What to Do Financially When a Spouse Dies

What to Do Financially When a Spouse Dies

Steps to see that financial matters remain in good order.

   

Provided by Terri Fassi, CPA, MBA, CDFA

 

When a spouse passes away, the emotion and magnitude of the loss can send our lives reeling. This profound change can also affect our finances. All at once, we have a to-do list before us, and the responsibility of it can make us feel pressured. With that in mind, this article is intended as a kind of checklist – a list of some of the key financial matters to address following the death of a spouse.

The first steps. These actions should come first. Some of these steps do require locating some documentation. Hopefully, your spouse kept these documents where you can easily find them – either at home, in a safe deposit box, or in an online vault.

*Contact family members, friends, and your spouse’s employer to tell them of your spouse’s passing. (As a courtesy, your spouse’s employer should put you in touch with the person overseeing its employee benefits plan or human resources department.)

*If your spouse owned a business, check to see what plans are in place for its short-term continuation. Will a partner or key employee take the reins for the time being (or for the long term) as a result of a defined succession plan?

*Arrange payment for funeral expenses.

*Gather/request as many records as you can find to document your spouse’s life and passing – birth and death certificates, a marriage certificate or divorce decree (if applicable), military service records, investment, insurance and tax records, and employee benefit information (if applicable).

The next steps. Subsequently, it is time to talk with the legal, tax, insurance, and financial professionals you trust.

*Consult your attorney. Assuming your spouse left a will and did not die intestate (i.e., without one), that will should be looked at as a prelude to the distribution of any assets and the settlement of the estate. His or her written wishes should be reviewed.

*Locate your spouse’s insurance policy and talk to the affiliated insurance agent. Notify that agent of your spouse’s passing; he or she will work with you to a) get the claims process going, b) help you reevaluate your own insurance needs, and c) review and, perhaps, alter beneficiary designations.

*Notify your spouse’s financial advisor and, by extension, the financial custodians (i.e., the banks or investment firms) through which your spouse opened his or her IRAs, money market funds, mutual funds, brokerage accounts, or qualified retirement plan. They must be notified, so that these funds may be properly distributed according to the beneficiary forms for these accounts. Please note that the beneficiary forms commonly take precedence over bequests made in a will. (This is why it is important to periodically review beneficiary designations for these accounts.) If there is no beneficiary form on file with the account custodian, the assets will be distributed according to the custodian’s default policy, which often directs assets either to a surviving spouse or the deceased spouse’s estate.1,2 

Survivor/spousal benefits. These important benefits may help you to maintain your standard of living after a loss.

*Contact your local Social Security office regarding Social Security spousal and survivor benefits. Also, go online and visit www.ssa.gov/pgm/survivors.htm.

*If your spouse worked in a civil service job or was in the armed forces, contact the state or federal government branch or armed services branch about how to file for survivor benefits.

Your spouse’s estate. To settle an estate, several orderly steps should be taken.

*You and/or your attorney need to contact the executor, trustee(s), guardians, and heirs relevant to the estate, and access the appropriate estate planning documents.

*Your attorney can also let you know about the possibility of probate. A revocable living trust (or other estate planning mechanisms) may allow you to avoid this process. Joint tenancy and community property laws in many states also help.3 

*The executor for the estate should obtain an Employer Identification Number (EIN) from the IRS. Visit: www.irs.gov/businesses/small/article/0,,id=102767,00.html

*Any banks, credit unions, and financial firms that your spouse had a financial relationship with, should be notified of his or her death.

*Your spouse’s creditors will also need to be informed. Any debts will need to be addressed, and separate credit may need to be established for you.

Your own taxes & investments. How does all this affect your own financial life?

*Review the beneficiary designations on the IRAs, workplace retirement plans, and insurance policies that are in your name. With the death of a spouse, beneficiary designations will likely have to be revised.

*Consider your state and federal tax filing status. A change in status may significantly alter your tax picture.

*Speaking of taxes, there may be tax implications surrounding any charitable gifts you and your spouse recently arranged or planned to make. (If a deceased spouse leaves property to a surviving spouse or a tax-exempt charity, that property is exempt from federal estate tax. Any property gifted by your late spouse prior to his or her death is not subject to probate.)3,4 

*Presuming you jointly owned some assets, it is time to retitle them. In addition to real estate, you may have jointly owned bank accounts, investments, and vehicles.

Things to think about when you are ready to move forward. With the passage of time, you may give thought to the short-term and long-term financial and lifestyle consequences of your spouse’s passing. 

*Some widowed spouses ponder selling a home or moving to be closer to adult children in such circumstances, but this is not always the clearest moment to make such decisions.

*Your own retirement planning needs. Certainly, you had an idea of what your retirement would be like together; to what degree does this life event change that idea? Will potential sources of retirement income need to be replaced?

*If you have minor children to take care of, will you be able to sustain the family lifestyle on a single income? How do your income sources compare to your fixed and variable expenses?

*Do you need to address college funding in a new way?

*If your spouse owned a business or professional practice, to what extent do you want (or need) to be involved in it in the future?

This article is intended as a checklist – a list of the important financial considerations to address in the event of a tragedy. If you find yourself referring to this article now, or you decide to keep it in a drawer or on your computer for some unforeseen time in the future, please know that I am here to help you and assist you as you seek answers to your questions as well as a measure of financial equilibrium. Simply call or email me.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – usatoday.com/story/money/personalfinance/2016/01/14/your-ex-could-get-rich-if-you-dont-update-your-beneficiaries/78259394/ [1/14/16]

2 – richmond.com/business/local/article_03ac117d-0bd4-53f9-84cb-5b6ce716c2aa.html [5/14/16]

3 – nolo.com/legal-encyclopedia/avoid-probate-how-to-30235.html [10/12/16]

4 – nolo.com/legal-encyclopedia/estate-gift-tax-faq-29136.html [10/12/16]

 

Updating Your Estate Plan

Updating Your Estate Plan

When should you review it? What should you review?    

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

An estate plan has three objectives. The first goal is to preserve your accumulated wealth. The second goal is to express who will receive your assets after your death. The third goal is to state who will make medical and financial decisions on your behalf if you cannot.

Over time, your feelings about these objectives may change. You may want to name a new executor or health care agent. You may rethink how you want your wealth distributed.

This is why it is so vital to review your estate plan. Over ten or twenty years, your health, wealth, and outlook on life may change profoundly. The key is to recognize the life events that may call for an update.

Have you just married or divorced? If so, your estate plan will absolutely need revision. For that matter, some, or all, of your will may now be legally invalid. (Some state laws strike down existing wills when a person is married or divorced.) If your children or grandchildren marry or divorce, that also calls for an estate plan review.1

Has there been a loss or serious illness within your family? If so, your named executor or health care agent may have to be changed. If one family member has now become physically or financially dependent on you, that too may be an occasion for a second look at the plan.

Has your net worth risen or declined substantially since the plan was first implemented? If you have become much wealthier in the past five or ten years (or much less wealthy), that circumstance may have altered your vision of how you want your assets distributed at your death. Maybe you want to give more (or less) to charity or your heirs. A large inheritance can also prompt you to rethink your wealth protection and wealth transfer strategy.

Have you changed your mind about what your wealth should accomplish? Today, you may view your wealth differently than you did when you were younger. New purposes may have emerged for it – new roles that it can play. Following through on those thoughts may lead you to reconsider aspects of your estate plan.

Have your executors or trustees changed their mind about their roles? If they are no longer interested in shouldering those responsibilities, no longer alive, or no longer of sound mind or reputable character, it is revision time.  

Have you retired, moved to another state, or bought or sold real estate? All of these events call for an estate plan check-up.

The first step in revising an estate plan is to update essential documents. Not just your will or your trust, but also your financial power of attorney and health care proxy. Review all the names: your executor; your trustee; your health care agent. Changes in your personal (and even your business) relationships may call for alterations to those choices.

The second step is to review your risk management. Does language in your will need revision? Does a trust created years ago need to be modified or replaced? Do new estate planning vehicles need to enter the picture in order to help you adequately transfer wealth, counter estate taxes, or endow charities?

What about your life insurance? Do beneficiary forms of life insurance policies need updating? Is corporate-owned life insurance coverage you once counted on now absent? Will policy payouts be sufficient enough to help your loved ones address financial issues after your death?

The third step is to make sure your assets are in sync with your plan. For example, if you have a revocable trust, have you transferred ownership of all the assets that are supposed to go into it? Have you acquired new assets that need to be “poured in?”

If you are married and it appears certain that your estate will be taxed, you may want to own some assets and have your spouse own others. Yes, the federal estate tax exemption is portable, so any unused estate tax and gift tax exemption is allowed to pass to a surviving spouse. At the state level, though, there are different rules. So if all assets are in your spouse’s name and your home state levies an estate tax, that scenario may mean higher estate taxes for your heirs than if those assets were alternately owned by either you or your spouse.2

Even if nothing major happens in your life, review your plan every five years or so. While your life may be uneventful over five years, tax law, the financial markets, and business climates may change significantly. Those kinds of shifts can impact your estate planning strategy.

     

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


Citations.

1 – 360financialliteracy.org/Topics/Retirement-Planning/Estate-Planning-Basics/How-often-do-I-need-to-review-my-estate-plan [8/4/16]

2 – time.com/money/4187332/estate-planning-checkup-items-review/ [1/20/16]

 

Teaching Your Heirs to Value Your Wealth

Teaching Your Heirs to Value Your Wealth

Values can help determine goals & a clear purpose.

 

Provided by Terri Fassi, CPA, MBA, CDFA

                                                                                                                                

Some millionaires are reluctant to talk to their kids about family wealth. Perhaps they are afraid what their heirs may do with it. 

In a 2015 CNBC Millionaire Survey, 44% of families having at least $1 million in investable assets said that they had not yet told their children about their future inheritance. Another 27% said they had refrained from mentioning it until their children were 30 or older.1

It can be awkward to talk about such matters, but these parents likely postponed discussing this topic for another reason: they wanted their kids to grow up with a strong work ethic instead of a “wealth ethic.”

If a child comes from money and grows up knowing he or she can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. It may be relied upon if nothing works out; it may be tapped to further whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in an addiction or a penchant for racking up debt, and the stage is set for wealth to dissipate.

How might a family plan to prevent this? It starts with values. From those values, goals, and purpose may be defined.

Create a family mission statement. To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a financial services professional or estate planning attorney. Introducing the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.

This mission statement can be as brief or as extensive as you wish. It should articulate certain shared viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want to be remembered? These questions (and others) may seem philosophical rather than financial, but they can actually drive the decisions made to sustain and enhance family wealth.

Feel no shame in exerting some control. A significant percentage of families seek to define a purpose for transferred wealth. In CNBC’s survey, 32% of parents aged 55 or younger said they were going to specify what their heirs could use their inheritances for, and that was also true for 15% of parents aged 55-69 and 9% of parents aged 70 or older.1 

You may want to distribute inherited wealth in phases. A trust provides a great mechanism to do so; a certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later, as carefully stated in the trust language.

This is a way to avoid a classic mistake: giving your heirs too much money at once. In fact, a 2015 Merrill Lynch Private Banking & Investment Group report notes that 46% of high net worth parents share that very concern.2

Just how much is too much? Answers vary per family, of course. In the aforementioned Merrill Lynch survey, 46% of families said that they wanted to avoid handing down the kind of money that would dissuade their heirs from realizing their full potential in their lives and careers.2

By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer.

     

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 – cnbc.com/2015/07/22/wealthy-parents-fret-over-inheritance-talk-with-kids.html [7/22/15]

2 – bankrate.com/finance/estate-planning/critical-questions-before-leaving-an-inheritance-1.aspx [8/6/15]

 

Moving Into a Nursing Home Facility

Moving Into a Nursing Home Facility

What you and your loved ones need to know.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

At some point, someone you love may make the transition from living at home to residing at an assisted-living facility or nursing home. When should that transition occur, and what factors must be considered along the way? And what don’t these facilities tell you?

When is it time? If an elder is a) safe and content at home, b) in reasonably stable health, c) can draw on personal or family resources for in-home care, d) has a sufficient “rotation” of family or professional caregivers available so as not to exhaust loved ones, then there may be no compelling reason for that elder to enter a nursing home or assisted-living facility.

If, on the other hand, an elder’s health notably worsens and caregiving strains your own health, relationships and/or resources, then the time may have arrived.

If it is time, is a nursing home really necessary? It may not be. Keep in mind that long-term care insurance will often pay for home health aides, adult day care, and forms of at-home nursing. This is called respite care, and perhaps 10-15 hours of these services per week will do. LTC insurance covers respite care. Even without LTC coverage, this level of care may fit into your budget.1 

Will an assisted-living facility suffice? If an elder is ambulatory and reasonably healthy, it might. Assisted-living (allowing an elder to have their own space plus quality care) costs much less than nursing home care, usually tens of thousands of dollars less annually. A Place for Mom’s Senior Living Price Index estimates the savings at $1,600-$2,300 a month. Most people pay for it using a combination of long-term care insurance and private funds.2

Is an assisted-living facility several steps above a nursing home? Its marketing will tell you so; truth be told, many assisted-living facilities are comparatively brighter, more comfortable and cheaper than nursing homes. 

Keep in mind, however: many assisted-living facilities do not offer their residents 24/7 medical attention, and costs may climb if your loved one needs or wants more than the basics in terms of care or comfort. According to Genworth’s 2016 Cost of Care Survey, the median yearly cost of a semi-private room in a nursing home now exceeds $82,000.3,4  

Are insurers raising premiums for LTC policies? Yes, significantly. As a Money article notes, yearly premiums for the more expensive policies can now exceed $2,300 for a 55-year-old man and $4,406 for a 55-year-old woman. Annual premium increases of 10% or more (sometimes much more) have occurred with disturbing frequency in this decade.5

Is long-term care insurance worth the cost, with the possibility that benefits may go unused? In some cases, it may not be. As CNBC notes, households with $2 million or more in assets may not need LTC coverage at all, while those with savings of less than $100,000 may get much of the help they need from Medicaid when the time comes.6

Alternatives have surfaced to traditional LTC insurance coverage. Recently, “hybrid” life insurance policies (and other life insurance products) have emerged that offer an add-on LTC benefit to consumers, for a price. Short-term care policies, while long available through certain insurance companies, are getting a second look. Some have benefit periods as long as a year, and they may be the only option for seniors with conditions that would disqualify them for an LTC policy.4,5,6

What isn’t said about eldercare? Nursing homes and assisted-living facilities are not predisposed to tell you about the downsides to their communities. So what isn’t usually expressed on the tour or in the brochure?

First, let’s talk about nursing homes. Genworth’s 2016 survey notes that the national median price for the typical shared room at a nursing home is $225 per day. Imagine handling that without help from LTC insurance or Medicaid. (Medicare will not pay for long-term nursing home care or home health care.)3,5 

According to the Centers for Disease Control and Prevention, an elder is twice as likely to suffer a fall in a nursing home as he or she is in the community. In fact, the CDC says that the average nursing home patient suffers 2.6 falls per year and that physical restraints do nothing to reduce the risk. If you have ever visited a nursing home and noticed a preponderance of residents in wheelchairs, it may be a response to liability as much as disability. A corollary to this: if residents are discouraged from being ambulatory, their leg strength may quickly diminish.7

If your parent or grandparent has known and trusted a family doctor for decades, there is a risk that the relationship may wane or end after a move to an eldercare facility. Nursing home residents are placed under the care of one or more staff physicians who more or less become their primary doctors. 

The rules and regulations governing care at assisted-living facilities can vary greatly among states and counties, and, while nursing home ratings are relatively easy to find online, reviews of assisted-living facilities are not. 

When considering an assisted-living facility, it is worth remembering that more than 80% of residential care facilities are for-profit businesses; roughly 40% of these facilities are outposts of national chains. In some cases, that can be a plus; in other cases, a minus.8

You may know someone whose parent or grandparent was asked to leave an assisted-living community. This circumstance isn’t all that rare, especially if an elder copes poorly with the advance of dementia. If a resident is particularly difficult, the possibility of eviction may arise. 

When the time comes, stay involved. Our lives are often busier than we want them to be, but our elders count on us to be visible and engaged in their lives after they enter assisted-living facilities or nursing homes. Your vigilance and support can make a difference in the experience for the one you love.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

«RepresentativeDisclosure»

  

Citations.

1 – nextavenue.org/take-break-caregiving/ [5/16/16]

2 – aplaceformom.com/senior-care-resources/articles/elder-care-costs [6/29/15]

3 – genworth.com/about-us/industry-expertise/cost-of-care.html [4/16]

4 – kiplinger.com/article/insurance/T027-C000-S004-short-term-care-insurance-policies-on-the-rise.html [10/15]

5 – time.com/money/4250147/long-term-care-insurance-rising-premiums/ [3/8/16]

6 – cnbc.com/2015/01/28/weighing-the-pros-cons-of-long-term-care-coverage.html [1/28/15]

7 – cdc.gov/HomeandRecreationalSafety/Falls/nursing.html [6/30/15]

8 – aplaceformom.com/blog/4-22-15-non-and-for-profit-assisted-living/ [4/22/15]

 

Putting Too Much in Company Stock

Putting Too Much in Company Stock

A classic mistake that can come back to haunt you.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Have you invested too much of your 401(k) in company stock? This can happen – and you may not be fully aware of it.

Back when corporations offered traditional pension plans, the federal government watched out for this tendency. In 1974, the Employee Retirement Income Security Act (ERISA) made it illegal for pension plans to invest more than 10% of their assets in company shares. These days, the employee-directed 401(k) is the default workplace retirement plan – but ERISA doesn’t limit the amount of 401(k) assets that can be directed into company stock.1

If the stock flops, how big a hit will you take? Pre-retirees with too much of their nest egg in company stock may recognize the risk. The debacles at Enron, Tyco and WorldCom are still fresh in the memory. Even so, recognition may not prompt them to diversify their portfolios.

What factors promote this problem? Psychology plays a role. After years of working for a large company, employees come to believe in its stability – it should continue to do well, it should be around for years to come. (Past success is interpreted as an indicator of future performance.) This optimism may be the biggest reason why 401(k) plan participants overweight their portfolios in company stock.

Employer encouragement – however overt or subtle – is another factor. At the end of 2011, the Employee Benefits Research Institute (EBRI) and the Investment Company Institute (ICI) took a snapshot of 401(k) asset allocations and found that 58% of businesses with 5,000 or more employees offered their workers company shares as a 401(k) investment option. Some corporations even match employee 401(k) contributions with stock shares.1,2

Breaking the surveyed 401(k) programs down further, the survey determined that about 6% of plan participants had more than 80% of their 401(k) assets invested in their employer’s stock. About 5% of plan participants aged 40-49 had 31-40% of their 401(k) assets invested in company shares; about 6% of plan participants aged 60-69 had 21-30% of their plan assets invested in company stock.2

The classic maxim is to avoid putting more than 20% of your retirement plan assets in company stock at any time, especially if that weighting amounts to more than 20% of your overall retirement savings.1  

What do you do if you’re overweighted? First, you want to determine if you are – and you may own more of your employer’s stock than you initially think. Employer matches, stock options, and even mutual funds that invest in the company may increase your exposure.

A financial professional can help you look at metrics that could give you a picture of the fundamentals, volatility and risk surrounding the stock.  If you do find that you hold too much of it for comfort, it is time to diversify – but make sure you are aware of any restrictions on selling the shares before you take the next step.

Remember the virtues of diversification. As you get older, you have less time to make back portfolio losses, and so there is less wisdom in investing heavily in a single stock. Allocating your retirement assets across different types of investments may help you to “insulate” more of your retirement savings in the event of a downturn or a particularly volatile market. Lessening the amount of company stock in your portfolio has another potential plus: it reduces the potential correlation between your financial future and the future health of the company.

  

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – www.finra.org/Investors/ProtectYourself/InvestorAlerts/RetirementAccounts/p013381 [4/8/13]

2 – www.ebri.org/pdf/briefspdf/EBRI_IB_12-2012_No380.401k-eoy2011.pdf [12/12]

 

Donor Advised Funds

DONOR-ADVISED FUNDS

A way to give without a great deal of bureaucracy.

Provided by Terri Fassi, CPA, MBA, CDFA

 

So, you’d like to make some major charitable contributions, but you don’t want to create a family foundation – with its paperwork and management commitment and the possibility of squabbles. Is there an alternative?

Yes, there is. You could consider a donor-advised fund.

How does a DAF work? A donor-advised fund is a private fund established to manage charitable donations of individuals, couples, families and institutions. It is sponsored by a 501(c)(3) non-profit organization. The process of gifting through a donor-advised fund works like this.1

  • You find a sponsoring organization offering a donor-advised fund. It could be a community foundation down the street; it could be a major investment firm that has started a non-profit charitable endowment.
  • You make an irrevocable contribution of cash or securities to the fund.
  • You get an immediate tax deduction.
  • The fund invests the cash or securities in an account you create; the assets benefit from tax-free growth.
  • While the fund has legal control over the irrevocable contribution you have made, you (or your representatives) advise the fund where the assets in your account should go and how they should be invested.
  • The fund is the actual grant maker that writes the checks to the charities and nonprofit groups you recommend.1,2

DAFs offer control with flexibility. With these accounts, you don’t have the hassles that come with running a private foundation, and you have the ability to advise that the fund make grants to the charities or nonprofits you think are worthy. (The fund makes the final decisions.)3

The standard tax deduction for donations to a private foundation is 30% of a donor’s AGI. In a donor-advised fund, a donor can make additional cash donations up to 50% of AGI.3

Besides the tax deduction and the satisfaction of helping charities, what also makes donor-advised funds attractive is what you don’t have to do. Since you aren’t creating a private foundation, you don’t have to establish tax-exempt status; you don’t have to form a board that will have fiduciary responsibility and schedule board meetings; you don’t have to pay out at least 5% of asset values for charitable purposes each year; you don’t have to pay set-up fees to attorneys and accountants; you don’t have to file discrete federal and state tax returns annually.3

DAFs are less expensive than private foundations. You may be able to open up an account in a donor-advised fund with as little as $5,000; minimums are usually in the neighborhood of $10,000-25,000. In contrast, it takes at least $1 million to start a private foundation.3

The IRS does watch donor-advised funds. There have been instances of non-profits, donors and families stretching the definition of these funds and accounts. The IRS has cracked down on some that appear to exist mostly to claim undeserved charitable deductions and amass tax-sheltered investment income.1

DAFs & private foundations are not mutually exclusive. In fact, sometimes it may be useful to have both.

For example, a decision might be made to shutter a private foundation. Those assets can be transferred to a donor-advised fund, as it is a qualified public charity. So even though the foundation is gone, the donor who spearheaded it can still go on making charitable gifts.5

Another example: a private foundation may want to make some anonymous grants. A complementary donor-advised fund gives a donor flexibility to decide if donations will or will not be anonymous on a grant-by-grant basis.5

So you might want to take a look at donor-advised funds. If you are looking for a way to make significant charitable contributions without the red tape and stress associated with creating and maintaining a private foundation, then this may be a great alternative.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/charities/charitable/article/0,,id=182839,00.html [10/24/11]

2 – vanguardcharitable.org/giving/learn_about_our_donor_advised_fund.html [10/28/11]

3 – pgdc.com/pgdc/family-foundations-donor-advised-funds-and-supporting-organizations-alternatives-private-foundations [10/27/11]

4 – montoyaregistry.com/Financial-Market.aspx?financial-market=money-and-happiness&category=29 [10/30/11]

5 – financial-planning.com/news/donor-advised-funds-fidelity-philanthropy-foundation-2670992-1.html [1/19/11]

When a Windfall Comes Your Way

When a Windfall Comes Your Way

What do you do with big money?

 

Provided by Terri Fassi, CPA, MBA, CDFA

    

A first-world problem, and nothing more? Not quite. Getting rich quick can be liberating, but it can also be frustrating. Sudden wealth can help you resolve anxieties about funding your retirement or your children’s college educations, and newfound financial freedom can lead to time freedom – greater opportunity to live and work on your terms.

On the other hand, you’ll pay more taxes, attract more attention and maybe even contend with jealousy or envy from certain friends and relatives. You may deal with grief or stress, as a lump sum may be linked to a death, a divorce or a pension payout decision.

Windfalls don’t always lead to happy endings. Take the example of one Bud Post, who won more than $16 million in the Pennsylvania lottery in 1988. Eighteen years later, he passed away owing more than $1 million after business failures and bad investments. Along the way, his girlfriend successfully sued him for some of the money and his brother hired a hit man to try and take him out, hoping to inherit some of those assets. That weird and tragic example aside, windfalls don’t necessarily breed “old money” either – without long-range vision, one generation’s wealth may not transfer to the next. As the Wall Street Journal mentions, on average 70% of the wealth built by one generation is lost by the next. Two generations later, an average of 90% of it disappears.1,2

So what are some wise steps to take when you receive a windfall? What might you do to keep that money in your life and in your family for years to come?

Keep quiet, if you can. If you aren’t in the spotlight, don’t step into it. Who really needs to know about your newfound wealth besides you and your immediate family? The IRS, the financial professionals who you consult or hire, and your attorney. The list needn’t be much longer, and you may want to limit it at that.

What if you can’t? Winning a lottery prize, selling your company, signing a multiyear deal – when your wealth is publicized, expect friends and strangers to come knocking at your door. Be fair, firm and friendly – and avoid handling the requests yourself. (That first, generous handout may risk opening the floodgate to subsequent handouts). Let your financial team review appeals for loans, business proposals, and pipe dreams.

Yes, your team. If big money comes your way, you need skilled professionals in your corner – a CPA, an attorney and a wealth manager. Ideally your CPA is a tax advisor, your lawyer is an estate planning attorney and your wealth manager pays attention to tax efficiency.

Think in stages. When a big lump sum enhances your financial standing, you need to think about the immediate future, the near future and the decades ahead. Many people celebrate their good fortune when they receive sudden wealth and live in the moment, only to wonder years later where that moment went.

In the immediate future, an infusion of wealth may give you some tax dilemmas; it may also require you to reconsider existing beneficiary designations on IRAs, retirement plans and investment accounts and insurance policies. A will, a trust, an existing estate plan – they may need to be revisited. Resist the temptation to try and grow the newly acquired wealth quickly through aggressive investing.

Now, how about the next few years? What does financial independence (or greater financial freedom) mean for you? How do you want to spend your time? Should you continue in your present career? Should you stick with your business or sell or transfer ownership? What kinds of near-term possibilities could this open up for you? What are the concrete financial steps that could help you defer or reduce taxes in the next few years? How can risk be sensibly managed as some or all of the assets are invested?

Looking further ahead, tax efficiency can potentially make an enormous difference for that lump sum. You may end up with considerably more money (or considerably less) decades from now due to asset location and other tax factors.

Think about doing nothing for a while. Nothing financially momentous, that is. There’s nothing wrong with that. Sudden, impulsive moves with sudden wealth can backfire.

Welcome the positive financial changes, but don’t change yourself. Remaining true to your morals, ethics and beliefs will help you stay grounded. Turning to professionals who know how to capably guide that wealth is just as vital.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – money.usnews.com/money/personal-finance/articles/2014/01/24/5-things-to-do-if-you-receive-a-windfall [1/24/14]

2 – tinyurl.com/qblyk6v [3/8/13]

 

Coping with an Inheritance

Coping With an Inheritance

A windfall from a loved one can be both rewarding and complicated.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Inheriting wealth can be a burden and a blessing. Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if it comes to pass.

Take your time. If someone cared about you enough to leave you a sizable inheritance, then likely you will need time to grieve and cope with their loss. This is important, and many of the more major decisions about your inheritance can likely wait. And consider, too – when you’re dealing with so much already, you may be too overwhelmed to give your options the careful consideration they need and deserve. You may be able to make more rational decisions once some time has passed.

Don’t go it alone. There are so many laws, options and potential pitfalls – The knowledge an experienced professional can provide on this subject may prove to be vitally important. Unless you happen to have uncommon knowledge on the subject, seek help.

Do you have to accept it? While it may sound ridiculous at first, in some cases refusing an inheritance may be a wise move. Depending on your situation and the amount of your bequest – it may be that estate taxes will drain a large amount. Depending on the amount that remains, disclaiming some (or all) of the gift is worth contemplation.

Think of your own family. When an inheritance is received, it may alter the course of your own estate plan. Be sure to take that into consideration.  You may want to think about setting up trusts for your children – to help ensure their wealth is received at an age where the likelihood that they’ll misuse or waste it is decreased. Trust creation may also help you (and your spouse) maximize exemptions on personal estate tax.

The taxman will be visiting. If you’ve inherited an IRA, it is extremely important that you weigh the tax cost of cashing out against the need for instant funds. A cash out can mean you will have to pay (on every dollar you withdraw) full income tax rates. This can greatly reduce the worth of your bequest, whereas allowing the gains of the investment to continue to compound within the account, and continuing to defer taxes, may have the opposite effect and help to increase the value of what you’ve inherited.

Stay informed. The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct. This is especially true with regard to the taxation on capital gains. The assistance of a seasoned financial professional may be more important than ever before.

Remember to do what’s right for YOU. All too often an inheritance is left in its original form, which may be a large holding of a single company – perhaps even one started by the relative who bestowed the gift. While it’s natural for emotion to play a part and you may wish to leave your inheritance as it is, out of respect for your relative, what happens if the value of that stock takes a nose dive? The old adage “never put all your eggs in one basket” may be words to live by. Remember that this money is now yours – and the way in which you allocate assets needs to be in line with YOUR needs and goals.

  

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

The Road To College

THE ROAD TO COLLEGE

Why and when should you plan for your child’s higher education?

Provided by Terri Fassi, CPA, MBA, CDFA

 

Remember when a college education was reasonably priced? Those days are gone, and that’s why college planning is so important. Between 2001 and 2006, the average tuition and fees at four-year public colleges and universities increased by 35%. The average tuition for private colleges increased 32% between 1996 and 2006 (according to the College Board).

How soon is too soon? It is never too soon to begin saving for your child’s education. Many parents start as soon as a child is born. Some parents begin planning before children arrive. If you’re planning on having a family “someday”, start planning now. If you have a child on the way, start now. If you have an infant, toddler, grade-schooler or teenager, start now. Notice a theme here?

How late is too late? If your child is already in high school, you may feel it’s too late to start saving for college. But think again. ANY pre-planning and saving you can do is better than nothing. If you are in a time crunch to save, start thinking of ways to reduce your monthly expenses and increase your cash flow NOW. Then look at some ways to invest what you’ve saved. There are many options beyond a traditional savings account, such as CDs or money market accounts. Do some research, or better yet, enlist the assistance of a financial professional.

What about your retirement? While you may feel that putting off your retirement for a few years is an acceptable trade-off, you should not have to sacrifice your retirement savings to put your children through college. Remember … student loans are available. While you may not want your child to assume such a financial burden, you could always help out with repaying the loan later. Also, by having your child be responsible for at least a portion of their college tuition or expenses, they may experience a greater understanding of and appreciation for the value of their education.

You need a break. A tax break, that is. Many higher education savings vehicles can provide one, such as 529 plans, Coverdell Education Savings Accounts, and certain kinds of tax-exempt bonds. However, as the number of tax-advantaged college savings vehicles have increased, so have the details, rules and “fine print” pertaining to them. In fact, some of these tax breaks could conflict with one another. Unless you’re willing to spend a great deal of time doing research, it may be wise to speak with a financial professional who can help you sort through these options.

Other alternatives to consider … If money is tight, would your child be willing to complete their first two years at a local community college, then move on to their preferred college or university later? The tuition likely to be much less at a state community college, and you could realize additional savings if your child attends school while living at home. If your child does not wish to start college locally, it may be worthwhile to look into the myriad of scholarships, work study programs and off-campus jobs that may be available. The guidance office at most schools will have job information available if you inquire.

The simple fact is – the sooner you plan, the better. If you haven’t begun planning, start now – there is no better time to get the proverbial ball rolling. You may be surprised how a little planning now can make a big difference in the years to come.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.