A tighter budget can handle increased credit-card minimums

Q: Would you please explain what is the impact of increased minimum payments on credit-card users?
D.F., via e-mail

A: These new rules are meant to help folks who carry balances on their credit cards pay down their balances sooner, which will get them out of debt sooner.

Individuals who make just the minimum payments on their cards are the most vulnerable, says Rita Cheng, a certified financial planner in Bethesda, Md. That's because they'll have to write a bigger check every month to cover that higher monthly minimum that credit-card companies have begun to charge at the urging of federal regulators.

But consumers can handle the higher bill by freeing up cash in their monthly budget, says Ms. Cheng. The word budget, very much like diet, has a negative connotation, she says. But if consumers look at their overall spending plan and realize that by giving up a little today they could be debt-free tomorrow, they would be more motivated to stay on track.

To reduce expenses, Cheng suggests borrowing movies from the library free of charge rather than renting them, shifting a weekly manicure to biweekly to cut that bill in half, bringing your lunch to work, avoiding buying magazines at the checkout, and carpooling. "I always tell my clients that we need to retire debt, so that you can retire," says Cheng.

Q: What is the best way to reduce taxes for me and my heirs on commercial real estate?
K.J., Seattle

A: Sellers should always plan for wealth transfers at the time of purchase, says Mitchell Chadrow, senior financial adviser at Univest Wealth Management, in Souderton, Pa. That may mean establishing a grantor trust or "dynasty trust" for the benefit of children, grandchildren, and lineal descendants.

Next, consider that this trust can buy an interest in the entity that owns the commercial real estate. This step protects the transfer from gift, estate, or generation-skipping transfer taxes and any further appreciation will not be subject to transfer tax at realization, at the business owner's death, or upon the deaths of descendants.

Mr. Chadrow says that no gain or loss will be recognized for income-tax purposes at the time of sale because the sale is between the grantor and the grantor trust and is disregarded for income-tax purposes. Grantor trust status will also mean that all income earned by the trust will be attributable to and payable by the grantor.

Finally, think about establishing a dynasty trust in a jurisdiction that allows for perpetual duration of a trust's terms and has no state fiduciary income tax. You also can set up the grantor trust for the initial years and, in the future, provide a mechanism by which it can be converted to a nongrantor trust if, in the future, it is deemed advantageous.

If all this sounds fairly complicated, that's because it is. You'll need an attorney who is well-versed in real estate to guide you through this, Chadrow says.

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