Lifestyle – Safe Retirement Income

April 30, 2019 by Tim Barton Leave a Comment

What is a Charitable Gift

A charitable gift is a donation of cash or other property to, or for the interest of, a charitable organization. The gift is freely given with the primary intention of benefiting the charity.

Whether given during lifetime or after death, charitable gifts are eligible for a tax deduction, but only if made to a qualified charitable organization. For example, you may have a relative who has fallen on hard times, someone you choose to help with gifts of cash. While benevolent intentions may motivate you in making these gifts, you cannot deduct them for either income tax or estate tax purposes.

In general, qualified charitable organizations include churches, temples, synagogues, mosques and other religious organizations, colleges and other nonprofit educational organizations, museums, nonprofit hospitals, and public parks and recreation areas. Gifts to these types of organizations qualify for a federal income tax deduction if made during your lifetime or, if made after your death, can be deducted from the value of your estate for federal estate tax purposes.

Why Consider a Charitable Gift?

People give to charities for a variety of reasons.

They give:

Because they have compassion for the less fortunate.
A belief that they owe something back to society.
To support a favored institution or cause.
The recognition attained by making substantial charitable donations.
To benefit from the financial incentives our tax system provides for charitable gifts.

November 25, 2018 by Tim Barton Leave a Comment

Teaching Grandkids about Money… Money Does Not Grow on Trees

At this point in our lives we’ve raised our own kids and hopefully, the values we struggled to impart before they left home have become part of their family lives. Now they’re raising our grandchildren and like us when we were new parents our kids will try to bring all of their life lessons into the mix. The hard part, at times, at least for me, is to keep my mouth shut not give unasked for advice. Does anyone else have that problem?

This narrows my options to just setting the best example I can no matter the subject matter. When it comes to money and finances. Money does not grow on trees.

Young children can understand the concept of money. When I take them out and we’re going to buy a little something like an ice cream I give them the money to pay for it. This teaches them money is exchanged for things we want.
Save all my “change” for grandkids. I split up this money into 3 coin purses for each kid marked 20% for savings, 10% sharing, and all the rest for whatever they want. (with parent’s permission of course) The savings are used for their bigger desires/wants. The sharing can be used to buy things like ice cream, candy bars and other treats for the family on outings or they will deposit it into Salvation Army kettles or other charitable containers found at the checkouts. Elementary school age is a good time to start.
Demonstrate to the grandkids how to reach a savings goal. Show them how saving X amount of their money each month and in how many months this money will equal an amount needed to buy a computer game, book or whatever.
When the grandkids are coming for a barbeque, a couple like to help cook. We plan a menu, make a list of needed ingredients, figure out the budget (money to purchase listed items) and go to the store. As we pick things out we discuss pricing, brand names and how to evaluate the best deal.
Needs versus wants concept is very important throughout life for all of us. As they age and gain understanding there are things associated with my hobbies that reflect needs versus wants which make good subject matter for discussion with my grandkids. Particularly an activity they have an interest in, like fishing for example.

These are just a few examples of actions and conversation points I use to demonstrate how to use money with my grandkids. Actually, I did the same things with their parents as they grew up and remember how I appreciated any support from other adults. As a grandpa, I just wait for the “teachable” moment or when the conversation flows that way. To be effective today’s kids are no different than yesterday’s kids- the brains shut off during “the talk”.

Need more ideas? Download my PDF booklet

“Money Doesn’t Grow on Trees… Teaching Kids about Money”

Money Does Not Grow on Trees Teaching Kids about Money — Download Teaching Kids about Money booklet here

October 13, 2018 by Tim Barton Leave a Comment

She Solved Her Retirement Needs. And So Can You

Need retirement income you can’t outlive? Have coffee with Meg. Take a video break and learn how Meg uses a single premium immediate annuity (SPIA) to alleviate concerns about outliving her retirement assets and being unable to meet monthly expenses.

Retire with Confidence

People are living longer than ever before, meaning that unpredictable market performance, higher health care costs, and rising inflation could impact your retirement nest egg. Social Security is in question, and you may or may not have a pension.
The reality is, many individuals may not be able to maintain their standard of living — or worse — may run out of money during retirement.

Live Comfortably with Retirement Income- Consider the risks that can affect your retirement and life:

Lifespan – Living longer and outliving your retirement money.
Inflation – Cost of living increases that erode your retirement buying power.
Fluctuation – Market volatility that impacts your retirement assets.
Experience – Life events that require retirement plan flexibility.

At what rate can you safely withdraw from your portfolio to address these risks?

According to the Journal of Financial Planning, the safe withdrawal is 2.52%.

Contact www.TimBarton.net

July 25, 2016 by Tim Barton Leave a Comment

Tips for Managing an Inheritance

Take your time. This is an emotional time…not the best time to be making important financial decisions. Short of meeting any required tax or legal deadlines, don’t make hasty decisions concerning your inheritance.

Identify a team of reputable, trusted advisors (attorney, accountant, financial/insurance advisors). There are complicated tax laws and requirements related to certain inherited assets. Without accurate, reliable advice, you may find an unnecessarily large chunk of your inheritance going to pay taxes.

Park the money. Deposit any inherited money or investments in a bank or brokerage account until you’re in a position to make definitive decisions on what you want to do with your inheritance.

Understand the tax consequences of inherited assets. If your inheritance is from a spouse, there may be no estate or inheritance taxes due. Otherwise, your inheritance may be subject to federal estate tax or state inheritance tax. Income taxes are also a consideration.

Treat inherited retirement assets with care. The tax treatment of inherited retirement assets is a complex subject. Make sure the retirement plan administrator does not send you a check for the retirement plan proceeds until you have made a distribution decision. Get sound professional financial and tax advice before taking any money from an inherited retirement plan…otherwise you may find yourself liable for paying income taxes on the entire value of the retirement account.

If you received an interest in a trust, familiarize yourself with the trust document and the terms under which you receive distributions from the trust, as well as with the trustee and trust administration fees.

Take stock. Create a financial inventory of your assets and your debts. Start with a clean slate and reassess your financial needs, objectives and goals.

Develop a financial plan. Consider working with a financial advisor to “test drive” various scenarios and determine how your funds should be invested to accomplish your financial goals.

Evaluate your insurance needs. If you inherited valuable personal property, you will probably need to increase your property and casualty coverage or purchase new coverage. If your inheritance is substantial, consider increasing your liability insurance to protect against lawsuits. Finally, evaluate whether your life insurance needs have changed as a result of your inheritance.

Review your estate plan. Your inheritance, together with your experience in managing it, may lead you to make changes in your estate plan. Your experience in receiving an inheritance may prompt you to want to do a better job of how your estate is structured and administered for the benefit of your heirs.

June 5, 2016 by Tim Barton Leave a Comment

Should a Retiree Sell or Stay in Their Home

This depends on many factors both financial and personal lifestyle. If the choice is to sell and move there are financial considerations. As it is with so many decisions today the tax implications must be considered. Whether you decide to stay or move on here is a quick checklist.

Homeowner’s Tax Checklist

Certain costs associated with acquiring and maintaining your principal residence, a second home or a residence you rent out are tax deductible, while others are added to your cost basis and used to reduce any taxable gain on the sale of the property.

Closing Costs

Most closing costs incurred in buying a home are added to cost basis (mortgage interest and real estate taxes paid at closing, however, are immediately deductible). Closing costs incurred in selling a home reduce the selling price.

Real Estate Property Taxes

Deductible in the year paid, assuming you itemize deductions on your federal income tax return.

Mortgage Interest

Interest is deductible on loans up to $1 million for buying, building or substantially improving your principal residence and one other home. Interest on home equity loans of up to $100,000 is also deductible.

Points

Points paid on loans to buy, build or substantially improve your principal residence are deductible in the year paid.

Improvement and Repairs

Repairs are nondeductible, unless allocatable to business or rental use of the property. The cost of permanent improvements that add to your home’s value or prolong its life are added to cost basis.

Casualty Losses

Unreimbursed damage to your home may be deductible if you itemize deductions (after a $100 reduction, deductible to the extent the loss exceeds 10% of adjusted gross income).

Home Office Expenses

If you are self-employed and use part of your home exclusively and on a regular basis as your principal place of business or as a place of business to meet customers or patients, certain expenses allocatable to the office may be deductible. A home office can qualify as the principal place of business if it is used exclusively and regularly by the taxpayer to conduct administrative or management activities of a trade or business and if there is no other fixed location of the business where the taxpayer conducts substantial administrative or management activities of the business.

Be aware when a home that has been depreciated for business purposes is sold a part or all of those deductions are added back into the gain side for tax purposes. Consult a qualified tax professional regarding the rules.

Rental Expenses

Certain expenses allocatable to a rental of part of your home may be deductible. Some retirees rent part of their homes for extra income. This is a business use and many of the tax rules applicable to a home office will also apply in this case.

Mortgage Insurance Deduction

Taxpayers with adjusted gross incomes of $100,000 or less who itemize can deduct the full cost of mortgage insurance on loans that were originated after December 31, 2006. The deductible amount quickly phases out above $100,000, so that no deduction is available to taxpayers with an adjusted gross income above $109,000. Under current law, the deduction is available only through 2011.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

April 28, 2016 by Tim Barton Leave a Comment

Gifts of Life Insurance

Regardless of your reasons for giving, a gift of life insurance can represent a substantial future gift to a favorite charity at relatively little cost to you. You can:

Make a Charity the Beneficiary of an Existing Policy: If you have a life insurance policy you no longer need, you can name the charity as the beneficiary of the policy, meaning that the charity will receive the policy’s death benefit after you die. While there are no current tax benefits to this approach, the value of the policy will be removed from your estate for federal estate tax purposes.

Make a Charity the Owner and Beneficiary of an Existing Policy: Instead of simply naming the charity as beneficiary of an existing life insurance policy, you transfer full ownership of the policy to the charity. The charity will then receive the policy’s death benefit after you die. In addition to removing the value of the policy from your estate for federal estate tax purposes, this approach also provides you with current federal income tax deductions.

Help a Charity Purchase a New Insurance Policy on Your Life: If you wish to make a substantial future gift to a charity at a relatively low cost to you, another alternative is to consider purchasing a new life insurance policy and name the charity as the policy owner and beneficiary. You then arrange to pay the premiums through gifts to the charity. This approach provides federal income tax deductions and the policy proceeds are not included in your estate for federal estate tax purposes.

Important Note: Most states through their “insurable interest” laws allow a charity to be the owner and/or beneficiary of an insurance policy on a donor’s life. Since state laws do vary, however, it is important to consult with a professional advisor before making a gift of life insurance to a charity. Please contact my office if we can be of assistance.

March 18, 2016 by Tim Barton Leave a Comment

Odds of Surviving Critical Illness Dramatically Increase

With advances in medical treatment and technology, many people now survive critical illnesses that would have been fatal in the past. As a result of this increased life expectancy senior Americans have the opportunity to watch grandkids grow into adulthood and start families of their own. Enjoying some great grandkids is a real possibility.

Some unhappy news; many retirees will at some point become critically ill as the following statistics demonstrate. The need for planning in order to avoid becoming destitute is more important than ever.

Cancer:

Men have a slightly less than 1 in 2 lifetime risk of developing some form of cancer. For women, the lifetime risk is a little more than 1 in 3.
Between 2002 and 2008, the 5-year relative survival rate for all cancers was 68%, up from 49% in 1975 – 1977.
It is estimated that over 1.6 million new cancer cases were diagnosed in 2013.

(Source: Cancer Facts and Figures 2013; American Cancer Society)

Heart Disease:

An estimated 80 million Americans have one or more types of heart disease.
Each year, an American will suffer a heart attack about every 34 seconds.
The lifetime risk for cardiovascular disease at age 40 is 2 in 3 for men and more than 1 in 2 for women.
It is estimated that the total costs of cardiovascular diseases in the U.S. was over $448 billion in 2008.

(Source: Heart Disease Facts, Centers for Disease Control and Prevention, July 2013)

Stroke:

Someone in the United States has a stroke every 40 seconds.
Stroke is a leading cause of serious, long-term disability in the U.S.
It is estimated that Americans paid about $38.6 billion in 2010 for stroke-related medical costs and lost productivity.

(Source: Stroke Fact Sheet, Centers for Disease Control and Prevention, July 2013)

Will you have sufficient funds available to pay for:

Any insurance co-payments and deductibles;
Alterations to your home and/or automobile to meet any special needs;
Out-of-town transportation and lodging for medical treatment;
Treatments not covered by traditional health insurance; and/or
Shorter-term home health care during your recuperation?

Surviving critical illnesses increase our life expectancies, we will live longer than ever before. At the same time, fortunately annuity ownership is rising An annuity is the only guaranteed financial hedge against longevity. More than ever a retiree’s goal should be lifetime income not just income for 20-30 years.

January 12, 2016 by Tim Barton 35 Comments

Winners of $1.4 Billion Lotto: What now? How to get your money?

Once the initial euphoria wears down and you are “Snoopy Danced” out. Sorry I have no idea how long that takes. The moment will come when you have to make some decisions about how to receive your lottery winnings.

Everyone seems to assume the winner or winners, (yes brace yourself you are likely going to have share the jackpot with other winners) will take the jackpot as a lump sum. The biggest winner of all is government at all levels. Each state involved gets a cut of the ticket sales and the state or states where the jackpot winners live get to tax the jackpot. Yesterday State Senator Tim Carpenter (D) WI put out a press release about his plans for spending the estimated $65,790,000 tax windfall if a Wisconsin resident won the $1.4 billion. This windfall of state income tax pales in comparison to federal tax take at 39.6% ($343,728,000).

If the winner is a Wisconsin resident who decides to take the estimated lump sum payout $868,000,000 they would realize a net after tax payment of $458 million ($458,482,000.) This is only 33% of the $1.4 Billion. That’s right if a winner takes the jackpot in a lump sum they only get a check for 33% of the winnings. Of course that is still a life changing amount of money.

Almost all financial advisors, lawyers, accountants, bankers and other investment advisors tell the winner to take the lump sum because they will quickly make back the annuity reduction and tax bite. A client with $458 million is big in the financial and legal industry. Inside they are referred to as whales or elephants. So it’s hard for many advisors to tell this potential client to take the larger $1.4 Billion as an annuity payment over 30 years.

Annual annuity payment is about $46.7 million ($46,666,666) State and federal tax each year is $22,049,999 this nets the winner $24.6 million ($24,616,667) after taxes each year for 30 years. That is a seriously nice income payment which would leave a substantial amount to invest each year after all the celebratory spending. Best of all the winner will receive a total $738,500,000 compared to $$458 million net lump sum.

Advantages of annuity payments

Minimize taxes
Guarantees $24.6 million income for 30 years
No investment risk, all investments come with the risk of loss.
Helps prevent fraud
Spend thrift tendencies will not wipe out winnings in one year

One of the biggest arguments against an annuity is “your money is tied up.” Wrong. Not these days. There are investor groups who buy annuities. They compete against each other because an annuity income is valuable. If a winner changes their mind later and wants a lump sum for whatever reason they can sell the annuity payments to the highest bidder. In the current economic conditions this would net the winner about 15-20% more than taking the lump sum payment immediately from the Powerball lottery.

A winner has 180 days to claim the Powerball before their ticket expires. Winner has 60 days from the date of their ticket claim to chose the lump sum. Then the annuity payment is mandatory and there is no changing that from the lottery. Historically only a handful of winners take the annuity option leaving a pile of cash on the table. If many of these had waited 61 days they could have sold their annuity and had more money in their account.

How to stay anonymous:

Good luck with that. These days it’s impossible to keep secrets. Thanks to the internet and other technology society gets more and more transparent everyday. So even in the handful of states have laws to allow jackpot winners to stay anonymous they’ll be found out. Most states require winners to go public.

Changing your name to claim the prize and then changing back again will not work. All states forbid changing a name when fraud is intended. If a state requires disclosure of the winner and they change their name… Sure looks like a fraud. No reason to go there. Many states require name changes be published in the local newspapers for a period of time. Where are newspapers published these days? Online.

No hope of anonymity so it’s best to make plans to deal with your rock stardom should fate see fit to pick you. And that will be the topic of a future post.

August 25, 2015 by Tim Barton Leave a Comment

Paying the Estate Tax Bill

The federal government will not accept a percentage of your estate as payment for your estate tax bill. Instead, your estate tax bill must be paid in cash, and it must be paid within nine months after your death.

If your estate is subject to the federal estate tax, there are FOUR ways to provide your estate with the cash needed to pay your estate tax bill:

1. 100% METHOD

You could accumulate enough cash in your estate to pay your estate tax bill outright. Rarely, however, does a successful person accumulate such large sums of cash. Instead, the reason for financial success is usually due to the investment of cash in appreciating assets, rather than accumulating it in a bank.

2. 100% PLUS METHOD

Your estate could borrow the cash needed to pay your estate tax bill. This, however, only defers the problem, since the money will then have to be repaid with interest.

3. ASSET LIQUIDATION METHOD

Your estate could liquidate sufficient assets to pay your estate tax bill. This choice may make sense if your estate owns considerable assets that can be readily sold for a gain following your death. Keep in mind, however, that if a forced liquidation is necessary, it may bring only a small fraction of the true value of your assets. In addition, sales expenses are bound to be incurred.

4. DISCOUNT METHOD

Assuming you qualify, you can arrange now to pay your estate tax bill with life insurance dollars. For every dollar your estate needs, you can give an insurance company from approximately one to seven cents a year, depending on your age and health. No matter how long you live, it is unlikely you will ever give the insurance company more than 100 cents on the dollar. In addition, the life insurance policy can frequently be structured to accommodate your unique premium payment requirements.

May 26, 2015 by Tim Barton Leave a Comment

7 Methods to Avoid Probate

Probate is simply the Latin word for prove, which means that the estate probate process is the process by which your will is brought before a court to prove that it is a valid will. The courts charged with this responsibility are generally known as probate courts, which may actually supervise the administration or settlement of your estate.

Supervision of the estate settlement process by the probate court can result in additional expense, unwanted publicity and delays of a year or more before heirs receive their inheritance. The publicity, delays and cost of probate motivate many people to explore ways in which to avoid or minimize the impact of probating a will, including:

State Statute If specific requirements are met, many states have made provision for certain estates to be administered without the supervision of the probate court, resulting in less cost and a speedier distribution to heirs.
Form of Property Ownership The joint tenancy form of holding title to property allows ownership to pass automatically to the surviving joint tenant, who is normally the surviving spouse.
Transfer on Death Many states have enacted Transfer on Death statutes that allow a person to name a successor owner at death on the property title certificate for certain types of property, including real estate, savings accounts and securities.
Life Insurance Unless payable to the estate, life insurance proceeds are rarely subject to the probate process.
Lifetime Giving Gifts given during life avoid the probate process, even if made shortly before death.
Trusts A “Totten” trust, which is a bank savings account held in trust for a named individual, can be used to pass estate assets at death outside of the probate process.
A revocable living trust, created during the estate owner’s lifetime, can be an effective way to avoid the expense and delay of probate, while retaining the estate owner’s control of his or her assets prior to death.

Proper planning may serve to minimize the impact of the probate process on your estate and heirs.

Any potential method of avoiding probate, however, should be evaluated in terms of its income and/or estate tax consequences, as well as its potential impact on the estate owner’s overall estate planning goals and objectives.