25:["$","$L26",null,{"category":"$27","relatedArticles":[{"id":"cG9zdDo3Mzcx","databaseId":7371,"postId":7371,"author":{"node":{"id":"dXNlcjoyNQ==","databaseId":25,"userId":25,"avatar":{"url":"https://secure.gravatar.com/avatar/f23761fd4e55e04ceb9d70930e285226?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Victor Alfieri is a freelance writer who covers a variety of personal finance topics for SmartAsset. Victor is an expert in housing markets, insurance and credit.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Victor","fullName":"Victor Alfieri","lastName":"Alfieri","name":"Victor Alfieri","postCount":{"pageInfo":{"offsetPagination":{"total":1,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"valfieri","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToz","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":3,"categoryId":3,"link":"https://smartasset.com/insights/articles","name":"Insights","postCount":{"pageInfo":{"offsetPagination":{"total":53,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"insights","ancestors":null,"parent":null,"__typename":"Category"},{"id":"dGVybTo5MA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":90,"categoryId":90,"link":"https://smartasset.com/student-loans/articles","name":"Student Loans","postCount":{"pageInfo":{"offsetPagination":{"total":52,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"student-loans","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$28","date":"2013-07-30T12:29:52","excerpt":"

Not all insurance policies are created equally, and not all things need to be insured in this day and age, yet you can get a policy for just about anything. One type of policy that has been around for some time, but with very little fanfare is Tuition Refund Insurance (also known as Tuition Insurance). […]

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Find out now: What will it cost to go to school?

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This type of policy does not cover a parent if little Jimmy spends too much time at the frat house, or if Susie gets bored and drops out. Tuition refund insurance is a policy that provides coverage in the instance that medical reasons force a student to withdraw from school. Sickness, injury from accidents and even mental health issues (though this may only be covered at sixty percent) can be covered by these policies. Some policies even cover the death or loss of a job by a parent.

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On the surface, this type of policy may seem like a good thing if the student has a history of medical issues. In many cases however, these policies have a pre-existing condition clause that could exclude covering the possible return of a past illness.

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Please be aware that any intentionally self-inflicted injuries (including suicide) are not covered. If your child becomes an activist and is injured during a protest or demonstration, that is also not covered, as well as issues from alcohol or drug abuse.

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Based on the current price of tuition, room and board for college, the price of these policies does not seem so bad. It can run anywhere from one to five percent of the value of the coverage you seek.

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Does this make sense to you? Maybe. In general, young adults in their late teens and early twenties are relatively healthy. Statistically speaking, the chances of your child getting sick to the point of school withdrawal are usually minimal. A term-life insurance policy can help cover either the parent for lost wages or the student for paid tuition at a lesser cost and with fewer restrictions.

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One thing to look into before buying such a policy is to find out what type of refund you may be eligible for from the school itself. While in many cases, the refund is negotiable, most schools do provide a sliding scale that covers the first four to six weeks of any semester.

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Tuition refund insurance can be purchased directly from the university (not available at all schools), or through a third party insurance company. There is one company that offers a group policy. For all members of the non-profit advocacy group College Parents of America, GradGuard automatically enrolls the student in this plan. It also offers such protection plans as identity theft, small gadget theft, and both computer repair and virus protection. These parents get coverage of $5,000 and can purchase up to $50,000 in increments of $5,000.

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Many parents will say that what they pay for tuition is already more than they can deal with, and adding an insurance policy, for even the smallest chance of having to use it, just isn’t worth it. For others, this policy is all about being able to sleep at night. Chances are, if their child gets sick or if something else happens to them, it will be a nightmare they will have to live through. They me need the money from that insurance policy to help offset those medical bills that will come.

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There is no right or wrong answer here. What makes sense for one family might not be applicable for another. Being informed will make all the difference in the world though.

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Photo Credit: purplemattfish

"],"experts":null,"link":"/insights/tuition-refund-insurance","published":{"datetime":"2013-7-30","readable":"July 30, 2013"},"shareInfo":{"title":"Should You Buy Tuition Refund Insurance?","origin":"/insights/tuition-refund-insurance"},"isNewsArticle":false},{"id":"cG9zdDo4NTU3MQ==","databaseId":85571,"postId":85571,"author":{"node":{"id":"dXNlcjo2Mg==","databaseId":62,"userId":62,"avatar":{"url":"https://secure.gravatar.com/avatar/208d0b234f483fab41fdc0c47e058dd2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Lauren","fullName":"Lauren Perez, CEPF®","lastName":"Perez, CEPF®","name":"Lauren Perez, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":87,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"lperez","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToz","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":3,"categoryId":3,"link":"https://smartasset.com/insights/articles","name":"Insights","postCount":{"pageInfo":{"offsetPagination":{"total":53,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"insights","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$30","date":"2018-10-17T14:43:00","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNzA3NDk=","databaseId":170749,"altText":"SmartAsset: How to Retire in Spain","date":"2022-11-08T14:32:25","fileSize":70898,"mimeType":"image/jpeg","modified":"2022-11-08T14:32:25","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2018/10/retire-spain-1-1-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2022-11-16","readable":"November 16, 2022"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/insights/how-to-retire-spain","metaDesc":"With fair weather and affordable living, Spain is an attractive retirement option for U.S. citizens. Read on to find out how to retire in Spain.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"How to Retire in Spain - SmartAsset","__typename":"PostTypeSEO"},"slug":"how-to-retire-spain","status":"publish","title":"How to Retire in Spain","uri":"/insights/how-to-retire-spain","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo2Mg==","databaseId":62,"userId":62,"avatar":"$31","description":"Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.","additionalMeta":"$32","email":null,"firstName":"Lauren","fullName":"Lauren Perez, CEPF®","lastName":"Perez, CEPF®","name":"Lauren Perez, CEPF®","postCount":"$33","slug":"lauren-perez-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToz","children":"$36","databaseId":3,"categoryId":3,"link":"https://smartasset.com/insights/articles","name":"Insights","postCount":53,"slug":"insights","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

If there’s nothing keeping you in the U.S., why not retire abroad? You have a ton of options from the standard destination of Mexico to a colder retirement in Iceland. Somewhere in between those is Spain, which offers both great mountain and beach experiences. But before you start packing your bags, check out what it takes to retire in Spain, including the costs and residency requirements. And if you need help strategizing your retirement abroad, consider enlisting the help of a financial advisor.

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Average Cost to Retire in Spain

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Spain is one of the top tourist destinations in the world. And with its diverse architecture, food and climate, many people are also making Spain a top retirement destination.

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It’s possible to retire comfortably in Spain on about $25,000 a year. That breaks down to roughly $2,083 per month. Of course, it is possible to live in Spain on less — $20,000, for instance. This amount would make more sense if you decide to live farther from big cities and lead a more minimalist lifestyle.

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Luckily for retirees, Spain has low property taxes. There are some instances where you will need to file a Spanish income tax return. This is the case if you reside in Spain for more than six months of the year and your income is above 22,000 Euros. The income tax still applies when your income comes largely from U.S. accounts.

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Those thinking of moving to Spain in retirement should be aware that the country does have a sales tax that can be quite steep. Known as the IVA (Impuesto sobre el Valor Añadido), it is essentially the equivalent of the VAT (Value Added Tax). Beware, the listed price for an item typically included that tax.

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American citizens will also have to file a U.S. tax return. However, due to a tax treaty between Spain and the U.S., you can avoid double taxation. It may be beneficial for you to work with a financial advisor before and during retirement to help with unique situations like this. For instance, a financial advisor can help you figure out your tax burden and file your taxes properly.

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How to Retire in Spain: Housing and Healthcare

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Numbeo.com says that the cost of living excluding rent is almost 34% lower in Spain than in the U.S. Housing costs will vary depending on where you settle down. A one-bedroom apartment rental in a city center could cost you less than half than what you would pay in the U.S. The average in Spain is nearly $736, whereas in the U.S. is almost $1,678. Prices, however, drop for one-bedrooms outside of city centers. In Spain, rent averages under $603. And in the U.S., rent is almost $1,355.

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When you compare specific cities in both countries, the average rent for a one-bedroom apartment in New York could be three times more expensive than Madrid. The average for a one-bedroom in the center of New York costs over $3,900, whereas the equivalent in Madrid is just under $1,020. A one-bedroom outside of the city center in Madrid falls to less than $770. And if you settle in a smaller city like the port city of A Coruña in northwest Spain, rent for a one-bedroom in the city center is under $650, and outside of the city center it averages under $478.

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As for healthcare, you have a few options, all of which are still better than what the U.S. can offer most citizens. If you’re a resident of Spain, you can take advantage of the country’s comprehensive public healthcare program. As an expat retiree, you can qualify for public healthcare if you are a resident, an employee or self-employed worker in Spain who pays into Social Security or a state pensioner. The same goes if you are recently divorced or separated from a partner who is registered with Social Security. You can also choose to enroll in private insurance to avoid the potential long wait times for public services. Private healthcare in Spain may cost around $200 a month for full coverage.

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How to Retire in Spain: Residency

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For temporary residency in Spain, you’ll want to get yourself a long-stay visa, or visado nacional. This will allow you to live full-time in the country and provides way more benefits than a tourist visa. A long-stay visa allows you to work, study, retire or live in the country for an indefinite amount of time. You’ll need to live in Spain at least six months out of the year to maintain your visa. You must also renew the visa annually.

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Since you’re probably looking for a relaxing retirement in Spain that doesn’t include clocking in and out, you can instead apply for a residence visa, or visado residencia. This visa does not permit you to work in the country. You will need to prove that you have the means to support yourself and any dependents while you live in Spain without working. You can do this by providing evidence of a certain minimum monthly income like pensions and investment statements. Typically, you’ll need to prove you’ll have at least roughly $2,500 and $532 per dependent coming in each month.

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To get your visa process started, visit your local Spanish embassy or consulate. Each application can cost around $200 in fees.

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Bottom Line

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Spain offers a ton of great cities to settle down in during your golden years, no matter whether you want a more Mediterranean, mountainous or urban retirement. Wherever you end up, don’t forget to get your residency and tax affairs in order. Also be sure you’re saving enough now to avoid any hiccups in the future. Finally, to ensure you have a comfortable and fun retirement in Spain, don’t forget to learn Spanish! That way you can really participate in your new community.

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Tips for Retirement

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Photo credit: ©iStock.com/Morsa Images, ©iStock.com/wundervisuals, ©iStock.com/Luxian

"],"experts":null,"link":"/insights/how-to-retire-spain","published":{"datetime":"2018-10-17","readable":"October 17, 2018"},"shareInfo":{"title":"How to Retire in Spain","origin":"/insights/how-to-retire-spain"},"isNewsArticle":false},{"id":"cG9zdDo0MTc0","databaseId":4174,"postId":4174,"author":{"node":{"id":"dXNlcjoxMw==","databaseId":13,"userId":13,"avatar":{"url":"https://secure.gravatar.com/avatar/1826688a555f97277500e9a066ca8435?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Dennis Sebayan is a freelance writer and business analyst. His expertise is in home buying, credit cards and retirement. He lives in Brooklyn. Dennis has a degree in English from the State University of New York at Buffalo.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Dennis","fullName":"Dennis Sebayan","lastName":"Sebayan","name":"Dennis Sebayan","postCount":{"pageInfo":{"offsetPagination":{"total":7,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"dsebayan","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToz","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":3,"categoryId":3,"link":"https://smartasset.com/insights/articles","name":"Insights","postCount":{"pageInfo":{"offsetPagination":{"total":53,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"insights","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$39","date":"2013-05-06T11:48:02","excerpt":"

\n","featuredImage":{"id":"cG9zdDo0MjEy","databaseId":4212,"altText":"In the Shadows: America’s Underground Economy","date":"2013-04-30T19:36:03","fileSize":107563,"mimeType":"image/jpeg","modified":"2013-04-30T19:36:03","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2013/04/105835431_9a676f0701_z.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-8-30","readable":"August 30, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/insights/in-the-shadows-americas-underground-economy","metaDesc":"The U.S. shadow economy is the missing link in calculated GDP. SmartAsset dug deep to evaluate the impact of these elusive economic loopholes.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"In the Shadows: America’s Underground Economy | SmartAsset","__typename":"PostTypeSEO"},"slug":"in-the-shadows-americas-underground-economy","status":"publish","title":"In the Shadows: America’s Underground Economy","uri":"/insights/in-the-shadows-americas-underground-economy","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoxMw==","databaseId":13,"userId":13,"avatar":"$3a","description":"Dennis Sebayan is a freelance writer and business analyst. His expertise is in home buying, credit cards and retirement. He lives in Brooklyn. Dennis has a degree in English from the State University of New York at Buffalo.","additionalMeta":"$3b","email":null,"firstName":"Dennis","fullName":"Dennis Sebayan","lastName":"Sebayan","name":"Dennis Sebayan","postCount":"$3c","slug":"dennis-sebayan","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToz","children":"$3f","databaseId":3,"categoryId":3,"link":"https://smartasset.com/insights/articles","name":"Insights","postCount":53,"slug":"insights","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

The most complete way to measure a nation’s economy is through its gross domestic product (GDP). America’s GDP is comprised of four major components: personal consumption, business investments, government spending, and net exports of good and services. There is one constituent, however, that is not factored into the equation: the U.S. shadow economy. SmartAsset dug deep to uncover details, and evaluate the impact of these elusive economic loopholes.

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Find out now: Who pays for closing costs?

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Shadow economies are widespread and exist around the globe. According to a report by The World Bank, between 1999-2007, the countries with the smallest systems were Switzerland (8.1%) and the United States (8.4%). In the middle range were Iceland (15%), Canada (15.3%), Ireland (15.4%) and Germany (15.3). Korea (25.6%), Italy (26.8%), Greece (26.5%) and Mexico (28.85) topped the list with the largest underground markets.

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According to economist Friedrich Schneider, “The stronger the country is hit by the economic crisis, the more the shadow economy will grow.” Since August 2010, the shadow economy has indeed become larger all around the world, attributable to the global financial crisis.

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Some argue that these rogue systems are necessary — a double-edged sword of sorts. Schneider, who is also a professor at the Johannes Kepler University in Linz, Austria, points out that in Greece, earnings through the shadow economy help one-third of the working population to increase its standards of living. He also discerns that, while unreported income accounts for lost tax dollars, at least two-thirds of the earnings are pumped into the official economy, increasing GDP.

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Research by the International Monetary Fund revealed that excessive regulations have the effect of driving employees and employers to the underground market, where they can avoid government scrutiny. Adherence to these rules can be cost prohibitive for companies considering new employee hiring. Furthermore, it was estimated that the shadow economy size increases by 11.7% if the tax burden is perceived as more burdensome, with as little as a one point increase on a 1 to 7 Global Competitiveness Survey scale.

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The great recession prompts more Americans to enter the gray market

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Within the U.S., the Great Recession has pushed more of its workforce into this informal market. Some activities are illegal, e.g. drug sales, stolen good exchanges, bootlegging, gambling, prostitution and unauthorized immigrant labor. Although these commodities are largely banned from the marketplace, people in America spend a lot of money on them, particularly illegal drugs.

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For legal occupations, e.g. landscaping, waiting tables or dog walking, the shadow market helps people to earn a living without having to pay income taxes. Underworked professionals are driven to the underground market in search of survival, especially through the tough job market. Others rely on the grey market to find work, gain experience or transition to a new career.

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It’s a perfect storm for a growing network where cash is exchanged undetected by the U.S. government. The recession has also impacted employers. As companies focus on keeping expenses low, they are turning to the shadow market to find affordable freelancers, consultants and part-time workers. Undocumented employees can help a business to avoid labor-related taxation.

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Considering an estimated 11.7 million people are unemployed in the U.S.; and the median income has increased just 1.7% during the Great Recession, recent reporting points to increased consumer spending overall. From September of 2010 to present, retail sales have increased annually at the rate of 3.5%, according to the Economic Policy Journal. This has caused economists to beg the question: where is all this spending coming from, despite the weakened economy?

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Misleading tax and unemployment reporting

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A growing underground market can skew official labor and unemployment statistics, rendering them ineffective, even self-defeating. Evidence suggests that, within the U.S., the actual rate of unemployment may be lower, as more people disappear from the labor pool to earn their spoils in the alternative economy. Currently, the unemployment rate is 7.9, yet the rate of active Americans participating in the job market is dropping; it is also at its lowest figure since May 1979.

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The underground market affords an attractive means to earn cold hard cash. Short-term it may appear that the shadow economy is helping, but what are the long-term consequences? According to a report issued by Richard Cebula and Edgar L. Feiger in 2011, roughly 18-19 percent of all income generated in the U.S. is not reported to the government. The amount, $2 trillion, leads to a $450-500 billion tax gap annually.

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U.S. dollars earned in the shadow economy get lost in a vortex

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The amount of unaccounted U.S. dollars makes it harder to control where funds are being used. According to the Federal Deposit Insurance Corporation, in 2011, 8.2% of American households go unbanked; 20.1% of these households are underbanked. At a basic level, the rate of inflation is affected, as monies go missing — either to international bank accounts, or removed from circulation altogether — creating the need for new money creation.

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The enticement of earning untaxed dollars is pulling more people into the gray market jobs. It can also prompt the workforce to seek further tax evasion methods, such as under-reporting on tax returns. The gray market compromises working standards, as those who enter it are stripped of regulatory rights and put at risk for exploitation. A number go without health insurance and do not pay towards future unemployment or Social Security benefits. On the severe end, spending with American money goes unmonitored and less controlled. It may be used to fund malicious acts such as terrorism.

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What to do with an economy beyond our control

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Finding ways to tone down the underground economy can have a positive effect, possibly bridging the gap on deficit spending. This can be accomplished a number of ways, as indicated by the International Monetary Fund:

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Tax rate reductions will, at the very least, help to stabilize the shadow economy.
Increased frequency of tax audits combined with harder penalties for evasion will make it more challenging to traverse the underground economy.
Government legalization of some shadow economy activities, within boundaries, will legitimize and integrate them into the official economy.

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Strengthening an economy operating on the books can help to decrease the underground economy. Companies yielding increased sales and positive returns will be encouraged to grow, and hire people back into the workforce.

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In sum, the shadow economy is a sure sign of global market instability and unpredictability. Additional evaluation is needed, and a scrutiny at all levels of the labor process should occur. But we need to tread upon these matters carefully, since the livelihood and security of law abiding citizens are at stake.

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When making an estate plan, using a trust is a way to make passing assets — including both cash and physical assets — a bit easier. In fact, when using a trust, you can often allow your family to avoid …

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When making an estate plan, using a trust is a way to make passing assets — including both cash and physical assets — a bit easier. When using a trust, you can often allow your family to avoid a lengthy probate process after you’ve died. Inheriting a trust comes with certain tax implications. The rules can be complex, but generally speaking, only the earnings of a trust are taxed, not the principal.

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A financial advisor can help you minimize inheritance tax by creating an estate plan for you and your family. Find a financial advisor today.

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How Trusts Work

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A trust is simply a legal vehicle that can be filled with myriad assets, including cash and physical holdings. The person who creates the trust is known as the grantor. A trust is overseen by a trustee. The trustee can be a person or a firm that manages the trust for the beneficiary.

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The beneficiary of the trust is the person who benefits from these assets. This beneficiary can be an individual, such as a child or other relative, or an organization like a charitable group.

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Trusts are often used as a tool to minimize estate taxes. Also, while assets transferred via a will usually have to go through the probate process, trusts can usually bypass that step, speeding up the process and saving on court fees.

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Types of Trusts

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There are quite a few types of trusts, but one of the biggest differences between trusts is whether they’re revocable or irrevocable. A revocable trust can be modified at any point during the lifetime of the person making the trust—also known as the grantor. The grantor can add or remove beneficiaries, add or remove assets from the trust or terminate the trust completely. Once the grantor dies, the trust then becomes set in stone and can no longer be changed.

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On the other hand, an irrevocable trust is set in stone as soon as it’s finalized. The grantor can’t change the beneficiaries or the terms or remove any assets from the trust once it’s established. These are the two main categories of trusts, but there are many other types of trusts you might run into as well. These include:

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Marital trusts
Bypass trusts
Charitable trusts
Generation-skipping trusts
Grantor-retained annuity trusts
Life insurance trusts
Special needs trusts
Spendthrift trusts
Testamentary trusts
Totten trusts

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How Are Trusts Taxed?

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Trusts are taxed based on whether the distributions from the trust are principal or interest. Principal distributions, or distributions taken from the money originally placed in the trust, are not taxed. Interest distributions, or distributions taken from the money earned in interest after the original funds were placed in the trust, are either taxed as income or as capital gains, depending on how they were earned.

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The income tax rates for trusts run from 10% to 37% in 2024 and 2025, depending on income level. Long-term capital gains are taxed at 0%, 15% or 20%, based on total gains.

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Trusts and their beneficiaries will use IRS Form 1041 and a K-1 to file taxes. The K-1 will indicate how much of the distribution was interest and how much was principal.

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Another factor that governs how trusts are taxed is whether the trust is a grantor or non-grantor trust. Grantor trusts are set up so that the grantor pays taxes on income. Regarding non-grantor trusts, who pays taxes will depend on how the trust was set up. Trust accounting rules can be extremely complex, and your financial situation outside of the trust can come into play as well.

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What a Trust Inheritance Tax Might Look Like

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Say you receive a $10,000 distribution one year. When the trust sends you the K-1, you see that $8,000 was from the principal. The IRS presumes this money was already taxed, so you don’t owe taxes on that amount. $1,000 was from interest earned—you will owe income tax on that amount. The final $1,000 was from selling stock for a profit—you will owe capital gains tax on that amount.

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In this example, you’d owe nothing on that $1,000 earned from selling a stock, assuming it had been held for at least a year. You’d owe 10% on the amount made from interest, for a total of $100 owed in taxes. This is a simple example, and as mentioned above, trust taxes can and often do get much more complicated. Work with the trustee or a personal financial advisor to make sure you’re getting the details right.

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Bottom Line

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Beneficiaries of a trust are usually only taxed on the earnings portions of their distributions, and whether those earnings are taxed as income or capital gains depends on how they were earned. Who pays those taxes depends on how the trust was set up so it might be best to consult with an attorney and tax professional who is experienced at working with trusts.

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Tips for Estate Planning

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