Good Communication and a Solid Plan

Most of us don’t want to think about the time when we won’t be around anymore for our loved ones and our loved ones certainly don’t want to think about when we won’t be around for them either. While difficult to do, it is highly recommended that you share your estate plan and financial plan with those who will be responsible for, and perhaps even the beneficiaries of your estate when you do pass on. If you have not created an estate plan or financial plan yet, it may be helpful, with the guidance of a qualified financial adviser, to help facilitate that discussion so that all options are considered. Some of the most well-executed estate plans have come with complete discussions with the entire family to get all of the issues out now while they can still be addressed, instead of after the fact when no changes can be made.

In having these discussions, it is also important to note where important documents such as wills and insurance policies can be found. It would be helpful to create a list of all bank, investment, retirement, and insurance accounts and their beneficiaries as well. Remember that any account, such as an IRA, generally has a designated beneficiary. Any account with a beneficiary designation does not pass through your will, but rather to who is listed as beneficiary on the account. Your will and beneficiary forms can be entirely different, and perhaps not even listing who you might like to receive a particular asset. There are even significant tax benefits in naming certain individuals or entities beneficiaries as well.

Plan To Get There!

Planning is the only way to make sense of the five things you can do with money. If you don’t plan, you will likely spend more, save less, invest less, and do nothing to reduce your taxes.

Don’t sell yourself short by planning your retirement based on some arbitrary percentage of your income. “Needs planning” is a good start for someone who has given no thought to retirement savings. It’s one way to convince people that they should save something, but it’s not good for people who want to do better than just get by. Don’t settle for mediocrity in your investment planning; try to excel. It’s fine to set a floor for what you will need, but then aim higher-and plan to get there! Become a “wants” planner, instead of a “needs” planner. Only when you determine what you want from life can you determine the role that money will play in helping you achieve your dreams.

Trusts

Trusts are vehicles that can help shelter your assets from taxation and manage the property that you leave to your heirs. Simply put, you transfer property in the name of a trustee who manages it for the benefit of a third party, the beneficiary. One of the great advantages of trusts in their flexibility. They can be adapted to fit a wide variety of situations. In fact, as our attorneys at Wealth Enhancement Group say, “Trust is not the key word. Trust doesn’t tell you that much.”

What precedes the word trust tells you everything. The most important aspect of trusts is that they allow property to be managed according to the donor’s specific wishes, far into the future. Living trusts allow you to control trust assets; irrevocable trusts take away control but offer many attractive estate tax implications and more. Your advisers can help you determine which type of trust best suits your situation.

Wills

The basic instrument of estate planning is the will, a legal document in which you state who will receive what portion of your property, as well as when and under what conditions they will receive it. A will also allows you to designate a guardian for your children and an executor or personal representative who carries out the terms of the will. If you die intestate-without a will-the executor and guardian are appointed by the court, and your assets are disposed of according to state law.

In all states, however, at least part of your estate will go to your children, and ,n many states they will receive more than your spouse. A will that is complete and current, on the at names all those legally entitled to a share in your estate, accounts for assets, and pays all creditors, will ensure that the administration of your estate proceeds quickly according to your intentions. Keeping those close to you informed of your plans, especially if you’re financial or family situation changes, can help avoid litigation, costly delays, and unnecessary conflict.

Vacation Properties and Income – Part 2

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.

Keeping Your Emotions in Check…

In times like these, with the economy in a tailspin, and the stock market in the tank, investing requires an extra dose of patience, perseverance and perspective.
It takes patience to ride out the bear market, perseverance to continue to invest even through a difficult economy, and perspective to see the long-term picture and realize that recessions and bear markets are just part of the natural economic cycle. Slumping economies and bear markets of the past have always turned around — and there is no reason to believe that this time will be any different.

Saving for College

Saving for College
Another school year is around the corner and your children or grandchildren are that much closer to college. If you haven’t already started to save for their college costs, this may be a good time to talk to your adviser about setting up a tax-sheltered college savings plan.
By planning ahead, you can use a 529 college savings plan to give your children a head start on their college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans.
College savings plans are state sponsored investment accounts that allow participants to contribute regularly. A 529 plan account grows tax-deferred and withdrawals from the plan for qualified educational expenses are exempt from federal income tax. There are no income limits.

Tax Laws and How They Can Benefit

Sharing Your Wealth

The tax laws of the United States encourage gifts by granting tax deductions for them in many cases. If individual citizens voluntarily help meet our country’s needs, their contributions reduce the responsibility of the government. Many would also argue that private support of charitable activities is more efficient than public support.
Due to the tax treatment of charitable contributions, individuals may realize not only immediate tax benefits but also advantages in terms of after-tax cash flow and the size of the estate they may pass on to their heirs. Gifts to charity during one’s lifetime or at death, if structured properly, will reduce the estate tax liability. An additional benefit of lifetime gifts is that an income tax deduction is available within certain percentage limitations.