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Everyone needs an estate plan!

/// Posted by Mark Alaimo, CPA/PFS, CFP®

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Make sure your plan matches your stage in life

Most people do not like thinking about their own death or the death of family and friends.  Benjamin Franklin famously wrote: “… in this world nothing can be said to be certain, except death and taxes.”  Simply stated, the reason to have your own estate plan drafted is to provide for the orderly administration of your affairs (financial and otherwise) in the event of your incapacity or death.  For many, the words ‘estate plan’ conjures images of luxury and affluence, though everyone, regardless of financial resources should have an estate plan.  To help prove our point, here are some of the top reasons each of the following personas should make creating/updating their estate plan a priority.

Single person with no children

Single people, both young and old, may laugh off the prospect of needing an estate plan.  While they have no spouse or children to provide for, they certainly do need to make provision for their own end-of-life care and the distribution of their financial assets upon death. 

A will (more formally known as Last Will and Testament) is a legal instrument that stipulates how you would like your personal assets (jewelry, vehicles, art, etc.) and financial assets not otherwise governed by contract (such as life insurance, retirement accounts, joint tenants with rights of survivorship accounts and trusts) distributed after your death.  In the event you die with assets in your name without a valid will (all wills must be recognized as valid by an applicable court), your assets will be distributed according to the intestacy statutes of your home state.  For example, should you die as a single person in Massachusetts with no children, both of your parents, if living, would inherit your estate equally.  If neither parent is living, your estate would be split equally among your living siblings (children of a predeceased sibling get nothing!).  Should you die without any children, spouse, parents or siblings, your estate would be shared equally by your closest extended family members (could be first cousins, second cousins, etc…).  As you can imagine, you may end up enriching members of your extended family you may barely even know, while your close friends may be left with nothing. 

More importantly, for single people with no children estate planning documents are instruments that help provide for your care as you age.  A power of attorney is a legal instrument where you appoint one or more people (close friends, family or advisors) to serve as your agent to handle financial matters.  Often, this may be simply signing checks on your behalf, but it may also include selling real estate or other similar transactions.  Powers of attorney need not be used only during periods of incapacity – but can be used as a convenience if you are traveling (as is often the case for unmarried professionals).    

Perhaps the most important instrument for single persons is a health care proxy (in other states this may be referred to by a similar name, such as a durable power of attorney for healthcare or advance directive for healthcare).  In short, you designate an individual to make medical decisions on your behalf in the event you are incapacitated.  Accidents can happen to anyone, regardless of their health and age.  Spouses are afforded some leniency in making medical decisions for their spouse in most states, but this is not the case for single people.

Anyone with children

Perhaps the most important reason people with children need an estate plan (in addition to the reasons mentioned above) is to appoint guardians for minor children.  Regardless of whether you are married or not, unless you appoint successor guardians for your minor children in your will, your children may be subject to undesired court involvement and oversight (often against your wishes) until they reach the age of 18.  In addition, any financial resources left outright to minor children may also be subject to oversight and control (again, potentially against your wishes).  The simplest way to avoid having the trauma of an unexpected death become even more traumatic to those most important to you is to appoint successor guardians for your children in your will and provide for their financial care either via your will or a trust.  The person who you designate to raise your children does not also have to be the one to handle the finances.

Anyone with a net worth greater than $1 million

Individuals with assets of more than $1 million are subject to Massachusetts estate taxes and assets of more than $5.49 million are subject to federal estate taxes.  Massachusetts rates start at 0.8% and progressively increase up to 16%, while federal rates start at 18% and quickly increase up to 40%, thus making estate taxes huge contenders for a family’s savings.    

Unlike death, estate taxes can often be reduced or eliminated with proper prior planning and time.  There are numerous legal strategies to accomplish this task that are far beyond the scope of this post, while many times also advancing charitable giving goals too. 

So what?

This post is by no means an exhaustive estate planning primer.  Rather, the goal is to emphasize the need for everyone, regardless of their walk or state in life, to have an estate plan.  Sapers & Wallack is a holistic financial services firm specializing in employee & executive benefits, insurance and wealth management.  We are not a law firm and do not draft documents, but work with families to design their estate plans in conjunction with their attorneys (we are happy to make a recommendation if you do not have an attorney), ensure they are executed, and most importantly – implemented. 

Having an estate plan will give you peace of mind, knowing that your affairs and loved ones will be provided for according to your wishes when you die, so you can live your life more fully!

 

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Summer: An Unlikely Time for Changing CPAs

/// Posted by Karen Van Voorhis

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Last year my husband and I knew there was something wrong with our boiler, in the basement of our house. We knew this because we lost heat in the house during the winter – twice. We learned that repairing it would involve dismantling part of it and having no heat for a day. Our plumber, whom we see around town, admonished us several times to make arrangements with him to take care of it during that summer, when our need for heat would be close to zero. And we finally did, one week last June – it was the last thing I wanted to be bothered to do, but when winter and snow came, boy were we happy, and relieved.

On a topic only slightly more scintillating than boilers: income taxes. I get it. In February or March, you’re knee-deep in Turbo Tax or the 50-page tax organizer that you dread receiving every year from your CPA. You have a vague recollection from last year that you really hate this, for one reason or another. Maybe you hate doing it yourself and have wanted to outsource your tax preparation. Or maybe your CPA is just grumpy and you just don’t like working with him (or her). Then you remember: Ohh, right! Every year at about this time, you swear you’re going to hire someone, make a change, start fresh. 

But then you don’t. Either it feels too rushed – you’re already into this current round of taxes, so you might as well finish them. Or, you make a few phone calls, and realize that you’re going to be hard-pressed to find a tax preparer who is willing to take on a new client during the month of March. And also, it’s just a lousy task – who wants to spend their spare time researching and hiring a new CPA? It’s like hiring an attorney, or dare I say a financial advisor: perhaps (hopefully!) ultimately a positive change, but really never at the top of anyone’s to do list.

So, you wait another year.

I have good news for you. Starting in the late spring, you have an ideal window of a few months in which to hire a CPA. They’ve all woken up from their post-April 15th naps. There are a couple of summer deadlines that will occupy them briefly, but otherwise there is a stretch until around September 1st, where their lives are relatively quiet. If a preparer were to take on a new client, they would welcome making that transition during the summer. 

Late spring and summer are optimal seasons for CPA-hunting for a few reasons. First, there’s time to actually meet in person. (How old-fashioned!) Plus, there’s plenty of time to send copies of files, for the preparer to get to know your tax situation, and to potentially prepare any needed amended filings without being rushed. 

Often, friends or neighbors should be able to make a referral to a tax preparer with whom they’ve enjoyed working. Your financial advisor should be able to recommend a preparer in your area, as well. Or, your state’s society of CPA’s web site should have a “find a CPA” search feature (for those in Massachusetts, click HERE.)

If this is a task that has been gnawing at you, bite the bullet and do it! You’ll be thankful come next tax season that this unexciting but necessary chore has been taken care of. 

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How 529 plans can help take the bite out of the college price tag

/// Posted by Mark Alaimo, CPA/PFS, CFP®

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Every May, years of all-night study sessions and grueling examinations endured by thousands of young men and women culminate with graduation and the receipt of a four-year college degree.  While more and more young men and women are attending college, the cost to attend continues to skyrocket.  The Institute for College Access and Success reports that as of 2012, over 70% of students graduated four-year colleges with student debt[1].  66% of graduates from public colleges had debt (with an average balance of $26,000), 75% of graduates from private not-for-profit colleges had debt (with an average balance of $32,000) and 88% of graduates from private for-profit colleges had loans (with an average balance of $40,000)[2].  Despite the cost, the value of a college education remains – the Bureau of Labor Statistics reports that in 2015, college graduates enjoyed an overall unemployment rate of less than half of high school graduates and earn more than double the wages[3].  The bottom line is simple – more students have access to a four-year college education, which positions them in the long run significantly ahead of their peers who do not attain a four-year degree, but costs a significant sum, which acts as a millstone around the neck for many graduates. 

To help better manage the cost of higher education, many families set up and fund 529 college savings plans to help defray (or in some cases, fully pay for) the cost of education, helping to minimize financial hardship before, during or after college.  Federally established by the Small Business Job Protection Act of 1996, 529 plans are tax advantaged investment vehicles designed to encourage tax free saving for higher education expenses of a designated beneficiary[1].  Two types of 529 plans exist: prepaid tuition programs and the more common, college investing plans.

Since college savings plans were initially created by states under state law prior to the enactment of the 529 plan statute, all 529 plans are sponsored by a state, though most permit both residents and non-residents to participate in their program (there may be state income tax benefits to participating in the plan of your home state). 

Types of Plans

Ten states offer prepaid tuition programs, such as the U.Plan Prepaid Tuition Program in Massachusetts, which permit the purchase of Tuition Certificates in $300 increments to be used towards tuition and mandatory fees at a large list of participating colleges within the Commonwealth.  The primary benefit of this program is locking in the percentage of tuition and mandatory fees paid for by your contribution at today’s prices– meaning your purchase is guaranteed to keep pace with the inflation of tuition and fees.  The growth factor of your initial investment is not taxable if the certificates are exchanged for attendance at a participating school.  For example, the purchase of ten certificates today equates to 7.25% of one year’s tuition at Berklee College of Music (2016-2017 tuition & fees of $41,398), 67.97% of one year’s tuition at Roxbury Community College (2016-2017 tuition & fees of $4,415), or 6.26% of one year’s tuition at Smith College (2016-2017 tuition & fees of $47,904)[1].  The school the beneficiary will attend does not have to be determined until the student makes his/her college attendance decision.  In the event the beneficiary attends a non-participating school or decides not to attend college, you will receive your investment plus interest at a rate of the growth in the Consumer Price Index (CPI) without penalty.  The interest received will be taxable.

The more prevalent 529 plan used today are college investing plans, such as the U.Fund College Investing Plan, in Massachusetts, which is managed by Fidelity Investments.  These plans function in many regards like a 401(k)/403(b) account.  Each state’s plan (most only sponsor one plan) in most cases is managed and administered by an investment custodian, such as American Funds, Fidelity Investments, T. Rowe Price or Vanguard (several states, including Utah, are not run by a fund company and have several different fund families among the investment options).  Most plans offer age-based investment options (akin to target-date retirement mutual funds), which are typically pooled investment vehicles comprised of mutual funds managed by the custodian, that become more conservatively invested as the beneficiary’s moves closer to college age.  Many custodians also permit the account owner (the person who sets up the account) to invest the plan balance according to their own investment allocation from the available fund options within the plan. 

Funds invested in 529 college investing plans grow tax-deferred and withdrawals are tax-free, provided they are used for Qualified Higher Education Expenses paid to a US institution or a qualified foreign institution, including required college or other post-secondary tuition and fees.  Generally, anything that is not a mandatory expense is excluded.  The gain associated with any funds withdrawn from a 529 college investing plan not used for Qualified Higher Education Expenses is subject to ordinary income taxes and a 10% penalty. 

Who can setup and fund a 529 plan? 

Anyone can establish a 529 plan for a beneficiary. Most plans are owned by parents and grandparents.  Per a 2014 survey released by Fidelity Investments, 72% of grandparents feel that it is important to help pay for their grandchildren’s college education; 529 plans are a great way for grandparents to lend a helping hand[2].  Once established, anyone can make contributions to a 529 plan setup for a beneficiary. 

 Tax considerations and other benefits. 

Annually, anyone can contribute up to $14,000 ($28,000 for married couples who elect to split gifts) per year into a 529 college savings plan without making a taxable gift[3] [4].  Donors may also make an election under 529(c)(2)(B) on their gift tax return to make five years’ worth of contributions up front without making a taxable gift ($70,000 for single filers, $140,000 for couples who elect to split gifts)[5]

Over 30 states, including the District of Columbia offer state tax benefits for contributions to 529 plans[6].  For example, Massachusetts affords single filers a state tax deduction up to the first $1,000 and joint filers a deduction up to the first $2,000 contributed to either of the state’s two plans[7].  The value of this deduction should be considered but not be the overriding reason to choose one plan over another (the $2,000 deduction in MA is worth $102, since the MA income tax rate is 5.10%). 

Many plans offer additional incentives to entice enrollment in their plan.  For example, the MA 529 college investing plan offers a credit card, where 2% of all eligible spending will be contributed directly into your 529 plan[8].  Other plans offer the ability for you to make contributions via direct deposit from your paycheck[9].  Plans such as the Nevada plan enable you to link your Upromise shopping loyalty account to your 529 plan directing rebates and incentives into your plan account[10]

Which plan should I choose?

Many factors should be considered when choosing the optimal plan.  First, as with all investments, fees and investment choices should be considered.  Next, you should consider whether any state income tax benefits are available to you for establishing an account with your state’s plan.  Lastly, consider whether you are likely to take advantage of any additional plan benefits, such as a rewards credit card or shopping program, associated with some plans. 

Okay, now what?

Saving for college is a daunting task for most families.  Setting up 529 plans is a great first step, but its benefits can only be realized if a funding plan is established and maintained.  Many families commit 50% of the money received from birthdays, religious celebrations and holidays to a 529 plan.  Other families establish periodic investments coordinated with their payroll into the plans.  Another choice is to dedicate a portion of tax refunds or other cash windfalls into the plans.  

College savings is an integral part of the financial planning process for most families.  Consider reaching out to a holistic wealth manager to develop a college savings plan coordinated with a retirement savings plan and customized based upon your resources to ensure you are on track to meet your goals. 


[1] Quick Facts About Student Debt (Rep.). (2014, March). Retrieved May 16, 2017, from The Institute for College Access & Success website: http://ticas.org/sites/default/files/pub_files/Debt_Facts_and_Sources.pdf
[2] Ibid.
[3] Unemployment rate 2.5 percent for college grads, 7.7 percent for high school dropouts, January 2017: The Economics Daily. (n.d.). Retrieved May 16, 2017, from https://www.bls.gov/opub/ted/2017/unemployment-rate-2-point-5-percent-for-college-grads-7-point-7-percent-for-high-school-dropouts-january-2017.htm
[4] Public Law 107-188, Small Business Job Protection Act of 1996
[5] Participating Schools – Massachusetts Educational Financing Authority. (n.d.). Retrieved May 16, 2017, from https://www.mefa.org/plan/participating-schools/
[6] Fidelity Investments, “2014 Grandparents and College Savings Study,” June 2014
[7] 26 USC §2503(b)
[8] 26 USC §2513(a)
[9] 26 USC §529(c)(2)(B)
[10] How Much Is Your State’s 529 Plan Tax Deduction Really Worth? (n.d.). Retrieved May 16, 2017, from http://www.savingforcollege.com/articles/how-much-is-your-states-529-plan-tax-deduction-really-worth-733
[11] MA G.L., c. 219, §66
[12] Fidelity® Rewards Visa Signature® Card. (n.d.). Retrieved May 16, 2017, from https://www.fidelity.com/cash-management/visa-signature-card
[13] Compare 529 Plans. (n.d.). Retrieved May 16, 2017, from http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=387&page=compare_plan_questions
[14] 529 Plans Can Help You Save for College. (n.d.). Retrieved May 16, 2017, from https://www.upromise.com/save/529-plans/
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It’s International Women’s Day, and I have been thinking about how financial advisors interact with women, especially when those women are one half of a couple, and how I wished both advisors and women would behave differently.

I’ve been to several conferences in recent years, where I find myself in hotel ballroom, listening to a speaker (usually female) patiently explaining to hundreds of (mostly male) financial advisors that they ­should pay attention to their “clients’ wives.” (Let that sink in for a minute . . . . as though the female half of a couple isn’t a client. But I digress.)

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Leadership Lessons learned from Bill Belichick

/// Posted by Aviva Sapers

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The Superbowl excitement is behind us and we all celebrated the success of the New England Patriots during the famous Duckboat Parade.

The continuous success of this team is possible with a great leader at its helm: Bill Belichick. The way he leads and assembles a first class team year after year provides valuable lessons for me as a business leader and for many other executives who are faced with difficult decisions and the demand to lead effective and efficient.

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Gifts in Perpetuity

/// Posted by Bill Sapers

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Wooing, educating, maintaining annual gifts for Charitable Institutions is “tough business” for the thousands of fund raisers working desperately to meet ever increasing costs. Most annual gifts are the product of endless meetings, dinners, phone calls, tours and creative discussions.

Once a donor has bought into the needs of the institution, there is an annual romancing necessary to maintain or increase the gift. If successful the donor tends to increase the annual gift over years as his ability to give increases and as his support for the charity deepens.

But what happens when the donor dies? Years of building collapses unless “Gifts in Perpetuity” becomes an integral part the Fund Raising Plan.

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Red is the color of choice for the Sapers & Wallack team these days. This is not the newest fashion trend around Newton, but a cause close to the heart for all of our team members: women’s health.

We are proud to participate in the national Go RED for Women Day on February 3rd to help raise awareness about the women’s heart disease epidemic while promoting education and essential lifestyle choices to reduce risk factors.

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The time is now: Make your annual IRA contribution

/// Posted by Karen Van Voorhis

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Happy new year! 

Now that the holidays are over and all those new year’s resolutions have almost been broken (come on, admit it), here’s something you can do to help your long-term financial situation: make your IRA contribution now. 

I’m not referring to prior year’s contributions (which you can make until April 15th of the current year); I’m talking about your 2017 contribution.  It’s 2017 already – why wouldn’t you make 2017’s contribution as early as possible in 2017?

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Oxfam Case Study – Finding the best solution to retain talent

/// Posted by Aviva Sapers

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Oxfam America is known worldwide to “create lasting solutions to poverty, hunger, and social justice.” The non-profit is not only leading the efforts to find new ways to fight hunger, but also re-defines internal organizational structures. To attract and retain its highly skilled leadership, Oxfam America started a customized executive benefit restoration initiative and chose Sapers & Wallack as partner for the implementation.

Read our newest case study to learn about our customized approach to provide the choices executives needed in different stages of their careers combined with continuous education to make the program successful.

 

 

 

 

 

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Welcome our new hires

/// Posted by Aviva Sapers

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This year brought additional growth to our Sapers & Wallack family with industry-experts that joined us over the last couple of weeks.

We want to take a moment to introduce them and take you on a tiny tour behind the scenes, sharing something from their personal life:

Mark Alaimo mark-small-colorhas come aboard to lead our Wealth Management practice as Managing Director. He brings a passion for tying together all the loose ends of a client’s financial portfolio into a cohesive plan, and he utilizes his extensive background in tax and estate planning to best serve every need.

 

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