The act of giving to better society is the prime reason many families choose to donate; the tax deduction is a bonus.

Donor-Advised Funds: A Solution to Itemized Deductions Loss While ‘Doing Good’

For families who previously used itemized deductions for charitable giving when filing their taxes, The Tax Cuts and Jobs Act (TCJA) will remove this benefit, resulting in default to the standard deduction for their 2018 filing.  This effects a household choosing to use charitable giving as a tax deduction, increasing the tax cost to them by 7%.  The change has charities anticipating that donations may be down since the new act is likely to discourage charitable giving.  TCJA also caps state and local tax deductions.  The act of giving to better society is the prime reason many families choose to donate; the tax deduction is a bonus.

There is a solution to the tax benefits of giving through Donor-Advised Funds (DAF)s.  Donor-Advised Funds allow the donor to bunch more substantial contributions together instead of making yearly contributions, helping to push their itemized deductions above the standard deduction level.  Some features of DAFs:

• Most or all of the DAF contribution is tax-deductible when moving money into it at the time its set up.
•  The DAF doesn’t need to indicate the charity
•  The DAF allows for multiple charities to benefit, not just one as required when setting up a foundation.
• If invested effectively, the funds can grow tax-free, resulting in considerable donations later.
•  Donations from the fund issue as ‘grants’ to a charity, or multiple charities

Critics of DAFs argue that in extreme cases, donors don’t have to distribute money to charities until their death.  They also feel that if one wants to donate, they should without a DAF, and not in a way that creates more expense.  However, for those that do donate, DAFs ensure not only a tax benefit but a human benefit as well.

DAFs allow the donor to make contributions from their IRAs (donor must be over 70 ½ years old), up to $100,000 per year to charity.  DAFs can satisfy the required minimum distribution (RMD) from IRAs, but can’t accept contributions from a 401(k) account.  The IRS has guidelines on DAFs to follow, or consult your tax professional for the latest changes.

If you have questions on DAFs and how they may fit into your charitable giving plan we welcome your inquiry.  DAFs are an integral part of giving to help make the world a better place.

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Why it ‘Pays to Be Nice’ When Divorcing

Divorce is a common occurrence in the US, with 50% of all first marriages ending in divorce. According to the American Psychological Society, that is even higher for those marrying a second time.  Marriages end for many reasons from infidelity, stress, personality changes, and financial.  They are not only devastating to the children and extended family but devastating to your assets and ability to accumulate future assets. Divorce requires assets to be divided, attorneys to receive payments (on-going sometimes), and the divorcing couple soon finds themselves having to live on less to make ends meet.  Studies find that the divorced spouses need more than a 30% increase in their income to maintain the same standard of living they had before divorcing.

When emotions come into play, divorces often turn into battles to take assets, leaving a financial battle scar on the other spouse.  Divorce doesn’t have to be this way. Uncontested divorces cost hundreds of dollars, whereas divorces taking months or even years can end up costing thousands of dollars- usually paid from the settlement of assets.  The cost of ending a marriage, having to live on less, and decreased income (for those paying alimony or child support) from becoming a single-earner household, can make divorce almost as destructive to your retirement savings as the Great Recession was.  Aside from the above reasons, retirement assets are usually divided to ‘equalize’ the retirement savings of each spouse. 

When marriages are going well, couples participate together in financial planning, developing personal budgets, and savings and spending plans.  The same should happen when anticipating a divorce, during divorce proceedings, and after the marriage ends.  Financial advisors are in a position to discuss with both spouses (at the same meeting if amicable) the effects of fighting over assets, a plan to maintain retirement savings going forward, and keep the couple on track to retire as planned.  If solutions can happen without fighting between attorneys, the couple stands to win by ‘playing nice,’ saving what they worked so hard to achieve before the marriage fell apart.  The impending divorce now becomes ‘business,’ but understanding what you want and why can have positive financial outcomes for both parties.

Financial advisors can’t provide legal advice when it comes to divorce but can provide financial guidance regarding the liquidating of assets, effects on retirement accounts and future retirement savings, budgeting for a single-earner household, and other economic questions you may have.  During this time joint investment accounts, personal investment accounts, and all financial records must be disclosed to the other party.  Our office will remain impartial as we view each client as vital while we continue advising both of you.

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The cost of ending a marriage, having to live on less, and decreased income (for those paying alimony or child support) from becoming a single-earner household can make divorce almost as destructive to your retirement savings as the Great Recession was. 

Regardless of your age, having a will or estate plan is essential for many reasons, and isn’t just limited to passing assets at death.

Estate Plans and Wills: Not Just for Retirees

Regardless of your age, having a will or estate plan is essential for many reasons, and isn’t just limited to passing assets at death. A will provides necessary asset passing, although many times isn’t enough when situations become more complicated.  Although estate plans and wills typically become active at death, they can be helpful during catastrophic life events, while still living.  One such document that is part of both an estate plan and a will is a Medical Directive, which provides the blueprint for your wishes in the event of a debilitating injury or illness. 

Without estate plan and will documents in place, the decision is left to your family to make decisions.  At times these decisions may lead to conflict among family members, additional expenses paid by heirs or from your estate, or an extended probate at death as its run through the court system in your state of residence.     

There’s just as much planning for living as there is for dying, which is why there is no reason to wait to have either done. We recommend working with an attorney that specializes in this type of law (and not everything else).  As you age, have children or acquire more assets, your situation changes and so should your estate plan. There are common mistakes to avoid in every estate plan or will to prevent:

Naming Beneficiaries and Contingent Beneficiaries.  Update name changes, changing and removing beneficiaries should be done periodically to ensure your estate plan has the most recent information.  Common mistakes include misspelling names, incorrect dates of birth, and the wrong former last name of a beneficiary.  This pertains to investment accounts that require recipients.  Naming a child as a beneficiary requires legal due diligence, as minor can’t inherit assets and need an adult to manage the assets until the child is eighteen years old (or older).

Naming Specific Investments.  As people age, the likelihood of an investment no longer owned by the grantor is likely, unless the estate plan or will has been updated to remove it.  If a specific asset is named to pass to an individual and no longer part of the estate, it may cause extended probate or lead to the asset being repurchased or ‘equalized’ through another monetary settlement to the beneficiary.

Not Naming the Beneficiary of your Financial Accounts or Life Insurance Policies as your Estate.  If you intend to have the estate plan be the final legal document  that contains everything in your estate, you can eliminate problems later.  Having some accounts or policies that name an individual and some that name the estate may cause heirs to contest the estate plan or will.  Your attorney will determine which is best for your situation and wishes.

Having a will or estate plan drafted by a legal professional is strongly encouraged as an integral piece of financial planning.  Secondly, keep us updated on your desire to changes beneficiaries, contingent beneficiaries, and changes to investment accounts we may not manage but have included in your financial plan.    Lastly, please provide us with a copy of your estate plan, will, and other relevant legal documents as they pertain to your investments to help ensure the information we have is streamlined.  We are here to provide you with any necessary financial records requested by your legal professional as you create or update your estate plans and wills. 

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End of Year Money Moves

It’s that time of year again; kids go back to school, the election season is near, fall holiday planning starts, and suddenly we all move closer to the end of 2018.   As we approach the last quarter of the year, remember these ‘money moves’ that you still have time to make:

1.        Add to Your 401K.  Now is the time to make additional contributions if you are not already maximizing.  Some companies include bonuses in the last paycheck of the year.  Consider giving yourself the ‘gift’ of the bonus down the road with a higher balance retirement account.

2.       Rebalance Your Investment Accounts.  Meet with me to rebalance your accounts and reassess your financial plan with updated information.

3.       Check Your Budget.  Analyze saving and spending, and readjust if necessary.  Finish this year by updating your budget to start next year with a spending plan.

4.       Make Purchases With Cash.  If you spend on holiday gifts, plan to pay with cash (or debit cards) and keep credit card balances low.  Cash purchases are often less than credit purchases per item.

5.       Meet With Your Tax Professional.  Discussing options to off-set taxes you will need to pay for 2018 can save you money.  It’s better to be prepared and have time to make some changes then be ‘shocked’ at filing time.  This year will see the Tax Cuts and Jobs Act takes effect in full force.

6.       Complete a New Risk Assessment and Financial Plan.  If you haven’t done either of these in a few years, now is the time to update all information and update your financial plan.

Regardless of how busy you may be at the end of the year, procrastination can hurt your progress toward your goals.  Financial planning is for everyone irrespective of age or income and is about your financial situation today so that you can plan for your financial future. 

I highly recommend doing these simple steps before 2018 is over and look forward to working with you.  

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Regardless of how busy you may be at the end of the year, procrastination can hurt your progress toward your goals.

SAI September 2018 Newsletter Approval 2220243.1

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