Three Year-End Charitable Giving Ideas

During this holiday season, many of us consider making charitable donations to a favorite cause or institution. In fact, according to the Giving USA Foundation’s annual report, American individuals gave $292 billion to charity in 2018.1 Many of the donations were large gifts as opposed to a few dollars here or there. If you’re considering making a significant gift, keep in mind these three strategies that could help both you and your charity of choice.

Donate Appreciated Assets

Some economic indicators suggest that we may be approaching the end of the longest bull market in history. Now would be a perfect time to consider donating appreciated assets—like stock that has grown in value—to not only support your favorite charity, but also receive a tax deduction and eliminate a future tax liability.

For example, let’s assume you have a stock worth $50,000 with a cost basis (the purchase price) of $20,000. If you sold the stock today, you would pay capital gains tax on the $30,000 gain. Assuming a 15% capital gains tax rate, the tax would be $4,500. However, if you direct your broker to transfer the stock directly to the charity, you receive a deduction for the entire $50,000 gift and the charity pays no tax on the subsequent sale.

On the other hand, if you want to donate a stock that declined in value, you would be better off selling it yourself and using the loss to offset other gains or to generate a deduction for yourself before donating the net cash.

Heap Your Donations

For 2019, to receive a deduction for charitable gifts over the standard deduction, you must be able to itemize your deductions. The chart below shows the standard deduction for the various filing statuses:

Filing Status Standard Deduction Amount
Single $12,200
Married Filing Jointly & Surviving Spouse $24,400
Married Filing Separately $12,200
Head of Household $18,350
Source: Internal Revenue Service

Let’s assume that you and your spouse are contributing $6,000 per year to your church. Since this amount is below the Married Filing Jointly standard deduction of $24,400, you would receive no additional deduction other than the standard $24,400. On the other hand, if you were capable of “heaping” the next five years into 2019, you could donate $30,000 before year end and take a deduction for the full amount. Do a quick check with your accountant to make sure the strategy works for your personal situation.

Donate Part of Your IRA

Typically, when a taxpayer reaches 70½, they are required to begin taking required minimum distributions (RMDs) from their IRA accounts, which are fully taxable. However, in 2015, a minor change to the tax law allowed taxpayers over 70½ to transfer up to $100,000 annually from their IRA directly to a charity, tax free.

In situations where these retirees don’t need the additional income, it may be more tax efficient to have the RMD amount (or more) transferred directly to the charity of their choice as a charitable rollover. This strategy satisfies the RMD requirement without generating additional taxable income to the owner.

Making a financial gift to a worthwhile charitable organization can be a game-changer to the organization itself. More likely, your holiday season will take on a distinctly different feel, knowing that you shared your wealth with those who need it more.

1 Giving USA 2019: The Annual Report for Philanthropy for the year 2018, IUPUI Lilly Family School of Philanthropy, 2019.

10 Things to Consider before Resigning from Your Broker/Dealer

Business Discussion

Transition is tough. Nobody leaves a broker/dealer (BD) they’re happy with. In fact, the pain you’re experiencing with your current BD has to exceed the pain of moving on, especially since the old days of “block” transfers are long gone. Today’s transitions are like going through a divorce and remarriage in 30 days with 300 children, but at some point, you may realize it’s worth it. Here are 10 things to consider before notifying your current BD of your intent to move on.

1. Make a firm decision. This may sound simplistic, but it’s essential. All too often, advisors think about leaving their BD and start checking into options. Then they begin to stew over all the paperwork, the effect of a change on their clients, the interruption to their business, etc., taking it all the way to the five-yard line without going for the score. After all that effort, they end up staying with their current BD and their practice often begins a slow death spiral. The point is, be decisive. Either move on to greener pastures or stay where you are and add more water. Both are good decisions. Anything else is a recipe for disaster.

2. Identify your new home. This is no easy task. You must take your time and do your due diligence. Every BD has a unique culture and set of offerings, so consider everything they provide, not just payout or incentive summary. Be sure their culture is in line with yours, because once the “honeymoon” phase is over, you’ll have to work with their people and processes for a long time. You don’t want to set yourself—or your clients—up for another divorce.

3. Read and understand your rep agreement. That document you signed years ago not only outlines your obligations to the firm while employed, it also outlines your obligations—and theirs—upon resignation. It’s important that you understand and abide by their pre-notice requirement. Many agreements require a 30-day pre-notice on either party. This protects both you and them from an immediate termination. This agreement should also outline their obligations regarding payment of commissions post-termination. With that in mind, it’s always best to set your termination date after any large, recurring commissions. For example, if you receive large deposits at the end of each calendar quarter, your termination date should be after those are typically received.

Picking the “Right” Index Crediting Strategy

Picking the “Right” Index Crediting Strategy

When positioning life insurance from a perspective of potential cash value build-up, there are various product types to consider, each with its own straightforward, distinguishing features. For aggressive risk profiles, variable life products—which may be fully exposed to the ups and downs of the market—may be appropriate. On the other end of the spectrum, fixed universal or whole life contracts with guarantees may be more suitable for a risk-averse client.

In between those extremes are index universal life products, where the lines between similar products can become distorted with very different features. Guarantees and safeguards are available with many, but not all contracts and accumulation strategies vary from simple and conservative to complex and aggressive.

On its face, traditional index universal life (IUL) is simple and straightforward. The policy owner trades some upside potential in the form of a cap in return for downside protection in the form of a floor. But the reality of the current IUL marketplace is far more complex and nuanced than that.

The array of index account options available today is vast. They range from the simple and straightforward cap- and floor-tied; to the Standard & Poor’s 500 Index (S&P 500); to those with multiple underlying indexes; to some that may include global exposure and a variety of caps, participation rates, bonuses, and index credit multipliers; or any combination thereof.

Long-Term Care: The Good, the Bad, and the Necessary

Advisor with couple

Long-term care (LTC) is probably one of the most important and perhaps sensitive discussions you can have with your clients. There are so many variables—your client’s actual vs. estimated longevity, current vs. future health, current vs. future lifestyle—each of which change the equation. But it’s also the emotion that’s attached to the discussion; every one of your clients knows they will eventually pass away, but thinking about how, when, and in what way always brings some consternation and even avoidance.

The approaches that you as an advisor can take to this sensitive topic are also numerous. Should you present clients with a total lump-sum amount, based on their current health and predicted longevity, calling attention via sticker shock? Should you narrow focus to smaller, near-term, known costs? Or, should you consider dividing their retirement into three main categories—active years, moderately active years and non-active years1—to soften the conversation? Regardless of your approach, one thing is certain: longevity and LTC should be discussed with all clients, especially those aged 50 or older, as part of a holistic and proactive retirement plan.

Managing Long-Term Care Risk for High Net Worth Clients

Managing LTC Risk for HNWC

Why would you recommend that clients with millions of dollars in invested assets spend money on a long-term care plan? Because it helps remove the risk from their portfolio.

With affluent clients, it’s not whether they can afford to pay for potential long-term care needs. But is it an expense they want to incur at an unpredictable time in their lives?

Long-term care concerns are similar no matter your clients’ net worth.

  • They may equate long-term care with a stay in nursing homes. In fact, 76 percent of long-term care insurance claims begin with home care or in assisted living facilities.¹
  • Another factor to consider is that long-term care is just that – long-term. About one-third (34 percent) of LTC insurance claims last at least two years and 13 percent last more than five.²
  • Active baby boomers may expect to remain healthy throughout retirement, but Americans turning 65 face a nearly 70-percent chance of needing long-term care services in their lifetime.²
Sources:  ¹ American Association for Long-Term Care Insurance; ² U.S. Health and Human Services Department

Self-Insuring Is Self-Funding

High net worth clients don’t have the affordability objection. But their mindset may be “If the time comes, we’ll pay for it ourselves.” That perspective could have an adverse effect on their portfolios if and when they do need long-term care.

Ask your clients if they believe another downturn in the market could happen. There’s also the likelihood that they could experience an unexpected health event. There’s simply no guarantee that their need for care would come at a time that’s either convenient to them or to the performance of their portfolio.

It may make sense to concentrate on insuring affluent clients’ investments with product solutions that can minimize their risk of absorbing the entire cost of care.

Collaborate with an LTC Expert to Boost Business

Collaborate with an LTC Expert

The recipe for a typical long-term care conversation calls for:

  • Equal parts rising health care costs and longer life expectancies
  • 1 preconceived notion about nursing homes
  • 1 heaping cup of confidence that a health crisis won’t happen
  • Pinch of fear that it will
  • Blend with emotional stories of caring for a parent or loved one

For best results, add the expertise of Nancy Simm, Director of LTC & Longevity Planning at Highland Capital Brokerage. She can be your secret ingredient to offset client hesitation when discussing this complex topic.

30 Years Working for You

Nancy suggests adding long-term care planning to your agenda with clients at their annual review or financial analysis. She knows they will be relieved that you have addressed the topic. When clients are open to it, arrange a conference call and introduce Nancy as a member of your team.

Then, you don’t need to be an expert on long-term care. She can be one for you. Take advantage of her 30 years of industry experience when helping clients make plans to protect themselves financially from potential long-term care needs.

8 Ways to Talk About Long-Term Care

Advisor with Clients

One reason your clients trust you with their assets is your recommendations help them sleep at night.

Whether the market is up or down, your advice provides peace of mind that clients count on. It’s time to put that calming effect to work on the topic of long-term care.

You owe it to your clients to talk about incorporating Longevity Planning in their financial plans. Breakthroughs in medicine, technology and public health have led to longer life expectancies. Your clients can look forward to many years ahead.

But there’s no guarantee they won’t need some sort of assistance. Americans turning 65 face a nearly 70-percent chance of needing long-term care services during their remaining years, according to the U.S. Health and Human Services Department.

Rest easy, we’ve got tips for making the subject relevant to a wide range of clients.

Women Are Ready for Long-Term Care Discussions

Two women

In your client meetings, which spouse has more influence on decisions? Perhaps you have noticed women are taking an increasingly larger role when couples implement your recommendations.

A survey by LIMRA revealed that women are much more likely to take action than men when it comes to retirement planning. And they are more concerned than men about their financial security risks in retirement (LIMRA Secure Retirement Institute Risk Perceptions study, 2018).

Keep this in mind when discussing long-term care with your clients.

Overcoming the Complexity of Placing U.S. Life Insurance on Japanese Nationals/Citizens

Japanese Family

A Plan to Avoid Japanese Gift Taxes while Minimizing U.S. Estate Tax Exposure

Meet the Tanaka Family

  • Michael and Michelle Tanaka, Ages 38 and 36 (respectively), Married *
  • Harry Tanaka, Age 6, Son of Michael and Michelle Tanaka *

* Dual Citizens of Japan and U.S.

The Need for U.S. Life Insurance

Michael Tanaka has been a serial tech entrepreneur since graduating in 2004 with master’s degrees in mathematics and computer science. In 2012, Michael created Tanaka, Inc., a technology startup focused on creating sophisticated algorithms that had the potential to revolutionize the quality control systems for major industrial manufacturing companies. A significant technological breakthrough in mid-2017 captured the attention of some of the world’s most powerful multi-national corporations. After receiving several enticing offers, Tanaka, Inc. was sold to ABC World, Inc. for a purchase price of $100MM, to be paid over a 5-year period.

Michael quickly realized that the sale of Tanaka, Inc. would require him to engage a team of financial, accounting and legal experts to assist him in managing and protecting the product of his hard work. One member of that team, a sophisticated estate planning attorney, advised Michael that the need for U.S. life insurance was an essential element to his estate plan, but that Japanese gift tax laws made the placement of U.S. life insurance in a traditional irrevocable life insurance trust (“ILIT”) problematic. Specifically, even though the Tanaka family currently resides in the U.S., the Japanese gift tax laws would continue to attach to them for an additional 6-years because the family established residency in Japan, known as “Jusho”, 4 years ago when they moved to Okinawa to help Michelle’s mother, who was dying of cancer. During the next 6-years, any gifts from Michael to a U.S. situs ILIT would trigger a Japanese gift tax (55% top tax-rate), thus frustrating the ability to fund the ILIT with standard gifting and loan strategies.

Why It’s Time for the Long-Term Care Conversation

Why It's Time for LTC header

Here’s a list of the most important reasons to talk about long-term care insurance.

  1. Your clients

Clients rely on your expertise and recommendations when it comes to protecting assets and planning for their future. In many cases, your guidance is essential to their peace of mind.

That’s especially true with decisions about long-term care insurance. In fact, 90 percent of consumers surveyed agree their financial advisors should discuss LTC plans with them. (VerstaResearch 2017).

Your clients want you to bring it up – not because aging and health care are as engaging as steady portfolio performance. Rather, they likely know families and colleagues whose lives have been touched by the emotional, physical and financial impact of a health crisis. And your clients want to be prepared.

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