To give or not to give, that is the question… With the ever changing tax environment, making Estate Planning decisions have become more and more complex. Uncle Sam has designed a sociological system requiring people who are financially successful to give back to society either in the form of taxes or through charitable gifting.

So the question is... would you rather fulfill your civic obligations by paying taxes and leaving the stewardship of your tax dollars to Uncle Sam toward education, defense, high ways, etc. OR would you rather take charge and control the direction of your dollars through philanthropy. If you choose the latter, then designing a charitable gifting strategy is important in optimizing your wealth.

Considering that a gift, once executed, is irrevocable and with a plethora of charitable gifting strategies to choose from, making the right gifting decision or a combination thereof is critical. Unless you are an experienced philanthropist, here are a few tips to prepare you in making the right charitable gifting decisions:

DECISION #1: DO I HAVE A GENUINE CHARITABLE INCLINATION?

This is the first question you should ask yourself. Don’t get involved with charitable gifting for the wrong reasons (i.e. tax benefits, someone sold you on it, etc.). If your answer to this question is YES, then you can proceed by answering a few more questions as follows:

• How much should I give?
• To whom should I give?
• What do I wish to accomplish in my giving?

These are all basic questions which should be answered, before you can know how to effectively accomplish your plan. Do you have a long term giving plan? If you do not, then we would encourage you to establish one.

DECISION #2: SHOULD MY GIFT BE MADE FROM CASH FLOW OR NET WORTH?

• An outright gift of cash either from discretionary cash flow or existing assets may provide a better current tax advantage vs. a gift of net worth. Discretionary cash flow leads to more savings and investments, which leads to increasing your net worth, which may also lead to more estate taxes.
• Gifts of net worth may not immediately affect cash flow, and many times will not affect it in the long term, either. This is especially true of property that does not pay dividends or produce income, such as real estate, or low income investments such as many stocks and mutual funds. Gifts of net worth avoid the capital gains tax payable on the sale of appreciated property.

Example: You purchased stock for $10,000, and it is now worth $20,000. If you sold the stock, you would pay a capital gains tax on the $10,000 of growth. However, if you gave that stock to charity, rather than sold it, you would avoid the capital gains tax. And if you are in a 22% combined federal and state tax bracket, your gift would result in a capital gains tax savings of $2,200. In addition, you would receive a current income tax charitable deduction for the full value of the stock.

DECISION #3: CAN I MAKE THE GIFT OUTRIGHT, OR DO I NEED TO RETAIN INCOME?

Many of our friends do not realize that they can make a gift to charity, and retain the income for as long as they need it. This is very important if you have low income producing property from which you need a higher income, or if you have highly appreciated property which you wish to sell. If you sell the property, you will have a substantial tax liability. But as noted above, if you gift the property to a charitable organization, the capital gains tax will be avoided. In addition to avoiding taxes on the gain, which would be payable if you sold appreciated property, you also receive an income tax charitable deduction, which will provide additional tax savings, even when you retain the income produced by the property. And in reality, all you have done is guaranteed today that the charity(ies) will receive your gift at some time in the future.

DECISION #4: HOW LONG DO I NEED TO RETAIN THE INCOME?

You can design your gift agreement to pay income for:

• A fixed period of years -- up to twenty years
• Your lifetime
• Your lifetime and the lifetime of a spouse or other beneficiary
• A combination of lives plus years

The options are very flexible. You can design your gift agreement to meet your income needs.

DECISION #5: DO I DESIRE A FIXED INCOME OR A VARIABLE INCOME?

You can design your gift agreement with income to meet your personal goals and objectives. Some people are very comfortable with a fixed, guaranteed income. Others are concerned about inflation, and design their gift agreements so that income will increase in future years, as the value of the assets appreciates.

DECISION #6: HOW WILL MY HEIRS FEEL ABOUT GIVING THEIR INHERITANCE TO CHARITY?

Unless you have an open line of communication with your heirs about the purpose of your charitable gifting strategy, they may feel cheated out of their inheritance after you have gone. Although charitable gifting strategies are usually coupled with wealth replacement strategies to make their inheritance whole again, it might still be a good idea to discuss your gifting plans with your heirs and get them involved in your philanthropic work.

DECISION #7: WOULD IT BE BETTER IF ALL THE INCOME I RECEIVE IS TAXABLE, OR SHOULD I DESIGN THE GIFT AGREEMENT SO THAT I RECEIVE A PORTION OF THE INCOME TAX-FREE?

Under certain types of gift agreements, a portion of the income is automatically received tax-free. Other types of agreements can be designed so that most of the income will be favorably taxed. The taxation of the income from some gift agreements is dependent upon the property transferred to fund the agreement.

DECISION #8: HOW DO I CHOOSE WHICH CHARITY TO GIVE TO?

You need to determine what motivated you to give to charity in the first place. Was it because some one close to you suffered from a deadly disease and you want to provide hope for others? Perhaps you are religious or believe in education and other special interests. Whatever it is, let your heart show you the way. On the other hand, in order to take a tax deduction on a charitable donation, you must make your donation to a qualified organization, according to Internal Revenue Service guidelines. Qualified nonprofits - generally identified as 501(c)(3) organizations by the IRS - include groups that are religious, charitable, educational, scientific or literary in purpose, as well as those that work to prevent cruelty to children or animals. You may check the organization's status in IRS Publication 78, which lists most qualified organizations or call the IRS at (800) 829-1040 to verify a new organization's status.

DECISION #9: DO I NEED TO COORDINATE MY GIFT AGREEMENT WITH MY ESTATE TAX PLANNING?

With the recent economic crisis and bail outs, the estate tax resolution seems to be taking a back seat at congress. If congress fails to act on it by next year, the estate tax exemption will go back to where it was in 2001. This means that people with a net worth of $1,000,000 or more will most likely have some estate tax problems unless they plan appropriately. One of the ways to combat this is through the proper design of a charitable gifting strategy to transfer assets which would have been required to pay estate taxes to a number of qualified charitable organizations and foundations.

FINAL DECISION (#10): WHERE DO I START?

The first step is to ensure that you have the right team on your side to guide you through this maze of charitable gifting strategies. Your first line of defense will be to consult a competent financial planner who understands the intricacies of planned giving and estate planning (not to be confused with your broker, insurance agent, financial advisor, etc.). For a referral to a competent financial planner to get you on the right track, feel free to drop me a line. You will also need an estate attorney to execute the necessary legal documents for your plan. Also make sure you keep your accountant in the loop and consult them on tax issues. You will also need reliable trustees and administrators to make sure everything goes smoothly even long after you have gone. And of course, you will need to pick the charitable institutions you wish to work with.

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The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) created a window of opportunity for us to convert Traditional IRAs, 401(k), 403 (b) and other qualified plans to Roth IRAs. A Roth Conversion may not be appropriate for everyone and other restrictions may apply however for the large majority converting to Roth in 2010 may be a golden opportunity.

In 2010 the restrictions that prevented most Americans from converting to a Roth will be lifted and taxes on the conversion can be split up between 2011 and 2012. This split of taxes over two years is only available for those who convert in 2010 only. Converting to a Roth will allow for tax free growth, tax free distributions and an income tax free transfer to non-spousal heirs.

There are certain ways to perform a Roth Conversion that may be more favorable than another. According to Ed Slott, Roth Conversions are more beneficial for those who can pay the income taxes from an outside account. For example if someone had a $100,000 IRA to convert at a 25% effective tax rate and also had $25,000 in a cash position earning a 1% they may be better off using the cash accounts to pay the taxes rather than the account itself. This way you would have the full $100,000 working for you income tax free moving forward.

There is a second strategy that involves using leverage and the least amount of today’s dollars to convert to a Roth IRA. This involves careful analysis and the assistance of a qualified retirement specialist who understands these concepts.

The bottom line is that if you feel future taxes are going to be higher, it might behoove you to take advantage of this opportunity to pay the taxes on those IRAs today at a lower rate rather than later, and then grow it tax free from here.

For a referral to a qualified Retirement Specialist who can assist you in identifying the suitability of a Roth conversion for you, call me, Rico Revilla, at (866) 416-1055.

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Need competent and professional IRA advice? Click here, drop me a line and I'll put you in touch with an IRA Specialist.

Given this economic climate, your first inclination would probably be to withdraw your retirement savings and stuff all the cash into your mattress.  Not only will that probably be insufficient for proper back support, it may also prove detrimental to your retirement!

The folks over at ChicagoDefender.comjust gave us the basics of Individual Retirement Accounts and why they may be better at giving you a good night's rest.

An IRA is an interest-earning retirement account where the money you save is a tax deduction. As you save money you are earning compounding interest on your savings which is not taxed until the money is withdrawn, without any penalty after age 59-and-a-half. The IRA savings are FDIC-insured for up to $250,000. No one has ever lost a dime in a FDIC-insured account. Its consistent and steady rate of return makes it an excellent tool for help building financial independence at retirement. And because it’s safe, it provides the “peace of mind” that comes from knowing you’re saving money responsibly. There are many IRA options available today. But the basic idea is the same-up to $5,000 per year can be deposited into an IRA account tax free and another $1,000 if you are 50 years of age or older.* While they differ in small ways, all IRAs: earn tax deferred interest on your contributions; may be tax deductible from federal income tax; and require a modest minimum deposit amount to open an account. Some IRAs include:

• Traditional IRAs, which allow you to defer taxes on the earnings of your contributions until they are withdrawn.
• Roth IRAs, which offer only nondeductible contributions and tax-free withdrawals for certain distribution reasons after a five-year holding period.
• IRA Certificates of Deposit, which offer a guaranteed fixed-rate of return and is renewable when it reaches the original date of maturity, helping to increase savings with predictable interest earnings.

Click here to view the article in its entirety. And, remember, even if you have a tricky situation, I have excellent professionals standing by to help you out (click here).

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Need competent and professional IRA advice? Click here, drop me a line and I'll put you in touch with an IRA Specialist.

I just chatted with an Estate Planning attorney over lunch the other day.  The biggest travesty he often witnesses is seeing an entire estate getting obliterated by legal fees and probate costs … all because there was no will.  He mentioned that he recently saw a rather modest estate of about $400,000+ completely wiped out.

The Boston Globe just printed an article on the same topic. In it, author Jill Boynton asks "Do you have a will?" and offers the most common reasons for not having one:

The two most likely reasons are “I never got around to it” and “we can’t decide who will be the guardian for our children” (wills generally include an appointment of a guardian for minor children.) Not having a will, however, means dying “intestate”, and thus leaving the decision of how your assets are divided up to the state.

Some assets come with a built-in inheritor. For instance when you open any kind of retirement account you are asked to name a primary beneficiary. Also any asset held as “joint ownership with rights of survivorship” will automatically go to the surviving joint owner. But many assets in your individual name have no clear beneficiary unless you name one in your will.

The same Estate Planning attorney I spoke with mentioned that even if you scrawled something on a napkin, it might help save thousands in probate! Of course, nothing beats a formally written document, but it's better than nothing!

If you have any estate planning questions, just contact me and I can forward you to a competent professional.

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As the significant bread winner for the family, have you made plans to protect your loved ones in the unforeseen event you pass away? You've probably heard about the benefits of life insurance, but given this economy you're probably looking for the most cost effective option. Enter: Term Life.

Motley Fool just published the bare minimum essentials you need to know before you purchase a term life policy. Here is just a portion of the article:

Typically, when you buy a term insurance policy, you lock in a particular rate class that's based on your age, smoking habits, and health at the start of the term. When it comes time to renew a term policy, you can't do much about your age. You'll be older, so your rate will be higher. This much is entirely predictable and not worth worrying about or maneuvering to beat. That's where renew ability comes into play.

Some "renewable" term policies just make it easy to renew, but require a medical exam, leaving you exposed to big problems should health issues surface later. What you want is guaranteed renewability without a medical exam. This is especially true if the policy term won't take you close to retirement age.

Besides that, there are three other key components to consider:

1. The policy term - Term policies are either annually renewable (one-year term) or cover terms from five to 30 years (e.g., five, 10, 20, 30). Think of annually renewable term as the basic building block on which longer-term policies are built.
2. Guaranteed level premiums - Before you purchase a multiyear term policy, be sure that the premium is guaranteed to be level over the entire term. A surprising number of "level term" policies guarantee this for just a portion of the term. After this partial term is over, premiums might increase, although these increases are usually subject to some guaranteed maximum.
3. Ability to convert to a cash value policy - Getting a "convertible" term policy is generally a good idea. These are priced competitively with similar policies that don't include this provision, so you really have nothing to lose. This feature allows you to convert the policy to an equivalent cash value policy from the same company, without a medical exam, should there be a fundamental change in your health or retirement plans during the policy term.

Click here to read the article in its entirety. And, remember, if you need to speak with a professional about life insurance, just drop me a line.

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Need competent and professional IRA advice? Click here, drop me a line and I'll put you in touch with an IRA Specialist.

In honor of Earth Day tomorrow (April 22nd), here's an article that just might encourage you to go green -- for good.

According to the Wall Street Journal, it seems more and more insurers are offering discounts to those with conservation on their portfolio.

The $16 trillion insurance industry has begun to address climate change with mandatory risk disclosures and more products to help reduce energy use. Insurers have begun to offer lower premiums on car, homeowner and property insurance for people who drive less, own hybrid cars or build green homes.

In March, insurance regulators adopted mandatory climate-risk disclosure standards for insurance companies with annual premiums of $500 million or more. These standards require the firms to report to regulators and investors the types of payout risks they may face due to climate change.

In the past year, there has also been a large uptick in insurance products offered to climate-friendly consumers, according a report released this month by Ceres, a coalition of investors, environmental groups and other organizations. The number of new products doubled in 2008. They include coverage for wind and solar production shortfalls, premium discounts for energy-efficient buildings and discounts for hybrid-vehicle ownership and reduced driving.

Early estimates show people with pay-as-you-drive, or PAYD, policies, drive 5% to 15% less than average drivers. Fewer cars on the road mean lower accident rates and reduced fuel emissions.

This is encouraging. Hopefully other financial institutions follow suit and encourage it's customers to celebrate Earth Day ... but everyday.

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Equity Indexed Annuities Revealed: Is it right for you? Annuities do’s & dont’s 
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Often many of us like the control and the freedom to make the decisions when it comes to our money. However, in certain situations it's best to call in a professional. In this case, a financial advisor.

The Motley Fool just came out with an article outlining those situations when its best to seek professional financial help:

• Death of a parent. You may be the executor of the estate, but now may not be a good time to bone up on all the complexities involved. An independent advisor might be able to guide you.
• Marriage. You've just tied the knot and decided to blend your finances into one. There are certainly ways to cash in on coupledom.
• Divorce. Do you still file taxes jointly this year? Can the stay-at-home former spouse still make an IRA contribution? You'll need to get answers to these questions.
• Complex financial products. You should figure out whether disability insurance, long-term care insurance, and/or an umbrella liability policy makes sense for you.
• Buying and selling a house. The hallmark of these transactions is a sudden string of big-dollar decisions with little time to think them through (our Home & Real Estate section offers some tips).
• Saving for college. You'll have to figure out how to make the most of Junior's college fund. This 60-Second Guide will get you started.
• Estate planning. Who will manage the kids' inheritance should you die unexpectedly? Should you set up a trust? What are your other options?
• Retirement. Perhaps four brokers have shown you four different plans; two say you can retire and two say you can't. An objective review of all four plans might come in handy. (Learn more about retirement issues from our Rule Your Retirement newsletter.)
• Employee stock options. What are the tax implications of exercising your options?

If you or someone close to you are in any of the situations above, just click here and I can refer you to a reputable financial professional.

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Need competent and professional IRA advice? Click here, drop me a line and I'll put you in touch with an IRA Specialist.