Personal Planning Ideas

Planned Giving

  • Don’t Shortchange the IRS

    The IRS reports that about ten million taxpayers were subject to a penalty on underpaying estimated taxes in 2015.  In general, taxpayers must pay in at least 90% of the taxes owed for the year, either through withholding from earnings or timely quarterly estimated payments.  This may be a difficult number to calculate, especially for those who work numerous part-time jobs or are freelancers.  A safe harbor allows taxpayers to avoid the penalty by paying in 100% of the prior year’s tax liability (110% for taxpayers with AGI in excess of $150,000 for the prior year).

    It’s a good idea to check with your tax adviser prior to year’s end to determine if you have paid in enough for 2017.  If you find that you might be subject to the penalty, you may be able to increase withholding from wages, which is considered to be ratably spread over the year.  Estimated payments, on the other hand, apply to income from that quarter, so paying more in one quarter does not make up for a deficiency in a prior quarter.

    While trying to avoid underpaying taxes, it’s smart not to pay too much.  Granted, any overpayment will result in a refund next year, but in the meantime, you’ve given the IRS an interest-free loan.

    Special Planning for Special Needs

    Estate planning is rarely a simple task, but it can be even more difficult when parents have a disabled child to consider.  A natural reaction is to leave the lion’s share of the estate to the child with special needs, particularly if other children in the family are self-sufficient.  But knowing how to leave the assets is key to a successful estate plan.

    Leaving money outright to a child with special needs — even one capable of handling the responsibilities of a windfall — may mean the loss of other forms of financial assistance.  The goal may be to guarantee that the child receives needed assistance after the parents’ deaths while also preserving payments from Social Security and state sources.  If the child is not capable of living independently, the estate plan should name someone to make decisions for the child and handle financial affairs.

    For many parents, a special needs trust or discretionary trust is an essential part of their estate plan.  The trust can be established in a will or living trust, to be funded and begin operating at the last parent’s death.  The trust may be named beneficiary of a life insurance policy to provide sufficient funds to care for the child.  Several states allow parents to establish ABLE 529 plans, similar to state-operated 529 education plans, to pay for qualified disability expenses.

    Charitable remainder trusts can make payments to special needs trusts for the life of a beneficiary who is incompetent.  At the beneficiary’s death, the assets in the special needs trust may be required to repay state expenditures or to pass as directed in the trust, while the balance in the remainder trust will pass to charity.

    Whose Property Is It? Only Title Will Tell

    Property can be owned jointly in many different ways — each with its own rules as to acquiring, holding and transferring the property.  Before acquiring major assets in joint name, it’s a good idea to consult with your advisers.  The chart below contains a summary of the different types of joint ownership and the estate tax treatment of each.


    Tenants in common

    Joint tenants with right of survivorship

    Community property

    Tenants by entirety

    Number of owners allowed

    Any number, interests may vary 

    Any number, interests must be equal 

    Spouses only

    Spouses only

    How created

    Interests can be unequal; can acquire by purchase, gift, inheritance or sale of interest by joint tenant

    Interests must be equal, acquired at the same time

    Property acquired during marriage using "community" funds (AZ, CA, ID, LA, NM, NV, TX, WA, WI only)

    Married couple elects to hold property as tenants by entirety

    Transfers of interests

    Interests freely transferrable without consent of other owners

    Joint owner may transfer interest during life; may result in tenancy in common

    Consent of both spouses needed for transfers

    Consent of both spouses needed for transfers

    Who takes at death

    Tenant’s interest passes by will or by state law for those dying without a will

    Surviving joint tenants divide interest equally so shares continue to be equal

    Spouse’s interest can pass by will. If left to surviving spouse, sheltered by marital deduction

    Passes automatically to surviving spouse. Qualifies for marital deduction

    Estate tax consequences

    Fair market value of interest included in gross estate

    Entire value of property included in gross estate unless joint tenant(s) can show full and adequate consideration paid for interest(s). If spouse is surviving joint tenant, only one-half value of property included in gross estate; sheltered by marital deduction

    One-half value of property included in gross estate; qualifies for marital deduction if property passes to surviving spouse

    One-half value of property included in gross estate; qualifies for marital deduction

    Charity can be named a tenant in common of certain assets. 

    A Place for Bonds in Your Portfolio

    Even with the stock market booming, bonds have an important place in a diversified portfolio.  They are popular because an investor who holds certain bonds until maturity is guaranteed to get his or her investment back.  Bonds also may be attractive to those who need a steady stream of income.  There are several types of bonds to consider with your financial adviser:

    Treasury bonds — These are issued and backed by the U.S. Treasury, making them among the safest investments.  They can be purchased directly through the Federal Reserve and income from the bonds is free from state income tax.

    Municipal bonds — These bonds are issued by state and local governmental units.  Generally, they are free of federal income tax and may avoid state income tax.  While the yields may be lower than what is offered on corporate bonds, the tax-free feature of municipal bonds makes them attractive, particularly to investors in high tax brackets.

    Corporate bonds — Bonds issued by private corporations generally offer higher yields, but are not guaranteed.  Various rating services can help investors determine how much risk is involved with a particular bond.

    Bond funds — Similar to a mutual fund for stocks, bond funds hold a variety of bonds.  Some funds will specialize in a particular type of bond (municipals, for example).  A fund’s price per share fluctuates with the market value of the bonds in the fund, so it’s possible for an investor to lose some of his or her investments in the fund.

    Bonds can also be given to charity, similar to shares of appreciated stock. 



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