Year-End Donations & Giving

A list of things to consider as you think about year-end charitable donations

With its blinking lights, family traditions, and festive music, December is the most wonderful time of the year. And according to Charity Navigator, the month of December really is wonderful because December sees approximately 30% of all annual charitable giving occur.

Unfortunately, despite the greatest of intentions, many will inevitably make mistakes in how they give, especially if they wait until the last minute. So, here is a list of things for you to think about as you consider your year-end charitable donations.

Make a Plan
Last year, donations from America’s individuals, estates, foundations and corporations reached approximately $410 billion, according to Giving USA in their Annual Report on Philanthropy. Hoping that 2020 is similar, that means you and your neighbors will donate over $120+ billion dollars in December alone!

How much of this was more impulse-giving vs. a well-thought-out charity plan?

Ideally, at the beginning of every year – with your financial advisor – you would map out a plan to maximize the tax benefits of your giving. Really think through what is important to you and what you want to support. Is it an organization that supports literacy? Or provides food? Or shelter for families? Creating a plan will help you be less reactive and feel less boxed in when friends ask for your charitable support.

Research Your Charity
It’s easy to get fooled by a charity’s name so you need to do your homework. And beware of scam artists pretending to represent an organization that doesn’t exist. Read a charity’s financial statements to see how they spend their (your) money. Even better, volunteer before you write a check.

Donating Stock
If you have owned stock for more than a year and it has appreciated, then don’t sell it first and then give the cash to charity. Those appreciated assets can be donated directly to charity without you or the charity incurring capital gains taxes (consult your tax professional to be sure).

Selling Your Personal Info
Quite a few charities will rent or sell the addresses, phone numbers, email addresses and detailed social media profiles of their donors, which means you might start getting a bunch of unwanted calls, emails and friend requests. Make sure you review a charity’s privacy policy before you give them your information. And many times, you have to actively “Opt Out” to ensure your personal information is not used.

Ask for A Receipt
Remember, for charitable contributions of $250 or more, you need a donor’s acknowledgement letter. And generally it’s a good idea to obtain receipts, especially when donating goods.

Don’t Delay
Shockingly, a whopping 12% of all giving occurs in the last 3 days of the year! But if you mail a check postmarked after December 31st, then you might run into trouble. Make it easy on yourself and don’t wait until the last minute.

Money Can’t Buy Happiness, But Maybe Donating to Charity Can?
Consider research from Elizabeth Dunn of the University of British Columbia, Lara Aknin at Simon Fraser University and Michael Norton at Harvard Business School. Essentially what they found in their study is the following:

  • Spending money on other people has a more positive impact on happiness than spending money on oneself
  • Spending more of one’s income on others predicted greater happiness

Discuss with Your Financial Advisor
If you have any questions or need help mapping out your Charitable Plan, set an appointment to discuss with your financial advisor.

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

How to Divide an Inheritance Equally

Minimize the need to decide taxes and transaction costs for all beneficiaries

Nothing ignites family arguments like inheritance. If you plan to leave money to more than a few beneficiaries, for the sake of peace and your own emotional legacy, know how to divide the proceeds fairly.

First, you can divide your estate among however many heirs you want: three, seven, 11 or 13 and so on. Here are best practices for how to divide your wealth.

Beware of Taxes
Dividing an estate doesn’t need to trigger taxes. Don’t try to be the financial advisor of each beneficiary when you divvy the estate. Afterward, each beneficiary can decide financial and tax moves based on individual circumstances.

For example, let‘s say Jim, Susan and David become heirs of a taxable account of stocks, bonds and mutual funds. The account includes:

  • 351.362 shares of XYZ mutual fund at $36.34 per share, worth about $12,768.49
  • 2,000 shares of ABC stock at $100 a share, worth about $200,000 (this holding comprises two trade lots of 1,000 shares each and each trade lot has a different cost basis, or original price)
  • $85,000 face value of CorpCorp bond at $97 par value, about $82,450 (traded in $5,000 face value units)
  • $100,000 face value of MuniMuni bond at $102 par value, about $102,000 (also traded in $5,000 face value units)
  • $5,236.45 in cash The total account value is $402,454.94, making each heir’s share $134,151.64 with two pennies left over.

To Divide the Account Evenly
The 351.362 shares of XYZ can be divided into three equal portions of 117.12 shares, leaving 0.002 shares left over. Jim and Susan receive 117.121 shares and David 117.12 shares, plus 0.001 times the closing valuation of XYZ on the day of transfer. This probably results in David receiving about four cents in lieu of missing out on 0.001 of a share.

The ABC stock comprises two trade lots: 1,000 shares purchased one year ago at $80 a share, and 1,000 shares purchased six months ago at $105 per share. Both positions divide equally into three 333- share portions, leaving just two shares to be divided, each with a face value of $100.

If all three heirs are in the 15% capital gains tax bracket, the value of each share is the closing valuation on the day of transfer adjusted for 15% Copyright © 2019 RSW Publishing. All rights reserved. Distributed by Financial Media Exchange. capital gains taxes. In large estates with many assets to distribute, divide leftover shares as evenly as possible to minimize the difference between capital gains that heirs incur.

Note that taxable assets usually receive a stepped-up basis, meaning that the asset resets to its fair market value at the date of the holder’s death. Often, however, half an estate’s assets will go into a marital trust when the first spouse in an estate-holding couple dies.

When the second spouse dies, the entire estate is settled. But assets in the marital trust might have received a step-up in basis years earlier. In that case, potential differences in capital gains do apply when planning.

You can divide the $85,000 face value of CorpCorp equally only into 17 units each worth $5,000 in face value. In our example, each heir receives five $5,000 units, with two $5,000 units left over. Whoever doesn’t receive a unit receives the equivalent in cash instead.

The $100,000 face value of MuniMuni divides equally only into 20 units each worth $5,000 in face value. Each heir therefore gets six $5,000 units with, again, two left over. Also again, whoever doesn’t receive a unit receives the equivalent in cash instead.

(These examples assume no significant tax considerations on either bond. One recommendation is to vary who receives the cash.)


Common Questions
Why not just sell everything and split the money? Tax consequences to one or more heirs, illiquidity in one or more assets and the custodian fees to sell are all considerations to immediately selling and splitting.

What if two heirs want to sell an asset before dividing the money equally? Jim and Susan both wanting to sell the CorpCorp bonds doesn’t need to affect David. Of the 17 units of CorpCorp, you can sell 12 units and agree to split the proceeds. Jim and Susan each receive 47.22% of the proceeds and David 5.56%, plus the five unsold units.

Dividing your estate this way minimizes your need to decide on behalf of all beneficiaries what to sell and how and what transaction costs and taxes to incur.

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

12 Estate Planning Must-Dos

Many of you already have estate documents, probably executed many years ago. You need an estate attorney to look over your documents every 10 years or so. Here are a dozen points to review.

i. Do you have a will and powers of attorney for health care and property? These are part of every complete estate plan. With health-care power, you choose an agent to act on your behalf if you become unable to make your own decisions. With durable power for property, you select an agent to act if you are incapacitated and can’t sign a tax return, make investment decisions, make gifts or handle other financial matters.

Make sure your health-care power addresses the Heath Insurance Portability and Accountability Act (HIPPA). This Governs what medical information doctors can release to someone other than the patient.

ii. Do you need to change any beneficiaries, executors, trustees, guardians or others named in your documents? Are all still living? Can someone you recently found fill a role better?

iii. Any updates needed to addendums to your will that specify who gets what of your personal property? Often, I read wills that mention addendums for personal property and the addendums don’t even exist.

iv. Did you move to a different state since the execution of your estate documents? If so, seek out a local estate attorney to check any legal differences for planning between your old and new states.

v. Do you still need your trust documents, or can you decant, which allows you to change some provisions? Consider this technique of emptying the contents of an irrevocable trust into another newly created trust if you are unhappy with your irrevocable trust. Not all states allow decanting.

You may also want to discuss possibly moving assets out of a living trust (where a trustee holds them, a technique sometimes used to avoid probate) and holding them in the name of an individual.

This discussion will weigh the income tax benefits of a step-up in cost basis, the original cost of an asset, versus other reasons to keep the trust. (“Step up” means that the cost basis of an asset resets to the fair market value of the security as the date of the holder’s death – potentially a much higher value than when they bought the security.) The higher the cost basis, the less capital gains tax your heirs pay when they sell the asset.

You may also want to see whether you need an irrevocable life insurance trust, a device once used to move assets, typically life insurance, out of a taxable estate. Now that thresholds are higher -individuals can leave $5.34 million and married couples $10.68 million tax-free – you may not need to move assets.

Also check when your life insurance expires. Consider how long to keep it if you think you might outlive the policy

vi. Have your children passed the ages specified in a children’s trust (in which you designate money for such specific purposes as education, home down payments or weddings once the kids reach stipulated ages)? If your estate documents call for a trust to give children access to money at certain ages after you die, you may be able to delete that language if the kids are older than the specified ages.

vii. What happens if one of your kids gets divorced? A trust can help you protect assets for your child or grandchild.

viii. Do you have heirs with special needs? Don’t assume typical estate documents help such an heir. Seek out a financial advisor and attorney who specialize in this planning.

ix. Check beneficiary designations on brokerage accounts, insurance policies and retirement accounts. Anybody you don’t want there?

x. If you filled out a brokerage account application (or any beneficiary designation), understand the firm’s policy when one beneficiary dies before the others. If you want the share of the assets to pass by blood line – to the deceased’s children, for example – you may need to put in language specifying per stirpes (distribution of property when a beneficiary with children dies before the maker of the will).

Otherwise, the remaining listed beneficiaries may simply divide the assets.

xi. Often a parent names a child on a bank account so the child can access or use the money if the parent can’t act. Understand that if you name your child as a joint owner on an account, the money passes to your child no matter what your will dictates. The child splitting the money with someone else constitutes a gift, though one probably not subject to gift tax now that gifts of less than $5.34 million aren’t taxed. Still, think carefully so you keep the family peace.

xii. Do your heirs know where to find all your important information? Let someone know the password to the app where you keep all your passwords – you must remember digital assets now, too.

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

Ep 6: The Challenges Of No More Paychecks, Part 3

On This Episode

It’s time for part 3 of our discussion about one of the most challenging parts of transitioning into retirement, dealing with the fact that you’re no longer receiving a paycheck from work. Today, we’ll discuss specifically how to turn your nest egg into paychecks with strategies like living off of dividends and using an income floor.

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Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Marc Killian: Hey everybody, welcome into Retirement Planning Redefined with the guys from PFG Private Wealth, John and Nick, financial advisors here with me once again as we talk about investing, finance, and retirement on the program. Anytime you’re listening to the podcast and you’ve got a question or concern, jot it down, jot this number down, give them a call and talk to them about it before you take any action with anything you’re listening to that’s financially related, 813-286-7776. Well, that’s a mouthful. Let me do that again, 813-286-7776 is the number to call, and of course you can go online to PFGPrivateWealth.com. That’s PFGPrivateWealth.com, and while you’re there, subscribe to the podcast so you can get upcoming episodes and check out past ones and all that good stuff.

Speaker 2: John, what’s going on man? How are you?

John Teixeira: I’m good. How are you doing?

Speaker 2: I’m hanging in there. Trying not to melt. At the time of this podcast, it’s about 8 million degrees, I think, on the outside. Nick, what about you buddy? You hanging in there?

Nick McDevitt: Yeah. Yeah, we’ve had a ton of rain lately-

Speaker 2: Which just makes it worse.

Nick McDevitt: Giving me flashback of living up north, but …

Speaker 2: Well, aside from the heat and all that fun stuff, what else is going on with you guys? Do you guys got anything cooking, no pun intended.

John Teixeira: Yeah, so tonight we’re actually excited to, we’re doing some volunteer work tonight, and there’s a group that Nick and I are part of. It’s called the 13 Ugly Men. That’s exactly the response whenever people hear that name. But no, it’s a great organization. It’s about 30, although it’s 13, there’s 35 guys in it. We throw events and donate to local Tampa Bay charities. And part of the donation, we actually do hands on work. So we’re donating to a charity called Gigi’s Playhouse, which Nick and I actually interviewed, and he’s on the charity committee for, for our group.

Speaker 2: Nice.

John Teixeira: And we’re throwing a Halloween event. The goal is to donate about $25,000 to them. And tonight we’re doing some hands on efforts, which Nick can kinda touch on, cause he set it up.

Nick McDevitt: Yeah, man. The organization supports people with Down Syndrome, and so they have a lot of different programs that they have. So tonight we’re going to go in and kinda run an evening of Bingo and bring in some food, and kind of play Bingo, and there will be a broad range of ages there and stuff like that. So, so we’re looking forward to that tonight.

Speaker 2: That’s awesome. That’s really cool. I appreciate you sharing that with us. That’s very cool that you can do that.

Speaker 2: And maybe what we can do is we can talk on another podcast about how you can get involved with that particular thing if you’d like to help. But that’s awesome that you guys are doing those extra things out in the community here in the area. So, well, with that, let’s turn our attention to this week’s podcast, which is to continue our conversation about strategies to turn that nest egg into a paycheck. We covered several things last time to your cash reserves, bucket strategy, so on and so forth. What are some other things we need to think about?

John Teixeira: Yeah, so you know, like we talked about last week, there’s a lot of different strategies and really we let our financial plan kind of dictate which is best for the individuals based on needs and goals.

John Teixeira: So as you mentioned last, week we did go over the two year cash reserves bucket strategy. Another one that we’ve been utilizing, and depending on the situation, is basically just living off of your dividends and interest. So that’s where you have your principal and whatever dividends interest is spun off either monthly or quarterly, that goes into a spend account, and that basically becomes your paycheck moving forward. Some of the benefits of kind of utilizing this would be you don’t have to worry about your money running out, because you keep your principal intact, and you’re never really dipping into into it. So, the fear of money running out goes away.

John Teixeira: And also we see this a lot where someone’s interested in leaving some type of legacy to somebody.

Speaker 2: Right. Sure.

John Teixeira: Basically like, “Hey John, Nick, I have this money here. I want to leave it to my kids, I want to leave it to whoever. So I’m just going to live off of the interest in dividends.” So that’s kind of one way to look at it.

Nick McDevitt: And I would say this is a strategy we wanted to talk about, because we get asked about it. However, with how the markets have changed over time and how people spending in longevity has changed over time, it’s become less of a common strategy, with one of the big reasons being yields are down significantly over the last 20 years. Where years ago you could get a really good CD rates and things like that, where you can get a decent paycheck from that.

Nick McDevitt: So some of those challenges are, it’s tough to find a yield, whether it’s via dividend, whether it’s via fixed securities, to give people the amount of income that they need. And so what’ll happen is they’ll chase that yield and give up growth opportunities, which then essentially makes it difficult for them to keep up with inflation over time. So dividend rates will change over time and at the onset people kind of see it as, “Hey this is what my parents did,” but maybe their parents had a pension or their parents expenses were a lot lower.

Nick McDevitt: And we like to talk about it because, and it’s interesting, it’s usually men that bring it up and more focused on like individual stock or individual bond investing, which is less common now. So although it is a lot more rare, we do like to bring it up at least to address it, so that people understand how it works that depending upon their overall situation it can be, but most likely some of the other strategies we’re going to discuss are probably going to make more sense for them.

John Teixeira: Yeah. And kind of who this works for is really someone who has a very large nest egg and…

Speaker 2: Okay.

John Teixeira: …and necessarily doesn’t need more than the dividends interest will spin off. And as Nick mentioned, this environment does make it very challenging because interest rates are low, and then people will kind of go to stocks for that to try to find some extra dividends.

Speaker 2: Right.

John Teixeira: But we [inaudible 00:06:24] some of the equity corporations, they’ll actually change the dividend on you. So that’s a big risk where, and I know Nick touched on it, but I’ve seen where some companies will have a specific dividend and then recession hits or the stock isn’t doing so well, so they need some growth, so they’ll go ahead and lower their dividend, which could really affect your monthly income.

Speaker 2: Okay. All right.

Speaker 2: So that’s kind of a living off a dividend type of strategy to turn that nest egg into a paycheck. What’s another one? Is there something else we can also share with the listeners?

Nick McDevitt: Yeah, so another one again, depends on the situation, is kind of creating an income floor.

Speaker 2: Okay.

John Teixeira: So this is where you look at, “Hey, what’s my guaranteed income that I have coming in?” And most people, clearly social security is number one. But some other people might have a pension and what they’ll look at is saying, “Okay, what’s my guaranteed income?” And we’ll do an exercise and do all their expenses, but we’ll divvy it up where we have our fixed expenses and then our discretionary. And what we’ll try to do in this situation is match up their guaranteed income with their fixed expenses. So no matter what happens, it gives them peace of mind to say, “Hey, no matter what happens in the market or health, I know that my fixed expenses are covered.” And we make sure that those fixed expenses are covered for life.

John Teixeira: The risk of running out of money necessarily for those fixed expenses really isn’t there. And then some challenges to this, what we see in why. Again, it’s not perfect every situation, but some challenges with it is, does that leave you with enough liquidity? Do you have enough money? What if you need to tap into a little bit more. And then also the big one with this I would say is inflation. I don’t know if you want to add anything to that, Nick.

Nick McDevitt: Yeah. So, realistically there’s only a few ways to kind of create the guaranteed income floor, and we’ll end up talking about that kind of later on down the series of a podcast. But, John mentioned the social security. They may or may not have a pension, and so the only other way to create, essentially a guaranteed income, would be through some sort of annuity, and there are different sorts of annuity.

Nick McDevitt: So when John refers to the not having enough liquidity, meaning that, to provide the guaranteed paycheck that they may be looking for, there may not be enough in assets to do it in a large sum of money. So usually if we’re looking at something like that, we only like to attribute up to 20% of their overall nest egg into a strategy like that.

Nick McDevitt: So typically it’s people that, where something like this would make sense is somebody that may be a conservative investor, somebody that has maybe a lot of longevity in their family and they have a significant fear of running out of, or outliving their money. Maybe they’re only guaranteed source of income is social security. So they’re looking to kind of build on and have some additional security from that standpoint. So, going through and trying to find other ways to help increase that floor is a pretty typical process that we use with people.

Speaker 2: Okay. Yeah.

Speaker 2: So again, each of these strategies may or may not be the right fit for the individual. It’s a matter of going through and talking about some different things and looking at stuff to see which is going to work best for you.

Speaker 2: You mentioned kind of earlier on that you’re just living off the dividends. What about somebody who might be in a situation where they do need to sell off the investments, maybe as needed type of thing. So more of a withdrawal strategy, I guess.

Nick McDevitt: Yeah. So what we’ll kind of refer to that as is like a systematic withdrawal. And frankly this is pretty much the most common way.

Speaker 2: The norm kind of thing.

Nick McDevitt: Yeah. How people handle their income from their assets in retirement. The majority of people, their nest egg is comprised of some sort of combination of funds, whether it’s mutual funds, exchange traded funds, in some sort of diversified portfolio.

Nick McDevitt: And what we’ll do is, kind of after we go through the planning, and we figure out – Hey, your plan kind of tells us that we need to pull out, we’ll call it $3,000 a month from the nest egg, and they want to receive it on the first of the month, each month. And from the standpoint of their advisors and kind of portfolio managers, we’ll structure it so that that money deposits automatically into their account. We decide which investments that kind of sweeps off of, and we do it via kind of an automatic quarterly rebalance to make sure that we’re keeping the portfolio diversified in what the overall objective of the account. And then, realistically, this helps them deal with the ups and downs of the market. And really they’re only spending what they need.

John Teixeira: So, one of the things that Nick kind of said here…it’s important that you have a very good advisor, because you are looking at your advisor to make sure they customize the portfolio to deal with some challenges like a market downturn. So, that is a big risk with this, because if the market goes down and you need to sell off your investments, the worst thing you can do is really start selling off big chunks in a down market.

John Teixeira: So it’s important that your advisor has some strategy in place for that. And then also, again, a challenge with this would be depending on the person’s mindset, they might get afraid of spending too much, because the risk of running out of money and the kind of spiral down effect of tapping into your principal is always there.

Nick McDevitt: So it’s really important. I think you’ll notice as far as who the strategies work for is really who’s saved a lot of money. So it’s important to save as much as you can, because it allows you the ability to really use any of these strategies and be comfortable with it depending on your situation.

Speaker 2: All right. Well there you go.

Speaker 2: So there’s a few things to consider, to think about. We were, again, continuing our conversation about ways to turn our nest egg into paychecks and retirement and if you’ve got some questions, if you’ve got some concerns you’d like to talk with the team about how to do that, talk with John and Nick, give them a call at 813-286-7776, that’s 813-286-7776, to talk with John and Nick, financial advisors at PFG Private Wealth, serving you in the Tampa Bay area.

Speaker 2: Go to the website, PFGPrivateWealth.com. Again, that is PFGPrivateWealth.Com – check them out there, as well as subscribe to the podcast, and give us a chance to share a bit more of these things with the each and every week by subscribing on whatever platform it is that you happen to like. Apple. You can find us on Apple podcasts, on Google play, Stitcher, iHeart, various things like that. Thanks for listening to this edition of Retirement Planning Redefined. For John and Nick, I’m Mark, and we’ll see you next time here on the program.