Articles for June 2018

Five Reasons to Make Philanthropy a Family Affair

Getting your family involved in charitable giving can create a powerful legacy.

A growing number of successful people have a strong urge to “pay it forward” by financially supporting causes and organizations that are near and dear to their hearts. Many of you already make regular and sizable charitable contributions. And we know from research that one key reason successful people like you want to become even wealthier is to help other people increase their own success and advance in the world.  But have you gotten your family involved in philanthropy? If not, you could be missing a truly massive opportunity to teach your children and other loved ones about smart financial decision making and impart key financial values that can guide them throughout their lives.

Round up the kids

If you’re like many people we work with, your deepest financial concerns are focused on taking care of your family and ensuring they enjoy lives that are financially stable and financially responsible. Family philanthropy is one great way to do this. There are five big reasons to engage your family in charitable giving:

  1. Working together to define your shared values around wealth, community and building a better world
  2. Helping individual family members identify their own specific charitable values and intentions
  3. Making financial decisions as a team
  4. Learning about the power and responsibilities of wealth—building it, growing it and using it to positively impact others—as well as critical financial management skills
  5. Developing important life and business skills—critical thinking and analysis, listening and communicating, and negotiating and compromising to reach a desired goal

To decide how best to involve family members, consider factors such as their ages, levels of maturity and independence, and interests. You might involve younger children only peripherally, and expand their roles and influence over the family giving as they grow (and if their interest in it grows with them).

The family office approach: private family foundations

One tool that can both maximize your charitable giving options and engage family in philanthropy at a deep level is a private family foundation.

A private foundation is a not-for-profit organization (i.e., charity) that’s primarily funded by a person, family or corporation. The assets in a private foundation produce income, which is used to support the operation of the private foundation and, most importantly, make charitable grants to other non-profit organizations.

While there are certainly costs associated with creating and managing a private foundation, there are distinct benefits for doing so. Three of the most important reasons family offices often go the private foundation route include:

  • Caring. Philanthropy is about caring. A private foundation is a very powerful way to convert caring into financial and related support for worthy causes. You need to care deeply about some charitable causes to justify establishing and running a private foundation.
  • Legacy. Many people create private foundations to honor loved ones. They’re effective in binding a family together around something they consider meaningful. You should probably want to build a legacy—of one kind or another—if you choose to create a private foundation.
  • Permanence. You can establish your private foundation in perpetuity. This ensures that the charitable institutions and causes that are important to you will continue to be funded indefinitely.

Setting up and running a private foundation can be intricate and complex. Detailed accounting and filing tax returns are required. A variety of experts such as legal and accounting professionals are usually needed to handle regulatory and compliance matters. And if you’re overseeing the assets of the private foundation, investment professionals will typically be engaged.

To see why private foundations are especially compelling to wealthier families who are philanthropically inclined, consider the fundamental ways they differ from another, more commonly used charitable giving tool—the donor-advised fund—in two key areas:

  1. Control. A private foundation gives you significant control over the choice of charitable organizations you want to support. With a donor-advised fund, you’re only making recommendations to a firm responsible for both managing and distributing the money. While it’s unlikely that your suggestions will not be followed, there could be times when this will be the case.

A private foundation enables you to make a wider array of grants than does a donor-advised fund. With a private foundation, for example, you can make pledge agreements to support one or more charitable causes over a period of time. The lack of personal control in a donor-advised fund makes that impossible. Private foundations also can make grants to specific individuals, something donor-advised funds cannot do.

How the assets are managed also differs between the two. With a donor-advised fund, the assets are managed by the firm you entrusted with your money—often a mutual fund sponsor or similar investment firm, or a community foundation. In a private foundation, you—or the investment advisors you select—manage the assets as you see fit.

  1. Creating a legacy. Succession possibilities are unlimited in a private foundation. This enables the family to exercise control across the generations, helping them to pass philanthropic values and specific goals (as well as money aimed at those goals) to children, grandchildren, great-grandchildren and beyond. In contrast, many donor-advised funds have limitations on successions. When that limit is reached, the money no longer belongs to the donor or his or her family. Instead, it’s transferred into a general pool of the organization sponsoring the donor-advised fund.

ACKNOWLEDGEMENT: This article was published by the BSW Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2017 by AES Nation, LLC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. 

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. He can be reached at 1-800-827-5577. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 

 

Legislative Insider – Summer 2018

Tracking legislation that may impact your business, your estate, your retirement, or your wallet.

Recent Developments

Tariffs on imported metals from European Union, Mexico, and Canada now in effect. On June 1, the U.S. applied 25% excise taxes on steel imported from these trading partners and 10% tariffs on imported aluminum from these three sources. In response, Canada will impose tariffs on $12.8 billion of American goods effective July 1. The E.U. and Mexico also announced retaliatory tariffs on crops, metals, and cosmetics coming from the U.S.1,2

The “fiduciary rule” may be history. Vacated by a federal appeals court in March, the 2016 Department of Labor rule demanding that retirement advisors place client best interests ahead of their own was never fully implemented and may now be dead. No effort to challenge the appeals court ruling has emerged from the Trump administration. The Securities and Exchange Commission did offer a plan this spring – hundreds of pages thick – intended to preserve the spirit, if not the letter, of the rule. The SEC plan lists obligations for investment professionals regarding the integrity of advisor-client relationships, but does not define the term “best interest.”3

Federal Tax Law Adjustments

SALT deduction cap workarounds are being questioned. New York, Connecticut, and New Jersey have created legislative responses to offset the lowered $10,000 annual federal deduction limit for state and local taxes (SALT). These three states are permitting cities and towns to create charitable funds, and homeowners can contribute to these local funds and still receive a federal tax break. In notices issued in May, the Internal Revenue Service and Department of the Treasury said that they would propose new rules to address the emergence of these plans. I.R.S. Notice 2018-54 cautions that “despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”4,5

Additional I.R.S. guidance on vehicle expenses and unreimbursed worker expenses. In June, the agency updated standard mileage rates for 2018: $0.545 per mile of business travel, $0.18 per mile for medical purposes, and an unchanged $0.14 per mile for miles driven in service to charities and non-profit groups. It notified taxpayers that in accordance with the 2017 Tax Cuts and Jobs Act, the $0.545 standard mileage rate cannot be used for itemized deductions for unreimbursed employee travel expenses this year and in all years through 2025. Also, that standard mileage rate cannot factor into itemized deductions for moving-related expenses, except in the case of active-duty service members moving in response to a relocation order.6

A bit of federal tax relief may be ahead for some college endowments. I.R.S. Notice 2018-55 states that the agency is working on regulations to restrict the impact of the new 1.4% excise tax on private college and university endowments. In its notice, the I.R.S. says that such endowments can likely use an asset’s fair market value at the end of 2017 as a basis for calculating tax on any resulting gain stemming from the sale of the asset. While normal basis rules will apply for calculating a loss, the new step-up in basis could lessen the amount of capital gain exposed to the new tax.7

Looking Ahead

The Volcker rule may soon be revised. In June, the Securities and Exchange Commission joined the Federal Reserve, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Federal Deposit Insurance Corporation in agreeing to amend this key regulation within the Dodd-Frank Act. The Volcker rule, finalized five years ago, prohibits banks from proprietary trading: selling or buying investments expressly for the bank’s potential benefit, rather than the potential benefit to customers. In its current form, the Volcker rule presumes that any positions held by banks for less than 60 days are proprietary. The proposed amendment would do away with that conclusion and allow lenders added possibilities to hedge market risk. A 60-day, public comment on the proposed amendment ends in early August.8

White House considers altering retirement benefits for federal employees. An Office of Personnel Management proposal recently sent to House Speaker Paul Ryan recommended changes to the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS) for federal government workers, with the goal of reducing budget shortfalls. The proposal, which Capitol Hill legislators could consider in the near term, suggests four notable modifications. One, cost-of-living adjustments to FERS pensions would be eliminated and COLAs for CSRS pensions would be cut. Two, the highest yearly pay over a consecutive, 5-year period, rather than a 3-year period, would be used in the calculation formula for CSRS and FERS pension benefits. Three, salary deferral rates into the FERS program would gradually rise to a maximum of 7.25% of pay. Four, most of the supplemental benefit payments given to FERS participants who retire from their jobs before age 62 would be eliminated.9

More states may lower corporate tax rates. As Dow Jones Newswires reports, the gap between the 21% federal corporate tax rate and higher state taxes on corporate business entities may slim in the coming years. A bill in Missouri would cut that state’s corporate rate from 6.25% to 4.0%. Georgia just reduced its corporate rate 0.25% to 5.75%. In related news, Tennessee’s legislature rejected a federal provision limiting interest deductibility for businesses, which could save companies based in that state a total of $1.2 billion through 2028.10

Investment funds can go paperless starting in 2021. In early June, the Securities and Exchange Commission adopted Rule 30e-3, which will give funds three options to fulfill their reporting duties to shareholders. Beginning in 2021, funds can satisfy this obligation by a) notifying shareholders that reports are online at their websites, and offering a link to access them; b) sending shareholder reports electronically to investors who opt for this delivery method; c) sending hard-copy reports through the mail. Funds may also use two or three of these delivery methods in combination.11

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate, and is provided for general purposes only. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and is not intended to be used for, and cannot be used for, the purpose of avoiding US, federal, state or local tax penalties.

Mike Moffitt may be reached at 641-782-557 or email: mikem@cfgiowa.com

Website: www.cfgiowa.coom

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

CITATIONS:

1 – nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html [5/31/18]

2 – businessinsider.com/trump-tariff-trade-fight-european-union-mexico-tariffs-list-2018-6 [6/6/18]

3 – bloomberg.com/news/articles/2018-06-08/the-fiduciary-rule-may-sound-boring-but-its-collapse-threatens-your-retirement [6/8/18]

4 – cnbc.com/2018/05/23/irs-treasury-have-set-their-sights-on-blue-states-tax-workarounds.html [5/23/18]
5 – irs.gov/pub/irs-drop/n-18-54.pdf [5/23/18]
6 – accountingweb.com/tax/irs/irs-offers-guidance-on-vehicle-expenses [6/8/18]

7 – accountingtoday.com/news/irs-plans-regulations-to-ease-taxes-on-college-endowments [6/8/18]

8 – bloomberg.com/news/articles/2018-06-05/volcker-rule-changes-move-forward-after-sec-votes-on-overhaul [6/5/18]

9 – fool.com/retirement/2018/06/10/these-retirement-cuts-threaten-millions-of-workers.aspx [6/10/18]

10 – tinyurl.com/yblgrr85 [6/11/18]
11 – tinyurl.com/ya4wszz5 [6/5/18]

Young Children are Targets for Identity Theft

We’re becoming savvier to identity theft and taking care of our personal information, both online and in the physical world. Perhaps it is this sophistication that has criminals turning to stealing the identity of children. Over 66% of such thefts are against children under the age of 8. Scammers practicing child I.D. theft made $2.6 Billion in 2017. The theft can often take years, even decades, to detect. Imagine leaving home for college and being unable to rent your first apartment because of thousands of dollars in previously unknown debt. Or, being unable to get that first “for emergencies only” credit card because some criminal has already obtained cards using your name and Social Security number.

Making this problem even worse? Sixty percent of the fraudsters have some relation to the child. Carefully secure your children’s personal information, such as their Social Security number as well as important documents like their birth certificate. If fraud is detected, contact the major credit bureaus (Equifax, Experian, TransUnion) to examine the credit file and place a security freeze if you are in a state that allows this. This should only be done in cases of fraud, though. If your state does not allow freezing, monitor your children’s credit reports, contact companies involved with these debts, and file a complaint with police.1

Mike Moffit may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – washingtonpost.com/news/get-there/wp/2018/04/24/why-does-a-2-year-old-have-a-credit-card-how-to-protect-your-children-from-identity-theft [4/24/18]

 

 

Why Medicare Should Be Part of Your Retirement Planning

The premiums and coverages vary, and you must realize the differences. 

Medicare takes a little time to understand. As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

Certain features of Medicare can affect health care costs and coverage. Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

How much do Medicare Part A and Part B cost, and what do they cover? Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.1

The copays and deductibles linked to original Medicare can take a bite out of retirement income. In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.1,2 

Medigap policies help Medicare recipients with some of these copays and deductibles. Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.2,3

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish. These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.4

Part D plans cover some (certainly not all) prescription drug expenses. Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.2,5

Some people choose a Part C (Medicare Advantage) plan over original Medicare. These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs).6

If you want a Part C plan, should you select an HMO or PPO? About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.6

HMO plans usually restrict you to doctors within the plan network. If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.6

Now, what if you retire before age 65? COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.5

Medicare planning is integral to your retirement planning. Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html [5/21/18]

2 – cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html [5/3/18]

3 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/21/18]

4 – fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx [2/5/18]

5 – money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage [5/2/18]

6 – cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html [10/18/17]

Wealth Management with Memory Disorders

What steps can a family take?

Besides impacting lives and relationships, dementia can also impact family finances. It may call for another family member to assume money management responsibilities for a parent, grandparent, or sibling. It may increase the risk of financial exploitation, even as we do our best to guard against it.

Just how many older adults have memory disorders? Well, here are two recent estimates. The Chicago Health and Aging Project figures that nearly a third of Americans 85 and older have Alzheimer’s disease. The National Institute on Aging sponsored a study, which concluded that 14% of Americans age 71 and older have dementia to some degree.1

Older women may be the most vulnerable to all this. A new Merrill Lynch and Age Wave study notes that after age 65, women have twice the projected risk of Alzheimer’s that men do.2  

In the best-case scenario, parents or grandparents acknowledge the risk. They lay out financial maps and instructions, telling adult children or grandchildren who love them dearly about the details of their finances. They involve the financial professional they have long known and trusted and introduce them to the next generation. All this communication occurs while the elder still has a sound mind.

Absent that kind of communication and foresight, some catching up will be in order. The kids will have two learning curves in front of them: one to understand the finances of their elders and another one in which they discover the degree of care they can capably provide. The stress of these two learning curves can be overwhelming. Asking professionals for help is only reasonable.

The earlier the basic estate planning elements are in place, the better. This means a will, a durable power of attorney, a health care proxy, and possibly a revocable living trust. In cases of significant wealth or a complex personal history, more sophisticated estate planning vehicles may be needed. If a durable power of attorney is in place, another person has the ability to act financially in the best interest of the person with dementia.1

Children and grandchildren must also confer about major decisions. What kind of assisted living facility would be best for dad? How much of mom’s retirement savings should be used for her eldercare? How do we convince dad that he should not manage his investments day-to-day anymore? What do we do now that mom seems totally unaware she has to make an IRA withdrawal? These will be hard conversations, trying decisions. If they never occur, however, the household financial damage may grow worse.1,3

Financial inattention or incompetence may be one of the first signals of Alzheimer’s disease or another form of dementia. The National Institute on Aging explains that difficulty paying for an item in a store or figuring out a tip at a restaurant could amount to early warning signs; trouble counting change or reading a bank or investment statement may also reflect cognitive impairment. These instances may be harbingers of problems to come – unpaid bills, impulsive and questionable investment decisions, and unwise credit card purchases.4 

Should a household sign up for Social Security’s representative payee program? This may be a good idea. Many retirees have never heard of this option, which lets a designated, approved second party receive and manage monthly Social Security benefits on their behalf. The monthly benefit is sent to that representative, who must document to Social Security that the money was spent in the senior’s best interest. According to the Center for Retirement Research at Boston College, just 9% of Social Security recipients older than 70 with dementia were enrolled in this program in 2017.2,3

Elders suffering from such disorders often resist relinquishing financial control. Allowing limited financial independence (credit cards with lower limits, access to some cash for discretionary spending) may make the transition easier. Loved ones can also emphasize that seniors are so often victims of fraud and other forms of financial elder abuse.

The time to think about these things is now. We have all read horror stories of elders owing years of back taxes, facing lawsuits from creditors, or falling prey to investment scams. Your parents, grandparents, or siblings should not be left to experience such crises.

Mike Moffit may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – forbes.com/sites/nextavenue/2017/10/31/managing-finances-for-a-loved-one-with-dementia [10/31/18]

2 – barrons.com/articles/the-stubborn-wealth-gap-between-men-and-women-1524099601 [4/18/18]

3 – usatoday.com/story/money/columnist/powell/2017/09/16/financial-help-retirees-cognitive-impairment-dementia/627326001/ [9/16/17]

4 – nia.nih.gov/health/managing-money-problems-alzheimers-disease [5/18/17]