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Generational Wealth Transfer

03/07/2016

Money Fights and Millennials

A new survey of Millennial couples says choices about finances are among the top reasons they argue. There are 80 million Millennials in the U.S. alone, and they are expected to be spending up to $200 billion annually by 2017. This is the reason business, political and social experts are keeping a close eye on their habits and lifestyle choices.

Millennials are the generation generally born in the mid 1980s and up to the early 2000s.  In a joint effort, the American Institute of CPAs (AICPA) and the Ad Council surveyed couples who were between 25 to 34 years of age, employed, and married or living with a partner.  The results revealed 88% say financial decisions cause tension. Of that number, 31% say they argue about money weekly, and 20% say they argue about finances daily.

Couple fight over moneyExperts define Millennials as racially diverse, sociable (especially active on social networks), community-minded, health conscious and more liberal politically. They are apt to spend money on higher-priced goods if the products or services are connected to a “good cause” or a “healthy standard.” The problem, the survey shows, is that while Millennials seem to enjoy discussing and supporting important issues with their dollars, they fail to share their feelings and habits about money with the person they are closest to and who would be the most affected. When asked, less than 50% said they had discussed finances in detail with their loved one before marriage.

Many Millennials today enter into long-term relationships already burdened with high monthly expenses connected to credit card bills and higher education loans. Even though the survey results showed nearly half of the couples paid an equal share of household expenses, the couples said their partner had different financial habits and debt issues that made saving difficult.

The National CPA Financial Literacy Commission warns Millennials that greater spending power comes with a greater responsibility to understand a potential partner’s financial values and beliefs. A news release emphasizes, “We encourage couples to have a serious conversation about their financial hopes and dreams and the steps they need to take to get there.”

The AICPA features a “Feed the Pig” website that provides tips for Millennial couples to help them think beyond the honeymoon phase to daily money matters. If you are thinking about getting married or want to confirm financial choices to build a better financial future as a couple, contact us at McRuer CPAs.

04/13/2015

Financial Transaction Tax and How It May Affect You

Washington lawmakers are watching the Financial Transaction Tax (FTT) debate in Europe as Democrat party leaders have made enacting this kind of tax a central part of their economic proposals for 2015.  The effects of this debate could reach across international money markets into the pockets of common American taxpayers.

NYSEA FTT is a  monetary transactions tax usually associated with the financial sector as compared to consumption taxes that consumers pay on products and services.  Democrat Congressman Keith Ellison of Minnesota has introduced an even more specific “Inclusive Prosperity Act” which would tax the sale of stocks, bonds and derivatives.  It is part of the on-going party theme of supporting “Main Street over Wall Street.”  He claims the tax would reduce market speculation, discourage high-volume and high-speed trading, and slow down the proliferation of complex derivatives.

Republican FTT opponents argue these kinds of taxes would do little to harm Wall Street, even admitting they would raise badly needed revenue, but disagree about where the money would come from.  They claim FTTs would put financial stress on working Americans by increasing the costs of having individual, family and employee retirement accounts.  This would occur at a time when retirement plans operated by corporations are disappearing and Americans are already struggling with costs, both in time and money, associated with managing their own IRAs.  They say the new taxes would make it more difficult for common people to save and invest.

Financial transaction taxes in general are usually proposed at very small percentage rates, but they could affect all transactions, of which there may be dozens (or even hundreds depending upon the size and scope) per account every day.  Proponents believe the taxes would raise billions of dollars in new revenues.  While experts predict the debate will not lead to a specific action this year, the issue will remain on the burner ready to heat up in time for the 2016 Presidential race.

Worldwide, there are several types of financial transaction taxes being implemented by various organizations and regions.  Some are domestic meaning they are imposed only within one nation or financial region.  Others are multinational, and affect transactions made between countries.  Nearly 50 nations have some form of FTT today.

EU finance ministers have been fiercely debating the scope of the tax pushing for a wide tax base with low tax rates.  They have made a public commitment to start a EU FTT on January 1, 2016 with what’s called an “extra-territorial” reach across markets and nations.  Yet, the last meeting of the 28 Member States in February ended with little progress on key issues and they are not set to negotiate again until May.  Still to be worked out; who will collect the tax, the penalty for non-payment and who will be responsible for paying the penalty.

03/18/2015

Divorce, Death, Benefits and Taxes

The emotional stress and damage of divorce can have even more lasting consequences if personal finances and assets are not updated to reflect your changed situation.

It’s particularly important to address what will happen after your death, when certain assets and benefits may unintentionally be passed to your former spouse or his or her family.

Divorce-money-fightFor example, a current New York court case involving the assets of a woman who died at age 43 has now reached that state’s appellate court.  The woman’s family is battling her former in-laws who stand to inherit her home that her family has owned for generations, all because she did not update her will.  New York divorce laws automatically prevent her ex-husband from inheriting the property, but her secondary beneficiaries remain her ex-in-laws; so they are fighting over the property now.

It may be emotionally difficult to address your financial assets in the midst of divorce, but if you are going through a divorce or have even been divorced several years, it will pay off in the long run for you and your family to review and update your financial documents.

Be sure you have updated your estate plans, check insurance and other beneficiary designations and beneficiary deeds.  Also provide your loved ones with copies of the updated documents, or let them know where to find them.  Divorcing couples should also consider individually seeking a new financial adviser to avoid any conflicts of interest. 

Make certain your will clearly states your intentions, and that your powers of attorney, health-care proxy, and beneficiary designations on IRAs, insurance policies, bank accounts, brokerage accounts, and annuities name the people that you wish.  Remember, no matter what a will says, these financial accounts and policies will pass to the individuals named on them, so having updated directives for each account is extremely important.

As we have detailed in our blog IRAs Need Updated Beneficiary Forms, changes in beneficiaries for annuities and IRAs must be submitted in writing and require a signed and dated document be sent to the financial institution handling the account or policy.

For some accounts, the original financial agreements stipulate the ex-spouse cannot be removed as a beneficiary, so the beneficiary may want to take steps to clarify the arrangements to ensure his or her name remains on the account.

When a divorce is final, the final divorce decree may be sent to the plan administrator directing how money in IRA accounts should be divided and transferred into separate accounts.  Company-sponsored qualified retirement plans will need additional steps.  In those cases, the court must issue a Qualified Domestic Relations Order (QDRO) properly apportioning retirement plan assets between the former spouses.

However you wish to change your beneficiary status or account information, it’s also a good idea to request a written confirmation notice from your insurance company, financial planner and/or banker confirming they have received and acted on your changes.  Then, keep all the updated documents in a secure location that can be found in the event that you may become incapacitated or die.

Divorce may also affect a person’s current and future income tax obligation, and may affect future taxes owed on assets and retirement accounts.  Receiving or paying alimony payments or child support may also have tax consequences.

Divorce is painful.  Planning your next steps both personally and financially can help ease concerns as time passes.

Consider meeting with a McRuer CPAs expert who will help you identify and act upon the best financial strategy to help you now and in the years ahead.  Contact us online or call 816.741.7882 for a consultation.

02/18/2014

IRAs Need Updated Designated Beneficiary Forms

Individual Retirement Accounts have been around long enough now that many Americans are learning what happens when they inherit an IRA. It’s not always good news.  If the owner has not filed an up-to-date beneficiary form, the heir of the estate risks losing a major portion of the IRA value to taxes and fees. IRA-nest-egg

The Employee Benefit Research Institute (EBRI) reports the average IRA value is close to $94,000. The EBRI also says there are nearly 15 million IRA accounts held by more than 11 million people.  With total assets of more than $1 trillion, it’s important to make certain that, should the owner die, the IRA doesn’t lose its value upon transfer to a new owner.

Advisors warn that many IRA owners mistakenly believe because they have a will, the person(s) they list as their heir(s) will automatically receive the IRA to use as a savings tool or turn into cash in whatever manner they wish.  Yet, without a specific and up-to-date IRA beneficiary designation form for each IRA, the beneficiary may be forced to empty the account right away risking taxes and penalties; and may even be bumped into a higher income tax bracket.   Some states require the accounts to go through probate court when there is no beneficiary form.

IRA owners should fill out what is a very simple beneficiary form separate from their will.  That way, when the owner dies, the designated beneficiary is able to determine the best distribution strategy over his or her lifetime.  A new beneficiary form is needed any time an IRA account is changed or updated, or the account is moved to a new custodian.

Typically, IRA beneficiaries must take distributions during their lifetime.  Inherited traditional IRAs require taxes to be paid on distributions.  Rollover, SEP, and SIMPLE IRAs are treated the same way. Beneficiaries are not required to pay taxes on distributions from an inherited Roth IRA.

Generally, surviving spouses have several choices including even disclaiming up to 100% of the IRA assets, which, besides avoiding extra taxable income, enables their children to inherit the IRA assets.  But, if the spouse decides to take a lump sum distribution, or begins distributions on a traditional IRA, taxes must be paid.

Non-spouse beneficiaries have fewer choices.  Among them, including taking the lump sum amount and paying a large share in federal taxes; disclaiming all or part of the assets for up to 9 months after the previous owner’s death; or begin taking taxable distributions from the account.

If you inherit an IRA, you cannot roll it over into your own IRA. You must also make certain it is re-titled as an inherited IRA.  If you move the IRA to a new custodian, make certain it is made as a “trustee-to-trustee” transfer or it will be considered as a taxable total distribution, thereby, ending the account as an IRA.  There are deadlines for your actions and you can even face the dreaded 50% penalty if you don’t make a required withdrawal in time.

To ensure you leave as much of your IRA asset as possible to whom you choose, or if you inherit an IRA, consult your financial advisor for the best steps to take to lessen the taxes and maximize the advantages of these retirement accounts.

If you have any questions about your financial savings plans, beneficiaries and the tax consequences of your choices, please contact us at McRuer CPAs.

03/19/2013

4% Retirement Spending Rule - is it Outdated?

Is the “4% Rule” meaningless for retirement planning today?  Many financial planning experts say a combination of extreme marketplace fluctuations, unpredictable inflation, decreasing income growth and increasing taxes prove the spending rule for retirement is antiquated.

Retired couple 1In a recent survey by The Conference Board, thousands of 45 to 60 year old Americans were asked
about their retirement plans.  Nearly two-thirds of the respondents expect they will have to work well into their retirement years in order to afford to pay basic expenses. The majority said this is because their ability to save is too low and the general living expenses that their savings will have to cover are too high.  They also expect to live longer and endure higher health costs.

Many of tomorrow’s pending retirees say they wouldn’t be able to afford to be sick, make a repair or upgrade to their home, nor be able to make a purchase like an updated vehicle, without making a major dent in their retirement savings.

In the past, the conventional wisdom said you can take 4% from your savings the first year of retirement, and then that amount plus more to account for inflation each year.  This practice was supposed to keep you from running out of money for at least 30 years.

In a recent online Wall Street Journal article, Say Goodbye to the 4% Rule, financial reporter Kelly Greene wrote the 4% rule was conceived by a financial planner in the 1990s who, quoting from the article, “analyzed historical returns of stocks and bonds and found that portfolios with 60% of their holdings in large-company stocks and 40% in intermediate-term U.S. bonds could sustain withdrawal rates starting at 4.15%, and adjusted each year for inflation, for every 30-year span going back to 1926-55.”

But the article shows had you retired with the above portfolio and then endured the actual market drops of the past decade, your accounts would have declined by a third and you would have less than a 30% chance of having enough money.

So, what is the answer?  Most experts agree that today, more than ever before, a customized approach is best.  You must determine realistic retirement goals and develop a spending plan that matches your lifestyle expectations with your ability to earn and save.

Because there are so many unknowns and changes, planning for how taxes will affect your savings and your retirement income has become an annual ‘must do’.  No matter how close you are to retirement, consider these common-sense tips offered through Investopedia as you schedule your retirement investment planning session with McRuer CPAs:

  • Avoid too much risk.
  • Avoid too little risk.
  • Don’t retire too soon.
  • Try not to retire all at once.
  • Buy long-term care insurance.
  • Do live within your means.

10/10/2012

What To Do with the Money of the Rich

Eleven more billionaires have signed Bill Gates and Warren Buffet’s Giving Pledge, promising publically to give away half their wealth before they die.

Manoj Bhargava, founder of 5-Hour Energy drink; Reed Hastings, Chief Executive Officer of Netflix; Gordon Moore, co-founder of Intel Corporation; and Mark Zuckerberg, founder of Facebook all are onboard to influence and attempt to increase charitable giving while they still have a voice in the distribution of their wealth.

Richie-rich


Other wealthy chief executive officers have declined because they are awaiting proof that the Giving Pledge is bringing additional money to causes benefitting the neediest people – as opposed to trusts for the children of the wealthy.

Marc Benioff, founder of Salesforce.com, declined to sign the pledge and donated $100 million to a children’s hospital of his choice. German shipping billionaire, Peter Kramer, questions the power of the super-wealthy shaping issues of public concern such as education and prefers a democratic dialogue that includes government over a private committee. 

Since Gates and Buffet started the effort in 2010, total estimated charitable giving has increased four percent and giving by foundations increased 1.8 percent.*

 

*SOURCE;  Giving USA Foundation.

04/01/2011

Give Yourself a Chance to Think

So often, busy people like you are too consumed with putting out fires to step back and consider the big picture.  It’s vitally important to give yourself a chance to think. 

Let’s face it, today we often have more to do than the day’s time allows.  It’s affecting our ability to think things through clearly and make the right decisions when it comes to our money.

There are more considerations than ever before about how we use our money and where we place it to make it grow.  Our resources are limited and varied, and there are different methods to determine how well our choices are working.  It’s confusing and hard to plan and execute how things work together.

That’s why McRuer CPAs is offering our new service package called Decision Maker Plus. It gives you the ability to gather together all your financial data and strategies in one place at the same time, to ensure everything works together to meet your goals.

Take a look at our introductory brochure on Decision Maker Plus.

Through Decision Maker Plus our team of CPAs can provide you a way to coordinate all your plans and present them in a way that makes sense to you.  We can help you analyze, plan and implement strategies to meet your goals while coordinating with your other approved professionals.

Using Decision Maker Plus gives you access to our experienced team and…

*proactive planning and strategy implementation,
*priority response communications,
*cutting-edge and highly efficient information sharing technology,
*secure online data storage and data sharing portals,
*and flexible scheduling for after hours or weekend appointments.

Our Decision Maker Plus Services include:

  • Income Tax Planning
  • Estate Tax Planning
  • Wealth accumulation and Protection Services
  • Business Startup, Planning and Expansion Services
  • Generational and Spousal Wealth Transfers assistance
  • Financial Services Incident to Divorce
  • Services for Liquidity Events
  • Education Finance Planning
  • Retirement planning and more.

Think about it. 

Do you really know if everything works together to help you?  If not, call us for a confidential consultation about your goals and we’ll give you a half hour of that consultation for free.

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