Women, Wealth, and Legacy Planning

Active participation in wealth management can strengthen a women’s commitment to protect and grow their assets with the goal of leaving a legacy for their children, their community, and beyond.

Whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect their own as well as their beneficiaries’ financial security, women play a central role in establishing and preserving family wealth. Consider these statistics:1

  • Women now control more than half of the investment wealth in the United States.
  • 48% of estates worth more than $5 million are controlled by women, compared with 35% controlled by men.
  • Some estimate that by 2030, women will control as much as two-thirds of the nation’s wealth.

These and other trends magnify the need for women to be involved, informed, and comfortable with their role as guardians of family wealth. Active participation in wealth management can strengthen women’s commitment to protect and grow their assets with the goal of leaving a legacy for their children, their community, and beyond.

Best Practices in Legacy Planning

The following strategies may help assure the smooth transfer of your measurable wealth — and your values surrounding wealth — to the next generation.

Education leads to confidence. Attaining financial security for you and your heirs typically requires you to accept responsibility for the management of significant investment assets. Whether you are single, married, or a surviving widow, it is in your best interest to obtain as much education as possible about wealth planning, investments, and related matters. Even if you are not directly responsible for making important financial decisions, it is vital to have knowledge in these areas in order to communicate effectively with professional advisors charged with these duties.

Professionals offer objective, qualified services. Relying on professional advice as opposed to family and friends is extremely important when making decisions affecting the accumulation, preservation, and distribution of wealth. What should you expect from a qualified professional? A good wealth advisor — or a team with other professionals, such as attorneys and accountants — should offer guidance and services in most areas of wealth management, including estate planning, retirement planning, insurance needs assessment, and college planning. On a more personal note, a wealth advisor should work closely with you to:

  • Identify areas requiring special assistance, such as creating trusts.
  • Minimize taxes and planning costs.
  • Develop and implement a personalized wealth management plan.
  • Review your plan periodically and suggest changes when needed.

Philanthropy is integral to family legacy planning. Wealth holders have a greater opportunity — if not responsibility — to make charitable giving an integral part of the legacy planning process. Families that are charitably inclined may have clear goals in mind, but they may not know where to begin. In order to choose the best strategy, you should work with a trusted advisor to evaluate a number of factors, such as tax management objectives, types of assets to be gifted, and your specific strategic intent. Then choose from among a range of charitable-giving vehicles, such as donor-advised funds, family foundations, gift annuities, and charitable remainder trusts/charitable lead trusts.

Children should learn about the responsibilities of wealth. Wealth is a gift that opens doors of opportunity not only for you, but also for your children, their children, and generations to come. Yet wealth can be a weighty responsibility that takes time to manage, maintain, and preserve. If you are a parent, you are no doubt concerned about the effects of wealth on your children’s values and how the money lessons you pass on to them will resonate as they mature to adulthood.

Family values should be held in the same high regard as family wealth. Family values — those traits, beliefs, goals, and morals that are shared by members of a family group — define a family’s character as much as dollar signs measure a family’s wealth. By holding shared values in high regard and setting an example of commitment to financial responsibility, philanthropy, and volunteerism for the younger generation, you will enrich your family’s legacy for generations to come.

A Woman’s Worth

As stewards of the family legacy, women are in a unique and influential position. They are holders of great wealth as well as keepers of the family’s moral and philanthropic vision. There are many financial, accounting, legal, and business tools to assist women in implementing a plan of action. Contact a financial advisor for guidance in mapping out a legacy planning strategy unique to your situation.

This information is not intended as legal or tax advice and should not be treated as such. You should contact your estate planning and/or tax professional to discuss your personal situation.

 

 

Source/Disclaimer:

1The American College, The Wealth Channel Magazine, “Women and Money: Research reveals unmet opportunities and risks,” by Mary Quist-Newins, CLU©, ChFC©, CFP©, Director, State Farm©Center for Women and Financial Services, Spring 2010.
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

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

Five Strategies for Tax- Efficient Investing

How you can potentially improve your portfolio’s bottom line through tax-efficient investing.

Savvy investors have long realized that what their investments earn after taxes is what really counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and potential state and local taxes, your investments’ returns in any given year may be reduced by 40% or more. That’s why if you are a high-net-worth investor, reducing your tax liability may be key to building the value of your assets. Fortunately, there are several tools and tactics you can use to help manage taxes and your investments. For instance, 401(k) and 403(b) plans and traditional individual retirement accounts (IRAs) all offer the benefits of tax deferral.1 In some cases, contributions to these accounts may be done so on a pretax basis or may be tax deductible. There are also a number of tax-efficient investment vehicles and tax planning strategies that you can use to help offset capital gains and/or reduce your taxable income. Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time.

It’s not what your investments earn, but what they earn after taxes that counts. For example, if you earned an average 8% rate of return annually on an investment taxed at 28%, your after-tax rate of return would be 5.76%. A $50,000 investment earning 8% annually would be worth $107,946 after 10 years; at 5.76%, it would be worth only $87,536. Reducing your tax liability is key to building the value of your assets, especially if you are in one of the higher income tax brackets. Here are five ways to potentially help lower your tax bill.1

Invest in Tax-Deferred and Tax-Free Accounts

Tax-deferred accounts include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs), and annuities. Contributions to these accounts may be made on a pretax basis (i.e., the contributions may be tax deductible) or on an after-tax basis (i.e., the contributions are not tax deductible). More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs, and Roth-style employer-sponsored savings plans are not tax deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have held the account for at least five years and meet the requirements for a qualified distribution.

Pitfalls to avoid: Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA, or annuity may be subject not only to ordinary income tax, but also to an additional 10% federal tax. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company. Also, if you have significant investments, in addition to money you contribute to your retirement plans, consider your overall portfolio when deciding which investments to select for your tax-deferred accounts. If your effective tax rate — that is, the average percentage of income taxes you pay for the year — is higher than 15%, you’ll want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That’s because withdrawals from tax-deferred accounts generally will be taxed at your ordinary income tax rate, which may be higher than your long-term capital gains tax rate (see “Income vs. Capital Gains”).

Income vs. Capital Gains

Generally, interest income is taxed as ordinary income in the year received and qualified dividends are taxed at a top rate of 20%. (Note that an additional 3.8% tax on investment income also may apply to both interest income and qualified (or nonqualified) dividends.) A capital gain (or loss) — the difference between the cost basis of a security and its current price — is not taxed until the gain or loss is realized. For individual stocks and bonds, you realize the gain or loss when the security is sold. However, with mutual funds you may have received taxable capital gains distributions on shares you own. Investments you (or the fund manager) have held 12 months or less are considered short term, and those capital gains are taxed at the same rates as ordinary income. For investments held more than 12 months (considered long term), those capital gains are taxed at no more than 20%, although an additional 3.8% tax on investment income may apply. The actual rate will depend on your tax bracket and how long you have owned the investment.

Consider Government and Municipal Bonds

Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. An investor in the 33% federal income-tax bracket would have to earn 7.46% on a taxable bond, before state taxes, to equal the tax-exempt return of 5% offered by a municipal bond. Sold prior to maturity or bought through a bond fund, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.

Pitfalls to avoid: If you live in a state with high state income tax rates, be sure to compare the true taxable-equivalent yield of government issues, corporate bonds, and in-state municipal issues. Many calculations of taxable-equivalent yield do not take into account the state tax exemption on government issues. Because interest income (but not capital gains) on municipal bonds is already exempt from federal taxes, there’s generally no need to keep them in tax-deferred accounts. Finally, income derived from certain types of municipal bond issues, known as private activity bonds, may be a tax-preference item subject to the federal alternative minimum tax.

Look for Tax-Efficient Investments

Tax-managed or tax-efficient investment accounts and mutual funds are managed in ways that may help reduce their taxable distributions. Investment managers may employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends, and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

Pitfalls to avoid: Taxes are an important consideration in selecting investments but should not be the primary concern. A portfolio manager must balance the tax consequences of selling a position that will generate a capital gain versus the relative market opportunity lost by holding a less-than-attractive investment. Some mutual funds that have low turnover also inherently carry an above-average level of undistributed capital gains. When you buy these shares, you effectively buy this undistributed tax liability.

Put Losses to Work

At times, you may be able to use losses in your investment portfolio to help offset realized gains. It’s a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized capital losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” capital losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years, subject to certain limitations.

Pitfalls to avoid: A few down periods don’t necessarily mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to ups and downs. However, if your outlook on an investment has changed, you may be able to use a loss to your advantage.

Keep Good Records

Keep records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate the basis of shares you own and choose the shares you sell in order to minimize your taxable gain or maximize your deductible loss.

Pitfalls to avoid: If you overlook mutual fund dividends and capital gains distributions that you have reinvested, you may accidentally pay the tax twice — once on the distribution and again on any capital gains (or underreported loss) — when you eventually sell the shares.

Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time. For more information about the tax aspects of investing, email us at support@cstomasi.com.

 

 

Source/Disclaimer:

This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

TAX REFORM for Working American Families? Really?

Make no mistake “Working American families”, the creative math in this tax bill may very likely increase your tax burden rather than provide you “the greatest tax savings ever”.

If the income tax brackets in this article https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968 are accurately portraying the intent, your attention is first drawn to the lower rates.  But what they don’t tell you is that you can reach a higher tax bracket quite a bit sooner than current, especially if you are single.  For example, a single person with taxable income between 157,500 and 191,500 is presently taxed at 28%. With the current proposal these income levels are taxed at 32%.  The House and Senate version both want to start the 35% tax bracket for singles when they hit $200,000 incomes.  Under current law single taxpayers do not reach the 35% tax bracket until their taxable income goes up to $416,000.  Smaller jumps for married taxpayers filing jointly but they also reach higher tax brackets sooner with both the House and Senate versions.

Increasing the standard deduction from 12,700 to 24,000 for married filing jointly sounds good, but if you take into account the proposed elimination of the personal exemption currently at 4,150 per person, married couples with 2 or more children will lose.  Under current law 12,700 plus 4,150 times 4 (2 parents with 2 kids) totals 29,300. Is anyone doing the math?   With only the 24,000 standard deduction available, there goes 5,300 deduction from your taxable income.  That number goes up if you have more than 2 children.

More important is losing a good part of our itemized deductions.  Our tax laws have been structured so as to encourage the good and discourage the bad.  This bill, if it goes through, discourages home ownership by reducing the corresponding tax benefits.

Doubling the estate tax exemption to $11.2 Million for singles and $22.4 Million for married couples- I don’t think that applies to America’s “working families”.

There is much more but let’s just see where it all lands.