A last-minute planning opportunity

Life has no blessing like a prudent friend.

- Euripides

As I write this on Monday, I’m still a little bit “cookie drunk” from the weekend. To the gym–soon!

But before I get there, I wanted to write this up and set it into place so you’ll get it this week. You see, I truly hate “springing” these items on my clients and friends, but I’ve just been made aware of an aspect of the recently-signed tax agreement which you should certainly consider.

(And, of course, feel free to pass this along to friends and family who may benefit — this is one to be shared).

Generation-Skipping Gifts Opportunity

The practice of giving (tax-free) gifts to your children, in advance of estate transfers, has been around for a while. But any gift of over $13,000 has always been subject to the “Generation-Skipping Transfer Tax”. This tax was set up in the eighties to prevent asset transfer for the purpose of avoiding said estate tax. It is typically the same rate as the estate tax. So, any gift over $13K would be taxed at those rates.

But not right now, it’s not.

You heard me right.

With the (recently-signed) tax agreement, the tax rate is ZERO for any “generation-skipping” transfer made by 12/31/10.

Now, this won’t apply to everyone, of course, but this is a welcome opportunity for the right situation. And you’ll need to act quickly, because beginning January 1, 2011, the tax rate for these transfers will be 35% (the same as the new estate tax rate). Further, that rate is set to go back to 55% in two years, unless Congress changes it again.

The best part? Even if you don’t yet have grandkids, you can take advantage of this “loophole” by setting up the right vehicles now.

But you’ll have to act quickly. These sort of moves are what we routinely “pull off” on behalf of our clients, and if you contact us quickly ((909) 843-6427 or by sending me an email), we can put the papers together to make it happen for you.

Again, this won’t apply to everyone … but if you think a friend might be interested, feel free to send them this email and have them contact us.

And, on the early note — let me wish you a premature Happy New Year, 2011!

My holiday prayer

“Attitudes are contagious. Are yours worth catching?”

- Dennis Mannering

Well, the big tax agreement is in place, as is an update to the estate tax situation.

As you’ve no-doubt heard, the exemption has been set at $5million, and the rate itself is at 35%.

However, estate planning is about MUCH more than avoiding an estate tax.

But that’s a topic for a different week. Why?

Simple–through experience of sending out emails like this to clients and friends, I know that it’s highly unlikely that much will actually be *done* during this holiday week. I could write the most impassioned, effective explanation for why it’s so critical to have your estate plan properly in place… but you’d probably tune me out.

So I’m going to keep my powder dry for now … and, instead, share with you something that was sent to me earlier, and pass it to you. It inspired and challenged me…

Holiday Prayer

This was sent to me by a friend, and I thought it worth sharing … this holiday week, traveling can be chaotic, shopping even worse. Let’s all remember to keep our heads about us…

“God, help us remember that the jerk who cut us off in traffic last night is a single mother who worked nine hours that day and is rushing home to cook dinner, help with homework, do the laundry and spend a few precious moments with her children.

“Help us to remember that the pierced, tattooed, disinterested young man who can’t make change correctly is a worried 19-year-old college student, balancing his apprehension over final exams with his fear of not getting his student loans for next semester.

“Remind us, Lord, that the scary-looking bum, begging for money in the same spot every day (who really ought to get a job!) is a slave to addictions that we can only imagine in our worst nightmares …

“Help us to remember that the old couple walking annoyingly slow through the store aisles and blocking our shopping progress are savoring this moment, knowing that, based on the biopsy report she got back last week, this will be the last year that they go shopping together.

“Father, remind us each day that, of all the gifts you give us, the greatest gift is love. It is not enough to share that love with those we hold dear. Open our hearts not to just those who are close to us, but to all humanity. Let us be slow to judge and quick to forgive, show patience, empathy and love. ”

Amen.

Best to you. May your season be truly bright.

Why you should be giving, no matter how effectively

“People with many interests live, not only longest, but happiest.”

- George Matthew Allen

I’m writing this on the “First Day of Christmas” (12 days before the 25th– or do the “12 days of Christmas” start on Christmas? Ah well…it’s the holidays.), and I’ll tell you what–this past weekend, I got a dose of what the holidays are *really* about…

Shopping.

I say this, with a good helping of eye-rolling. Whichever faith tradition you hold dear, it’s likely to have become extremely commoditized and “shopping-ified” (look, I’m a lawyer–not a novelist) around this time of year.

And we all complain about it, reliably, loudly and regularly–yet there we are at JCPenney, stocking up on plastic toys and off-brand cologne, all to “celebrate” the holiday. (And that’s a taste of my weekend, by the way…and I’m tired!).

Now, far be it from me to decry the operation of a healthy economy, but may I make a humble suggestion? Regardless of your tax-deduction needs, or even if you’re effective about it–consider making GIVING a large part of your holiday plans.

Why To Give, No Matter The Benefit

When we set up GRAT’s, or other mechanisms for clients to deliver their philanthropy, there’s much discussion about the benefits of the gift.

But what about for the giver?

This doesn’t quite work, when the giver is an estate–but since I’m not writing to a bunch of estates (I’m writing to real people!), I’ll proceed with some strong words about WHY you should be giving, no matter how effectively your money is spent by the charity!

1. Tax Rate Leapfrogging.

You can bump yourself into a whole different (lower) tax rate, at times, by reducing your taxable income. This is something to consult with your CPA about, if you wonder if you’re on the fence.  (If you need a recommendation for a qualified local tax pro, just let me know with a reply here.)

2. Your heart changes.

Studies show (http://www.livescience.com/health/080320-happiness-money.html) that when individuals spend money on gifts for friends or charitable organizations, their happiness increases — while those who spend on themselves get no such boost. Even Scrooge can agree that everyone wins.

3. You can double your money without doing any work.

Instead of simply sending off your money, why not find out if anyone is offering to match? Sites like www.DonationDoubler.org have lists of companies that will match your charitable contribution. Find one you like and suddenly you contribution goes twice as far!

4. You’re just going to blow it on something dumb anyway.

As pious as you are, there’s still extra money in your budget somewhere. Create a budget for charity donations, then take some of your extra money (each month or each year) and donate it to charity. Use your spending money to make a difference instead of spending it on Brookstone junk you’ll use once. And if you think you don’t have enough, take that extra 2% you’ll be earning next year and put that toward a charity fund. For someone making $30,000, that’s about $500!

5. Face it: If you don’t help now, you never will.

Don’t pretend that instead of giving money, you’re going to donate time. When was the last time you volunteered at a soup kitchen? Don’t let your mind fall for this trick. Send the money now or you’ll end up giving nothing.

6. Be a leader, not a follower.

This is the biggie, in my opinion. There’s just something that happens in your psyche when you cut a big (or relatively big) check to someone in need, or to a charity organization. You feel more powerful–more dynamic. You signal to your own unconscious: “Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away.” Then, of course, something special often happens: more money seems to find itself in your hands.

I’m not advocating a mystical pay-it-forward scheme; I’m simply making the observation over years of being a student of how money “works”. And, it just seems to find itself in the hands of those who give it away.

So–was any of this convincing? Did it help you see things in a new light? Let me know…

I hope this was simple and straight–as usual.

More important than a ‘mental health’ day…

“Your big opportunity may be right where you are now.”

- Napoleon Hill

This holiday season is probably busy for you (it is for us!) … and I’ve become increasingly aware that though I post  strategies, tips and whatnot every week — it can be a pain to pull them off in the evenings, when the demands of family and the necessity for down-time pulls at you.

That’s ESPECIALLY true as we “slow down” for the holidays.

So, I have a bit of a novel proposal for you in this week’s post. I believe it could help you in multiple ways–your bottom line, your taxes … and even your mental health!

Let me know what you think!

Take One Day And Save

It’s true: inactivity is costly.

You see, if you’re like most people, I bet that when you get your house insurance renewal notice, you quickly glance at the price — and renew it.  You renew it simply  because you don’t have the time to search around for better prices.

In my experience, working with family finances for YEARS, I’ve learned that most people have a good sense of what needs to be done to improve their finances but they simply cannot find the time.

So here’s my proposed solution for you:  Take a day off work.

In fact, many financial tasks simply cannot be completed in the evening or on the weekend.  By taking a day off work, you can contact people who may only be available at regular business hours.

On top of the true bottom-line impact a day like this could create, there is, of course, the “mental health” aspect of it all. HR professionals often recommend taking a mental health day, from time to time–well, call this your “Fiscal Health” Day!

Possible tasks to consider accomplishing on your day off:

1. Dump your savings account with a puny interest rate and open a high yield savings account.

2. Get quotes for cheaper insurance: health, life, auto, house, and any other insurance. And you can even do a little calculating to determine how much you could save by changing your deductible.

3. Complete the most important (but not obviously-pressing) financial tasks like making a will. Best done with a professional, by the way! (Yes, I’m biased–but I’ve also seen a lot of probate, and a lot of poorly-constructed wills!)

4. If you’re carrying credit card debt, call the companies and ask them to reduce your credit card interest rates. Believe it or not–they’ll often say yes! Take time to develop and formulate a good plan to get out of credit card debt.  Find or prepare a debt reduction plan.

5. Apply for a cash back debit card.

6. Get more organized with your finances by shopping around for and using a good personal finance software program.

7. Review your budget, get caught up on your budget, or learn how to budget.

8. Shop around for the best online broker.  Be sure you’re getting the best price for your stock trades.

9. Make energy efficient changes to your home and lifestyle.

10. Find a good second hand store to shop at instead of the local department store.

11. Set up automatic payments for your bills to be sure you avoid late payments.

12. Google It.  Use the phrase “how to save money”, and then fill in the blank “on groceries”, “on gasoline”, “on kitchen expenses”, “on babies” …

13. Sell stuff on Ebay. Look for junk lying around the house and list it on Ebay.

Undoubtedly, there are more things which can go on this list, if you’re industrious about it. But simply put, I’m hoping to give you “permission” to see your financial health in a similar light as you see your mental health.

I hope this was simple and straight–as usual.

Holiday movin’

“Just because something doesn’t do what you planned it to do doesn’t mean it’s useless.”

- Thomas Alva Edison

Finished with one holiday (and I’m still stuffed with leftovers) … but now we move into the “holiday season”. Yikes. I’m *already* overwhelmed with all of the marketing going on, you?

Anyway, as I write this, Congress is convening for its “lame duck” session. That’s an old term, coined in the 1700’s, which essentially means that this Congress is in the peculiar position of not facing the consequences of their actions in a subsequent election, giving them greater freedom to issue unpopular decisions.

But…the mood of the country may make this one rather tame. The “Bush Tax Cuts” may yet be extended. Of course, the estate tax may come back with a vengeance, as a “compromise” in extending the lower rates.

However, regardless of what Congress does, there are some important moves for you to make THIS month which will help your tax bill stay low.

Though I’m not a tax advisor per se, I’ve compiled 5 simple moves can make, regardless of their family’s situation…

Holiday Tax Moves (Before Year-End)

As an estate-planning lawyer, I obviously pay close attention to the estate tax situation. Still waiting for Congress on that one!

But whatever they do, I’m all for my clients keeping their tax bill low, and I pay close attention to the tax code for all of our estate planning decisions.

But the problem for many families is that many tax advisors make things so complicated! (Of course, many situations are, indeed, complicated…but come on–plain English sometimes would help.)

So, I thought I’d chime in, and translate some of the CPA gobbledy-gook into simple steps which will keep your tax bill from biting you in the rump come tax time…

1. Sell certain (appreciated) assets

Right now (until Dec. 31 at least), the long-term capital gains tax rates are at historic lows. Come January 1, there’s a very good chance they could be slightly–or significantly–higher.  So you’ll pay less taxes if, by Dec. 31, you sell stock and other assets that have appreciated and which you’ve owned for more than a year.

If you’re in the 25 percent tax rate bracket or higher, your long-term capital gains rate is just 15 percent. If you’re in the 15 percent income tax bracket or lower, you won’t owe any capital gains taxes.

2. Donate

It’s not just because ’tis the season, but often (if we’re all honest) because the year-end is so close. So, obviously, when it comes to taxes, giving to a nonprofit can be like a money-saving gift to yourself. If you itemize your deductions, you can claim your charitable donations, both of cash or goods.

In fact, if you’re *close* to being able to itemize deductions, making some nice gifts this month can push you over the top into some major tax-savings. And, of course, there’s the added benefit of what happens to YOUR mindset when you give.

What’s even better, in 2010–and this year only (at least for now)–there is no itemized deduction limit for anyone. So everyone who itemizes deductions, regardless of how much they make, gets to claim all of their itemized deductions.

But one caveat: increasing deductions could cost you if you end up owing under the alternative minimum tax.

3. Make the switch to Roth

Changing a traditional IRA to a Roth is even better this year because the $100,000 income threshold is gone. (However, taxes still will be due on any converted money that was not previously taxed.)

Even better: if you make the traditional-to-Roth IRA switch by Dec. 31, you can defer payment of the associated taxes until you file your 2011 and 2012 tax returns.

The same thing applies to certain 401(k) accounts too … you can defer tax payment over the next two years.

4. Put Those New Windows In!

Many “tax people” have been pounding this drum for a while, for the simple fact that (because of the last “stimulus” package) replacing windows, doors, and HVAC  systems– as well as installing new insulation–could net you a $1,500 tax credit on your 2010 tax bill! Credits always beat deductions. Note, however, that if you claimed the full credit on your 2009 return, you don’t get it again this tax year.

5. Adjust your withholding

Do you intentionally get a big refund each filing season? Quit that! You’re providing Uncle Sam an interest-free loan of your money.

Submit a new W-4 now so that your payroll withholding is more closely in line with your future IRS bill. It could even give you a few extra dollars at the end of the year to spend on holiday gifts!

Oh, and just so you know, it’s growing very likely that whatever Congress decides on the tax cuts, payroll calculators may not have time to update by January 1st. So, keep that in mind as well, if you are on a payroll.

I hope this was simple and straight–as usual.