As I have written so very often you should never procrastinate having a comprehensive estate plan in place. Remember, as long as you retain your mental capacity you can change and update your estate plan from time to time.

Recently I read an article on LinkedIn written by attorney, Inna Fershteyn ( ) that really brings home my point. Given Inna’s permission, I would like to share a bit of her article, “Preparing an Estate Plan after a Dementia Diagnosis”.

“Have you or someone you love been diagnosed with Alzheimer’s dementia? Every 66 seconds someone in America develops Alzheimer’s, and today, there are 5.5 million Americans living with the disease. Such a diagnosis can take an emotional toll on any family, but with careful legal planning, you can make the uneasy journey ahead just a little more manageable.

When should I begin planning?

The longer you wait, the more difficult the process will be. As time passes, your ability to make informed decisions, and to fully express your wishes may be limited by dementia, which would be especially important when making documents related to medical and financial matters. Under federal law, you cannot create or sign legal documents unless you are of ‘sound mind.’ Because of this, you will not even be able to depend on your spouse or child to plan out these things for you, even if you do trust them to make the right decisions. Being of ‘sound mind,’ (also referred to as ‘legal capacity’) means you have the ability to understand the consequences of your choices and to make rational decisions of your own free will. For assistance, a doctor will be able to verify your mental capacity, and a lawyer will be able to determine what level of capacity is required for a person to make and sign a particular document.”

I totally agree with this sound advice that should be shared with others.

In our July 2017 Newsletter, I made mention of our applying to the New Jersey Department of Banking and Insurance for a new office to be located in Linwood, New Jersey. I am happy to share with you that on August 22, 2017, we received approval for our new office. 

Our thoughts and prayers are with those who have endured Hurricane Harvey and Hurricane Irma.

  Ira J. Brower, Founder
There are an estimated 94 million mutual fund investors in the U.S., reports the Investment Company Institute in its 2017 Investment Company Fact Book . Those investors represent 54.9 million households, or roughly 43.6% of all U.S. households. That level of mutual fund ownership has held steady during this century.

43.6% of U.S. households own mutual funds
Source: 2017 Investment Company Fact Book

The explosive growth in mutual fund ownership after 1980 may be attributable to the advent of 401(k) plans. Indeed, for 67% of households their first mutual fund purchase was through an employer-sponsored retirement plan. Some 37% of those who own mutual funds own them only inside such plans. Mutual funds owned in IRAs, which first became widely available in 1981, may also account for this spectacular growth.

As one might expect, as household income rises, the odds of finding mutual fund investors rises also. Some 80% of U.S. households with income over $100,000 are mutual fund owners. Still, mutual funds are certainly not just for the very affluent. 17% of mutual fund-owning households reported income of less than $50,000. The median income of households owning mutual funds was $94,300.

Why invest in mutual funds? According to the survey, which permitted multiple answers to the question, 92% are saving for retirement, 46% hold mutual funds to reduce taxable income, 46% are saving for emergencies, and 22% use mutual funds to save for education. For 64% of these savers, more than half of their financial assets are mutual funds.

U.S. mutual funds grew to $16.3 trillion in 2016. Domestic and international equity funds compose 52% of the total industry assets, bond funds 22%, money market funds 17%, and hybrid funds 8%.

(September 2017)
© 2017 M.A. Co. All rights reserved.
Charitable giving in the U.S. rose 2.7% last year, reaching an all-time record of $390.05 billion. That’s also a record in inflation-adjusted dollars, reports the Giving USA Foundation in its annual report on philanthropy. Individuals, foundations, and corporations contributed to the robust growth in philanthropy, while bequests were projected to have declined by 9.0%. Some 72% of charitable gifts come from individuals—an average of $2,240 per U.S. household.

Religious organizations are the largest beneficiaries of charitable giving, receiving 32% of the total gifts. Education comes in a distant second, at 15%, followed by human services with 12%.   

The charitable IRA rollover

One reason for the growth in giving may be the growth in assets. As the stock markets touch new highs, people can afford to be more generous. Another factor might be that as top marginal tax rates have increased, the value of charitable deductions for top taxpayers has grown as well.

A popular charitable giving tax break has been made permanent, one that has been dubbed the “charitable IRA rollover.” Those who are over age 70½ may want to consider the gift of a direct distribution from their IRAs. Up to $100,000 may be transferred to charity in this manner. Couples may transfer up to $200,000 if each partner has an IRA. In contrast to normal IRA distributions, amounts transferred directly to charity won’t be included in ordinary income (and so no charitable deduction is appropriate).

The definition of who is permitted to take advantage of this tax strategy dovetails perfectly with those who are required to take required minimum distributions (RMDs) from their IRAs. So some taxpayers simply opt to direct their required minimum IRA distributions to charity, because the distribution requirement will be satisfied, even though the amounts distributed aren’t included in taxable income.

Extra tax advantages

In some sense, the income tax exclusion for a transfer to charity from an IRA might not seem like such a big deal. After all, one always has been allowed to follow an IRA withdrawal by a charitable contribution and claim an income tax deduction. However, the full benefit of that deduction is not available to all taxpayers.

  • Nonitemizers. There are a great many taxpayers who do not itemize their deductions, even in the upper tax brackets.
  • Big donors. Percentage limits on the charitable deduction mean that some donors can’t take a full charitable deduction in the year that they make a gift.
  • Social Security recipients. An increase in taxable income may cause an increase in the tax on Social Security benefits for some taxpayers. The direct gift from an IRA avoids this problem.

Accordingly, if you are 70 ½, you should consider a charitable gift from your IRA if:

  • You do not itemize tax deductions;
  • Your charitable deductions have been maximized; or
  • You do not need the additional income made necessary by your required minimum distribution.

As welcome as this tax planning opportunity is, every taxpayer’s situation is unique. See your tax advisor before taking any action.

(September 2017)
© 2017 M.A. Co. All rights reserved.
Charles Sukenik executed his will on November 4, 2004. His estate was to be divided between his surviving spouse, Vivian, and the couple’s private foundation. His revocable trust was restated at the same time, giving Vivian certain real property and the balance to the foundation.

Roughly five years later, in 2009, Charles designated Vivian as the beneficiary of his IRA, worth some $3.2 million. That hardly seems like a controversial move—but it turned out to be.

When Charles died in 2013, the heirs discovered that the estate plan was not very tax efficient. Vivian was looking at potential income taxes of $1.6 million on the IRA distributions. She proposed to reform the estate plan, giving the IRA to the private foundation in exchange for other estate assets of equal value. The charity was not opposed to the plan. Being tax exempt, the new plan would make the income tax obligation that comes with an inherited IRA disappear. Certainly, this approach would more effectively implement Charles’ testamentary intentions. However, an estate plan cannot be rearranged simply by agreement among the beneficiaries; the probate court has to approve the change.

The court in this case couldn’t swallow the proposed changes, because “the reformation requested here is prompted by neither a drafting error nor a subsequent change in law. Several years after executing his will and trust, decedent himself thwarted the tax efficiency of his own estate plan by making [Vivian] the beneficiary of the IRA. There is nothing in the record indicating why, after executing these estate planning instruments, [Charles] chose to leave additional assets to his wife in this manner or why, in the four years before his death, he did not take steps to cure the unfavorable tax consequences of his choice of IRA beneficiary.”

The court concluded that if reformation were allowed in these circumstances, the decision “would expand the reformation doctrine beyond recognition and would open the flood gates to reformation proceedings aimed at curing any and all kinds of inefficient tax planning.”

Did Charles have any understanding of the tax time bomb included in his estate plan? It appears probable that he did not consult his attorney before designating his wife as his IRA beneficiary, which is an ordinary, everyday occurrence. According to a footnote to the decision, at some point Charles’ estate planning attorney suggested to him that he make a change, designating the foundation as the IRA beneficiary and substituting additional property of comparable value for Vivian. Unfortunately, soon after the advice was given, Charles became too ill to make changes to his plan. The estate planning attorney died soon after Charles did, so the attorney was not available to testify.

(September 2017)
© 2017 M.A. Co. All rights reserved.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2017. All rights reserved.