Charitable Giving: Why Do We Give?

 Tax-deductible charitable donations are a great way to get even more deductions on your tax return. By itemizing those donations to qualified charities on your 1040 Schedule A, you may be able to reduce your taxable income. In her ‘Tis the Season to Give blog written late last year, Julie Hall, CFP® outlined the different ways to give on a tax-efficient basis.  But aside from the attractive benefit of potentially lower taxes, why do we give to charities?

Individuals give to charities for many different reasons:

• Support a Personal Connection– We may know someone who works for a charity or benefits from the organization in some way (i.e. a relative is a breast cancer survivor, so a donation to the Susan G. Komen Foundation feels like the right way to give back).
• Support Society as a Whole – We may feel like, because we are fortunate to be financially comfortable, we should do our part and give back to those who are less fortunate (i.e. a local food bank).
• Support a Cause We Truly Believe In – We have a passion for a cause (i.e. animal lovers may choose to support the Humane Society).
• Support an alma mater – We give back to our local high school or college as a “thank you” for the educational experience.
• Support a Religious Affiliation – We tithe to our church on a local, national, or international level.

If you’ve made the conscious decision to give to charities, it is important to (1) research the charities you’re interested in to make sure that they are legitimate and that your donations will be used responsibly for the intended cause and (2) track your giving and communicate your giving plan to your family.

In my next post, I will take a closer look at the best ways to research your charities.

You’ve Signed Your Trust Document. Now What?

 Congratulations!  You have finally gotten your estate planning in order.  After years of procrastination, you went to see an attorney (one who specializes in estate planning) and had your important documents drafted, including a Revocable Living Trust.   Your attorney no doubt shared that one of the main reasons that a Revocable Living Trust is a good planning tool is so you (or, really, your heirs) can avoid the time and money to go through the probate process.  So, you signed or executed your new Revocable Living Trust and you are done – or are you? 

In order to truly avoid probate there is another critical step that many people (and even some attorneys) unfortunately skip.  Once your Revocable Living trust is in place, there is a process known as “funding your trust” that is just as important as signing.  Funding a trust is a process where you, preferably with the help of your attorney, make sure that your taxable assets are owned by the trust.  If your assets are not owned by the trust at death – probate will most likely be required.   

Funding a trust may include: 

• Re-titling property such as a house to your trust via a Quit Claim or Warranty Deed
• Re-titling your taxable investment accounts such as a brokerage account to your trust
• Updating beneficiaries of IRA’s, 401k’s and life insurance (assets such as an IRA or 401k cannot technically be “owned” by your trust)

If you don’t follow through and “fund” your trust, chances are you might have purchased really expensive paper from your attorney.  

One last note:   As you acquire new property or open new investment accounts, be sure to consider whether the trust should own or be a beneficiary of the asset.

Please discuss legal matters with the appropriate professional.

Transfer On Death

 Estate planning is all about getting WHAT is valuable to you distributed to WHO you want, WHEN you want after you are gone.  Getting assets distributed in an efficient and cost effective manner is also important.  Avoiding costs of money and time can be accomplished by avoiding the court system for the distribution of an estate.

Probate avoidance is a common estate planning goal for many people. And, rightfully so.  While the probate process has been simplified over the years, the fact remains that the probate process continues to be time intensive and potentially costly. In many cases, a revocable living trust is used as a financial tool to avoid probate.  Another less known vehicle is the Transfer on Death (“TOD”) designation that can be added to accounts such as bank accounts and taxable brokerage accounts.

A TOD account acts much like a beneficiary designation on an IRA, 401k or even life insurance policy.  At the owner’s death, the account bypasses probate and is paid directly to the person named on the TOD form.  Some firms may charge $50-$100 to establish a TOD, but many also provide such an account for free, making this a cost effective alternative to having a Living Trust drafted.

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Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Dealing with Death: A Financial Guide

 Emotionally and psychologically, handling the loss of a significant relationship is one of life’s most difficult tasks. But it’s the additional stress of handling legal and financial affairs that can feel like enough to put you over the edge.

There are a handful of items that need to be handled immediately.  Most decisions can, and should, be left for a later date when grief has been handled and clearer heads can prevail.

Here are the top 5 things you can’t put off:

1. Look for instructions that the deceased may have left regarding preferences for funeral and burial arrangements.  This may be part of a larger document called a Personal Financial Record Keeping System and Letter of Last Instruction, a document that provides important information about professional advisors, documents and accounts.
2. Locate important legal documents, including the will and trust, if one exists.  This will give guidance regarding who has been named to handle the financial affairs of your loved one and how funds can be accessed to pay for funeral and other costs.  Other important documents may include prepaid funeral plans, safety deposit box information, and marriage, birth and other identification like driver’s licenses.
3. Contact the Deceased’s financial advisor.  The financial advisor will likely have copies of any/all legal documents, as well as a complete list of all financial assets and insurances.  The financial advisor will be instrumental in helping to settle the estate and will be invaluable in helping to make important financial decisions later.
4. Get Multiple Copies of the Certified Death Certificate.  These documents will be important in settling all of the financial affairs of your loved one, and can be more difficult to obtain later.
5. Notify Income Providers.  This includes Social Security, employers paying pensions, etc.  Stopping income payments immediately prevents the need to repay them later.

It is most important to deal with your grief and to give yourself and your family time to honor your loved one.  Many of the rest of the financial decisions and affairs can be handled when the time is right. 

Contact your financial advisor for additional guidance.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Your Legacy in a Letter

 In April, to celebrate his 79^th birthday, my father had a special gift up his sleeve for our family.  It started as an idea and, over a period of two years, with pen to paper dad wrote his story.  It was a labor of love for him and came as complete surprise to us. “This story must begin with a little background information,” is the first sentence of a truly remarkable gift of personal memories and milestones, accomplishments and wisdom. 

Times and things change, however, writing letters to share wisdom, preserve tradition, record family history, explain and inspire is not a new concept.  In fact, letters like the one from my father are most commonly known today as ethical wills or legacy letters.  Until I received a legacy letter, I could only imagine the impact and value a gift like this carries. 

Estate planning documents like wills, trusts, and beneficiary designations are legal documents which typically are used to control the distribution, management and availability of assets from one generation to the next.  Legacy letters are not legal documents.  They pass on personal values and the nuances of your story.

There are no hard and fast “rules” for writing legacy letters. The contents and form of your letter are entirely up to you. You can tell your kids what you hope they’ll accomplish, tell stories about your grandfather, or relive the time you made a key tackle on the one-yard line to preserve a win for your high school football team.  Embellishment is allowed!

Here are some ideas to help you get started:

• Decide who you are writing to . . . .
• Speak from your heart in your unique voice  . . . .
• Life has taught me . . . .
• Some of my special memories are . . . .
• I believe . . . .
• Defining moments  . . . .

The beauty of the written word is that it can be handed down for generations to come.  Don’t hesitate – get started today.  Legacy letters are the perfect gift for any occasion!

What Happens if I Die Without a Will?

A common question raised by new parents, usually right before their first vacation without children, is “what happens if I die without a will?”  Many are surprised to learn that in effect everyone has a will – either one that you have personally crafted or a set of default rules developed by the State that acts as a will.  Michigan has adopted default rules called Michigan Intestate Succession Laws. 

Essentially, without a will you are leaving it up to the State to determine who is best suited to raise your minor children and who should receive your assets.  Fortunately, these State default rules are probably consistent with what many parents would intend to happen anyway.  However, the rules are designed to assist the State in running an organized society – not to meet your individual desires.

For example, in Michigan, any part of one’s estate not disposed by a will (or joint property with rights of survivorship) will normally be distributed in the following manner: 

• The surviving spouse is entitled to the first $150,000. 
• Any remaining assets are split ½ to the spouse and ½ to the couple’s children.

If one parent passes away, the surviving parent remains the legal guardian.  However, if both parents pass without a valid will, the State will determine guardianship through the court system.  While the court may entertain the fact that you told your sister you wanted her to care for your children (instead of the dreaded in-laws) if something were to happen to you, it is for the court to determine what is in the best interest of the minor child(ren).  Having a will can ensure that your wishes for the care of your children are carried out.

As you get ready to plan your next vacation, make it a point to add one more item to the “to do” list – prepare a will.  Although the State default rules may be adequate in many circumstances, a will provides the peace of mind that your children and assets will be cared for as you desire.

Please discuss legal matters with the appropriate professional.

Don’t Let Your Beneficiary Designations Surprise You

For many people, retirement accounts such as an IRAs, 401ks, or 403(b)s are their largest assets.  And while many spend considerable time thinking about wills and trusts in determining where their hard earned assets will go, many, unfortunately, are too cavalier in addressing their IRA, 401k or 403(b) beneficiary designations.    

A beneficiary form is called a “will substitute” because a will does not speak to your qualified retirement assets. This means that the beneficiary form determines who will receive your assets in these plans.  It is important to coordinate beneficiary forms with your overall estate and income tax planning to ensure that those you want to benefit from those assets receive them.  

In working with a new client recently, let’s call them Mike and Carol, we discovered (much to their surprise) that their beneficiary forms were inconsistent with their living trusts.  Mike and Carol had recently amended their Trusts to provide half to each other and half to their children from previous marriages at their deaths.  Upon review of their IRA beneficiary forms, we discovered that their forms still listed each other as primary beneficiary and, therefore, their desire to split the assets would not occur.  Fortunately, Mike and Carol were able to update their beneficiary forms and now their planning is consistent with their goals.   

Beneficiary designation forms are free to complete or change, and they are just as important as your wills or trusts. 

Review your beneficiary designations today, and leave any surprises for your next birthday!