Legacy Living Newsletter Planned Giving AG Financial Solutions Fall | Winter 2012
Year-End Review
2012 Tax planning
By Bob Lamb, Cfp® SVP Planned Giving and Investment Solutions
Think of the remaining days of 2012 as your chance to make assets work as hard as they can. With many tax exemptions and rates set to expire at the end of 2012, below are some tips to help you maximize benefits before the December 31 deadline. 1. Assess your income situation and tax liability. Identify substantial changes from the past year, such as: • Large, single taxable event (sale of a business or real estate) • Death of spouse • Inheritance • Transition to retirement • Required minimum distributions (RMD) from your retirement account if you became 70½ in 2012
Year-End Tax Actions
Evaluate finances for potential impact from tax changes. Consider: Tax strategies specific to possible tax changes
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Converting a Traditional IRA to a Roth IRA
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Selling appreciated real estate
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Funding a planned gift with appreciated assets
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2. Evaluate your investment portfolios. Certain year-end changes may save you money at tax time or increase your return in the coming year. Here are some things to consider. • Adjust capital gains or losses. Selling or gifting some of your holdings may create a favorable tax situation. • Account consolidation. Check to see if there are accounts that can be combined for easier tracking and decreased fees. 3. Consider year-end giving for tax savings. If you’re ready to start transferring some of your wealth to children and grandchildren, consider making annual exemption gifts. You are entitled to give $13,000 per person to any number of individuals free from gift tax. 4. Manage retirement accounts. Max out your contributions. For the greatest tax benefit, make sure you have taken full advantage of your eligible contribution limits. Ensure your RMD has been met, if age 70½ or
older. If you don’t, the IRS may penalize you up to 50 percent of the amount you should have withdrawn. 5. Review all legal and financial documents. Year-end is a great time to ensure essential documents are accurate and up-to-date. • Estate planning documents. Do these reflect your current situation, and will they be sufficient to carry out your final wishes? • Insurance contracts. Are these still relevant, and do they provide sufficient coverage? • Financial beneficiaries. Are the beneficiaries listed on your retirement and insurance accounts up-to-date? With just a little planning, you can celebrate the year’s end with the satisfaction of having your financial house in order. To explore options that may help you prepare and possibly save money at tax time, please contact your AG Financial Solutions planned giving consultant today.
Reaching your goals
What will be your legacy? Planned giving helps you make wise stewardship and financial decisions to manage your wealth. The marriage of proper financial and stewardship planning allows you to reach your goals for yourself, family, and ministry.
$307 million has been dispersed to ministries and churches through AG Financial Solutions and affiliates.
Legacy Living
Strategic Planning
Tax increases loom on horizon Although it’s been said the only things certain in life are death and taxes— even those may be up for discussion in 2013. With several major changes expected to take place by the end of the year, it is important to understand what has changed in 2012 and how the new tax laws may affect you in 2013. Now is an opportune time for careful planning. With strategic financial planning, you may avoid potential changes that could increase your bill at tax time such as shifting income to 2012 if possible, or pushing deductions to next year. Below are some factors to consider as you plot your year-end strategy. Death tax increase. The rates were most favorable in 2010 but have risen to as much as 35%, with an applicable exclusion amount of $5.12 million. However, in 2013, the death tax rate is set to rise to its pre-2001 rate of 55%. The applicable exclusion amount will decrease to $1 million. As you can imagine, investors are looking for ways
to be good stewards of their assets while protecting hard-earned estate wealth from Uncle Sam. Deductions may decrease for charitable contributions. Tax breaks for charitable contributions are also under fire. Now might be a good time to consider accelerating donations planned for future years into 2012, while the tax treatment is still known and favorable. A Donor Advised Fund (DAF) allows you to donate now and deduct at current tax rates while delaying your charitable giving. (see related article)
removal of state income and property taxes and limitations on medical and dental expenses and home mortgage interest deductions. Many proposed tax changes could negatively impact your wealth and long-term plans. The good news is that you can act now to protect your wealth, provide for your family, and bless ministries. We recommend you speak with your personal tax professional regarding tax-related issues.
Alternative Minimum Tax reduction. Introduced in 1969 to curtail excessive tax sheltering by high-income taxpayers, the Alternative Minimum Tax (AMT) has since spread to include uppermiddle taxpayers. This year, the AMT exemption has been reduced to $45,000 for married taxpayers who file jointly. This is down from the $74,450 exemption threshold allowed in 2011. The updated AMT calculation also affects numerous tax deductions, including the
Terms and Definitions
2013 Fiscal Cliff "Fiscal cliff" refers to the combination of tax increases, expiring tax breaks, and spending reductions that are scheduled to take effect in 2013.
Be careful not to base your investment decisions solely on possible tax changes or the contents of this newsletter. AG Financial Solutions’ team of consultants, accountants, and legal professionals understand the complexities of constantly changing tax laws; however, AG Financial Solutions is not a law firm and does not provide legal advice. We recommend that you consult a licensed attorney or tax professional regarding all tax-related issues.
Tax Changes Overview
2011
Individual income tax rate
10-35%
Long-term capital gains tax (maximum rate)
15%
15%
20%
Qualified dividend income tax rate (maximum rate)
15%
15%
39.6%
2% Social Security payroll tax reduction
yes
yes
no
Medicare contribution tax (high-end taxpayers)
no
no
Estate tax (maximum rate)
35%
Estate tax exemption
$5 million
NOTE: Congress could reverse or delay implementation of the tax changes listed above.
2012
10-35%
15-39.6%
35%
2013
$5.12 million
3.8%
55% $1 million
Fall | Winter 2012
Donor Advised Funds
Four reasons to set one up before the year ends
foundation, a DAF has no-cost setup, minimal paperwork and low maintenance requirements. Distributions may be made to various ministries and charities from the DAF account reducing the amount of paperwork the donor must deal with.
Offering donors simplicity, freedom, and tax benefits, Donor Advised Funds (DAFs) are one of the fastest-growing charitable giving vehicles in the United States. Below are four reasons why you may want to consider one before the end of the year.
Flexible Giving A DAF is designed to be customized around the giving needs of the donor. The donor advises how, when, and where the funds are distributed and if the funds are distributed as a lump sum or in payments. In addition, as the donor, you have the option of giving anonymously.
Tax Break A gift to a DAF may provide a charitable income tax deduction and help you to potentially avoid capital gains tax on appreciated assets such as stocks, bonds, or property. Contributions to your fund are tax deductible in the year they are made and additional contributions may be made at any time.
Stewardship Legacy A DAF can also be used to pass along to family members the joy and benefits of giving. If desired, successor advisors may be added to allow family members to provide input and recommendations as to how and to whom funds are distributed.
Efficient Management DAFs are one of the easiest and most cost efficient planned giving accounts to set up. An excellent alternative to a family
To learn more, contact one of our planned giving consultants listed on the back page.
Reverse Mortgages
Tapping into your home’s equity If you’re 62 or older, a reverse mortgage may sound like a retirement safety net. But the loan product, first offered by the federal government almost 25 years ago, has its drawbacks including fees for the homeowner and implications for their beneficiaries. What is a reverse mortgage? A reverse mortgage is a type of home loan that allows the equity in the home to be withdrawn for cash. Fees are generally higher than for a traditional mortgage. Repayment is deferred until the death of the homeowner, when the home is no longer the primary residence of the homeowner, or the sale of the home. What is the difference between a home equity loan and a reverse mortgage? A home equity loan or line of credit requires the homeowner to qualify for the loan. Payments are made monthly against the balance. A reverse mortgage is different in that there are no income or credit requirements as payments are
made to the homeowner from the equity in the home. Will I still own my home? The homeowner retains the title and continues to have the responsibility to pay real estate taxes, utilities, maintenance, insurance premiums, and all other home expenses. How are my taxes and other benefits affected? Payments from the reverse mortgage are tax-free. Interest on reverse mortgages are not deductible until the loan is paid off in part or whole. Medicare and Social Security benefits are generally not affected by the payments, although Medicaid may be affected if monthly payments exceed income limits. What are the inheritance implications? Reverse mortgage payments reduce the equity in the home resulting in fewer assets for the estate. A “nonrecourse” clause, included in most reverse
mortgages, prevents the estate from owing more than the value of the home. However, if the heirs decide to retain ownership of the home, the loan must be repaid in full – even if the loan balance is greater than the value of the home.
A reverse mortgage pays the homeowner from the equity in the home. If you are considering a reverse mortgage, compare options, fees, and terms with various lenders. Resist pressure to commit to any financial product without first understanding the total costs, features, and future ramifications of the products. For more information, contact your personal financial advisor.
3900 S. Overland Ave. Springfield, Missouri 65807 866.561.8860 agfinancial.org
Planned Giving
Legacy Living Newsletter A heart for giving. A mind for smart planning. Yes, you can do it all. Whether you’re approaching retirement or already have a giving plan in place, it’s crucial to stay informed about changes in tax and estate laws. Plus, new options are continually arising. This biannual newsletter delivers helpful information and solutions for your giving and retirement plans. Contact our team of experts today to get started.
Jason Lister
Lee Watson
Larry Lister
Mike Wynn, JD
417.872.9595 jlister@agfinancial.org
417.848.1586 lwatson@agfinancial.org
417.861.1391 llister@agfinancial.org
813.340.6586 mwynn@agfinancial.org