Estate Planning

This Powerful New Tax Strategy Is a TRIP

Key Takeaways

·         Total Return Pooled Income Funds (TRPIFs) can be powerful tools for gifting, estate planning and minimizing taxes.

·         TRPIFs allow you to make gifts of cash, publicly traded stock, closely held C Corps, unleveraged real estate, tangible personal property like art, cars, antiques and even LLC interests.

·         TRPIFs have many similarities to charitable remainder trusts, but it’s important to understand the differences. Always consult with your financial advisors before signing on the dotted line.

Now that your tax returns are hopefully completed I thought I’d share with you one of the best kept secrets in estate planning and tax mitigation. It’s been around since 1969, but most successful taxpayers and their advisors still don’t know about it.

How about a strategy that completely eliminates capital gains tax, provides a gigantic income tax deduction, distributes all its income (maybe for three generations) and is completely legal? Sounds too good to be true. Well it’s not. Here’s why.

The Pooled Income Fund (PIF), created in code section §642(c)(5) in 1969, and long the red headed step child of planned giving tools, has gone “beast mode.” Thanks to a perfect storm of low interest rates, technology and charities now understanding the need to be responsive to CPAs and other professional advisors (and donors) has ushered in a new type of PIF called the Total Return Pooled Income Fund (TRPIF). This vehicle is one of the most flexible, powerful and thought-provoking planning tools you can deploy.

Yet not many advisors and philanthropically-minded individuals know about them.

With a TRPIF, you may make gifts of cash, publicly traded stock, closely held C Corps, unleveraged real estate, tangible personal property like art, cars, antiques and even LLC interests. Income can be paid for one, two or three generations of income beneficiaries if they’re alive at the time of the gift. Competitive TRPIFs pay out all rents, royalties, dividends and interest as well as all short-term gains and up to 50 percent of post-gift realized long term gains.

Charitable beneficiaries are decided on by the donor, not by the TRPIF trustee. That means the donation goes to any charities the family feels are worthy.

If you know a little bit about CRTs you’ll find that TRPIFs are similar. However, you and your advisor should be aware of some important differences. For instance, a donor can’t be the trustee of his or TRPIF as they can with their CRT. That may be a drawback. However, young donors (couples in their 40s), for instance, can’t even qualify for a CRT as they won’t meet the 10 percent remainder test. With a TRPIF, there is no such test. That means an income beneficiary can be any age. The charitable income tax deductions of a TRPIF can be greater than a CRT’s by a magnitude of four or five times. The methodology by which a new TRPIF (less than three years old) calculates its income tax deduction is governed by a complicated formula based on the ages of the beneficiaries and the assigned discount rate (1.4% for 2018). This is what produces the large deductions.

Conclusion

From a planning standpoint, TRPIFs can allow you much more planning flexibility than many other trusts. When selling a low basis security, for instance, it may be possible to leave more shares in the seller’s hands and still pay no tax because of the larger income tax deduction. And, low-basis assets are only one of the many opportunities that you may applicable to the TRPIF strategy. There are only a small handful of charities offering this new, competitive, Pooled Income Fund. Therefore, it’s important that you ask a lot of pointed questions to the charity.

 

DISCLAIMER: The views expressed in this article do not necessarily express the views of our firm and should not be construed as professional tax advice.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

 

Buy-Sell Agreements

20-plus issues for every closely held business owner to consider


Key Takeaways:

  • Buy-sell agreements come in three basic forms but must be individually tailored to suit the specific needs of your business.

  • Make sure the agreement meets your ongoing needs, including tax, retirement, insurance and funding issues.

  • Without appropriate “exit” plans in place, ownership changes can be worse than Hollywood divorces—bitter, expensive and devastating to all involved.



Almost all owners of closely held businesses put all of their time, effort and money into launching and growing their businesses. Tragically, they put little effort into protecting what they have built from devastation caused by one or more of the owners leaving the business. Without an appropriate “exit” plan in place, changes in business ownership can be worse than a Hollywood divorce—bitter, expensive and devastating to all involved.

Don’t be fooled! Changes in ownership happen every day in all types of businesses for a multitude of reasons: death, retirement, disability, divorce, voluntary and involuntary termination of employment, lawsuits, financial and economic setbacks, bankruptcy, and selling and gifting interests, just to name a few. The disruptions caused by these events usually result in severe financial consequences for everyone involved, including collateral damage to customer, supplier, banking and employee relationships as well as to long-term company goodwill.

Consider a buy-sell agreement from Day One


Perhaps the biggest tragedy is that most, if not all, of the aforementioned problems can be avoided by putting a well-drafted buy-sell agreement in place right from the start. That’s when all the owners are still in the “honeymoon” stage of the business and relations are most amicable. However, it is never too late to put a buy-sell agreement in place, and some honest thought and open communication will strengthen and protect the business and bring peace of mind to everyone involved. Remember, ownership changes are bound to happen, but having a plan in place to deal with those changes will always smooth out the road ahead.

Next steps


Now that you are convinced that a buy-sell plan is critical for the health and well-being of both the business and the individual business owners, where do you go from here? First, consult with an experienced business lawyer who can walk you through the process and help craft a plan that fits the specific needs of both the business and the individual owners. Second, understand that no two agreements are ever the same, although they generally fall into one of three categories:

1.      Cross-Purchase Agreements, which can be ideal for a business with a small number of owners. When a triggering event occurs, the remaining owners directly purchase the departing owner’s interests in the business.

2.      Stock Redemption Agreements, which can be simpler and easier to structure. Generally they can be better-suited for entities with more owners. With these types of agreements the entity purchases the ownership interests of the departing owner. The remaining owners receive an increase in the value of their interests, not in the number of interests they own.

3.      Hybrid Agreements, which are a combination of cross-purchase agreements and redemption agreements. Generally the entity has the obligation to redeem the interest of the departing owner, but the remaining owners have the option of directly purchasing the departing owner’s interests if the entity is unwilling or unable to do so.

In order to determine which type of agreement will best suit your needs, consider the following issues:

  1. How many owners does the business have today and will have in the future?

  2. Is the business family-owned or are third parties involved?

  3. What type of business is involved, and are there specific issues that need to be addressed relating to the entity’s business, such as professional licensing or trade issues?

  4. What is the legal structure of the business: corporation, S corporation, partnership, limited liability company?

  5. What is the age and health status of each business owner?

  6. Is each of the owners insurable?

  7. What percentage of the business does each owner hold?

  8. What is the value of the business, and how is that value determined?

  9. What are the tax implications of each type of agreement?

  10. What are the transfer implications of each type of agreement?

  11. What restrictions will be put on the transfer of interests?

  12. Will the interests be subject to rights of first refusal?

  13. How will the business be valued and the purchase price determined? How often will the business be revalued? Will the interests be valued differently depending on the specific transfer event?

  14. Will there be penalty provisions for violating the terms of the agreements and/or conduct damaging the business?

  15. How will the transfer of interests be funded? Will insurance such as life insurance and disability insurance be mandated, and if so, how will premiums be paid?

  16. How will the transfers be paid, all upfront or over time? If the payments are over time, what are the terms and the arrangements to secure payment?

  17. Is the agreement aligned with other important legal documents such as the entity organizational documents, employment agreements, business agreements and contracts, banking agreements, and the estate planning documents of the individual owners?

  18. Coordinate the agreement with related property that may be owned by each of the business owners. Examples include affiliated businesses, insurance policies, land and personal property, intellectual property, and leases.

  19. How will termination of the business be handled?

  20. How often will the agreement be reviewed? Doing so annually is a good idea.

  21. How will disputes related to the agreement be handled—litigation, mediation or arbitration?

The foregoing is not a complete checklist of every issue that needs to be considered, but it will give you a good platform to begin discussions between you and your legal counsel.

Conclusion


First, properly structured buy-sell agreements are critical to the survival of any closely held business; they are not an option. Second, these agreements must be tailored to the specific needs of the business. One size doesn’t fit all. Finally, businesses and relationships constantly change; consequently, buy-sell agreements must be reviewed and updated regularly. An out-of-date agreement is next to worthless.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.



Start Your Own Charity

Don’t let a lack of available charities stymie your charitable passions (and tax savings opportunities)


Key Takeaways:

·         If you are passionate about a particular cause and there is no charity that supports it, you can start your own charity.

·         Charities can be set up to support overseas causes as well.

·         Self-started charities can be especially beneficial for those planning to donate over $10,000.

 

Let’s say you are at the stage in life when you want to start giving back in a more consistent and meaningful way. The only hurdle: There is no existing charity that supports the exact causes or initiatives you feel most strongly about. In the past, you’d have to take your checkbook elsewhere.

The good news: With the right planning, you can start a charity to support exactly the causes you care most about--anywhere in the world. There are many charities that are registered in the U.S. that support overseas causes. For instance, Help for Animals India, a charity based in Seattle, was started to help the animals of India. Many alumni groups also set up nonprofit organizations to support the educational institutes at which they studied.

Having said that, while such nonprofit organizations can be formed, the ultimate use of funds is determined by the board of trustees. Under U.S. rules, a domestic charity can’t be committed to give to a particular foreign organization. It can be formed with the intention of supporting a specific organization, but the U.S. board of trustees must make an independent determination that the overseas organization in question qualifies under U.S. rules.

So what does it take for you to set up your own U.S.-based charity, and what should you look out for?


Types of organizations that qualify
According to IRS regs, an organization may qualify for exemption from U.S. federal income tax if it is organized and operated exclusively for one or more of these purposes:

  • Religious.

  • Charitable.

  • Scientific.

  • Testing for public safety.

  • Literary.

  • Educational.

  • Fostering national or international amateur sports competition.

  • The prevention of cruelty to children or animals.

Examples include:

  • Nonprofit old-age homes.

  • Parent-teacher associations.

  • Charitable hospitals or other charitable organizations.

  • Alumni associations.

  • Schools.

  • Red Cross chapters.

  • Boys’ or girls’ clubs.

  • Churches.

To qualify, the organization must be a corporation, community chest, fund, foundation or other entity with articles of association. A trust is a fund or foundation and will qualify. However, an individual or a partnership will not qualify.

Set-up process

Step 1: The basics
The basics include:

  • Identifying a cause.

  • Selecting a name and checking with the state corporation office to see whether the name is available.

  • Formulating the mission statement.

Step 2: Incorporation
You and your advisor(s) will need to draw up articles of association and bylaws. The organization must be set up under a state not-for-profit statute. Experts strongly recommend using an attorney experienced in the formation of nonprofit organizations to do this. File the articles of association with the state corporation office.

Step 3: Tax formalities
First the charity will need to get an employer identification number (EIN). This ID is similar to an individual’s Social Security number.

Then you must apply for federal and state/local tax-exempt status as a private foundation. You will also need to fill out Form 1023 or 1024, depending on the type of organization you wish to form. This is by far the toughest and most expensive part of the process. The form runs up to 26 pages with questions that require detailed answers. All the correct documents must be attached to the application to make sure the process runs smoothly.

The user fee per application is $400 for organizations with gross receipts that do not exceed $10,000 annually over a four-year period and $850 for organizations with gross receipts that exceed $10,000 annually over a four-year period.

Further, it takes about a year to be approved. The organization must figure out how to operate while waiting for approval from the IRS. Most organizations say, “IRS tax-exempt status is pending.” The donor shouldn’t claim a tax deduction until IRS status is approved. Also, the organization needs to understand the documentation rules it must follow when other people give contributions.

Conclusion

Again, the upfront time and effort might be best for those considering donating amounts upward of $10,000. There is also an ongoing commitment of time and expense to comply with annual filing requirements at both the federal and state levels. Make sure you and your advisors have all your paperwork in place before getting started. But, most who’ve gone through the process will tell you it’s worth the effort to get it right from Day One. Once you do, you can focus your energies on what you do best—funding causes you believe in, not wrestling with tax rules and regs.

Contact us any time if you or someone close to you is thinking about taking their philanthropic game to the next level.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Life Never Stops Changing

Neither do your giving and financial decisions


Key Takeaways

·         The most impactful gifts are often the result of personal tragedy or triumph.

·         We spend so much of our lives in the wealth accumulation phase that it’s easy to forget the positive impact that our money can have on others.

·         An astute advisor not only helps you optimize your investments, cash flow and wealth protection, but your legacy as well.

Meetings with your financial advisors bring to mind thoughts of balance sheets, net worth statements, stock options, investments, insurance policies and employee benefits. While these documents tell your various advisors what you have, they don’t tell them who you are, what you want or what truly motivates you.

I’ve learned over the years that after gaining a client’s trust, and after carefully opening the door to their personal side, we find out what truly makes them tick and what shapes the lens from which they see the world.

Often we come across tremendous stories of tragedy and triumph (or both). These are pivotal moments in an individual’s background – typically turning into a focus for future action. And sometimes that action is philanthropic – one that highlights the triumph or attempts to solve the problem that caused the tragedy.

For instance, a daughter’s death at the hands of a drunk driver left a family with such a need for a voice that Mothers Against Drunk Driving (M.A.D.D.) was brought into existence. Today, M.A.D.D. is the largest advocacy group in the country focused on preventing individuals from driving while intoxicated – its existence motivated by a heartbreaking loss.

Everyone deals and reacts to adversity in their own way – we must understand and accept that.

While tragedy is one side of the equation, there are also triumphs to celebrate – easier to discuss and just as big a motivation. Many years ago I worked with an extremely wealthy individual who kept telling me that he wasn’t charitable and that he didn’t really care about much of anything. He went on at length about how he was “self-made” and had come from nothing.

It wasn’t until when he revealed that he’d been raised in an orphanage that I realized how critical the orphanage had been to his upbringing and success. Today, that orphanage is endowed by a large gift by my client. It not only represents his personal victory, but an acknowledgment to the people who helped him triumph over his circumstances.

For some, it may be a coach, teacher or program that launches a successful athletic or academic career. It may be the person who helped you discover that you were good at math or the person who took the time to elicit your musical genius when no one else could see it. By doing so, we may discover a desire to make a gift, to return the favor, to pay it forward.

Life Never Stops Changing

Change is an inevitable part of life. We start new jobs, we send kids off to college, we lose a parent or gain a grandchild. Change can be daunting – but viewed through a different lens, it presents opportunity to raise the important questions about philanthropy.

In many circumstances, philanthropy can be the best solution to the change that’s taking place – if only we think to ask our advisors how.

Let’s look at some major life changes and see where you and your advisor might discuss gift opportunities at the appropriate time.

Suppose you are approaching retirement. Let’s assume you are the major breadwinner of your household and you are also hoping to downsize. As ordinary income (your paycheck) ceases, the desire to convert dormant or low yielding assets into supplemental income normally increases. This may be an opportunity to reposition low-basis assets into a pooled income fund (PIF), a charitable remainder trust (CRT) or even a gift annuity. Furthermore, the downsizing might free up additional capital with which to consider similar split interest gifts.

The birth of a grandchild may inspire a fund for college education. You can go the traditional 529 route or consider certain types of CRTs that turn into income in 18 years.

Widowhood is another significant life change that triggers emotional and financial upheaval, and often changes to family dynamics. If your late spouse was the main financial decision maker in your relationship, you may feel lost and frightened about the future. Perhaps the best solution is simplification and consolidation – taking multiple accounts and creating one large gift annuity, charitable trust or pooled income fund that delivers quarterly income. You should also examine gifts such as life estate agreements – which relieve the children of dealing with a house they usually don’t want anyway.

A serious illness is another major life change that brings a host of emotional and financial worries. But as you and your family delve into researching your loved one’s illness and treatment options, it can also motivate giving to support further research into curing or ameliorating that illness or disease.

Change is everywhere and change is constant. While some changes go unnoticed, others represent a prime turning point in our lives. We spend so much of our lives in the wealth accumulation phase that we sometimes forget the power our wealth can have to make lives better for others.

Conclusion

Just as an astute advisor can help you optimize your investments, cash flow and wealth protection strategies, he or she can also help you optimize the power of your giving.

All you have to do is email us or give us a call.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

Health Care Decisions Factor into Comprehensive Wealth Planning

What you need to know about advanced medical directives, guardianships and durable powers of attorney


Key Takeaways:

·         Age, accidents or illness can prevent even the most well-organized and financially astute people from handling their own finances or health care decisions.

·         Thanks to advances in medicine, health and longevity, many people are living 30 to 40 years after their prime wealth accumulation years have ended.

·         Advanced medical directives deal with personal care and medical issues, including surgery, placement, medication, assisted living, full skilled-care living and end-of-life decisions.

·         If you don’t have the necessary documents in place, unfortunately these decisions will have to be made under a court-supervised process. 

Many people are diligent about planning for and protecting themselves against personal, legal, tax and financial problems. But health care, or the ability to make important decisions about long-term care, often gets overlooked.

Life insurance statistics show that a 50-year-old now has at least a 50/50 chance of living to 110. That’s right a century, PLUS another decade!

With an average U.S. retirement age between ages 60 and 65, you could realistically expect to live for 30 to 40 years after your prime wealth accumulation years have ended. In estate planning, we often talk about preserving wealth and passing it on to the next generation. But given the demographics of aging, inflation, health care needs, etc., it is quite possible that your wealth will run out before you do.

That’s why it’s so critical to appropriate estate planning documents in place, including wills, trusts, appropriate beneficiary designations and designations of guardians.

Unfortunately, because of age, accident or illness, many people may face the prospect of being unable to take care of their own finances or to make their own health care decisions. Therefore, proper documents need to be put in place to allow someone else to make appropriate decisions on your behalf.

Long-term health care costs
Because of health and aging, everyone faces the prospect of financing long-term health care needs, including the possibility of assisted living and full skilled-care living. If these costs are not planned for, they can be financially devastating.

We can’t fight the aging process or prevent unexpected events that impact our quality of life. However, proper planning and documentation can go a long way toward creating peace of mind. It’s very comforting to know we have put in place appropriate planning to eliminate, to the extent possible, financial, legal, tax, health care and other problems that, one way or the other, are bound to occur during our lifetime.

Appropriate lifetime powers of attorney
Regardless of age, health, assets and income, everyone needs to have in place a well-drafted “financial durable power of attorney” and appropriate advanced medical directives.

An advanced health care (or medical) directive is a set of written instructions that people use to specify the actions they want to be taken for their health in the event they are no longer able to make their own decisions due to illness or incapacity. The instructions appoint someone (an “agent”) make such decisions on the person’s behalf.

Advanced medical directives normally include health care powers of attorney, living wills and more. If you are unable to attend to your financial, personal care, or health care matters because of age, accident or illness, no one can make these decisions for you unless the decision-making authority has been specifically designated in writing.

Financial durable powers of attorney concern assets, income, other financial matters and dealings with government agencies. Advanced medical directives deal with personal care and medical issues, including surgery, placement, medication, assisted living, full skilled-care living and end-of-life decisions. If you do not have these documents in place, unfortunately these decisions will have to be made under a court-supervised process known as a “guardian of the person” (for personal care and medical issue decisions) or a “guardian of the estate” (for financial matters). Guardianships are expensive, personally intrusive and perhaps the worst way to manage any of the decision-making processes.

The proceedings can be very traumatic and expensive. Guardianships of the estate or person are easy to avoid if the appropriate documents are put in place. A final word of caution: Be careful about using simple forms! Simple forms often ignore many of the decisions that will have to be made throughout the course of a lifetime; the decisions that may be critically important to the family need to be specifically addressed in the documents.

Conclusion
You have six major types of estate planning needs—health care is one and avoiding guardianships another. We’ll discuss the other four in a future article. You need to be aware of these issues and of the significant dangers caused by insufficient planning. Nobody enjoys discussing the possibility of one’s demise or deterioration. But, the sooner you do, the sooner you can get on with the business of enjoying all that life has to offer, especially with those closest to you.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

What Should You Do If You Strike It Rich?

If a few million dollars—or more—fell into your lap tomorrow, what would you do?

Sudden wealth isn’t a common or reliable way to get rich, but it can and does happen. Some big drivers of sudden wealth include:

·         Receiving a substantial inheritance

·         Getting a major settlement in a divorce or a lawsuit

·         Receiving a big payout because of stock options or the sale of your company

·         Winning the lottery

But while sudden wealth may sound like a dream come true, it’s often accompanied by serious challenges resulting from the “sudden” aspect of that money. With sudden wealth, everything about being rich—the good and the bad—happens all at once. In contrast, most people who build wealth slowly are able to address issues and concerns incrementally over time.

The result: Sudden wealth can be an emotionally charged and overwhelming experience. Sometimes there are emotional challenges because of the source of the money—a relative who died, for example. Feelings of panic or guilt can go hand in hand with the feelings of excitement. All those swirling emotions can cause recipients of sudden wealth to make bad—sometimes exceptionally bad—decisions about the money and about their lives.

Here’s a look at how you—or someone you care about, such as your children—can prepare to deal with sudden wealth effectively to realize amazing opportunities while avoiding the many pitfalls of “striking it rich.”

Click here to learn more:

What Should You Do If You Strike It Rich Flash Report

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What is Good Advice from a Wealth Manager? Part 1

Investing should be just a small part of the conversation                                    

By Robert J. Pyle, CFP®, CFA

Key Takeaways

·  All kinds of people claim to be wealth advisors--research show only out of 16 really are.

·  Does your advisor have the ability to see your entire financial picture and how your values, goals and people close to you fit into that picture?

·  A wealth manager should be a personal CFO/financial consigliere who always has your best interests in mind.

·  Before committing to working with an advisor, be 100-percent clear how they get paid.

In today’s climate of one-page financial plans, bargain-basement fund pricing and automated investment tools, you may wonder if it’s still necessary to have a human financial adviser. If you’re like most successful people, it is. As an accomplished business owner, professional or retiree, you financial life is too complex to be robo-cized and investments are just a small part of your overall picture.

It goes without saying that you want an advisor who is a true fiduciary; someone who always has your best interests in mind. You want someone who is not under pressure to earn commissions and who is free to recommend the very best products and solutions that meet your needs—not simply the ones that his or her employer is pushing at the moment.

All kinds of people can call themselves wealth advisors these days, but you’ll probably find that advisors with CFP®, CFA or CPA after their names. Those credentials aren’t just professional “vanity plates.” They’re not easy to obtain and require a level of skill, training, independence and fiduciary responsibility that a stock picker, investment consultant or algorithm isn’t required to have.


Also make sure you understand how your advisor is paid. True wealth advisors are paid on a fee-only model, rather than a commission model. In other words, they earn a fixed percentage of your assets under their management and do not get paid a commission each time you make a trade. If they help you grow your wealth then they earn more along with you. If your wealth declines under their guidance, then they earn less. Compare that to a commission based advisor (human or machine) that gets paid whenever you buy or sell an asset, regardless of whether that investment worked out for you.

Diversified Asset Management Financial Advice Model.JPG

Commission-based advisors are still capable of making smart investment recommendations, but they don’t have a specific investment philosophy or for each client they serve. They frequently change philosophies when new ones come out each week from the “people upstairs.”

Whether human or machine, advice providers at the major financial institutions don’t normally spend time educating their clients about their philosophy or provide them with unique ideas to help them build their wealth. Their business model generally doesn’t allow them to invest the time in doing what’s in the very best interests of each client—they just need to make sure their recommendations are “suitable.”

As Nobel Laureate Eugene Fama once observed: “Academic research produces about three to five good ideas every 20 years. However, the financial industry packages and sells about 10 new ideas per week.” Note the emphasis on “new” rather than “good.


Wealth Managers/Trusted Advisors using the fee-only model  

By contrast, wealth managers use a disciplined process to interview a prospective client and are more selective about who they take on. The client is always at the top of the model and wealth managers determine the best solutions for each client using an in-depth method that I’ll share with you shortly. Of course that takes a special type of skill, independence and expertise. Research from CEG Worldwide shows that only one out of every 16 financial professionals (6.6%) are truly consultative wealth manager

If you’re still not sure how a wealth manager works with clients, let’s take a closer look that the process they follow. Here’s how it works at our firm:

Wealth+Management+Consulting+Process-DAMI+new+version.jpg

1. Discovery Meeting. At this initial meeting with a prospective client, a wealth advisor asks detailed questions to find out what is important to the prospective client in terms of values, goals, relationships, assets, advisors, interests and—very important—the extent to which they want to be involved in the process. Some clients want to be very hands on and others want to be hands-off. No two client situations are the same and a truly consultative wealth advisor can tailor his or her approach to each unique client preference.

2. Investment Plan (IP). The next step is to take the information from the Discovery Meeting, analyze it and craft an IP. The investment plan looks at where the prospective client is today in their personal and financial life, where they want to be ideally and what the gaps are between they are now and where they want to go. A truly consultative wealth advisor presents the investment plan at the Investment Plan Meeting and offers solutions to close that gap—solutions they are equipped to implement.

3. Mutual Commitment Meeting. If the prospective client is satisfied with the IP, then we move toward a meeting at which we mutually agree to work together. This is when the prospective client signs the paperwork to become a bona fide client.

4. The 45-Day Follow-up Meeting occurs about 1-1/2 months after the client has been on-boarded. At this very important check-in meeting, the trusted advisor reviews all the paperwork that a client has received and updates the client on the progress the firm has made toward the clients goals so far.

5. Regular Progress Meetings occur at a frequency with which the client is most comfortable. Some clients only want to meet for an annual or semi-annual checkup. Others prefer more frequent contact, often to bounce ideas off their trusted advisors—they don’t necessarily have to meet only when there is a crisis or major change in life circumstances. The trusted advisor and client review the progress and implementation of the wealth management plan and make mid-course corrections as needed. The meetings are generally built into the advisor’s annual management fee, so clients don’t feel like the “advice meter” is always ticking.

 

In addition to the five steps above, true wealth managers create a financial plan and an advanced plan that includes a comprehensive evaluation of the client’s entire range of financial needs and recommendations for going forward. The financial plan typically looks at where clients are now and what each one needs to do in order to retire on their own terms. The advanced plan focuses on wealth management items such as maximizing wealth, protecting wealth and tax-advantaged ways to give some of their wealth away to deserving heirs and causes.

If nothing else, your wealth manager should be your personal CFO/financial consigliere—a trusted advisor who functions as the noise cancelling headphones in your life. He or she should be someone who can help you filter out the noise of dramatic market swings and screaming headlines from the news media and the internet. A wealth advisor understands that your ultimate goal is not to make more money in the market; it’s to get to your destination in the most relaxed manner as possible and enable you to enjoy the life that your money intended you to live.

Conclusion

Advice is cheap. Good advice is worth its weight in gold. In Part 2 of this post we’ll look at what constitutes good advice from wealth advisors who are truly fiduciaries. If you or someone close to you is not sure about where to turn for financial advice, please consider scheduling a complimentary second opinion discovery call.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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You Love Your Collection

Have you done the tax, estate and charitable math?

                                                                                                      
Key Takeaways

·         Collectibles are considered “tangible personal property” and are, therefore, taxed differently than other capital assets.

·        For collectibles, the long-term capital gains tax is at 28 percent (not 20 percent) as it is for stocks or real estate.

·         Gifting collectibles to charity requires a qualified appraisal and the recipients must be used for its charitable purposes. If not, you’ll have to take a less valuable deduction.

 

It is estimated that 30-percent of high net worth families collect art, antiques, coins, classic cars or other valuable assets that aren’t traded on an open exchange. Often referred to as passionate assets, they represent both a challenge and an opportunity for advisors and their clients.

Many enthusiasts don’t think of their collectables as they do their other assets – collectibles are loved, cherished, and coveted. They hold a meaning and identity that is incomparable to their economic value.

If you’ve ever been to a classic car show and stayed less than an hour, you did it wrong – to put it bluntly. Ask an owner about their gleaming, perfect specimen of a 1940 Duesenberg and you’ll get a detailed rundown of its history from the factory floor to present day, sparing no details in between. This is true for most collectors – be it toy trains, fine art or baseball cards.

That visceral connection is what makes planning for the “succession” of the collection so challenging. Yet, plan they must. Is the next generation even interested in the collection? Better find out. Who owns the collection? Better find that out, too. It’s the planner’s chance to make a huge difference in the final value to the family.

Tax considerations

VERY IMPORTANT: Collectibles are considered “tangible personal property” and are, therefore, taxed differently than other capital assets are. For collectibles, the long-term capital gains tax is at 28 percent, not 20 percent, like it is for stocks or real estate – that’s a significant bump. Furthermore, gifting your collectibles to charity gets complicated because you need a qualified appraisal of the collectible at the time of the gift. Further, the charity must be able to use the gift for its charitable purpose in order for the deduction to be at fair market value instead of the less valuable cost basis.

Proper planning can address these issues and you need to make sure your advisor can assist you properly, or have access to an expert specializing in this area. Keeping the collection in the family can be accomplished only with solid planning – as well as preventing a fire sale to create liquidity to pay estate taxes at the death of the collector.

What matters is aligning your goals for their collectibles with the tools and strategies that will accomplish them.

Make sure your advisors can help you with questions like these:

·         Do we use a pooled income fund to sell of the collection little by little?

·         Do we transfer to a private operating foundation and endow it with capital to keep the collection in the family?

·         Do we utilize monetized installment sales to defer capital gains tax for 30 years as we liquidate?

Any or all of these strategies may be applicable to your situation. If he or she hasn’t done so already, make sure you open the dialogue with your advisor(s) about your valuable collections.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail
info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Flash Report - Five Big Mistakes Executors Make—and How to Avoid Them

Being named the executor of a family member’s (or other loved one’s) estate is, in many ways, an honor. The decision shows that the person saw you as a highly trustworthy, capable person of integrity.

But it’s also a major responsibility that can quickly become a burden if you aren’t set up to do your job properly. The fact is, administering an estate comes with plenty of potential pitfalls that can threaten your loved one’s wealth—and your peace of mind. That goes double if the death is unexpected and leaves you reeling emotionally as you try to take on the legally required duties of an executor.

The good news: You can take steps to avoid some of the biggest mistakes that executors often make and to ensure that the process goes as smoothly as possible.

First, a few basics. At death, everything a person owns becomes part of his or her taxable estate. Estate administration is the process of managing the estate at this time—including paying off debts and any taxes due, and distributing the property to heirs in accordance with the deceased person’s wishes (or by state law if the deceased did not leave a will).

Click here to read more:

Five Big Mistakes Executors Make—and How to Avoid Them-Flash Report

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Flash Report - Wills and Trusts: The foundations of your rock-solid estate plan

The foundations of your rock-solid estate plan

For so many of us, family is paramount. You probably expect to use your wealth to take care of your family in the here and now—health care, travel, college tuition and the like. But chances are you haven’t thought nearly as much about positioning your assets so they’re ready and able to help the people you love after you’re gone. Even if you have made some headway in this area, your plan for your estate is probably a little—and maybe a lot—out of date.

If that describes your situation, don’t fret. Even if you have many moving parts to your finances, you can get on track by focusing on two main areas of estate planning: wills and trusts. Here’s how to do it.

Where there’s a will, there’s a way

Read this next sentence three times in a row: Everyone should have a will.

Got it? A will should be the basic foundation of every estate plan—the starting point for a well-conceived strategy to transfer assets at death.

A will identifies precisely what you want to have happen to your assets and estate. Dying without a will means you have decided that the state knows what’s best for you and your family. In addition, dying without a will means you want to make the settling of your estate as difficult, as costly and as public as possible.

As with any decision, there are both positives and negatives to a will. That said, we strongly believe the benefits of writing a will far outweigh the drawbacks.

Click here to read more:

Will’s and Trusts-Flash Report

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Create a Contract for Family Care

Here is a nice article by Mary Kane of Kiplinger:

 

By Mary Kane, Associate Editor   

 

From Kiplinger's Retirement Report, August 2017

 

Family caregiver contracts can range from informal to complex professional contracts drawn up by lawyers. Here's what you should know to decide what's best for you. 

 

When the caregiver whom Amy Goyer, of Phoenix, hired for her 93-year-old father seemed particularly tired recently, Goyer realized she had been so busy she wasn't aware her employee needed a vacation.

 

As it happens, that caregiver is also her sister."A loved one who provides care can get burned out, too, just like any other caregiver," says Goyer, who is also AARP's family and caregiving expert. "We worked out ways for her to have paid time off."

 

Goyer, age 56, and her sister, age 59, already had created and signed a simple caregiving agreement. And even though Goyer is "on the same page" as her sister, it's still hard to get everything right. "It can get tricky," says Goyer, who holds power of attorney for her father. 

 

Family caregiver contracts, also called personal care agreements, range from informal, like Goyer's, to complex professional contracts drawn up by lawyers. Families usually create them when one relative is handling most of the care for an elderly parent. A contract enables family members to spell out payment, a work schedule and expected duties.

 

Another benefit: members formalize the compensation for a relative who is making financial sacrifices in order to provide care. A family caregiver may have quit her job or cut back on hours. Adding to the financial hit, a 2016 AARP study found family caregivers spend about $7,000 a year on out-of-pocket costs relating to care. And the contract may avoid future conflicts—assuaging any hard feelings, for instance, when a relative providing the bulk of care inherits a parent's home.

 

But, sometimes, drawing up a contract stirs up emotions tied to sibling rivalries and past disputes. Non-caregiving family members may resent paying a relative whom they see as living rent-free in a parent's house. And families often don't draw up contracts until a crisis arises. "Sometimes we have to call a mediator in," says Springfield, Mass., lawyer Hyman Darling, president of the National Academy of Elder Law Attorneys.

 

If your family is considering a caregiving contract, there are ways to avoid some of the acrimony. First, the relative who is the caregiver should explain to the family how much work he or she is doing and what kind of help is needed, says Amanda Hartrey, a family consultant with the Family Caregiver Alliance, a nonprofit caregiver resource and advocacy organization. 

 

Call a family meeting to discuss the contract. Set an agenda, and keep it narrowly focused. At the meeting, make the point that "this should be treated as a business meeting and not a therapy session," Hartrey says.

 

Note a starting date in the contract, and specify a work and payment schedule, such as hourly or bi-weekly. Check with local home health care companies to set a fair pay rate. Caregivers also should be required to keep a daily, detailed journal documenting their hours and care provided, says Kerry Peck, a Chicago elder law attorney. That will help if any questions arise about the contract, particularly if a parent later files for Medicaid. Families need to have written proof the money they paid a relative was for caregiving duties, not a gift to spend down assets to qualify for Medicaid.

 

Set boundaries, as you would for any other paid caregiver, Goyer advises. If a parent has a nonsmoking household, specify whether the rule applies to family caregivers. Designate responsibility for expenses, such as whose car will be used to take a parent to appointments, and who will pay for gas and parking. Work out issues such as paid time off and sick leave.

 

Include an escape clause, Goyer says. A caregiver might find the work too overwhelming if a parent's health or mobility declines. Or a parent may go into a nursing home or assisted living.

 

Goyer says that she and her sister like working together. But "we're sisters," she says. "We're still going to quibble."

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Time-Tested Tactics to Build Your Wealth

Here is a nice article provided by the Editors of Kiplinger’s Personal Finance:

 

By the Editors of Kiplinger’s Personal Finance | April 2017

 

We have doled out a lot of good advice over the 70 years we’ve been publishing Kiplinger's Personal Finance magazine. So in many ways it was easy to come up with 70 ideas on how to create wealth. But when our editorial staff submitted nearly 300 ideas, the editors had to roll up our collective sleeves and distill the advice into absolute gems.

 

In this post, we offer advice on how to build, protect and enhance your wealth, time-tested strategies to help you keep your eye on the ball, and our top tips for finding value, so your hard-won wealth doesn’t leak out in dribs and drabs. We devote a section to the biggest goal of all -- a secure retirement. And because life isn’t all about making money, we include fulfilling ways to give back. Take a look.

 

Save Early and Often

The sooner you start to save, the easier it will be to amass a comfortable nest egg -- thanks to the power of time and the magic of compounding. A 25-year-old who saves $450 a month in a tax-deferred retirement account and earns an average yearly return of 7% will have about $1.1 million by age 65.

If the same investor waits until age 35 to start saving, she’d have to sock away $950 a month to reach roughly the same balance by age 65. Try to save 15% of your income, including any employer match for your retirement plan. If that’s not doable, put away as much as you can and increase the percentage as your income and budget allow.

“Getting started, even if you’re saving 3% of your income or $10 a week, is the critical goal,” says Molly Balunek, a certified financial planner in Cleveland. “Once you see progress, it becomes easier to save 1% more, or $5 more a week.”

Create an Emergency Fund

If you have a dedicated stash of cash at the ready in case of a job loss or an unexpected bill -- say, for a major car repair or hospital visit -- you won’t have to resort to racking up credit card debt or, say, tapping retirement savings to cover the tab.

Squirrel away at least three to six months’ worth of living expenses in a safe, easy-to-access savings or money market deposit account. (For a more personalized amount to save, use HelloWallet.com’s tool.) Look for an account with no monthly fee, a low (or no) minimum balance requirement and a competitive rate, such as the Synchrony Bank High Yield Savings and the GS Bank Online Savings accounts. Both recently yielded 1.05%.

Make the Most of Employer Incentives

For the slow-and-steady way to get rich, take full advantage of your company’s 401(k). You can contribute up to $18,000 ($24,000 for people 50 and older) in 2017 to this pretax account; your employer may kick in another 4% to 6% of your pay, or even more. Many companies enroll employees automatically, at a contribution rate of, say, 3% of their salary. But aim for 15% of your income, including the company match, from the beginning of your career until the end. If you have to cut back for a few years -- say, to buy a house or pay college bills -- try to kick in at least enough to get the full company match, and boost your contributions later to get back on track.

Teachers typically have access to 403(b) plans, which carry the same terms and benefits as 401(k)s but generally lack the breadth of investment options. Public-sector workers may be offered a 457 plan, which is also similar to a 401(k) plan but has a higher contribution limit for people within three years of normal retirement age, usually defined as the age when they can collect unreduced pension benefits.

Open a Roth

Another surefire wealth builder is a Roth IRA. You fund this account with after-tax dollars, so the pain is up front. The payoff? Withdrawals are tax-free if you’re at least 59½ and have held the account for at least five years (you can always withdraw your contributions tax- and penalty-free). You don’t have to take required minimum distributions from a Roth, as you do with traditional IRAs and 401(k)s, allowing you to withdraw the money strategically or let it grow and leave it to your heirs. And because withdrawals from a Roth aren’t reported to the IRS as income, they won’t increase the taxes on your Social Security benefits or trigger the high-income surcharge on Medicare Part B or Part D.

You can contribute up to $5,500 a year to a Roth ($6,500 if you’re 50 or older) in 2017. The allowed contribution starts to shrink if your modified adjusted gross income is more than $118,000 ($186,000 for married couples filing jointly) and disappears altogether at $133,000 ($196,000 for joint filers).

Earn too much to qualify for a Roth? Your employer may offer a Roth 401(k), which has no income limits and carries the same contribution cap as a regular 401(k).

Roths aren’t just for grown-ups. One of the best ways to help your children or grandchildren build wealth is to get them started early with a Roth IRA. Children of any age who have earned income from a job can contribute up to $5,500 to a Roth IRA (or their earnings for the year, if less), and you can give them the money to get started. Not all brokerages let children open Roths, but several -- including Fidelity, Charles Schwab and TD Ameritrade -- offer custodial Roths with little or no investing minimum and no IRA maintenance fees.

Ask a Pro for Advice

A financial adviser can help you blaze a path to financial success -- especially when you’re starting out or facing a complex financial situation. A certified financial planner (CFP), for example, offers guidance in strategizing retirement savings, allocating or managing investments, creating an estate plan, and performing other tasks.

At napfa.org, you can search for a fee-only adviser, who avoids conflicts of interest by accepting no commissions from selling investments or other products. If you need extra assistance with tax planning, look for a certified public accountant (CPA) with a personal financial specialist (PFS) designation at aicpa.org.

You don’t need deep pockets to get help. At GarrettPlanningNetwork.com, search for planners who charge hourly rates and require no asset or income minimum. Independent outfits, such as Betterment and Wealthfront, as well as full-service firms, such as Charles Schwab and Fidelity, offer online “robo” adviser services, which provide low-cost, computer-generated advice and portfolio management.

Polish Your Credit

Good credit helps you get the lowest interest rates and best terms on a credit card, mortgage or other loan, and your credit history may even affect your job prospects, insurance rates, and ability to get an apartment or cell phone plan. Generally, a credit score of 750 or higher (on a 300-to-850 scale) is considered top tier. The most important credit-building step is to pay all of your bills on time.

Another score booster: Keep the amount that you owe on your credit cards as a percentage of their overall limits (known as your credit utilization ratio) as low as possible. On each card, use no more than 30% of your limit, and keep the ratio to 10% or less on each card if you plan to apply for a loan soon.

Open a Brokerage Account

Once you’ve established a bank account and started to participate in your employer’s retirement savings plan, take your wealth-building program to the next level by opening a brokerage account. That will allow you to invest in individual stocks and exchange-traded funds, which most people can’t do in their 401(k), as well as no-transaction-fee mutual funds. You’ll need $2,500 to open an account at Fidelity, our top-ranked online broker; Charles Schwab requires just $1,000, which is waived if you sign up for automatic monthly deposits of at least $100.

Set Specific Goals

You’re more likely to accrue wealth if you have specific goals and a plan to reach them. That means coming up with short-term goals, such as paying off debt, buying a house, and saving for a rainy day or a vacation, as well as long-term goals, which may include funding your retirement and your children’s college education.

Make your goals specific and realistic. “Instead of saying that you want to save for your child’s education, say you want to have $50,000 saved for your child’s education in 15 years, and you’ll get there by depositing $200 a month into a 529 savings plan,” says Roger Ma, a certified financial planner in New York City.

Live Like the Invisible Rich

Live within -- and ideally below -- your means. By resisting the temptation to buy a big house or expensive cars, you can invest in things that will create long-term wealth, such as stocks and real estate.

Cultivate Your Career

Want to move ahead in your organization or switch to a more lucrative job? Keep your skills sharp and never stop networking, says Mary Eileen Williams, a career counselor and author of Land the Job You Love: 10 Surefire Strategies for Jobseekers Over 50. An updated LinkedIn profile is critical because most employers use the website to vet potential candidates, Williams says. And learning new job skills doesn’t have to cost a lot of money. Khan Academy, a nonprofit website, offers video tutorials on everything from statistics to computer programming.

Your local community college may also offer career-advancement courses. Considering an advanced degree? According to Payscale.com, nurse anesthetists, MBAs in business strategy and chemical engineers earn the highest salaries after graduate school; graduates with master’s degrees in education and human services earn the lowest pay.

Another secret to success: Spend half an hour a day learning about your job, industry or a dream you’re pursuing. More than 95% of self-made millionaires spend at least 30 minutes every day reading materials related to their careers or self-improvement, says Tom Corley, a certified financial planner who spent five years researching the habits of wealthy people for his book Rich Habits.

Buy a Home (When You're Ready)

Owning a home is one of the best ways to build wealth. You can still lock in low mortgage rates, and Uncle Sam offers a helping hand in the form of tax deductions for mortgage interest and property taxes. Ideally, you’ll put down at least 20% of a home’s purchase price, which allows you to avoid private mortgage insurance. The bank may be willing to lend you more than you can comfortably afford.

To avoid feeling house poor, however, figure out how much of your monthly budget you can devote to a mortgage payment and still have enough left over for retirement and college savings, travel, and just plain fun. And note that the maxim “Buy the worst house in the best neighborhood” doesn’t pay off.

In Zillow Talk: Rewriting the Rules of Real Estate, Spencer Rascoff, CEO of Zillow, and Stan Humphries, chief economist, write that the data prove you should “buy a decent house in the right neighborhood.” What’s the right neighborhood? The most expensive one where you can afford a home that is not in the bottom 10% of listings by price. Homes in the bottom 10% don’t appreciate as well as homes in the top 90%.

Save for College as Soon as Your Kids Are Born

Too many parents sacrifice their own wealth by raiding their retirement savings to pay for their kids’ college. Or their children graduate with large student-loan payments to go with their sheepskin. If you set aside money in a 529 college-savings plan every year starting when your children are born, you’ll have a big chunk of the tuition bill saved when they’re 18.

They can use the 529 money tax-free for college costs, and you may get a state income tax deduction for your contributions. Go to SavingForCollege.com for more information about each state’s rules. If your state doesn’t offer a tax break, check out Utah’s plan, which features low-cost Vanguard funds and FDIC-insured accounts.

Fill the Gaps in Home Insurance

Your home may be your biggest asset, so make sure you have enough insurance to protect it from disasters. Review your policy to see if your dwelling coverage is enough to rebuild. (Your insurer may inspect your home, or you can get an estimate for $25 at e2value.com.) Let your insurance company know about any major improvements that affect the value.

Check the amount of coverage for your possessions, and consider buying a rider to cover special items, such as jewelry. Add insurance for sewage back-ups (typically $130 for $10,000 of coverage), and consider flood insurance if you’re concerned about that risk (ask your homeowners insurance agent for a price quote, or go to FloodSmart.gov for additional information).

Shield Yourself From Lawsuits

The most important part of your auto insurance policy is the liability coverage, which protects your assets and future earnings if you are liable for injuries and damage as the result of an accident. State liability coverage requirements are usually inadequate; most people should get coverage to pay at least $250,000 per injured person and $500,000 per accident. Also make sure you have uninsured-motorist coverage (and underinsured-motorist coverage, in states with inadequate liability limits). That can pay for damage to your car, medical expenses and lost wages for you and your passengers if the at-fault driver does not have insurance.

Most families with typical risks should also safeguard their assets and future earnings with an umbrella policy. You can boost your auto and home liability protection by $1 million with an umbrella policy for about $200 to $400 per year. Make sure you have at least as much liability coverage as your net worth.

Get Enough Life Insurance

Life insurance would replace lost income if you or your spouse died early. One rule of thumb calls for buying at least eight to 10 times your gross income, and you can get a refined estimate by using a life insurance calculator (such as the one at LifeHappens.org). A 20- to 30-year term policy, which has no savings component, is best for most families. The policy would likely cover you until your kids are out of college, you pay off your house or you stop working.

You can compare rates for several insurers at AccuQuote.com. If you need insurance longer—for example, if you’re supporting a child with special needs -- consider a permanent insurance policy, such as whole life or universal life, which builds cash value. (Note that premiums for permanent coverage tend to be much higher than for term insurance.)

Buy Disability Insurance

If you become disabled and unable to work, you don’t want to be forced to raid your retirement savings or incur expensive debt. You may have some disability insurance through your employer, but employers’ policies typically cover just 60% of income, with a $5,000 monthly maximum, and don’t take bonuses and commissions into account. Plus, payments from employer disability plans are taxable.

Calculate how much your policy will pay out every month, compare that with your monthly expenses, and consider buying an individual policy to fill the gaps (see Why You Need Disability Coverage). You may be able to cover up to 85% of your income, and payouts from individual disability policies are tax-free.

Make the Most of a Health Savings Account

Instead of using HSA money to cover current medical bills, let the money grow long term and cover medical costs out of pocket. Keep your receipts for eligible medical expenses you incur after you open the account and withdraw the money later -- even in retirement.

To set up an HSA, you need an eligible health insurance policy with a deductible of at least $1,300 for individual coverage or $2,600 for family coverage. You can contribute up to $3,400 to the HSA for individual or $6,750 for family coverage, plus $1,000 if you’re 55 or older. Your contributions are tax-deductible (or pretax if they’re through your employer), and the money grows tax-deferred.

You can’t contribute to an HSA after you’ve enrolled in Medicare, but you can use the money already in the account tax-free to pay premiums for Medicare Part B, Part D and Medicare Advantage, plus a portion of long-term-care premiums based on your age.

Invest in Stocks

The best way to build wealth over the long haul is to invest in stocks. U.S. stocks, as measured by Standard & Poor’s 500-stock index, have returned about 10% per year compounded. Stocks are notoriously fickle and volatile over the short term, and after their long ascent, they are due for a breather or possibly a full-fledged bear market. But with interest rates still in the gutter, stocks will almost certainly outpace bonds and cash-type investments (for instance, savings accounts and money market funds) over the next decade and beyond.

Start investing with low-cost exchange-traded funds, such as iShares Core S&P 500 (symbol IVV), which tracks the S&P 500, or Vanguard Total Stock Market (VTI), which follows a benchmark that includes nearly every U.S. stock. You can rev your engines with a sector ETF, such as Vanguard Information Technology ETF (VGT) or Guggenheim S&P 500 Equal Weight Health Care ETF (RYH). But don’t invest money you’ll need soon.

Monitor Your Credit

You may not know if an ID thief has struck or when a mistake is marring your credit record. To check, go to AnnualCreditReport.com and order your credit reports from the three major credit bureaus (Equifax, Experian and TransUnion). You can get a free report from each bureau once a year. Pore over each one for mistakes, such as variations on your name or accounts you never opened. If you find an error, file disputes with both the lender and the bu­reau(s) that reported the error, preferably by certified mail so you can create a paper trail.

On a more regular basis, monitor your credit score for un­explained dips that could signal something fishy is going on in your credit report. If your bank doesn’t offer a free FICO score, look up services that do.

Thwart ID Thieves

Cleaning up after identity theft can be costly and time-consuming. Worse, ID theft may prevent you from getting credit, at least until you finish the painstaking process of cleaning up your credit files. Rule one: Don’t carry your Social Security card in your wallet or give out your Social Security number unless you’re sure it’s needed, and shred unneeded documents that include the number.

If a thief has already stolen your SSN, he may try to file a tax return in your name and collect a refund. To deter such an attempt, submit your tax return as early as possible. Watch out for calls or e-mails from crooks posing as representatives of your bank, the IRS or other entities in attempts to collect your personal information or money, and never click on a link in an e-mail or text message unless you’re sure of its source. Password-protect your PC and smartphone, and use strong and diverse passwords for your online accounts, too.

Update Your Estate Plan

Pat yourself on the back if you already have a will and other estate-planning documents, including a durable power of attorney (which lets the person you appoint manage your finances and legal affairs) and health care power of attorney (which gives a trusted person the authority to make health care decisions on your behalf if you can’t). Now make sure these documents reflect current circumstances, including the birth of a child, a divorce or a move to a new state (see Estate-Planning for Snowbirds). Also review the beneficiaries of your life insurance, 401(k) and IRA.

Do your family another favor by leaving instructions as to whether you want your body to be buried, cremated or donated to science, and let family members know whether you prefer a funeral service or a memorial service, and where it should be held. Better yet, plan and put aside funds for the whole thing yourself (see How to Plan Your Own Funeral). The median price for a traditional, full-service funeral runs $7,180, not including cemetery costs or extras, such as flowers, according to a 2015 report by the National Funeral Directors Association. Prices vary widely even in the same area, however, so check costs at several funeral homes.

Let Uncle Sam Help Pay for Raising Your Kids

The Department of Agriculture says middle-income parents will spend more than $233,000 to raise a child to age 17, and high-income parents will spend more than $372,000. You’ll feel less of a pinch in the pocketbook if you take advantage of family-friendly tax breaks. Parents who pay for child care are eligible for two breaks: a dependent-care flexible spending account and the child-care credit. You usually have to choose one or the other, and for most families, the flex account is a better deal (assuming your employer offers one).

You can set aside up to $5,000 pretax in a dependent-care FSA. (The maximum contribution is $5,000 per household each year, even if both spouses have access to a dependent-care FSA where they work.) That money avoids not only federal income taxes but also the 7.65% Social Security and Medicare tax, and it may bypass state income taxes as well. The higher your tax bracket, the bigger the benefit. If you have two or more kids, you can max out your dependent-care FSA and still take the child-care credit for up to $1,000 in additional expenses. Don’t forget to count all child-care costs (even the cost of summer day camp) for children younger than 13.

Teach Your Children Well

Raising financially literate and responsible kids should be part of your estate plan. Be up front about the wealth you have and your plans for it, and make sure your legacy is as much about your values as it is about your bank account. Start teaching budgeting skills at an early age. Have teens use allowance to pay some of their own expenses, and steel yourself to let the cell phone go dark if they fall behind on the wireless bill. Seed an investment account for young adults, and perhaps promise to match a portion of the investment returns. The kids are free to withdraw the money, but parents can’t add to the principal. This shows the power of compound growth as well as the opportunity cost of robbing a nest egg.

Shelter Retirement Income

The general post-retirement rule is to draw from taxable accounts first: When you sell investments in a taxable account, you pay tax only on the profit, and if you’ve held the investments for more than a year, the profit is taxed at the long-term capital-gains rate, which tops out at 20%. But you may get an even sweeter break: In 2017, married couples with taxable income up to $75,900 and single people with income up to $37,950 are eligible for a 0% capital-gains rate. (President Trump’s tax reform plan would retain the 0% capital-gains rate; under the House Republican tax reform plan, the lowest hit on capital gains would be 6%.)

With pretax accounts, every dollar you withdraw is taxed at the ordinary income tax rate of up to 39.6%. Generally, it’s best to tap such tax-deferred accounts after your taxable accounts, letting Roth IRAs -- which aren’t subject to required minimum distributions—ride to take advantage of tax-free growth. There are lots of exceptions to these rules of thumb, so consult an adviser if you’re not sure what’s best for you.

Keep an Eye on Recurring Fees

Don’t let recurring charges nibble away at your assets. Households with two cell phones, a landline, and a cable and internet bundle spend a whopping $2,700 a year, on average, on those services, according to a Consumer Federation of America report. Consider sharing a phone plan with family members and dropping your cable plan in favor of using an antenna to get over-the-air channels and signing up for streaming video. You may also find you’re not getting your money’s worth out of, say, your satellite radio or audiobook subscription. And don’t overlook hidden fees, such as hotel resort fees, airline charges and bank fees, which can add up to big bucks. You can look up resort fees at ResortFeeChecker.com and airline fees at Kayak.com. Search for low-fee checking accounts at FindABetterBank.com.

Invest to Beat Inflation

Kiplinger expects inflation for 2017 to be a still-modest 2.4%, up from 2.1% in 2016. That’s nowhere near 1970s-style runaway levels, but it’s enough to merit some inflation protection in your portfolio. One good option: Treasury inflation-protected securities. The principal value of TIPS is adjusted to keep pace with increases in consumer prices. Buy TIPS directly from Uncle Sam at TreasuryDirect.gov. Another inflation fighter is Fidelity Floating Rate High Income (FFRHX), which invests in loans that banks make to borrowers with below-average credit ratings. The interest rates adjust periodically in response to changes in short-term rates, which are likely to rise as inflation accelerates. Commodities should also perform well as inflation heats up. For exposure to commodities, consider Harbor Commodity Real Return Strategy (HACMX). For more on staying ahead of inflation, see Inflation-Proof Your Assets.

Capitalize on a Windfall

About one-fifth of U.S. retirees are expected to have estates that top $390,000, according to the banking and financial services organization HSBC. If you are the beneficiary of parental largesse (or you win the lottery), start by doing nothing. Stash your bounty in a safe place, such as a savings or money market account, for six months to a year. That will give you time to come up with a solid plan to get the most out of your good fortune. It will also give you time to assemble a team of advisers to help you manage your money.

Your team should include a financial planner and a certified public accountant or enrolled agent. Depending on the nature of your windfall, you may also need help from a lawyer and an insurance professional. Resist the temptation to tell your boss to take your job and shove it. Windfall recipients often underestimate how much money it will take to replace their income. Plus, once you quit, you’ll stop earning income that contributes to your Social Security benefits -- which you may need if your investments go sour.

Spread Out Your Investments

Playing it safe with a diversified mix of stocks and bonds can help your portfolio stay afloat during bad times and improve your long-term returns. If you have at least 10 years until retirement, for example, hold 70% of your portfolio in stocks and 30% in high-quality bonds. A mutual fund can work nicely, too. Vanguard Wellington (VWELX), a member of the Kiplinger 25 (the list of our favorite mutual funds), holds about two-thirds of its assets in stocks and the rest in bonds, and it has an annualized 8.2% return over the past 20 years.

Give Emerging Markets a Shot

Before delivering modest gains in 2016, stocks in developing markets, such as China and India, had lost money in four of the previous five years. But emerging-market stocks still deserve a place among your assets. Not only are the stocks relatively cheap, but corporate earnings in emerging-markets firms are expected to expand by more than 13% in 2017—far more than firms in the U.S. For access to these stocks, invest in Baron Emerging Markets (BEXFX), a Kiplinger 25 fund, or in exchange-traded iShares Core MSCI Emerging Markets ETF (IEMG), which tracks an index.

Don't Try to Time the Market

Wondering if it’s time to sell all of your stocks? Don’t. First, what are you going to do with the proceeds? Cash pays almost nothing, and bonds come with their own set of risks. And how will you know when it’s time to get back in the market? Our advice: Set an appropriate allocation, then rebalance.

Take a Flier on Small Stocks

After you’ve stashed money in an emergency fund and maxed out contributions to retirement accounts, consider taking a moonshot on stocks that could turbocharge your returns. Small, fast-growing companies may be a good bet now because small companies should benefit from a focus on the healthy U.S. economy, and they could get a lift from fewer regulations and lower corporate tax rates now being considered in Washington. Two top choices: T. Rowe Price QM U.S. Small-Cap Growth Equity (PRDSX) and T. Rowe Price Small-Cap Value (PRSVX), both members of the Kip 25.

Also on our shopping list these days are companies cashing in on high-tech trends. Chipmaker Broadcom (AVGO), factory robotics firm Cognex (CGNX) and cybersecurity company CyberArk Software (CYBR) all look compelling. We also like biotechnology stocks for their long-term growth prospects. You can buy a bundle of them in an exchange-traded fund such as SPDR S&P Biotech ETF (XBI).

Get a Side Gig

Turning a hobby or activity you love into a part-time enterprise can help you raise money to pay down debt and beef up savings. If you’re well along in your first career, it could also lay the foundation for your next one or turn into a part-time retirement job. Websites such as Etsy and Zazzle provide a way to turn your creative endeavors into cash.

Plan to relocate when you retire? Consider buying a property in your retirement destination now -- which will lock in the price -- and renting it out until you’re ready to move.

Rebalance Regularly

You’ll need to trim your winners periodically and add to your laggards to keep your mix intact. Check your brokerage statements every six months to see if your portfolio has veered off track. If your allotment to a particular category has drifted by more than five percentage points from your target allocation, make the needed trades to bring your allocations back into alignment.

Get on Top of Your Spending

You can’t set long-term goals unless you get a handle on where your money goes. Budgeting apps make the task a lot easier. After you monitor your cash flow for several months, you’ll have the tools to hew to your spending limits. With Mint, for example, you link to credit card, loan, bank and investment accounts to track and categorize balances and transactions automatically and get a snapshot of your net worth. You can also create budgets for each spending category and set savings goals, and Mint sends you alerts when you exceed your limits.

If you’re primarily interested in keeping an eye on cash flow and investment performance, check out Personal Capital, which lets you both watch the big picture and dig in to expenses, income and other areas with easy-to-navigate charts and graphs.

Set It and Forget It

Set up an automatic transfer from your checking account to your savings or brokerage account (or both) each month shortly after payday so that your emergency and retirement funds will fatten up before you have a chance to spend the cash. Alternatively, see if your employer can divvy your paycheck between two accounts. Automating certain payments can also pay dividends: A number of auto insurers, including Allied, Allstate and Geico, offer a small discount or cut you a break on fees if you enroll in auto-pay.

You can also slice 0.25 percentage point off your federal student loans by signing up for automatic debit. Even AT&T, Sprint, T-Mobile and Cricket Wireless trim the monthly charges for some plans if you sign up for auto-pay. For the rest of your bills, use automatic bill payments through your bank. Your payment will arrive before the due date, you’ll avoid late fees, and you won’t have to buy stamps and envelopes, either.

Target Your Investing

Target-date funds, which are widely available in 401(k) plans, are designed to be set-it-and-forget-it investments. They are best for investors who aren’t sure how to invest or don’t want to bother figuring out how much of their portfolio should be in stocks or bonds or when to rebalance.

In a target-date fund, the pros do the work for you, shifting the stock-bond mix to a more conservative allocation as you get older and even after you retire. Choose the fund with the year in its name that matches when you plan to retire. Our favorite target-date series are Vanguard Target Retirement, which holds index funds, and T. Rowe Price Retirement, which holds mostly actively managed funds. If you’re 18 years from retirement, for example, go for Vanguard Target Retirement 2035 (VTTHX).

Maximize Your Credit Card Rewards

By playing your (credit) cards right, you’ll earn hundreds of dollars annually in cash back or free flights and hotel stays. For travel, choose a card that offers a hefty sign-up bonus. The Chase Sapphire Preferred ($95 annual fee) ponies up 50,000 bonus points after you spend $4,000 in the first three months, as well as double miles on travel and dining purchases.

For cash back, the no-fee Citi Double Cash card can’t be beat for its flat return of 2% on every purchase. You might also want a card with a return of 3% to 5% in cate­gories you spend the most on, such as groceries or gas. You can also save money with the perks that many credit cards offer: extended warranties, price matching, coverage for damage and theft of recent purchases, rental car insurance, and travel insurance.

Get All the Insurance Discounts You Deserve

Ask your auto and home insurers for a list of potential discounts. You may get an automatic break (typically 10% to 20%) by bundling your home and auto policies with the same company or keeping a clean driving record, but you may need to let your insurer know if you qualify for other discounts. Most insurers offer a good-student discount (usually worth up to 25% if your student maintains a B average or better).

Some offer a break of 10% to 15% for certain jobs, and a 15% discount if you’re 55 or older and sign up for a defensive-driving course. You may get a bigger break -- as much as 50% -- by signing up for a data-tracking service, such as Progressive’s Snapshot or State Farm’s Drive Safe & Save, if you have low annual mileage and practice sedate driving habits. You could get home insurance discounts for many home improvements, such as adding storm-proof shutters (up to 44%, depending on the state) or an alarm system (up to 15%).

Tap the Sharing Economy

The sharing economy isn’t always about sharing. It’s often simply about saving money. For example, you can rent a house, apartment or private room (or a castle, houseboat or yurt) through sites such as Airbnb and HomeAway. The nightly rate may be lower than a hotel, especially when you’re splitting the cost among a group. To avoid paying for accommodations at all, swap your home with another traveler through a service such as HomeLink or Intervac.

If you live in an area with a car-sharing service, you could skip the high cost of buying, insuring and maintaining a car or two. Car2Go charges $15 per hour or 41 cents per minute, and Zipcar typically charges $70 per year or $7 per month plus hourly or daily rates. Need home services? At TaskRabbit or Handy, you can find gardeners, painters and plumbers, among a plethora of other helpers, who often charge surprisingly low rates.

Reshop Your Car Insurance Every Year

Rates can vary a lot by insurer, and by shopping around, you may be able to trim your premiums and put hundreds of dollars a year back in your pocket. Compare premiums at InsuranceQuotes.com or Insurance.com, or look for an independent agent at TrustedChoice.com. You can find sample prices for all insurers licensed in your state at most state insurance departments’ websites (find links for each state at naic.org, and search for the auto insurance shoppers’ guide).

Contact the companies with the best rates for the situation most like yours and compare premiums for the same amount of coverage you have now. If one offers a better rate, let your current insurer know before switching; it may offer to match the lower rate if you’re a longtime customer.

Never Pay Retail (Part 1)

A new car starts to depreciate as soon as you drive it off the dealer’s lot. After three years, it has typically lost half its original value. Those numbers bolster the argument for buying used, which can save tens of thousands of dollars over the years. The growth of factory-inspected, certified preowned vehicles, which are the cream of the used-vehicle crop and come with a warranty, has injected transparency into what you might charitably call the opacity of the used-car industry.

What if you are stubbornly in the new-car camp? Negotiate hard. Shop for an identically equipped model at several dealers, then use your best price to squeeze concessions from the other dealers. (Or use a service that does this for you, such as CarBargains.org.) If you lean toward the luxury side of the market, consider leasing. Carmakers often offer subsidies that hold down monthly payments.

Never Pay Retail (Part 2)

You can get money back from your online shopping sprees if you route your purchases through a cash-back site such as BeFrugal, CouponCabin, Ebates or Splender. The process is easy: Register at the site, search for your retailer, and click the site’s link to make your purchase (browser cookies must be turned on). You’ll typically earn back less than 10% of your purchase price, but rebates can go as high as 35% to 40%. Once your cash stash reaches a certain level, you can collect it via check, PayPal or gift card. Compare offerings for retailers across various sites through CashbackHolic.com or CashbackMonitor.com.

Negotiate for Practically Everything

You know it pays to haggle hard over cars and homes. A lot of other purchases are ripe for negotiation, too. Avoid naming your top price right away. If the seller has a lower figure in mind than you do, you won’t save as much as you could have. Instead, ask the seller how much he could come down in price.

Keep Investing Costs Low

All else being equal, the less you pay, the more you get to keep for yourself. Start by opening an account with an online broker, such as Fidelity or Charles Schwab. You’ll be able to buy and sell stocks for roughly $7 per trade. In addition, many of the top discounters let you trade select ETFs without sales fees. Fund investors should focus on mutual funds and ETFs with low expense ratios. You can buy index funds, such those that track the S&P 500, with annual fees of roughly 0.05%. Top low-cost actively managed funds include Dodge & Cox Stock (DODGX) and Mairs & Power Growth (MPGFX), both Kip 25 members.

If you work with a money manager, you’ll probably pay about 1% a year. Try to negotiate a lower fee. Or consider signing up with a “robo” adviser, which uses technology to manage your port­folio. Betterment charges just 0.25% of assets under management annually. Wealthfront levies no management fee for balances under $10,000 and charges 0.25% a year for any amount above that.

Trim Your Wireless Costs

Families with children spent an average of $1,526 on cell phone service in 2015, or about $127 per month, according to the U.S. Bureau of Labor Statistics. That number may be a lot higher if you have, say, a couple of data-hungry teens. Take stock of your typical monthly usage and shop for a plan that fits your needs at the lowest price. If you use data to stream several hours of music or video monthly, for example, switching to an unlimited data plan may make sense.

Consider smaller carriers, which often piggyback on the networks of larger ones and offer plans at lower rates. Use the tool at WireFly.com to search for suitable plans based on your typical usage. With the demise of subsidized phones, look beyond the latest iPhone or Samsung phones for more-affordable options. Or, rather than getting the latest model, consider buying a previous-generation phone (say, an iPhone 6s rather than an iPhone 7), which could save you $100. Or buy a preowned phone that has been refurbished and inspected by the carrier or manufacturer.

Find the Best Airfare

Scope out the cheapest dates to fly to your destination—or find a destination that fits your price range—using the flexible search features on Kayak and Google Flights. Register for airfare alerts from Airfarewatchdog.com and flight deals from ScottsCheapFlights.com, and skim Twitter for flash sales using the hashtag #airfare. Online travel agencies (OTAs), such as Expedia and Priceline, can piece together cheaper itineraries for international flights using multiple airlines on complex routes. To compare OTA fares with the airlines’ fares or with other OTAs, run your itinerary through Kayak or Momondo. Don’t forget budget airlines, such as Wow Air and Norwegian Air.

Vow to Be Debt-Free

High-interest-rate debt is an obstacle in your path to wealth. One way to attack the problem is to pay down the highest-interest-rate debt first. For example, if you’re carrying a balance on a credit card with a hefty rate, consider transferring the balance to a card such as Chase Slate, which charges a 0% rate for the first 15 months and no transfer fee if you move the balance within 60 days of opening the card. Just be sure to pay it off before interest starts to accrue. Auto and student loans are also candidates for accelerated payoff.

Foster Your Philanthropic Side

Money can’t buy happiness, but studies show that charitable giving can make you happier. Better yet, philanthropy can lower your tax bill. Your donations to a charity or, say, a school are tax-deductible if you itemize, and you’ll get an extra tax break if you give stock, funds or other investments that have appreciated in value. If you bought the investments more than a year ago, you’ll get a tax write-off for the current value of the donation, and you won’t owe capital-gains taxes on the increase in value since purchase.

Use Home Equity Strategically

Thanks to rising home values since the Great Recession, you may be well positioned to borrow against the equity in your home, which can help finance renovations or consolidate other, higher-rate debts. Recently, a home-equity line of credit (HELOC) with a $30,000 limit carried an average 5.1% rate, according to Bankrate.com. HELOCs often come with variable rates, so your payments will increase as interest rates rise. Some lenders allow you to lock in a fixed rate on all or a portion of your HELOC balance, which may be wise if you expect to spend a few years or more paying off the debt. A fixed-rate loan may be a good option if you have a one-time expense.

Give to Charity From Your IRA

Uncle Sam offers an extra incentive to be charitable when it’s time to take required minimum distributions from your IRAs. If you’re 70½ or older, you can transfer up to $100,000 each year tax-free from your IRAs directly to one or more charities. You can make the transfer anytime during the year. And your donation benefits you as well as the charity: The money counts as your RMD but isn’t included in your adjusted gross income. Lower AGI may push you below the threshold for the Medicare high-income surcharge or help make less of your Social Security benefits subject to taxes.

Open a Donor-Advised Fund

If you contribute to a donor-advised fund, you can take a charitable tax deduction for the full amount now but take as much time as you want to decide which charities to support. By making giving a family affair, you can build a charitable fund that lasts for generations and share your philanthropic values with your children and grandchildren. Mutual fund companies, brokerage firms and community foundations offer donor-advised funds. You can open an account at Fidelity or Schwab with $5,000 or at Vanguard with $25,000. You can donate cash, stock or mutual funds, and some donor-advised funds, such as Fidelity’s, even let you contribute real estate or shares of privately held companies.

Pay Off Your Mortgage

If you’re free of other debt and your savings are on track, put extra cash toward your mortgage or refinance into a 15-year mortgage to free up your finances by the time you retire. Patrick Lach, a certified financial planner in Louisville, Ky., offers this example: Say you want to refinance a $200,000 mortgage. With a 30-year loan at a 4.06% fixed rate, your monthly payment would be about $962. With a 15-year mortgage at a 3.2% fixed rate, your payment would be $1,400, but you would save more than $94,000 in interest.

Take Stock of Where You Stand

Estimate the future value of your current savings and see how much more you’ll need to save to hit your retirement goal. You could work with a financial adviser to make a plan, but in the meantime crunch the numbers with an online cal­culator, such as Kiplinger's Retirement Calculator. Our tool lets you factor in such variables as home equity and potential windfalls, such as an inheritance.

Write Down a Retirement Plan

Create a retirement budget, devoting one column to essential costs, such as housing and food, and another to discretionary expenses, including travel and hobbies. Factor in inflation for overall expenses, expected to be 2.4% over the next 20 years, according to the Congressional Budget Office. Consider making a separate calculation for health care costs, which are likely to have a much higher rate of inflation; HealthView Services, which analyzes health costs, projects a 5.1% inflation rate over the next 20 years.

Match expenses to guaranteed income, including any pensions and Social Security payments, plus the annual amount you plan to draw from savings. If there’s a gap, reconcile yourself to spending less—or working longer. Staying in the workforce for a few extra years gives you more time to contribute to your retirement accounts. Plus, you have fewer years to finance once you do retire.

Maximize Social Security

Postponing retirement also helps you delay taking Social Security. For every year after full retirement age (66 or 67, depending on when you were born) that you postpone claiming until you reach age 70, the benefit goes up by 8%. For help deciding when and how to claim benefits, bone up on your options with Kiplinger’s Boomer’s Guide to Social Security, $10. Then consult a financial planner with training in Social Security strategies. Or subscribe to software such as Maximize My Social Security, starting at $40, or Social Security Solutions, starting at $20. These programs run scenarios based on your circumstances and show how different filing strategies affect the total payout.

Tweak Your Investments as You Age

As you approach retirement, aim for a portfolio that generates enough growth to combat inflation but ratchets down risk. A mix of 55% stocks, 40% bonds and 5% cash accomplishes that goal. For more growth, adjust the mix to 60% stocks and 40% bonds and cash; for less risk, go with 60% bonds and cash and 40% stocks.

Supersize Your Retirement Contributions

If you’re 50 or older, you can make catch-up contributions to your IRA and 401(k). In 2017, you can add $6,000 to your 401(k) above the $18,000 annual contribution limit, for a total of $24,000 for the year. You can stash an extra $1,000 in a traditional or Roth IRA beyond the $5,500 annual contribution limit, for a total of $6,500 for the year. If you invest $24,000 in a 401(k) every year starting at age 50, you’ll boost your retirement savings by more than $580,000 by the time you’re 65, assuming your investments return 6% per year. If you invest $6,500 in your IRA during those years, you could amass more than $157,000 in your IRA in 15 years.

If you’re self-employed, you can also step up savings. In 2017, you can contribute up to 20% of your net self-employment income (business income minus half of your self-employment tax) to a SEP-IRA, up to a maximum of $54,000. In a solo 401(k) plan, you can put aside even more money because you can contribute as both an employer and an employee. In 2017, the maximum contribution is $54,000, or $60,000 if you’re 50 or older.

Retire to a Place That’s Healthy, Fun and Tax-Friendly

If you plan to relocate in retirement, scope out a city that boasts an array of opportunities for outdoor activities, restaurants that pique the palate and enough cultural amenities to keep the brain limber. All of our picks have those qualities as well as excellent health care, and they’re located in states with tax policies that are kind to retirees.

Austin, Texas, has outdoorsy options including Zilker Park, a 351-acre green space; Barton Springs Pool, a spring-fed swimming hole; and Lady Bird Lake, where you can go canoeing and kayaking. Downtown, you’ll find a bustling mix of shops, restaurants, taco trucks, barbecue joints, music and film festivals.

Naples, Fla., offers a sophisticated mix of cafés, art galleries and boutiques, as well as beaches and gracious homes in walkable neighborhoods.

Nashville’s music scene lately has competed with the thrum of the city’s construction boom, but you can also find quiet old neighborhoods bordered by parks and greenways. The city is home to Vanderbilt University.

Philadelphia boasts world-class museums such as the Philadelphia Museum of Art and the Barnes Foundation. You can sample meats, cheese and produce at the Ninth Street Italian Market. The Manayunk Canal Towpath connects with 60 miles of trails along the Schuylkill River.

Seattle locals have easy access to the bounty of the Pacific Northwest as well as such urban attractions as the Pike Place Market and the Seattle Opera. Rain happens in Rain City, but mild temperatures let residents enjoy the outdoors year-round.

Create Savings Buckets in Retirement

Talk about a wealth killer: If you’re forced to sell your investments in a bear market, especially at the beginning of retirement, your carefully laid plans for making your savings last the rest of your life could be in jeopardy. To avoid that scenario, create three “buckets” for your savings. The first should hold enough cash, CDs and other short-term investments to cover one to three years of living expenses, after factoring in guaranteed income, such as Social Security. Create a second bucket with slightly riskier investments, such as intermediate-term bond funds and a few diversified stock funds. The third bucket is for long-term growth; fill it with diversified stock and bond funds. As you draw down the first bucket, you eventually refill it with profits from the second bucket, and the second bucket gets refilled with gains from the third.

Cover Long-Term Care

At a median cost of $92,000 a year, a stay in a nursing home can quickly deplete your retirement nest egg. Long-term-care insurance can help preserve your wealth. But the cost of long-term-care insurance has skyrocketed, so most people need to find an affordable way to set up their safety net. First, look up the cost of care in your area (see genworth.com/costofcare) and estimate how much of, say, a three-year stay you could cover with income and savings. Then shop for a policy to cover the gap. You can save money on premiums by lowering the inflation adjustment from 5% to 3%; shortening the benefit period or pooling it with your spouse to use between the two of you; or extending the waiting period from, for

 

10 Timeless Tips From Knight Kiplinger

Some lessons from our 70 years of giving readers practical advice on how to save, manage, invest and spend their money.

1. Wealth creation isn’t a matter of what you earn. It’s how much of it you save.

2. Your biggest barrier to becoming rich is living like you’re rich before you are.

3. Pay yourself first. Arrange to have your retirement and other savings deducted from your paycheck before the money hits your bank account. If there isn’t enough left over for your bills, cut your spending.

4. No one ever got into trouble by borrowing too little.

5. Conspicuous consumption will make you inconspicuously poor.

6. The key to stock market success isn’t your timing of the market. It’s your time in the market—the longer, the better.

7. Diversify, because every asset has its day in the sun—and its day in the doghouse.

8. Keep a cool head when others are losing theirs. When others are selling investments, it’s usually a good time to buy. The foundations of great fortunes are laid in bear markets, not bull markets.

9. Money can’t buy happiness, but it can make unhappiness easier to bear.

10. Sharing your wealth with others is more fun than spending it on yourself.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail  info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Using Trusts to Maximize Charitable Giving While Minimizing Estate Taxes

If you're eager to pass along accumulated wealth to heirs in the most tax-efficient manner possible while also retaining the ability to support a charity either right away or at some point in the future, then a split-interest trust may be just the tool you need. Split-interest trusts are so named because their financial interest is split between two beneficiaries -- typically a charitable beneficiary and noncharitable beneficiary.

Two of the most popular types of split-interest trusts are charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). The two vehicles are related, yet fundamentally different. They essentially work in opposite fashions. A CLT pays income to a charitable beneficiary for a certain period of time, after which the remaining assets in the trust (the remainder interest) passes to a noncharitable beneficiary or beneficiaries, such as children or grandchildren, or even the donor. With a CRT, the assets place d in trust provide a stream of income to noncharitable beneficiaries for a period of time, after which the assets become the property of a charity. Income tax, capital gains tax, and estate and gift tax differ significantly between CLTs and CRTs. As a result, you should seek the advice of a qualified tax and trust professional before determining which strategy is better for your situation.

Charitable Lead Trusts

A CLT can be set up to pay either a fixed annuity or a unitrust amount to a charitable organization, which means that it can pay either a fixed dollar amount each year or a fixed percentage of the fair market value of the trust's assets. While there is no limit on the amount of time a CLT can remain in effect, it must be for either a predetermined number of years or until the death of the donor.

CLTs are often the tool of choice for individuals with assets that have a high potential for future appreciation. They may also be well suited for those with heirs who are minors or otherwise not ready to assume full control of significant assets. By creating and funding a CLT, a grantor can make final arrangement for the disposition of an estate, but defer the date at which beneficiaries actually receive and control the property. In the meantime, the charity of choice receives immediate and ongoing benefits. When the assets do eventually pass to the noncharitable beneficiaries, they are not subject to the federal estate tax.

Keep in mind, however, that the grantor is not able to claim an income tax deduction for making contributions to a CLT. In addition, the grantor may have to pay a federal gift tax on a portion of each contribution, albeit only on the value of the remainder interest earmarked for noncharitable beneficiaries.

Also remember that while a CLT allows assets to pass to heirs with no federal estate taxes, a CLT is not a tax-free entity. Any income the trust generates in excess of the amount paid to charity is still taxable. And the sale of appreciated assets held within the trust may trigger capital gains taxes.

Charitable Remainder Trusts

In the eyes of a charity, a CRT is the mirror image of a CLT. A CRT first pays income to noncharitable beneficiaries before permanently awarding ownership of its assets to the charity. But in the eyes of Uncle Sam and taxpayers, the most significant differences lie elsewhere.

First and foremost, a CRT is a tax-exempt entity. For this reason, CRTs can be extremely useful for individuals who want to sell appreciated assets, such as investors eager to liquidate highly appreciated, concentrated stock portfolios in order to reallocate the money within more diversified portfolios or to create income streams for themselves or beneficiaries.

In addition, a grantor can claim a tax deduction for his or her donation to a CRT, equal to the present value of the charitable remainder interest. And although a CRT's assets are ultimately distributed to the charity free of estate and gift taxes, the noncharitable beneficiaries of a CRT must pay income taxes on the income received from the trust.

As with CLTs, CRTs are classified according to their payment methods. A charitable remainder annuity trust pays a fixed dollar amount at least annually, whereas a charitable remainder unitrust pays a fixed percentage of the fair market value of the trusts assets. According to IRS guidelines, each type of CRT must pay no less than 5%, but no more than 50%, of its fair market value annually. A CRT may remain in effect for life or for a predetermined period of time, not to exceed 20 years.

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Tax rules governing trusts are complex. You should seek the advice of a qualified tax and trust professional before determining which strategy is better for your situation.

 

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAM I). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset M anagement, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

When Protection Matters: Consider a QTIP Trust

Several years ago, Jack's father died. Jack grieved not only for his father's passing, but also for his widowed mother who had been married to Jack's father for 35 years. In due course, Jack's mother remarried. However, when she eventually passed away, Jack suffered a double loss: Jack not only lost his mother, but also most of his inheritance. Just the year before, she had given her second husband a substantial sum to start a new business.

Jack's father could have preserved Jack's inheritance, while at the same time providing for Jack's mother, with a qualified terminable interest property (QTIP) trust.

How It Works

With a QTIP trust, rather than simply leaving your assets to your spouse outright in your will, you specify that all or a portion of your assets should be transferred to the trust upon your death. The trustee you choose is legally responsible for holding and investing the assets as you provide. The QTIP trust pays your spouse a life income. After your spouse dies, your children (or anyone else you choose) will receive the trust principal. With a QTIP trust, your spouse cannot prevent the trustee from transferring the assets to your intended beneficiaries.

Current federal estate-tax law allows an unlimited marital deduction for assets that pass from one spouse to the other. To secure the deduction, assets generally must pass to the surviving spouse directly or through a qualifying trust. Thus, it's important to structure your QTIP trust so that the trust assets qualify for the marital deduction. This will allow your estate to avoid paying taxes on the trust property. The trust assets will be included in your spouse's gross estate for estate-tax purposes. However, your spouse's estate will be entitled to a unified credit that could eliminate some -- or perhaps all -- of the estate tax.

Problem Solver

Many estate planning decisions that are simple for traditional families can prove very complicated in today's age of multiple marriages and "blended families." There are many scenarios in which a QTIP trust can be used to prevent future problems. Consider a remarriage involving children from a former marriage. In this case, a QTIP trust can help control the ultimate disposition of assets. The trust also can be used when professional management of assets is desirable for the surviving spouse. After all, placing assets directly in the hands of a spouse who may lack investment or financial experience can be a costly mistake.

Inheritance Insurance

By setting up a QTIP trust, you make sure that your trust assets will eventually go to the individuals you choose to receive them. The result will be the same even if your spouse remarries, drafts a new will, or experiences investment losses. You'll be able to provide for your spouse and preserve assets for your children or other beneficiaries, regardless of how your family's circumstances may change.

Experience Is Essential

A problem-free QTIP trust requires an experienced professional trustee who can manage the trust for your surviving spouse and children in accordance with your wishes. Your financial advisor can help you secure the services of a qualified professional with experience administering QTIP trusts. Together, they can help to ensure that your assets are well cared for throughout the term of the trust.

This communication is not intended to be legal/estate planning advice and should not be treated as such. Each individual's situation is different. You should contact a qualified legal/estate planning professional to discuss your personal situation.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Wealth Transfer in a Low-rate Environment

For those fortunate few individuals whose personal wealth exceeds the current estate-tax exemption threshold -- $5.43 million for 2015 rising to $5.45 million for 2016 -- today's historically low interest rate environment offers potentially powerful wealth transfer opportunities.

Recent low rates of interest have affected two important factors used to value wealth transfers involving trusts -- the applicable federal rate (AFR) and the Section 7520 rate -- both of which are published and calculated each month by the Internal Revenue Service (IRS). These rates reflect what the IRS assumes the assets in a trust will earn over the life of the portfolio. They are sometimes referred to as "hurdle" rates because if investment returns outperform the interest rate, the difference may be passed tax free to trust beneficiaries.

Given current conditions, the following strategies may prove especially attractive.

 

Grant or Retained Annuity Trusts (GRATs). A GRAT is an irrevocable trust that is used to shift the growth and appreciation of assets from one generation to the next, often with little or no gift-tax consequence. In a typical GRAT, a donor or "grantor" places stock or other assets in the trust for a specified term during which he or she takes back principal in the form of annuity payments that are calculated using the low IRS-prescribed interest rate.

Any appreciation in trust assets above that interest rate passes to the GRAT's remainder beneficiaries outside of the transfer-tax system. Thus, the lower the interest rate, the greater the potential gift that can pass out of the donor's taxable estate to heirs.

How might a GRAT play out today? Given current conditions, an individual could transfer more shares of depressed stock into a GRAT. Then, if the market rebounds and outperforms the hurdle rate for an extended period, that difference could represe nt considerable wealth that would transfer to heirs.

 

Charitable Lead Annuity Trusts (CLATs). For those who wish to combine charitable giving with the transfer of wealth to family members, a CLAT offers an alternative solution to a GRAT. In this case, periodic annuity payments are made to a charity of choice, not the grantor. At the end of the trust's term, any remaining assets are then paid out to the non-charitable beneficiaries, typically family members, tax free.

 

Sale of Assets to a Family Trust. Another potentially attractive technique is to sell (rather than give) assets that are likely to appreciate in value to a family trust for the benefit of children. The grantor receives a promissory note with AFR interest. Because the grantor is essentially making a loan to himself or herself, the interest received on the note is not considered taxable income. As the property increases in value, the note remains static, while appreciated assets pass to heirs.

The current environment may present an attractive opportunity for those gifting assets as well as those receiving them. Be sure to explore these and other wealth transfer options with your tax and legal advisors as part of your overall planning strategy.

This communication is not intended as tax and/or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable fo r any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440 -2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Common Estate Planning Mistakes -- and How to Avoid Them

Estate planning can be a minefield of potential missteps, some of which could have far-reaching consequences. Many of the poor choices individuals make when planning for their own future or passing assets to their families are caused by "one-size-fits-all" planning strategies or well-intended advice from family or friends. Following are some common and potentially costly mistakes along with suggestions for avoiding them.

 

Failing to plan. Whether drafting a basic will or crafting an elaborate strategy involving trusts and tax planning, an estate plan can help reduce estate taxes, save on estate administrative costs and specify how your assets are to be distributed. Today, the majority of Americans have no will. If you die without one, your estate will be divided according to the intestacy laws of your state -- not according to your wishes. This could create problems if your intended beneficiary is a minor child, a child with special needs, a favorite charity, or a combination of the above. In these cases, you need a will that details each contingency and a trust or multiple trusts to accomplish your goals.

 

Not maximizing your marital estate exemptions. Perhaps one of the most important pieces of tax legislation passed recently is referred to as the "portability" provision. This means that if one spouse dies without using up his or her federal estate tax exemption -- $5.43 million in 2015 -- the unused portion may be transferred to the surviving spouse without incurring any federal estate tax.

How might the portability provision work in a real life situation? Consider the following scenario involving the hypothetical $8 million estate of Jim and Helen:

If Jim dies in 2015, the executor of his estate can elect to use the unlimited spousal exemption and can also transfer Jim's unused $5.43 million federal estate tax exemption to Helen. If Helen dies in 2015 with $8 million in assets, her estate will have a total of $10.86 million in federal estate-tax exemptions: the $5.43 million exclusion transferred from Jim and her own $5.43 million exclusion. As a result, none of Jim and Helen's $8 million estate would be subject to federal estate tax.

As welcome as the portability provision may be, it still does not account for future appreciation of assets from the first spouse's estate. Nor does portability offer protection from creditors and others aiming to lay claim on an estate's assets. Traditional strategies like credit shelter trusts and bypass trusts do provide these benefits and therefore are still essential planning instruments for married couples.

 

Naming a family member as executor. Your executor is the person who will be responsible for administering your estate after death. The responsibilities of an executor are serious, and you will want someone who will take them seriously. There are many important reasons to choose a paid executor -- a bank or trust company, for instance -- along with (or instead of) a spouse or family member. A professional executor is familiar with the probate process and may actually save the family money, keeping expenses under control. This will undoubtedly be an emotional time for your loved ones, and a family member may find it difficult to focus on the details involved with settling an estate. In addition, when you name a family member, especially a beneficiary as executor, you introduce the potential for conflict of interest. The larger the estate, the more likely those conflicts become.

 

Relying on advice from family or friends. Would you go to a friend or relative for surgery or to fix your car if he or she was not a skilled surgeon or auto mechanic? Why would you take their advice about estate planning issues if they are not professional planners? When seeking a professional, look for a specialist -- someone who knows trusts, estate tax law, and probate issues. A specialist will have more experience and skill in his/her chosen area -- and that will translate into higher quality services provided in the most cost effective manner.

No set of rules or advice can apply in all cases, but a sure way to avoid these and other problems is to rely on a trusted team of tax and legal professionals led by your financial advisor.

This communication is not intended to be tax and/or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax/legal professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Plan Ahead for Gift Giving

Special occasions often call for gift giving: a graduation in May, a wedding in June, an anniversary in July, and birthdays throughout the year. Each event seems to sneak up on us -- and our budgets. Retailers plan for holidays and seasonal sales, so why not do a little gift planning of your own?

 

Here are a few tips for your planning list:

•  Save now. Gift buying will seem more manageable if you've been saving for it a little at a time. Whether you set up a formal gift account and contribute to it regularly or just stash away a few extra dollars here and there, it's good to accumulate cash that is earmarked for gift giving.

•  Put a cap on spending. Work out a gift-giving budget for the year that includes a comfortable spending limit as well as a detailed list of individual gifts with spending caps for each. Then stick to it.

•  Avoid credit traps. If you must charge your purchases, put them on your bank credit card. Department store cards typically charge a much higher interest rate. And make sure you watch out for the "buy now, pay later" offers. Although tempting at the time, it is very easy to forget about a DVD recorder you bought in November if the first payment isn't due until March.

•  Two for one. When you find a great deal on something nice, buy two -- one for yourself and one to give away. Then, when a birthday or other unexpected event pops up and catches you by surprise, you'll be prepared with a gift. Importantly, you will have avoided the last-minute (and often expensive) rush to buy something quickly.

•  Take advantage of post-holiday sales. In Canada, the United Kingdom, and other Commonwealth countries they call it Boxing Day, but here it's just the day after Christmas. For those truly die-hard shoppers, it can be the best shopping day of the year. Stores slash already reduced prices even more to make way for spring inventories.

Gift giving is one of the easiest ways to overspend. But if you do a little planning before you shop, you'll approach each occasion with your budget and generosity intact.

 

Give the Gift That Lasts a Lifetime

If you'd like to give a child money but want to do something more lasting than writing a check, consider setting up a custodial account under either the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) through a bank or investment company.

Custodial accounts can help finance a child's future and lessen the giver's tax burden. Here are a few details you should be aware of.

 

The UGMA/UTMA Facts:

•  There are no income limits affecting eligibility to fund a custodial account.

•  You can gift away up to $14,000 per child, each year ($28,000 for married couples) to as many children as you like without owing gift taxes. Beyond those amounts, gifts may be subject to federal gift taxes.

•  Gifts made to UGMA/UTMA accounts are considered irrevocable; once the child reaches legal age (18 or 21, depending on the state), he or she gains full control over the assets.

•  Since custodial accounts belong to the child, account assets may decrease the amount of financial aid a child can receive.

 

Beware the "Kiddie Tax"

Tax rules affecting UTMA/UGMA accounts bear careful consideration. Under the so-called "Kiddie Tax" rules, a child's investment income over a certain level is taxed at his or her parents' rate rather than the child's lower rate (typically 5% for most children). Prior to 2006, the Kiddie Tax rule applied only to children younger than 14. But the age limit has risen twice in the past few years.

Now the Kiddie Tax includes dependents up to the age of 19 and those up to the age of 24 who are full-time students. Any investment income earned in excess of $2,000 will be taxed at the parents' higher tax rate.

This communication is not intended to be tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your tax professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Beneficiary of a Trust? What You Need to Know

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trusts can take many forms and may be governed by unique provisions established by the creator of the trust or "grantor." As a trust beneficiary, you have certain rights. But to ensure that your financial and other interests are fully protected, you need some basic information about different trust structures and their management.

 

Trust Basics

At their most basic, trusts can be grouped into two broad categories -- living trusts and testamentary trusts. A living trust is created by an individual during his or her lifetime. The grantor transfers property to a trust that is managed for the trust beneficiaries by a trustee. The grantor may act as trustee, or he or she may appoint another family member or family advisor, such as an attorney or accountant to be the trustee. A testamentary trust is established by will upon the death of the person whose assets it represents. Testamentary trusts can be used for many purposes; chief among them to provide for current and future beneficiaries.

In either case, it is the trustee who is charged with administering the trust in strict accordance with its terms. If this so-called fiduciary duty of the trustee is breached in some way, beneficiaries have the right to protect their interests by taking legal action against the trustee.

 

Role of the Trustee

Following is a brief overview of the trustee's role and responsibilities.

 

•  Asset collection and protection -- Two of the trustee's key responsibilities are collecting assets earmarked for the trust and ensuring the protection of those assets. For instance, if real estate is included as a trust asset, the trustee is responsible for the maintenance and upkeep of the property and maintaining appropriate insurance on the property. In the case of financial assets, such as cash or securities, the trustee must maintain one or more separate accounts on behalf of trust beneficiaries.

•  Investment oversight -- The trustee ensures there is a plan in place to address the needs and interests of current and future beneficiaries. Typically, trust investments are expected to generate income for beneficiaries while also retaining and reinvesting principal. In some cases, the trustee may have the authority to make distributions of principal to beneficiaries.

•  Taxes -- The trustee reports all income generated by trust assets and pays tax on any undistributed income as well as capital gains realized by the trust. In addition, the trustee informs beneficiaries of the amounts that they must report on their personal income tax returns as a result of trust distributions.

•  Record keeping -- The trustee is responsible for documenting every transaction that takes place in the trust accounts. Prior to final settlement, the trustee must demonstrate to the beneficiaries that all assets and income have been properly administered and distributed.

 

Beneficiary Right to Action

In addition to regular accounting of trust assets, beneficiaries have a right to request a special accounting from the trustee if there is reason to suspect a problem with the trustee's performance of his or her fiduciary role. If it is found that the trustee is in violation of his or her responsibilities or fails to provide proper documentation of trust activity, then the beneficiary has the right to take legal action, including removing the trustee and requesting a replacement. Such action is normally handled by filing a petition with the local probate court.

 

Revocable vs. Irrevocable Trusts

Living trusts may be revocable or irrevocable. As its name implies, property held in a revocable trust may be "revoked" at any time; the terms of the trust may be changed and assets returned to the grantor. He or she can establish detailed instructions as to the handling of trust assets during his or her life and ensure continuity of management upon incapacity or death. Revocable trusts need not be filed in probate court after death, thus maintaining family privacy. However, the grantor will be subject to income and estate tax as if the property were owned outright.

In contrast, assets placed in an irrevocable trust are permanently removed from the grantor's estate, and any income and/or capital gains taxes owed on assets in the trust are paid by the trust. Upon the grantor's death, the assets in the trust are not considered part of his or her estate and are therefore not subject to estate taxes.

 

Irrevocable Trusts Offer Lifetime Giving to Beneficiaries

While requiring some loss of grantor control, a properly drafted irrevocable living trust allows individuals of substantial wealth to begin transferring assets to beneficiaries during their lifetime without incurring gift or estate tax. (Please note that a three-year survival period may be required in certain situations).

For example, the normal annual limit on tax-free gifts is $14,000 per beneficiary in 2015, an amount that may be indexed for inflation in future years. Under some circumstances, a taxpayer may include amounts above that in his or her unified estate and gift tax exclusion amount ($5.43 million in 2015 for an individual, twice that for a married couple, and subject to indexing for inflation in subsequent years). In addition, upon the grantor's death, appreciation on the remaining trust assets is not subject to estate tax (assuming any three-year survival requirements are met).

Being named as a beneficiary of a trust is indeed a welcome event, but not without its complications and, if handled improperly, unfortunate consequences. For help understanding your rights and protecting your inheritance, it may be wise to engage the services of an experienced trust attorney.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Shielding Retirement Assets From Taxes

As hard as it is to believe, today's tax-advantaged plans -- including individual retirement accounts IRAs, 401(k)s, and rollover IRAs -- have the potential to make many employees millionaires. A 401(k) contribution of $433 per month, at 8% compounded monthly, would be worth more than $1 million after 35 years.1

 

These plans are also highly vulnerable to tax losses, if they are not bequeathed properly. For instance, a $1 million IRA inheritance could be whittled to almost nothing under worst-possible circumstances, such as a combination of estate taxes, top income tax brackets, and missed withdrawal deadlines.

Saving your heirs thousands of tax dollars on your retirement money often hinges on the decisions you make before you retire. Therefore, it's important to take a look now at how to save heirs tax headaches later on.

 

RMD Rules Simplify Things

The IRS rules for calculating the required minimum distribution (RMD) from IRAs and qualified retirement plans provide some longer-term planning advantages.

For the tax conscious, the premise behind retirement plan distributions is simple -- the longer you are expected to live, the less the IRS requires you to withdraw (and pay taxes on) each year. Because your heirs could inherit this payout schedule along with the assets' tax bill, talk to your tax or financial advisor about how these rules should be applied to best meet your goals and objectives. Keep in mind that if you or your heirs do not withdraw minimum amounts when required, taxes can take half of what should have been withdrawn.

 

Stretch Out the Tax Bill

There are various other ways to make the tax payments on these assets easier for heirs to handle. These are:

 

1.  Selecting a beneficiary -- If no one is named, your assets could end up in probate and your beneficiaries could be taking distributions faster than they expected. In most cases spousal beneficiaries are ideal, because they have several options that aren't available to other beneficiaries, including the marital deduction for the federal estate tax and the ability to transfer plan assets -- in most cases -- into a rollover IRA.

2.  Consider the options for multiple beneficiaries -- If you want to leave your retirement assets to several younger heirs (such as your children), the IRS has issued "private letter" rulings that suggest that the assets in a stretch IRA may be split into several accounts, each with its own beneficiary. That way, distributions will be based on each beneficiary's age. In addition, the rules provide added flexibility in that beneficiary designations need not be finalized until December 31 of the year following the year of the IRA owner's death for the purposes of determining required distributions. Therefore, an older beneficiary (e.g., a son or daughter of the IRA owner) may be able to either cash out or "disclaim" their portion of the IRA proceeds, potentially leaving the remainder of the IRA proceeds to a younger beneficiary (e.g., a grandchild of the IRA owner). As long as this is done prior to December 31 of the year fo llowing the year of the IRA owner's death, distributions will be calculated based on the younger beneficiary's age. Because rules governing use of these strategies are complex, speak with a tax attorney or financial advisor to make sure that correct requirements are followed.

3.  Being generous -- Plan assets given to charity are fully estate tax deductible, and no income tax is due on this gift. You should contact your tax or financial advisor to gain a better understanding of the tax benefits of donating IRA or qualified plan assets to charity.

4.  Consider an irrevocable trust -- Because qualified plan assets qualify for the unlimited marital deduction, spousal beneficiaries may inherit these assets without tax consequences when the assets are left intact as part of the estate. Some estate planning experts have developed strategies using an irrevocable trust. This type of planning is very complex and requires specialized expertise in estate planning.

 

Strategies for Spouses

•Consider a rollover IRA -- With rollover IRAs, you can practice some creative tax planning, such as setting up stretch IRAs for your children or recalculating the distribution schedule for yourself.

•"Disclaim" IRA assets if you don't need them -- If you are the primary beneficiary of an IRA and your child is the contingent beneficiary, you may be able to disclaim your right to the IRA proceeds. If done so by December 31 of the year following the year after the IRA owner's death, future distributions may be based on your child's age, effectively spreading those distributions out over a longer period of time. Be sure to check with a tax attorney prior to using these strategies.

 

Strategies for Nonspouse Beneficiaries

•With stretch IRAs, don't use your name! -- Under IRS rules, your inherited IRA becomes immediately taxable if you switch the account into your name.

•Watch the calendar -- The account also becomes immediately taxable if you don't take your first required payout from an inherited IRA by December 31 of the year after the account owner's death.

 

Talk to the Right People

With careful planning, your retirement assets can remain as vital as they had been during your lifetime. Talk with your tax advisor and with those who may bequeath a retirement legacy to you -- such as parents or grandparents -- to see what type of tax planning they've put in place. Opening the doors to this discussion could make your tax burden lighter later on and bring peace of mind to your family.

 

Points to Remember

1.  If retirement plan assets aren't bequeathed properly, heirs could lose half of this inheritance to taxes.

2.  The longer your life expectancy is for distribution purposes, the smaller the annual tax bill will be for both you and your heirs.

3.  Some easy ways to make plan distributions more tax efficient for your heirs include opening stretch IRAs, leaving a portion of retirement assets to charity, and transferring assets into an irrevocable trust.

4.  Plan heirs can reduce taxes on inherited plan assets by using rollover IRAs, observing minimum distribution deadlines, and taking special tax deductions, if eligible.

5.  Consult a qualified tax professional to see how the new distribution rules may affect your financial affairs.

 

Source

1.  This example is hypothetical and is not meant to be tax advice. Please contact a tax attorney or financial advisor as to how this information could apply to your situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

Intergenerational Wealth Planning: A Win-Win for the Whole Family

Discussing the transfer of wealth from parents to children can be uncomfortable for both parties. Yet by introducing children to the wealth management process from a young age, affluent families may be able to reduce family tensions later in life and help ensure that the planning tradition passes intact to future generations.

 

Closing the Communication Gap

Opening the dialogue about wealth transfer is a complicated, personal decision that is influenced largely by how wealth holders themselves have been brought up to view money and the responsibilities that come with it. For instance, some individuals may fear that discussing wealth with their children will lead to feelings of expectation and entitlement. Others may simply prefer to control all money issues themselves. Still others with young children may be uncertain about their future wealth and reluctant to discuss it until their children are older and have proven how well -- or poorly -- they handle money.

 

Embracing the Planning Process

One strategy that may help families overcome planning challenges is to think about wealth planning not as a one-time exercise, but as a process that you live with every day -- and that you integrate into children's lives at a very early age.

For instance, when children are young, you can teach them to divide their allowances into three portions -- one for saving, one for spending, and one for giving. Consider matching their giving and saving money and set an example by handling your own money in a similar fashion.

Once children become teenagers, allow them to make their own decisions about how they spend their money, and as difficult as it may be, allow them to live with the consequences of their decisions. As children make the passage to adulthood, gradually involve them in the family business as well as the family's charitable giving activities.

 

Creating a Win-Win Solution

Certainly, the more wealth a family has, the more important it becomes to make managing wealth a process, especially if wealth has existed for multiple generations and there are instruments such as family foundations in place. In this way, early involvement helps families prepare heirs for their future role as stewards of the family wealth. It also helps develop the skills and experience needed to manage a family business or wealth plan, while ensuring that such knowledge is shared and passes successfully to the next generation.

 

Working With Professionals

Working together with your team of planning professionals -- your financial advisor and estate and/or tax planner -- you will be able to assess your current situation and develop first steps toward implementing a plan of action.

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax and/or legal professional to discuss your personal situation.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.