Planning for the Expected

Perhaps Bette Davis said it best when she observed, “Old age is no place for sissies.” ¹

The challenges seniors have met throughout their lives have made them wiser and stronger, preparing them for the unique challenges that come with aging.

As we age, the potential for cognitive decline increases, ranging from simple forgetfulness to dementia. Long-term illness can sap time and energy from tending to your financial affairs in retirement. Even a decline in vision may make it harder to manage your financial affairs.

Fortunately, you can plan ahead to protect yourself and your family against the financial consequences of deteriorating health, and in many cases, insurance may play an important role.

Let’s examine some of the ways you can employ insurance to help protect your
financial health.

Health Care Costs

For some, health-care costs represent a larger share of their budget as the years pass.

Recognizing this, you may want to consider Medigap insurance to cover the expenses that Medicare does not, which can add up quickly. You also might want to consider some form of extended-care insurance, which can be structured to pay for nursing and home-care services—two services that Medicare doesn’t cover.

Managing Your Wealth

The involvement you have with managing your investments may change as you age. For many seniors, that sort of day-to-day responsibility is unattractive and even untenable.

If that’s the case, you may wish to consider what role annuities can play. Annuities can be structured to pay you income for as long as you live, relieving you of the concern of outliving your retirement money.² Certain annuities even offer extended-care benefits, which allow you to address two concerns with one decision.

Transferring Your Estate

If you’re like many seniors, you have a strong desire to leave something to your children, grandchildren and perhaps a favorite charity. Through the use of life insurance, you can pursue these objectives. For example, life insurance can be used to create an estate or to equalize an estate transfer among your heirs.³

Insurance will never be able to prevent the health issues that come inexorably with age, but it can be used to mitigate the potential financial consequences of them.

  1. BrainyQuote, 2015
  2. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
  3. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Critical Estate Documents

Financial Documents

Joint Ownership Durable Power of Attorney Living Trust
What does it do? Enables you to own property jointly with another person Authorizes someone to handle legal and financial decisions if you become incapacitated Holds your belongings until your death
Can it authorize someone to handle your financial affairs if you are unable to communicate? Generally, no Generally, no
Can it specify how you want your belongings transferred after your death?
But only those belongings owned jointly
Generally, no
Is it private?
When does it go into effect? As soon as joint ownership is recorded Either immediately or upon a specific trigger event (such as your incapacity) When the document is signed and the trust is funded
Does it require court involvement? No No No

Fast Fact: Without a Will. About 66% of Americans admit they don’t have a will.
Source: Everplans, September 16, 2015

Healthcare Documents

Living Will Power of Attorney Power of Attorney for Healthcare
What does it do? Provides specific instructions about medical care and artificial life support Authorizes someone to handle legal and financial decisions on your behalf Authorizes someone to make healthcare decisions on your behalf
Can it outline your medical wishes if you are unable to communicate? Generally, no Not generally, but it does authorize someone to make medical decisions on your behalf
Can it authorize someone to handle your financial affairs if you are unable to communicate? Generally, no Generally, no
Duration No expiration; can be revised or revoked at any time Depends on specifics in the document; can be revised or revoked at any time Depends on specifics in the document; can be revoked or revised at any time
Is it private?
When does it go into effect? Upon your incapacity Either immediately or upon a specific trigger event (such as your incapacity) Either immediately or upon a specific trigger event (such as your incapacity)

Tip: Delegation. When choosing someone to make healthcare decisions on your behalf, consider naming an individual who is trustworthy, level-headed in a crisis, and can make themselves available on short notice.

Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Estimating Your Estate Taxes

Congress passed — and the President signed — new estate tax rules in December 2010 that will be in effect through 2012, unless lawmakers decide to adjust the provisions.

The good news is that only 9,100 estates are expected to owe estate taxes as a result of the new rule. Or put another way, the American Bar Association estimates that less than one-half of one percent people who die in 2011 will be affected by the estate tax.1,2

Rundown of the new rules

The first $5 million of your estate is effectively exempt from federal estate taxes. So if your estate is worth less than $5 million — that’s the gross value of everything you owned when you died — no federal estate taxes will be due. If your estate is worth more than $5 million, you may be subject to federal estate taxes on the amount that exceeds $5 million. And in 2011 and 2012, the maximum estate tax rate is 35 percent.3

Example 1

Tip: Cubby Culprit. When William Wrigley announced the sale of the Chicago Cubs in 1981, it was due to massive losses, but not in the business of baseball. Estate taxes of nearly $40 million were the culprit.
Source: Bank Insurance Marketing, January 2011

When Mrs. Jones passed away in 2011, her estate was worth $3.5 million dollars. That’s below the amount exempted by the unified credit, so no federal estate taxes will be due. While Mrs. Jones wasn’t subject to federal estate taxes, there are a variety of estate strategies she could have used to help manage her estate.4

Example 2

Mr. Smith, on the other hand, left an estate worth $7.5 million in 2011. There are two quick ways to estimate the estate taxes which will come due nine months from his death.

The formal process is to find tentative tax. On an estate worth $7.5 million, the tentative estate tax is $2,605,800. From this, subtract the unified credit, which is $1,730,800. This unified credit is how the IRS exempts the first $5 million from estate taxes — it’s the tax that would be due on the first $5 million of the estate. When $1,730,800 is subtracted from $2,605,800, it results in a federal estate tax of $875,000.5

That’s what Mr. Smith’s heirs may have to pay.

The estate taxes due can also be estimated by simply subtracting $5 million from the total value of the estate — in this case $7.5 million — then multiplying the result by 35 percent. In this instance, $7.5 million minus $5 million leaves $2.5 million. And 35 percent of $2.5 million is $875,000.

Remember that the current estate tax rules are in effect until 2012. After that, Congress may either extend the existing rules or develop a new approach. Your best strategy may be to manage your estate so it’s structured to carry out your wishes.

1. Brookings Tax Policy Center, December 2011
2. New York Times, October 17, 2010
3. Taxpayer Relief Act of 2011, December 2011
4,5. These hypothetical examples are used for illustrative purposes only, and not intended to represent any estate.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Estate Management Checklist

Tip: One key difference between a will and a living trust is when they take effect. A will takes effect when you die; a living trust takes effect when you execute it, and begins to operate when you transfer assets to it.

Do you have a will?

A will enables you to specify who you want to inherit your property and other assets. A will also enables you to name a guardian for your minor children.

Do you have healthcare documents in place?

Healthcare documents spell out your wishes for health care if you become unable to make medical decisions for yourself. They also authorize a person to make decisions on your behalf if that should prove necessary. These documents may include a living will, a power of attorney agreement, and a durable power of attorney agreement for healthcare.

Do you have financial documents in place?

Certain financial documents can outline your financial wishes. If you become unable to make decisions for yourself, these financial documents can be structured to empower a person to make decisions on your behalf. These documents may include joint ownership, durable power of attorney, and living trusts.

Have you filed beneficiary forms?

In some cases, naming a beneficiary for bank accounts and retirement plans makes these accounts “payable on death” to your beneficiaries. In other cases, you will need to fill out a “Payable on Death” form.

Do you have the right amount and type of life insurance?

When was the last time you assessed your life insurance coverage? Have you compared the life insurance benefit with your financial obligations?

Have you taken steps to manage your federal estate tax?

If you and your spouse have more than $5.45 million in assets (for 2016), you may want to consider taking steps to manage federal estate tax, which will be due at the second spouse’s death.

Fast Fact: Although estate taxes could claim a sizable portion of your legacy, they make up less than one percent of total federal revenue.
Source: Center on Budget and Policy Priorities, 2016

Have you taken steps to protect your business?

Do you have a succession plan? If you own a business with others, you may also want to consider a buyout agreement.

Have you created a letter of instruction?

A letter of instruction is a non-legal document that outlines your wishes. A strong, well-written letter may save your heirs time, effort, and expense as they administer your estate.

Will your heirs be able to locate your critical documents?

Your heirs will need access to the specific documents you have created to manage your estate. These documents may include:

  • Your will
  • Trust documents
  • Life insurance policies
  • Deeds to any real estate, and certificates for stocks, bonds, annuities
  • Information on your bank accounts, mutual funds, and safe deposit boxes
  • Information on your retirement plans, 401(k) accounts, or IRAs
  • Information on any debts you have: credit cards, mortgages and loans, utilities, and unpaid taxes

Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

And the Executor Is

Tip: Generally,
children under the age of 18 cannot be executors.
Source: Plea.org, May 20, 2016

In her will, American businesswoman Leona Helmsley left $12 million in a trust fund to her dog Trouble. Her four executors were responsible for seeing that her wishes were carried out. In the years after her death, they dealt with challenges from two disinherited grandchildren, oversaw scores of properties and hotels, negotiated settlements with disgruntled former employees, and managed a huge investment portfolio in a falling economy. What did they ask for in return? $100 million split between them.¹

The executor to your will may not be as busy or as well compensated as Ms. Helmsley’s. Still, you’ll want to give thoughtful consideration to this important choice. How do you choose an executor? Can anyone do it? What makes an individual a good choice?

Many people choose a spouse, sibling, child, or close friend as executor. In most cases, the job is fairly straightforward. Still, you might give special consideration to someone who is well organized and capable of handling financial matters. Someone who is respected by your heirs and a good communicator also may help make the process run smoothly.

Above all, an executor should be someone trustworthy, since this person will have legal responsibility to manage your money, pay your debts (including taxes), and distribute your assets to your beneficiaries as stated in your will.

If your estate is large or you anticipate a significant amount of court time for your executor, you might think of naming a bank, lawyer, or financial professional. These individuals will typically charge a fee, which would be paid by the estate. In some families, singling out one child or sibling as executor could be construed as favoritism, so naming an outside party may be a good alternative.

Fast Fact:
Michael Jackson chose executors from outside his family to manage his estate.
Source: Billboard.com, March 15, 2016

Whenever possible, choose an executor who lives near you. Court appearances, property issues, even checking mail can be simplified by proximity. Also, some states place additional restrictions on executors who live out of state, so check the laws where you live.

Whomever you choose, discuss your decision with that person. Make sure the individual understands and accepts the obligation—and knows where you keep important records. Because the person may pre-decease you—or have a change of heart about executing your wishes—it’s always a good idea to name one or two alternative executors.

The period following the death of a loved one is a stressful time, and can be confusing for family members. Choosing the right executor can help ensure that the distribution of your assets may be done efficiently and with as little upheaval as possible.

What Will?

Take a look at some famous people who left life without having a will in place.

  1. Prince
  2. Jimi Hendrix
  3. Bob Marley
  4. Sonny Bono
  5. Pablo Picasso
  6. Howard Hughes
  7. Steve McNair
  8. Abraham Lincoln

Source: Forbes, April 27, 2016

1.  January 24, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Put It in a Letter

Tip: Contact Information. A letter of instruction might include contact information for individuals who could be helpful in the distribution of your assets, such as your lawyer or financial professional.

Actor Lee Marvin once said, “As soon as people see my face on a movie screen, they [know] two things: first, I’m not going to get the girl, and second, I’ll get a cheap funeral before the picture is over.”1

Most people don’t spend too much time thinking about their own funeral, and yet many of us have a vision about our memorial service or the handling of our remains. A letter of instruction can help you accomplish that goal.

A letter of instruction is not a legal document; it’s a letter written by you that provides additional and more personal information regarding your estate. It can be addressed to whomever you choose, but typically letters of instruction are directed to the executor, family members, or beneficiaries.

Make a Cheat Sheet

Think of a letter of instruction as a “cheat sheet” to your estate. Here are a few ideas and concepts that may be included:

  • The location of important legal documents, such as your will, insurance policies, titles to automobiles, deeds to property, etc.
  • A list of financial assets, including savings and checking accounts, stocks, bonds, and retirement accounts. Be sure to include account numbers, PINs, and passwords where applicable.
  • A list of pensions or profit-sharing plans, including the location of their explanatory booklets.
  • The location of your latest tax return and Social Security statements.
  • The location of any safe deposit boxes and their keys.

Identify Funeral Wishes

Fast Fact: Going Without. If you die without a will, also called dying “intestate,” the state will decide how your assets should be distributed.

A letter of instruction is also a good place to leave burial or cremation wishes. You should consider giving the location of your cemetery plot deed, if you have one. You may even wish to specify which hymns or speakers you would like included in your memorial service. Although a letter of instruction is not legally binding, your heirs will probably be glad to know how you would like to be remembered. It also may be helpful to leave a list of contact information for people who should be notified in the event of your death.

There is no “best way” to write a letter of instruction. It can be written in your style and reflect your personality, or it can be written to simply convey information. You should decide what type of letter best fits your estate strategy.

Don’t Wait

Nearly two-thirds of Americans say they don’t have a will.

Chart Source: USA Today, April 26, 2016

1. Brainyquote.com, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Will Power

Tip: Let Them Know. Your will may be a good place to outline your funeral wishes. Although heirs are not legally bound to follow your directions, they may be glad to know your preferences.

According to a recent report, only 34% of American’s have a will, which may not be entirely surprising.1 No one wants to be reminded of their own mortality or spend too much time thinking about what might happen once they’re gone.

But a will is an instrument of power. Creating one gives you control over the distribution of your assets. If you die without one, the state decides what becomes of your property, without regard to your priorities.

A will is a legal document by which an individual or a couple (known as “testator”) identifies their wishes regarding the distribution of their assets after death. A will can typically be broken down into four main parts.

  • Executors — Most wills begin by naming an executor. Executors are responsible for carrying out the wishes outlined in a will. This involves assessing the value of the estate, gathering the assets, paying inheritance tax and other debts (if necessary), and distributing assets among beneficiaries. It is recommended that you name at least two executors in case your first choice is unable to fulfill the obligation.
  • Guardians — A will allows you to designate a guardian for your minor children. Whomever you appoint, you will want to make sure beforehand that the individual is able and willing to assume the responsibility. For many people, this is the most important part of a will since, if you die without naming a guardian, the court will decide who takes care of your children.
  • Gifts — This section enables you to identify people or organizations to whom you wish to give gifts of money or specific possessions, such as jewelry or a car. You can also specify conditional gifts, such as a sum of money to a young daughter, but only when she reaches a certain age.
  • Estate — Your estate encompasses everything you own, including real property, financial investments, cash, and personal possessions. Once you have identified specific gifts you would like to distribute, you can apportion the rest of your estate in equal shares among your heirs, or you can split it into percentages. For example, you may decide to give 45% each to two children and the remaining 10% to your sibling.

Fast Fact: The Difference. Where does the term “Last Will and Testament” come from? Historically, a “will” only provided for the distribution of real estate, while a “testament” dealt with the giving of personal property.

The law does not require that a will be drawn up by a professional, and some people choose to create their own wills at home. But where wills are concerned, there is little room for error. You will not be around when the will is read to correct technical errors or clear up confusion. When you draft a will, consider enlisting the help of a legal, tax, or financial professional who may be able to offer additional insight, especially if you have a large estate or complex family situation.

Preparing for the eventual distribution of your assets may not sound enticing. But remember, a will puts the power in your hands.

You have worked hard to create a legacy for your loved ones. You deserve to decide what becomes of it.

No Time Like the Present

One recent survey noted that, although most people have thought of creating a will, only about one-third have actually done so.

 

Chart Source: Everplans, September 16, 2015

1. Everplans, September 16, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

A Brief History of Estate Taxes

Tip: Regardless of your net worth, it’s critical to understand your choices when developing an estate strategy.

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹

Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act, added a tax on transfers of real estate, and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.²

Fast Fact: Estate Income. Between 2016 and 2025, the estate tax will generate about $246 billion.
Center on Budget and Policy Priorities, 2015

In 1898, a federal legacy tax was proposed to raise revenue for the Spanish-American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.³

Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.

In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.

In 2012, the American Tax Relief Act made the estate tax a permanent part of the tax code. Still, it’s possible the estate tax law may be adjusted at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

Estate Taxes and Overall Federal Revenues

Estate taxes typically account for less than one percent of total federal revenue.

Chart Source: Center on Budget and Policy Priorities, 2015

Exemption through the Years

Federal estate taxes exempt a share of estates from federal estate taxes. Currently, if an estate’s worth less than $5 million, no federal estate taxes may apply.

Year Exclusion Amount Highest Tax Rate
1916 $50,000 10.0%
1917 $50,000 25.0%
1918-1923 $50,000 25.0%
1924-1925 $50,000 40.0%
1926-1931 $100,000 20.0%
1932-1933 $50,000 45.0%
1934 $50,000 60.0%
1935-1939 $40,000 70.0%
1940 $40,000 70.0%
1941 $40,000 77.0%
1942-1976 $60,000 77.0%
1977 $120,000 70.0%
1978 $134,000 70.0%
1979 $147,000 70.0%
1980 $161,000 70.0%
1981 $175,000 70.0%
1982 $225,000 65.0%
1983 $275,000 60.0%
1984 $325,000 55.0%
1985 $400,000 55.0%
1986 $500,000 55.0%
1987-1997 $600,000 55.0%
1998 $625,000 55.0%
1999 $650,000 55.0%
2000-2001 $675,000 55.0%
2002 $1,000,000 50.0%
2003 $1,000,000 49.0%
2004 $1,500,000 48.0%
2005 $1,500,000 47.0%
2006 $2,000,000 46.0%
2007 $2,000,000 45.0%
2008 $2,000,000 45.0%
2009 $3,500,000 45.0%
2010 $0 or $5,000,000 0% or 35%
2011 $5,000,000 35.0%
2012 $5,120,000 35.0%
2013 $5,250,000 40.0%
2014 $5,340,000 40.0%
2015 $5,430,000 40.0%
2016 $5,450,000 40.0%

Chart Source: Internal Revenue Service, 2016

1,2,3. Internal Revenue Service, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Trends in Charitable Giving

Tip: Importance of Itemizing. Charitable contributions are deductible only if you itemize deductions on Form 1040, Schedule A. Those who take the standard deduction cannot deduct their contributions.
Internal Revenue Service, 2016

According to Giving USA 2016, Americans gave an estimated $373.25 billion to charity in 2015. That’s the highest total in more than 60 years since the report was first published.1

Americans give to charity for two main reasons: To support a cause or organization they care about, or to leave a legacy through their support.

When giving to charitable organizations, some people elect to support through cash donations. Others, however, understand that supporting an organization may generate tax benefits. They may opt to follow techniques that can maximize both the gift and the potential tax benefit. Here’s a quick review of a few charitable choices:

Direct gifts are just that: contributions made directly to charitable organizations. Direct gifts may be deductible from income taxes depending on your individual situation.

Charitable gift annuities are not related to annuities offered by insurance companies. Under this arrangement, the donor gives money, securities, or real estate, and in return, the charitable organization agrees to pay the donor a fixed income. Upon the death of the donor, the assets pass to the charitable organization. Charitable gift annuities enable donors to receive consistent income and potentially manage taxes.

Pooled-income funds pool contributions from various donors into a fund, which is invested by the charitable organization. Income from the fund is distributed to the donors according to their share of the fund. Pooled-income funds enable donors to receive income, potentially manage taxes, and make a future gift to charity.

Fast Fact: Contributions by individuals, couples, and families accounted for 71% of the $373.25 billion donated to charitable organizations in 2015.
Giving USA Foundation, 2016

Gifts in trust enable donors to contribute to a charity and leave assets to beneficiaries. Generally, these irrevocable trusts take one of two forms. With a charitable remainder trust, the donor can receive lifetime income from the assets in the trust, which then pass to the charity when the donor dies; in the case of a charitable lead trust, the charity receives the income from the assets in the trust, which then pass to the donor’s beneficiaries when the donor dies.

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Donor-advised funds are funds administered by a charity to which a donor can make irrevocable contributions. This gift may have tax considerations, which is another benefit. The donor also can recommend that the fund make distributions to qualified charitable organizations.

Some people are comfortable with their current gifting strategies. Others, however, may want a more advanced strategy that can maximize their gift and generate potential tax benefits. A financial professional can help you assess which approach may work best for you.

Remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Giving and Net Worth

Charitable giving appears to trail household net worth by about one year. When household net worth dipped in 2008, charitable giving dipped in 2009.

Chart Source: Giving USA Foundation, 2016; Federal Reserve, 2016

Where the Money Goes

The biggest percentage of charitable contributions — 32% — went to churches and religious organizations. A variety of different types of groups were on the receiving end of charitable gifts.

Chart Source: Giving USA Foundation, 2016

  1. Giving USA Foundation, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Problems with Probate

Tip: Both the lawyer and the executor are entitled to fees from an estate. In addition, there will be court costs, appraiser’s fees, and may be other expenses.
Nolo, 2015

Many people have heard they should avoid probate,
but few understand what probate is and how the process works.

What Is Probate?

Probate is the legal process that wraps up a person’s legal and financial affairs after their death. During the probate process a person’s property is identified, cataloged, and appraised. In addition, probate makes certain any outstanding debts and taxes are paid. It can be a complex process, filled with very
specific legal requirements.

For example, if someone dies without a valid will, the probate court sees that the deceased person’s assets are distributed according to the laws of the state.

If someone dies with a valid will, the probate court is charged with ensuring the deceased person’s assets are distributed according to their wishes.

Probate Process

Probate can take a long time — anywhere from a few months to more than a year. If there is a will, and one or more of the heirs chooses to contest the document, the process can take a lot longer.1

Probate can be expensive. Even though probate costs are capped in some states, they may reach 5% or more of the estate’s value. That’s calculated on the gross value of the estate — before taxes, debts, and other expenses are paid. And if the probate process is challenged, the legal costs can rise.2

Finally, probate takes place in a public court. That makes everything a matter of public record; there is no privacy. Anyone who wants to can find out exactly what was left behind (and how much each of a deceased person’s heirs received) and can review the court records for the deceased person’s estate.

Fast Fact: Sounds like Latin. The word “probate” comes from the Latin verb “probatum” which means “to prove.”  Thus, when a will is probated, its validity is “proved” before a court, which then orders the terms of the will to be followed.
Merriam-Webster, 2015

Those who have concerns for their heirs’ privacy may want to take steps to manage the probate process.

Every estate passes through probate following the owner’s death. Probate can be a public process that exposes all your assets, or it can be managed to include as little information as possible. When preparing your estate documents, consider how you want the courts to handle your personal finances after your passing.

Property That Avoids Probate

Some assets can be structured so they may not have to go through probate. Here’s a partial list:

  • Property held in a trust
  • Jointly held property (but not common property)
  • Death benefits from insurance policies (unless payable to the estate)
  • Property given away before you die
  • Assets in a pay-on-death account
  • Retirement accounts with a named beneficiary

1,2. Nolo.com, 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.