You might be surprised to learn, however, that charitable wealth transfers can be for smaller amounts too—and that they don’t have to involve trusts. There are a number of benefits involved in putting together a charitable wealth transfer—of course, first and foremost, a charity that you care about benefits. And a fact you might not even have considered…said charity can benefit within your lifetime! So if there is a group or an organization that you truly believe in, and especially if you’ve been actively involved…you can put some money to work for them, and see the benefits of that donation while you are still alive to enjoy the feeling that generosity can bring.

You’ll need to talk with a financial advisor, and review your portfolio and overall financial picture. What you may find as a result of that conversation is that passing along a piece of your “estate”—even a reasonable or modest amount—can have a big impact on the charity you choose and have tax benefits for you, that are not inconsequential. Here is a simple example that illustrates the case of an investor that has $20,000 in savings, in excess of what he and his advisor have determined to be a “safety fund”.

1) Start with $20,000.
2) Put $11,800 into transfer plan. This amount will be worth same $20,000 at death.
3) Take the balance of $8,200, and gift it to a charity today…this donation is tax deductible.
4) The investor still has a $20,000 death benefit to give to charity or will to a beneficiary of his choosing.

As you can see, charitable wealth transfers aren’t just for those “mega-rich” investors with millions to pass along to worthy causes. Quality, well-run charitable organizations know how to put even modest donations to work for a good cause, and with the added benefit of a tax deduction from your overall estate, it is a win-win situation for all.

It’s important to consult with a financial advisor or with an accountant to work through the particulars, but a plan such as we’ve outlined above is fairly simple to put into place and is not expensive to structure. Consider how it would benefit your financial picture and how a favorite organization might be positively impacted, and then ask your financial advisor about charitable wealth transfers.

In the last article, we discussed charitable bequests and donor-advised funds; one option very simple and straightforward, the other a bit more complex. There are two other common ways that people allocate a portion of their estate to a charity:

Charitable Remainder Trusts are a bit more complicated—this is something you may wish to speak to your financial advisor about. In a Charitable Remainder Trust (or CRT), you donate cash or other investable assets to an irrevocable trust, in a charity’s name. Over a set period of years, the charity then makes payments to you; at the end of that period of years, the charity owns the trust (and the underlying assets) outright. While there may be fees such as trustee management fees, investment management fees, or others, the tax benefits may outweigh such fees—talk to your financial advisor if you think this is a good option for your estate.

Like Charitable Remainder Trusts, Charitable Lead Trusts allow you to donate cash or other assets to a charitable organization. That organization then pays you a set fee over a set period of years. However, CLT’s are sort of the opposite of CRT’s; at the end of the agreed upon term, the assets, cash, or property revert back to your ownership. One of the benefits is that throughout the term of the agreement, the donated items held in trust are often not a part of your taxable estate; you may, however, be responsible for trust or management fees.

Both of these options are more complex then simple bequests, and merit a conversation with your advisor or tax attorney. There are benefits including control of assets involved in each option, so discuss what makes the most sense for your own personal situation.

Regardless of the method of making a charitable contribution, almost any organization will be most grateful for a gift of any size. Do your homework on the receiving organization, and then relax knowing that you have made an impact that outlasts your life.

Things you’ll want to take stock of, at least annually:

1. Do you have a current life insurance policy, and is it enough to meet your family’s needs in the event of your passing? Review what a year’s spending looks like, and be sure that the beneficiaries of your policy will be taken care of for several years, if possible. Also take into account any major expenses on the horizon (such as college) and work with your advisor to make a plan to handle those expenses.
2. Ensure that the beneficiaries of your policies know where important data is kept—that is, that they know where you keep your important documents, have access to account information, have the right numbers of contacts to call (an attorney, financial advisor, etc). Many of these may be a “given” but it’s worth spending five minutes to be sure all of your contact information is up to date.
3. Be sure your policies are keeping up with the times—has your financial, employment, or life situation changed in any way? You may be well-served to review other policy options, such as term life vs. whole life…this is something you should discuss with a financial advisor, to be sure that your overall portfolio makes sense and is in-line.
4. Are there beneficiaries you’d like to add to your policy—new grandchildren, a favorite charity? Work with your advisor to be sure the relevant people are on your policy or mentioned in a will or trust document.
5. Are your investment decisions in line with best practices for tax efficiency? Depending on your income needs and your stage of life, a conversation with your accountant or financial advisor may yield suggestions to help save on taxes while planning for the future.

Most people don’t look forward to April 15, but careful planning can make sure that the taxes you pay are planned for, and futher planning can keep the rest of your “financial life” orderly as well.

Others may just wish do “do good” in some way…while still others are looking for a way to minimize taxes in their lifetime, and beyond, through careful estate planning. Regardless of the reason, virtually any charity will be extremely grateful for a donation of any size. And regardless of your motivation, you often WILL receive tax benefits on your donation.

There are several ways to make a contribution to a charity. Over this article, and the next post, we’ll discuss the four most common ways to include charities or other organizations as beneficiaries in your estate plan; you will benefit from tax relief, and they will put your gift to good use. The first two options to discuss are:

A charitable bequest is a simple, fairly straightforward provision made in your will that allocates cash or other valuables to a charity upon your death. Perhaps you are donating a car to the Red Cross, or a lump sum of $10,000 to the local animal shelter. These can be spelled out in your will (with the help of your attorney) or trust documents. There are no limits or maximums to the amount that can be donated, and the donations do serve to reduce the size of your estate, limiting the tax liability. You can make the gift an “absolute”—such as, “I would like to donate $10,000 to the American Cancer Society”, or a percentage of your estate: “I would like to donate 10% of my total estate to the Humane Society”.

Donor-advised funds are another option; here, you make an initial contribution (typically at least $10,000-25,000) to a fund, and then can control how the money is allocated through grants or contributions to charities or organizations of your choice. Again, there are management fees involved, but the tax benefits may outweigh those fees. A number of the larger fund companies have options for such donor-advised funds, and if this of interest to you, consult your advisor.

Prior to making a contribution to any charity, it is a good idea to investigate their efficiency and expense ratios; your advisor can help you with that, or there are several good websites that rate how effectively groups of any size spend their money.

Charitable giving as part of an estate plan is a nice thing to do—oftentimes, with a silver lining of tax benefits. Consult your advisor for more information.

So more than ever as we look ahead to the new year it is time for resolutions and making sure you are organized and ready to face the months and the year ahead—in your house, within your family, and always important: your finances.

As you set resolutions for the new year, think about your financial picture. If you have an advisor that you work with, schedule a meeting with him just to check in and make sure your investments are still tracking your goals. If you don’t have an estate plan established, with a will and documents covering powers of attorney, you should do so. Maybe you have a resolution to be a better saver; see if you can set up some automatic withdrawal plans so that a portion of your paycheck goes into a savings account, or into a investment fund or an IRA, automatically.

It’s a great time to review levels of coverage, as well, for your life insurance policies—whether they are term life, variable life, or if you have several policies (as part of an employer’s benefit package and on your own, for example). Discuss with your advisor what your needs are, for your life insurance policy (an investment vehicle, to cover your spouse and/or children in the event of your passing, etc)—and be sure that together you agree that your children or spouse are covered at the appropriate level; an advisor can help you run scenarios on what college expenses or the like might be. Be sure that you are not “over-covered”—this is less common than being “under-covered”, but if you have too much life insurance, together you and your advisor may determine that your money could be better invested (tax wise and “potential for growth” wise) elsewhere.

And, it may be a wise time to ask your insurance provider if there is anything you can do to make your policy more cost-effective (changing deductibles, etc) for a homeowner’s or a health insurance policy.

The big picture: as you set resolutions and make a plan for goals for the year, don’t neglect your financial picture. A conversation with your advisor or some simple steps put in place now can have an impact on your entire year, so don’t delay!

Part of the decision depends on what you are using life insurance for. If it is part of a wealth transfer plan, or used as an investment, you may wish to investigate some of the types of variable life insurance—depending on your risk tolerance (that is, how aggressively you want to invest your money based on returns vs. safety of the money), your investment horizon (that is, how long you have before you really need the money), your health situation (variable life policies can differ in rates/cost depending on the results of certain risk factors such as if you are a smoker, results of a physical, etc), and the amount of money you have to invest (some variable policies can be pricey, and sometimes you are paying for some of the guarantees that are a part of those policies).

If, however, you are seeking to purchase life insurance as a hedge against future emergencies—that is, to be able to provide a source of funding for a spouse or for children in the case of your death—you may wish to investigate term life insurance.

Term life insurance can be the most cost-effective method of purchasing some measure of insurance for your family. What you need to consider in determining the amount of insurance is what the policy will be used for—will a spouse have to pay off a mortgage after your death? Do you have children for whom you’d like to provide a college education? Some experts recommend a policy that covers up to ten times your income, but that is not realistic for every family. After all, you must meet the premiums monthly to pay for this term insurance, so you do not want to pay for too MUCH coverage.

Often, a financial advisor can help you to determine the right amount of coverage. Every family situation is different, so your advisor can take into account your priorities and the near-term and long-term needs for the proceeds of a policy. That advisor can also help you plan out what expenses may arise.

Life insurance, regardless of the type you choose, is important to your heirs who are often bereft at a loss. Any help you can give to ease the burden, financially, for them is important. Talk to an advisor to figure out how to cost-effectively include life insurance as a part of your financial plan.

There’s a lot that can be done to make a difference—maybe you’ve determined that you don’t need cable tv, at least not in every room of your house. Have you shopped around for the best phone company rates? The best cellphone rates? Some folks are finding that they are able to get some rate adjustments by negotiating with credit card companies (or “playing offers” against each other to have those companies compete)—there are some options out there, especially if you’ve had a good payment history.

And, maybe you’ve considered getting rid of your life insurance policy as a way to save money, reasoning that you are in good health and that those monthly premiums could be better spent.

Some people may find that canceling their life insurance makes sense—for instance, perhaps as a couple each spouse had a life insurance policy. The children have grown, college has been paid for, there’s money in the bank for an emergency. In that case, it may make sense to cancel a life insurance policy—especially if the proceeds are used to pay off a mortgage, so that the surviving spouse is taken care of in the event of the other spouse’s death.

But that is really the key. Life insurance is purchased in order to take care of a spouse, a child/children, an heir in the case of an untimely death. Thus, even though you might realize some day-to-day savings, you should be quite sure that your heirs ARE taken care of if they no longer have that policy to count on. Emergency expenses (such as hospital bills, and many others) can arise and can quickly wipe out savings—and are by their nature, unpredictable. Before making any decisions about canceling a policy, therefore, it makes sense to talk to an advisor.

You should also ensure that you will not be penalized or lose any accumulated cash value through an early cancellation or termination of your policy. A better option, in many cases, is to consider a different type of policy. If you have not chosen a term policy, you may be able to switch, and realize cost savings through that way. Perhaps you can lower your monthly premiums by lowering the face value of your policy, or shortening the time horizon (for instance, can you convert a 30 year policy to a 15 year policy)? There are a variety of options out there that can lower your costs while still offering your family and your heirs some measure of protection.

In short, canceling your life insurance policy is not as simple or as pain-free as canceling your cable service. There are long-term ramifications, so be sure to discuss the options with your advisor before making any decisions.

Don’t despair. Your financial advisor can give you some simple, common-sense advice and you may find that gifting, reasonably, provides huge benefits (taxwise and otherwise) for both you and for your heirs – or for anyone who you choose to designate as your gift recipient.

Quite simply, gifting means transferring assets from your own investment portfolio to your children or other beneficiaries of your choosing during your lifetime. The benefit is that your taxable estate is reduced – you are paying less taxes in the present, and your heirs will have less taxes to pay on anything passed along, after you pass.

Gifting also allows you to provide income for yourself or for your heirs, if arranged properly. You can also provide for a child’s education – your own child, a grandchild, or anyone – again, with very beneficial tax consequences.

By current tax law, you can gift up to $12,000 (per person, per year) – tax free – called an annual exclusion. You need not file a separate tax return for this amount.

Even beyond that amount, if you are directly paying expenses to a school – for tuition, for example, paid directly to the institution (not paid to the student and then used for school expenses) that amount paid – sometimes quite a hefty amount! – does not count towards that “annual exclusion”. You can pay the tuition and then also gift that child up to $12,000 without tax consequences for you or for the recipient. The same goes for paying medical expenses directly to a provider – something to consider if you are part of the “sandwich generation”, taking care of children and aging parents.

Another option for gifting is to do so through Missouri’s 529 plan, which allows for an “accelerated” gifting strategy of combining 5 years of donations in one year. 529 plans can be used to pay for qualified education expenses at almost any college or secondary school – but have the advantage of having you, as the giver, retain control over the money until it is used – when used, gains are taxed at the student’s rate, typically much lower than your own.

All in all gifting is an important component of a wealth transfer plan, but there are many other pieces to consider. You should ask your financial advisor for his or her advice and plan ahead for your own benefit, as well as your heirs.

• Transfer of wealth
• Missouri life insurance
• Missouri fixed annuities
• Investments such as funds, stocks, or “alternative investments”
• Missouri final expenses

That list may seem deceptively simple. It is worthwhile to consult a professional about each and every one of the above topics, as they are multi-faceted. For life insurance, do you want a term policy? Variable universal life? Fixed life? The answer depends on what you are looking for the policy to do – protect your estate, give you money to retire on, or provide a cushion in the case of your untimely death for your spouse or heirs. For transfer of wealth – there’s a lot more involved than simply turning over cash or stocks to your dependents. Without a careful plan, you’ll be disappointed with how much the government can claim as their own. And “alternative investments” do not even sound simple – things such as direct investment in real estate, or access to complicated investment vehicles such as separately managed accounts – are areas where a wealth management advisor and his/her experience can help put your money to work – in ways that the average investor does not even realize exist.

When you meet your advisor, you will need to do some preparation.

• Gather the important papers and files that you’ve kept over the years; your advisor will want to review recent tax returns, investments, retirement plan, wills, and insurance policies, if they exist.
• Know what you want to discuss, and together with your advisor, identify areas where you may need assistance, such as building up a retirement income or improving returns. If you only want help with a specific area of your portfolio (ie retirement planning), tell your advisor that (and stick to your guns!)
• Together with your advisor, review your investment timelines and willingness to take on risk – he or she will likely have you fill out a risk tolerance questionnaire.
• If you’ve elected to work with an advisor who will develop a complete financial plan, you’ll want to discuss that plan and determine if you need to work with additional specialists (such as accountants or attorneys) to implement key pieces of the plan. Ask how often it makes sense to meet with your advisor to update or review your plan.

A little legwork and preparation can make your time spent with your wealth management advisor beneficial for you both.