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Don’t Let 2010 Fade Away Without Careful Review

Another year will soon be added to our storehouse of memories.  But before we start pasting items into that scrapbook we will remember as 2010, there is still time to consider what we might yet do to live up to those New Years resolutions we all made last January.  This past year has involved a great deal of uncertainty, change and anxiety, in both the economic and political arenas.  The fluctuations in the financial markets and the significant rebalancing of political influence evidenced by the recent elections should have caused all of us to more carefully examine our own situations.

Regardless of our personal goals and aspirations for 2010 and 2011, it is important to focus on what might be possible if proper planning takes place with respect to our personal wealth.  A significant part of that planning should involve the manner in which we provide for ourselves and our families, and the manner in which we transfer ownership of assets to the next generation can have a significant impact on the attitudes, productiveness and financial stability of our children and grandchildren.

At another level, we also are aware that we can help enhance our communities and pass along important life lessons to our families through the way in which we include charity as part of our plans for the transition of our wealth.  The financial and political uncertainties we have all faced personally have caused many of us to become more protective of what we have.  Yet those same financial and political uncertainties have created a significant burden and scarcity of resources for the charitable organizations our society relies upon to help the needy within our community.

And then there are the tax laws.  2010 has brought us the unexpected result of no estate tax (for a year) and the lowest income tax rates since we can remember.  But all of this is expected to change going into 2011 – if we only knew what the rules of the game will be.  This pending uncertainty in both the transfer tax and income tax laws heading into 2011 are enough to make most people decide to pile up the sand bags and wait out the storm.

But in spite of the uncertainty – or maybe because of it – it is important to remember that effective planning for the management and disposition of our wealth is not just about taxes or investment returns.  At the heart of it all is a need to develop a plan that will allow us to live within our means and eventually transfer our accumulated assets to those persons and/or organizations we care about in a way that will have the most significant impact for the future.  The longer we wait to develop these plans, the more we risk not having an effective plan when it is needed the most.

As you make plans for your 2011 New Years resolutions, consider a few wealth planning and charitable ideas that might help you to make a difference for the future of your family and your community.

  • Establish a family foundation or donor advised fund to engage your family in the spirit of charitable giving and create a means to get a current income tax deduction while delaying the final decision of how these charitable dollars might be best utilized.
  • Consider a transfer of appreciate stock to charity in order to generate a current income tax deduction and avoid the capital gain otherwise realized if the stock were sold.
  • When deciding on the allocation of assets between family and charity, remember that IRA and other retirement accounts distributed to charity at death will avoid the income tax and estate tax payable by your family members who would otherwise receive these accounts.  (This combined tax liability could be as high as 70%).
  • If you make a Roth IRA conversion in 2010, consider the benefits of current charitable contributions to offset some of the income realized from the conversion.
  • Invest in life insurance policies within an irrevocable trust to provide tax free resources to your family which can free up otherwise taxable assets to pass to your favorite charities.

As seen in the December 2010 issue of Ingram’s magazine