Category Archives: Gifting

Aunt Jennie’s Talents

Image result for image of older woman giving money

The Parable of the Talents is known to everyone who ever attended Sunday school.  A man prepares for a long journey by entrusting three servants with heavy bags of silver (talents) while he is gone.  In those days coins were weighed and a “talent” was about 75 pounds.  He gave 10 talents to one, five to the second and one talent to the third.  The first two servants invested the silver.  The third, being fearful. dug a hole and hid the money for safekeeping.  When the man returned, the first two gave the man twice what had been entrusted to them.  But the third just gave the man his money back.  For this poor stewardship the third servant was cast out.

I was reminded of this story when a lady came to us after receiving an inheritance from her Aunt Jennie.  After being grateful for her good fortune she wondered what to do.  Banks today are paying a pittance on deposits, so putting it in the bank was not all that much different from digging a hole to hide the money from thieves.  She wanted to be a good steward of her inheritance.

She wanted to honor Aunt Jennie by taking care of her money wisely and not squander it.  Aunt Jennie worked hard for her company, spent a lifetime being frugal and made wise investments.  My future client knew her own limitations. She was not an experienced investor.  She had to decide if she wanted to spend her time learning investing from the ground up.  With all the information out there, which expert or school of thought do you listen to?  Did she want to spend her time reading fine print, studying balance sheets or did she want to continue doing those things she enjoyed by finding an experienced professional she could trust to shepherd the money for her.

She chose us because of our caring professionalism.  We listened carefully to her objectives.  We explained the risks and rewards involved in the investing process.  We explained our investment process with the key focus on risk control and wide diversification.  We believe in wise investing, steady growth, and the assurance that your money will keep working for you. With over 30 years’ experience we have weathered all kinds of markets successfully.  Our knowledge and experience allows our clients to focus on those things they enjoy.  They know that their investments will be there for as long as they need them and beyond to help their children and grandchildren.

Aunt Jennie’s talents have grown and our client is happy.  Aunt Jennie would be proud.

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Even the “rich” can’t afford retirement.

Investment Approach

Registered Investment Advisors (RIAs) deal with people at all wealth levels but most are upper income even if they are not billionaires.  There is a retirement crisis and it’s not just hitting the working class.

The typical median wage earner making $50,000 a year and retiring at 67 can expect Social Security to pay him and his wife about $2400 per month.  To maintain their previous spending levels this leaves a gap of about $1000 a month that has to be made up from savings. But many of these middle income people have not saved for their retirement.  Which means working longer or reducing their lifestyle.

This problem is also hitting the higher income people.  How well is the person earning over $200,000 a year going to do in retirement?  The issues that even these so-called “rich” face are the same:  increased longevity, medical care, debts and an expensive lifestyle are all issues that have to be considered.

“The $200,000+ executive expects a fine house, two cars, two holidays a year, private schools, to pay for his kid’s university tuition, and so it goes on. And this is not to mention the tax bill he’s paying on his earned income. A bunch of all this was really debt-funded, so effectively the executive spent chunks of his retirement money during his working days.”

When high income people are working, they usually don’t watch their pennies or budget.  But once retired, that salary stops.  That’s when savings are required to bridge the gap between their lifestyle and income from Social Security and (if they’re lucky) pension payments.  At that point the need for advance planning becomes important.

Before the retirement date is set, the affluent need to create a retirement plan.  He or she needs to know what their basic income needs are; the cost of utilities, food, clothing, insurance, transportation and other basic needs.  Once the basics are determined, they can plan for their “wants.”  This includes things such as replacing cars, the cost of vacation travel, charitable gifts, club dues, and all the other expenses that are lifestyle issues.  Finally, there are “wishes” which may include a vacation home, a boat, a wedding, a legacy.  The list can be a long one but it should be part of a financial plan.

If the plan tells us that the chances of success are low, we can move out our retirement date, increase our savings rate or reduce our retirement spending plans.

This kind of planning will reduce the anxiety that is typically associated with the retirement decision making.

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Financial tips for corporate executives

The December 2014 issue of Financial Planning magazine had an article about “Strategies for Wealthy Execs.” It begins:

Just because your clients are successful executives doesn’t mean they understand their own finances.

And that’s true. Successful executives are good at running businesses or giant corporations. But that does not make them experts in personal finance.

One of the ways executives are compensated is with stock options. But options must be exercised or they will expire. Yet 11% of in-the-money stock options are allowed to expire each year. That’s usually because they don’t pay attention to their stock option statements.

Executives usually end up with concentrated positions in their company’s stock. Prudence requires that everyone, especially including corporate executives, have to be properly diversified. Their shares may be restricted and can only be sold under the SEC’s Rule 144. To prevent charges of insider trading, many executives sell their company stock under Rule 10b5-1.

An additional consideration for executives is charitable giving. Higher income and capital gains tax rates make it beneficial for richer executives to set up donor-advised funds, charitable lead trusts, charitable remainder trusts, or family foundations.

For more information on these strategies, consult a knowledgeable financial planner.

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Do you have a Dusty Trust?

What’s a dusty trust, you may ask, or a dusty will? They are trusts and wills that are so old that you have to blow the dust off. It’s a term made up by David Richmond of Eaton Vance.

Many actually THINK they are speaking the truth. For them, the definition of estate planning is the will and trusts they set up at age 35 when their youngest kid was still in diapers. Doesn’t matter that they are now in their late 60s and have accumulated millions since those early hopeful days, including all sorts of treasures, especially the most precious ones … grandchildren

But it also applies to trusts and wills that are not very old. The estate tax laws have been changing almost every year for the last decade. That means that terms like “estate tax exemption” now have very different meanings than they did 10 years ago. It’s possible that you could accidentally disinherit your spouse unless you update your estate planning documents.

Beneficiary designations should also be reviewed regularly. I spoke with someone recently whose wife passed away earlier this year. He was forgetful, and his investment account still had his wife’s name on it. She was the beneficiary of his IRA as well as his life insurance policy. Her name was still on the deed to their home.

The role of a good Registered Investment Advisor (RIA) like Korving & Company is to review your estate plans and beneficiary designations, advising you about changes that you need to be aware of. Whether its changes in the tax laws or changes in your personal life, keeping you updated will keep your heirs from inheriting a tangled mess.

For more information, get a copy of our estate planning guide: Before I Go.

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Don’t let college costs destroy your retirement

A recent headline in Financial Advisor magazine read: Parents Say Retirement Imperiled By College Costs. The cost of raising children can be daunting. Recent reports tell us that the total cost of raising a child until they become an adult will be about $245,340. According to the USDA the biggest expense was housing, the second largest was education and child care.

Fifty-four percent of surveyed parents said they fear their retirement would be jeopardized by helping their children pay for college, according to a study by Citizens Financial Group.

About the same percentage are worried college costs will harm their overall financial stability.

The average cost of college currently ranges from $25,000 to over $50,000 per year and is rising rapidly. The cost has caused an explosion in the amount of student loans, with negative consequences for the graduates and the many who don’t graduate but still have to pay off the loans. It has also given rise to innovation in the delivery of education, including on-line courses that can be taken for college credit without having to move into a residential college.

Given the need for the credentials that college provides, it’s wise to use time to your advantage and begin when your child is young. The most versatile way of putting money aside for education is the “529” plan. The “529” allows the parent (or grandparent) to put money aside in a tax-deferred account and allow it to grow. When used for legitimate educational expenses the money can be taken free of tax.

For more information, contact us.

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The Benefits of Giving Appreciated Stock to Your Church

Most people give money to their church by dropping an envelope in the collection plate each week as it passes them. Bless you for your generosity.

But there may be an even better way of giving that allows you to give even more without costing you more: giving appreciated stock. Appreciated stock is stock that has gone up in value from the time you bought it.

Here is an example of how this works to everyone’s benefit:

Supposed you wanted to give your church $2500. You have stock in the XYZ Company that’s worth $2500 today, but you only paid $500 for it years ago. If you sold those shares today the federal government is owed $300 in taxes ($2000 gain X 15% = $300).   After you pay the tax, the church would only get $2200 ($2500 – $300 = $2200). But if you gave the stock directly to the church, the church could sell it and – because the church is tax exempt – the church would get the entire $2500.

In this example, the cost of your gift is $500, the church gets $2500, and you get a $2500 charitable deduction.

This is especially useful if you have stock whose original cost you don’t know, such as gifts from parents, or shares that you bought many years ago without keeping a record.   Giving the stock to the church solves the tax cost problem and may allow you to give more than giving cash.

It’s easy to do. Just ask the church for the name of the investment firm they use and the account number. Then instruct your custodian to send shares from your account to the church account. It’s that simple.

Finally, be sure to tell your pastor what stock you are gifting and the number of shares. Without this information your church will not know who made the gift and can’t provide you with a confirming letter you can use to take a tax deduction.

For more information, call Arie Korving or Stephen Korving at Korving & Company.

Phone (757)-638-5490 or go to our website: www.korvingco.com

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