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Tag: Financial Planning

How to Keep Money in Your Family – Estate Planning

You’ve invested your life into caring for your family’s wellbeing. You cherish them and want them to mature into smart, healthy, successful adults. Naturally, as they become adults and grow older, your authority over them recedes. They make their own decisions, and you just hope it’s for the best.

Your feelings don’t change. They are your children. And they’ll always be your children. The same goes for your closest, most intimate friends. You want their futures to be safe and secure; you want them to prosper in life. And what better way to show your devotion and appreciation than by ensuring your hard-earned money and investments go to them—after your passing?

In other words, how do you keep your money in your family or within your circle of closest friends?

Estate planning is the key. Why is planning your estate so important?[i]

  • You avoid probate court. In many states, probate fees can reach 5% of the value of the estate. For an estate valued at $400,000, legal fees may reach $20,000.[ii]
  • Planning your estate will lessen the tax burden on your heirs. If you die without a will, the laws of your state, not you, govern how your estate is distributed. However, inheritance laws generally favor spouses, domestic partners, and blood relatives. But why leave it to the legal system to decide?[iii]
  • Many people who are beginning to plan their estates seek professional financial advice following the loss of a loved one or a close friend. While wise, the timing may be off. The best time to start estate planning is immediately—to avoid potential worst-case scenarios, such as mental decline or sudden death of a spouse or loved one.
  • Comprehensive estate planning, ironically, helps protect beneficiaries, both adult and children. With adults, a plan helps guard against bad financial decisions later or potential credit problems. With children, it designates guardians or conservators to protect minors’ financial interests.[iv]
  • A solid estate plan with asset protection provisions may help shield your assets from potential creditors.[v]

You’re planning to enjoy many more years with your family and friends. What can you do now to ensure your money goes to loved ones—as opposed to Uncle Sam?

Here are 5 ways to maximize your family money in the here and now:[vi]

  1. You can spend your money and your assets, which will ultimately reduce your tax burden and benefit your family. Obviously, your first priority is to your loved ones, not to bolstering government coffers. The problem, however, is that you may live a good, long life, and your goal is to ensure you don’t outlive your wealth. This option is worthwhile if you have plenty of cash reserves and a robust estate.
  2. Gifts pose the same challenge if your estate and your assets have the potential for a long-shelf life. While giving to family and friends is noble, the IRS establishes restrictions on giving levels. You may give up to $15,000 each to individuals or charities before having to file gift tax returns. The maximum lifetime gift tax exemption is $11.18 million.[vii]
  3. You may lend to family members and friends. However, to stay IRS compliant, you should draft a loan note that includes the loan amount, payback date, interest rate, and any collateral or security. This enables you to avoid the IRS’s gift classification.[viii]
  4. You may pay wages to your family; 4 in 5 older Americans suffer from at least 1 chronic disease and may need care.[ix] By 2030, more than 1 in 5 Americans will be over the age of 65.[x] The IRS allows for the paying of wages to family members, which helps build their Social Security earnings record.[xi] Services may include providing home health care or performing other household or small business-related work.
  5. You can create a life estate deed, which transfers the family’s house to a child while the parents retain the right to live in the house. Following the death of the parents, children don’t have to go through lengthy probate proceedings. The home transfers to children—beneficiaries or remaindermen—as a gift.[xii] A life estate deed may also remove the home from consideration as a personal asset when applying for Medicaid assistance for long-term care needs.[xiii]

Seek guidance from a financial professional to learn more about your rights and opportunities to provide for your family—even in future generations.

Contact CapSouth at 800.929.1001 or visit our website at www.capsouthwm.com to learn more about CapSouth or to speak with an advisor about estate planning.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

[1] https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp

[1] https://www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html

[1] https://estate.findlaw.com/wills/what-happens-if-i-die-without-a-will-.html http://money.cnn.com/2016/04/28/pf/dying-without-a-will-prince/index.html

[1] https://www.thebalance.com/what-does-a-guardian-or-conservator-of-a-minor-do-3505167

[1] https://www.thebalance.com/what-is-asset-protection-3505066

[1] https://www.thebalance.com/how-to-minimize-death-taxes-3505688

[1] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

http://www.pgdc.com/g/boston-foundation/news/2018-estate-gift-and-gst-tax-lifetime-exclusion-11180000-taxpayer

[i] https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp

[ii] https://www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html

[iii] https://estate.findlaw.com/wills/what-happens-if-i-die-without-a-will-.html http://money.cnn.com/2016/04/28/pf/dying-without-a-will-prince/index.html

[iv] https://www.thebalance.com/what-does-a-guardian-or-conservator-of-a-minor-do-3505167

[v] https://www.thebalance.com/what-is-asset-protection-3505066

[vi] https://www.thebalance.com/how-to-minimize-death-taxes-3505688

[vii] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

http://www.pgdc.com/g/boston-foundation/news/2018-estate-gift-and-gst-tax-lifetime-exclusion-11180000-taxpayer
http://web20.nixonpeabody.com/trusts/Lists/Posts/Post.aspx?ID=276

[viii] https://blog.taxact.com/family-loans-lend-my-kids-money/

[ix] https://www.ncoa.org/news/resources-for-reporters/get-the-facts/healthy-aging-facts/

[x] https://www.ncbi.nlm.nih.gov/books/NBK396397/

[xi] https://www.irs.gov/businesses/small-businesses-self-employed/family-help

[xii] https://www.thebalance.com/enhanced-life-estate-deed-3505518

[xiii] https://www.agingcare.com/articles/protecting-parents-home-from-medicaid-183157.htm

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation – April 13, 2020

You can tell a lot about your broker or advisor from the actions they take (or don’t take) in market disruptions. The current period, with steep market declines, extreme volatility, pandemic fear, and emergency legislation packages certainly qualifies as a market disruption. We believe good advisors and brokers excel in communicating with clients regarding the markets, financial plans, and legislative effects in such periods.

The current period offers many topics, and even opportunities, that should be discussed. These include:

  1. Basic Communication
  • Touching base with clients to determine their mindset. Is the current environment causing fear or is it looked upon as an opportunity to purchase assets at a reduced price? Each client will have a unique perspective, and it is important for your advisor or broker to understand your view. Any appropriate action will vary based on your circumstances and perspective.

2. Focus on Goals

  • It is extremely important that any action be consistent with long term goals and an established financial plan. Often emotional and hasty decisions made in times of market turmoil are harmful to the ability to achieve a long-term plan.

3. Put Cash to Work or Increase Risk

  • If you see investment opportunity when markets fall, this is a great opportunity to discuss investing extra cash or increasing risk in accounts.

4. Roth IRA Contributions and Conversions

  • Consider making 2020 contributions and conversions while markets are lower.

5. Tax Considerations of the Market Decline

  • If you have investments with a low cost basis that you have held to avoid taking the gains, these positions will likely have lower gains or no gains at this point. This may be a good time to discuss reducing or getting out of such positions.
  • Gains on investments made in non-retirement accounts will be subject to long-term capital gains rates if held for twelve months or longer
  • For some clients a partial or full conversion from a traditional IRA to a Roth IRA should be considered. Funds in a traditional IRA have not been taxed. By converting, taxes will likely be owed. Because balances in most traditional IRAs are presently lower, the associated taxes owed may also be lower. As an added bonus, if the markets bounce back in the next couple years, the growth on any converted money will occur in the Roth IRA and should not be taxable in the future.

6. Periodic Withdrawals

  • If you have consistent withdrawals, monthly or quarterly for example, from investment accounts, you may want to discuss funding the withdrawals from any cash or fixed income investments that are available. This will keep you from selling equities at a reduced price.Legislative Updates

7. Legislative Updates

  • Filing deadline – For most people, 2020 tax filings are not due until July 15th (instead of the normal deadline of April 15th).
  • Federal quarterly estimated tax for April 15th has been extended to July 15th; second quarter estimated tax payment has also been extended to July 15th.
  • Required Minimum Distribution (RMD) – If you are normally required to take an RMD from any type of IRA or from your workplace retirement plan, you will not have to do so in 2020.
  • IRA Withdrawals and 401k Loans – the CARES Act relaxes some of the rules regarding these items. Your advisor or broker should be able to discuss this in more detail should you have a need.
  • Charitable Contributions – for 2020 there is no limit on the amount of a cash gift you can donate to a charity and subsequently receive an offsetting deduction, in the amount of the gift, from your income. If you’ve ever considered a large gift to a charity, you should discuss with your advisor if 2020 is the appropriate year. This change does not apply to donations to donor advised funds.

CapSouth advisors are prepared to discuss all these topics with clients and prospects, and they have been actively doing so over the last few weeks. If your current advisor or broker is not discussing them with you or you have no current advisor, we would welcome the opportunity to speak with you and to potentially begin a new relationship.

To speak to a CapSouth advisor about these topics, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events, returns, or outcomes.

Coping with College Loans

Total student loan debt in America is now around $1.6 trillion. Since 2008, it has more than doubled. Federal Reserve data states that 44.7 million Americans are dealing with lingering education loans. The average indebted college graduate leaves campus owing nearly $30,000, and the mean monthly student loan payment is about $400.[i]

Student debt influences home buying and retirement saving decisions. The National Association of Realtors says that 25% of recent homebuyers have outstanding student loans, including 41% of first-time buyers. A 2018 study by the Center for Retirement Research at Boston College concluded that under-30 employees carrying education debt typically have just half as much saved in their workplace retirement plan accounts as other workers their age.[ii],[iii]

If you carry a sizable education debt, how can you plan to pay it off? If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

*The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).

*You could use your tax refund to attack the debt.

*You can hold off on a major purchase or two.

*You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and use the cash for paying down the debt.  

Now, in the big picture of your budget, you could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That may permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan has the potential to help. Making payments every two weeks rather than every month can also have a positive impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter point.[iv]

What if you have multiple outstanding college loans? If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Another option is combining multiple federal student loan balances into one. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates.[v]

Maybe your boss could help you pay down the loan. Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 8% of employers offer this perk. A 2018 Employee Benefit Research Institute poll of 250 firms revealed that 13% planned to offer such assistance in the future.[vi]

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

To speak to a CapSouth advisor about student loan debt, contact our office at 800.929.1001 or visit our website: www.capsouthwm.com

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.fool.com/the-ascent/research/student-loan-debt-statistics/

[ii] https://www.nar.realtor/student-loan-debt

[iii] https://www.washingtonpost.com/business/2019/06/25/heres-what-trillion-student-loan-debt-is-doing-us-economy/

[iv] https://www.nerdwallet.com/article/loans/student-loans/how-to-lower-student-loan-interest-rate

[v] https://www.nerdwallet.com/blog/loans/student-loans/consolidate-student-loans-2/

[vi] https://www.wsj.com/articles/employers-try-a-new-perk-matching-student-loan-payments-with-401-k-contributions-11570708801

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