcovered by a 401(k) or anotheremployer-sponsored retirement plan (if yourspouse is covered by an employer plan, you'reconsidered to be covered as well), you cangenerally deduct the full amount of yourcontribution. (If you're covered by anemployer-sponsored retirement plan, whetheror not you can deduct some or all of yourtraditional IRA contribution depends on your

filing status and income.)

It's a little different with a Roth IRA; if youqualify to make contributions to a Roth IRA(whether you can contribute depends on yourfiling status and income), the contributions youmake aren't deductible, so there's no effect onyour 2012 taxes. Nevertheless, a Roth IRA maybe worth considering because qualified Rothdistributions you take in the future arecompletely free from federal income tax.

There's also still time to undo a 2012Roth conversionDid you convert a traditional IRA to a Roth IRAin 2012, only to see the account drop in value?Wish you could go back in time so that youwouldn't have to pay tax on the value of the IRAassets lost in the downturn? Turns out, youcan. If you undo ("recharacterize") theconversion, you're treated for tax purposes as ifthe conversion never happened--you wind upwith a traditional IRA again and no tax bill forthe conversion. You generally have until thedue date of your 2012 return, includingextensions, to recharacterize a 2012 Rothconversion (note that special rules allowindividuals who file timely 2012 returns torecharacterize up until October 15, 2013--talk toa tax professional about the details).

If you do recharacterize your 2012 conversionin 2013, you're allowed to convert those dollars(and any earnings) back to a Roth IRA("reconvert") after waiting 30 days, starting withthe day you transferred the Roth dollars back toa traditional IRA. If you reconvert in 2013, thenall taxes due as a result of the reconversion willbe included on your 2013 federal income taxreturn.

Review casualty loss deduction rulesIf you were one of the many individuals whosuffered property damage or loss as a result oflate-2012 storms (e.g., October's HurricaneSandy), be sure to familiarize yourself with thecasualty loss rules--you may be entitled to adeduction for storm-related losses that weren'tcovered by insurance. Review IRS Publication547, Casualties, Disasters, and Thefts fordetails.

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Estate Planning Strategies in a Low-Interest-Rate EnvironmentThe federal government requires the use ofcertain interest rates to value various itemsused in estate planning, such as an income,annuity, or remainder interest in a trust. Thegovernment also has interest rates that ataxpayer may be deemed to use in connectionwith certain installment sales or intra-familyloans. These rates are currently at or nearhistoric lows, presenting several estateplanning opportunities.

Low interest rates favor certain estate planningstrategies over others. For example, lowinterest rates are beneficial for a grantorretained annuity trust (GRAT), a charitable leadannuity trust (CLAT), an installment sale, and alow-interest loan. On the other hand, lowinterest rates have a detrimental effect on aqualified personal residence trust (QPRT) or acharitable gift annuity. But interest rates havelittle or no effect on a charitable remainderunitrust (CRUT).

Grantor retained annuity trust (GRAT)In a GRAT, you transfer property to a trust, butretain a right to annuity payments for a term ofyears. After the trust term ends, the remainingtrust property passes to your beneficiaries,such as family members. The value of the giftof a remainder interest is discounted for gift taxpurposes to reflect that it will be received in thefuture. Also, if you survive the trust term, thetrust property is not included in your grossestate for estate tax purposes. If the rate ofappreciation is greater than the IRS interestrate, more of the value of trust assets escapesgift and estate taxation. Consequently, thelower the IRS interest rate, the more effectivethis technique is.

Charitable lead annuity trust (CLAT)In a CLAT, you transfer property to a trust,giving a charity the right to annuity paymentsfor a term of years. After the trust term ends,the remaining trust property passes to yourbeneficiaries, such as family members. Thistrust is similar to a GRAT, except that you get agift tax charitable deduction. Also, if structuredso that you are taxed on trust income, youreceive an up-front income tax charitablededuction for the gift of the annuity interest. Thelower the IRS interest rate, the more effectivethis technique is.

Installment saleYou may also wish to consider an installmentsale to family members. With an installmentsale, you can generally defer the taxation ofany gain on the property sold until theinstallment payments are received. However, ifthe family member resells the property within

two years of your installment sale, any deferredgain will generally be accelerated. The two-yearlimit does not apply to stocks that are sold onan established securities market.

You are generally required to charge anadequate interest rate in return for theopportunity to pay in installments, or interestwill be deemed to be charged for income taxand gift tax purposes. However, with the currentlow interest rates, your family members can payfor the property in installments, while payingonly a minimal interest cost for the benefit ofdoing so.

Low-interest loanA low-interest loan to family members mightalso be useful. You are generally required tocharge an adequate interest rate on the loan forthe use of the money, or interest will bedeemed to be charged for income tax and gifttax purposes. However, with the current lowinterest rates, you can provide loans at a verylow rate and family members can effectivelykeep any earnings in excess of the interest theyare required to pay you.

Effect of low rates on other strategies• Charitable remainder unitrust: You retain a

stream of payments for a number of years (orfor life), after which the remainder passes tocharity. You receive a current charitablededuction for the gift of the remainderinterest. Interest rates have no effect ifpayments are made annually at the beginningof each year, and low interest rates have onlya minimal detrimental effect if payments aremade in any other way.

• Qualified personal residence trust: Youtransfer your personal residence to a trust,retaining the right to live in the home for aperiod of years, after which the residencepasses to your beneficiaries, such as familymembers. The value of the gift of a remainderinterest is discounted for gift tax purposes toreflect that it will be received in the future.The lower the IRS interest rate, the lesseffective this technique is.

• Charitable gift annuity: You transferproperty to a charity in return for the charity'spromise to make annuity payments for yourlife (or for you and your spouse's lives). Youreceive a current charitable deduction for thegift of the remainder interest. The lower theinterest rate, the lower the amount of yourcharitable deduction will be. Also, charitieshave generally been forced to reduce payoutrates offered because of the economicdownturn and the low-interest-rateenvironment.

Low interest rates favorcertain estate planningstrategies over others, andthe interest rates used bythe IRS are at or nearhistoric lows.

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Questions and Answers about Social SecurityWhether you're close to retirement or yearsaway from receiving Social Security benefits,you may not know much about the intricacies ofthis important program. Here are somequestions and answers that can help you learnmore.

Will Social Security be around whenyou need it?You've probably heard media reports about theworrisome financial condition of Social Security,but how heavily should you weigh thisinformation? While it's very likely that somechanges will be made to Social Security (e.g.,payroll taxes may increase, benefits may bereduced by a certain percentage, orcost-of-living adjustments may be calculateddifferently), there's been no proposal toeliminate Social Security. Although no oneknows what will happen, if you're approachingretirement, it's probable that you'll receive thebenefits you've been expecting. If you're still along way from retirement, it may be wise toconsider various scenarios when planning forSocial Security income.

How does the Social SecurityAdministration know how much you'veearned?If you work for an employer, your employer willdeduct Social Security taxes from yourpaycheck and report your wages to the SocialSecurity Administration (SSA). If you'reself-employed, you pay your self-employmentSocial Security taxes and report your earningsto the SSA by filing your federal income taxreturn. To view your lifetime earnings record,you can sign up to access your Social SecurityStatement online at the SSA's website,www.socialsecurity.gov.

Will a retirement pension affect yourSocial Security benefit?If your pension is from a job where you paidSocial Security taxes, it won't affect your SocialSecurity benefit. However, if your pension isfrom a job where you did not pay SocialSecurity taxes (such as certain governmentjobs) two special provisions may apply.

The first provision, called the governmentpension offset (GPO), may apply if you'reentitled to receive a government pension aswell as Social Security spousal retirement orsurvivor's benefits based on your spouse's (orformer spouse's) earnings. Under this provision,your spousal or survivor's benefit may bereduced by two-thirds of your governmentpension (some exceptions apply).

The second provision, called the windfallelimination provision (WEP), affects how yourSocial Security retirement or disability benefit isfigured if you receive a pension from work notcovered by Social Security. The formula usedto figure your benefit is modified, resulting in alower Social Security benefit.

If someone else receives benefits basedon your earnings record, will yourbenefit be reduced as a result?Your benefit will not be affected if other people,such as your spouse, former spouse, ordependent children, receive Social Securitybenefits based on your earnings record.

If you delay receiving benefits untilafter full retirement age, should you stillsign up for Medicare at age 65?Even if you plan on waiting until full retirementage or later to take your Social Securityretirement benefits, make sure to sign up forMedicare three months before you reach age65. If you enroll late for Medicare Part B(medical insurance) your coverage may bedelayed or cost more later. Visit the Medicarewebsite, www.medicare.gov to learn more.

Do IRA withdrawals count toward theSocial Security earnings limit?Prior to full retirement age, an earnings limitapplies if you receive Social Security benefits. Ifyou earn more than this amount, your benefitwill be reduced. However, only wages from ajob or net earnings from self-employment counttoward this limit. Unearned income, such asIRA withdrawals, investment earnings, orcapital gains, does not count.

What if you change your mind aboutwhen to begin Social Security benefits?You have a limited opportunity to change yourmind after you've applied for benefits. You cancomplete Form SSA-521, Request forWithdrawal of Application, and reapply at a laterdate. But if you're already receiving benefits,you can withdraw your claim only if it has beenless than 12 months since you first becameentitled to benefits, and you're limited to onewithdrawal per lifetime. In addition, there arefinancial consequences--you must repay allbenefits already paid to you or your familymembers based on your application, as well asany money withheld from your checks,including Medicare premiums or income taxes.

Did you know thataccording to the SocialSecurity Administration,94% of all workers arecovered under SocialSecurity?

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DaVinci Financial DesignsJim Agostini, CFP®Managing Partner & RegisteredPrincipal1001 Pinnacle Point DriveSuite 310Columbia, SC 29223Office 803-741-0134Mobile 803-530-5375jim.agostini@dav-fd.comwww.davincifinancialdesigns.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013

IMPORTANT DISCLOSURES

Broadridge Investor CommunicationSolutions, Inc. does not provideinvestment, tax, or legal advice. Theinformation presented here is notspecific to any individual's personalcircumstances.

To the extent that this materialconcerns tax matters, it is notintended or written to be used, andcannot be used, by a taxpayer for thepurpose of avoiding penalties thatmay be imposed by law. Eachtaxpayer should seek independentadvice from a tax professional basedon his or her individualcircumstances.

These materials are provided forgeneral information and educationalpurposes based upon publiclyavailable information from sourcesbelieved to be reliable—we cannotassure the accuracy or completenessof these materials. The information inthese materials may change at anytime and without notice.

My laptop was stolen and my personal financialinformation was stored on it. How can I protect myselfagainst identity theft?You are right to be concernedabout identity theft sinceidentity thieves can use your

personal financial information to access bankaccounts and credit cards, and makeunauthorized transactions in your name. As aresult, it's important to act fast in order toprotect yourself from any potential attempts atmisusing your financial information.

Your first step should be to contact one of thethree major credit reporting agencies, i.e.,Equifax, Experian, or Transunion, and place afraud alert on your credit report to preventsomeone from opening a new account in yourname. The agency you contact will then forwardyour information to the other two agencies. Youcan also find out if your state allows you to"freeze" your credit report, which will preventany unauthorized access to your creditinformation. Once you place a fraud alert onyour credit report, you are entitled to a freecopy of your report from each of the creditreporting agencies. Review each of your creditreports and notify the agencies of anyfraudulent or suspicious activity. You should

also contact any financial institutions or creditcard companies with which you have accounts.Ask to have your current accounts closed andopen new ones with new account numbers. Ifpossible, you should also request that your newaccounts include additional safeguards such aspassword protection.

Finally, if you suspect that your financialinformation has already been misused, you'llwant to consider taking the following steps:

• Contact the appropriate financial institutionand dispute any unauthorized charges ortransactions as soon as possible. Generally,your liability will depend on how quickly younotify them.

• Consider filing a complaint with the FederalTrade Commission (FTC), which will entitleyou to certain identity theft protections. Youcan go to www.ftc.gov for more information.

• File a police report with your local lawenforcement agency. A police report can behelpful when filing an extended fraud alert ordisputing unauthorized transactions.

I'm going on a cruise--do I need to purchase travelinsurance?It depends. The decision topurchase travel insurancereally comes down to whetherthe financial benefit outweighs

the cost of the policy premium. For example, ifyou had to cancel your trip, could you afford tolose the money you paid for the trip? If not, atravel insurance policy might be right for you.You can purchase travel insurance from atravel agency, tour operator, cruise line, carrental company, or directly from an insurancecompany. There are a number of different typesof travel insurance, and the type of coverageoffered, policy terms, and cost will vary.

The most common type of travel insurancepolicies are those that offer trip cancellation/tripinterruption coverage. This type of coverage willreimburse you if you have to cancel your travelplans before you leave or cut your trip short dueto an unforeseen event. Covered contingenciescan include anything from a hurricane to yourcruise line operator going out of business.Other types of coverage that are marketed totravelers include baggage protection, whichprovides 24-hour protection for yourbelongings, and accidental death and

dismemberment insurance (AD&D), whichcompensates you if you lose a limb or eye orcompensates your beneficiary(ies) if you die inan accident. Keep in mind that before youpurchase travel insurance, you'll want to makesure that you don't already have other types ofinsurance that offer duplicate forms ofcoverage. For example, your homeownerspolicy may cover your belongings if they arelost or stolen while you are traveling, or your lifeinsurance policy may provide coverage foraccidental death and dismemberment.

Finally, whenever you travel, you should makesure that you'll be adequately covered by yourhealth insurance policy. If you aren't covered orif the coverage provided is limited, you shouldconsider purchasing a temporary healthinsurance policy. These policies pick up whereyour current health insurance coverage leavesoff and provide coverage if you are hurt, injuredin an accident, or get sick while you aretraveling. They can even provide coverage formedical evacuations--something that isespecially important if you are traveling outsideof the United States.

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