Categories for Blog
June 26, 2018 5:42 pm
The other day I was talking with a client and she mentioned that her husband was recently hospitalized. He’d unexpectedly lost consciousness during dinner, and while he came to within a few seconds, it was still a worrisome event.
Thankfully, their doctor met them at the hospital and already had the admissions paperwork completed, as well as a series of tests ordered. After a few days in the hospital, the husband left with a clean bill of health.
The reason why the couple was able to speed through the health care system: they belonged to a concierge care group.
Think how different your long-term health might be if your primary care physician had the time to focus on disease prevention rather than hospitalization? Or if your doctor could help reduce the risk of expensive chronic conditions like heart disease and diabetes?
Concierge care is more than just a buzzword. Today it’s a growing practice amongst physicians who want to provide more personalized health care. Think of it like a family office for medicine where for a retainer fee ranging from $1,200 to $30,000 a year per individual, you can have a select team of medical professionals at your service when you need it.
More than anything, a true benefit of concierge medicine is the freedom it can give. Here’s what you should know about concierge care:
ASAP access. With concierge care, you don’t have to wait to see your physician. Typically, it takes 29 days to book an appointment with a regular family care physician. If you have a kidney stone in the middle of the night or your son breaks his arm during soccer, as a concierge medicine member, like my client, you’ll be seen right away. No more hours-long urgent care or emergency room visits—and the associated costs.
Customized care. Another benefit of concierge medical care is the personal touch. Unlike many traditional care practices, you have an opportunity to build a deeper relationship with your doctor. He or she takes the time to know your health history and can recommend more advanced diagnostic tests than what your yearly preventive care visit may cover. Additionally, with concierge medicine, your doctor will give you the results sooner than a general primary care physician.
Integrated medicine. Even better, your concierge doctor can work with other members of your health care team, such as specialists, naturopaths or chiropractors, to ensure that all your health care is aligned.
VIP treatment. Most concierge doctors accept no more than 50 families in their practice. This means that you can avoid the assembly-line atmosphere of even the best primary care groups. Like the days of long ago, many concierge physicians will make house calls—or meet busy patients at work or the airport.
Worry-free travel. Your concierge doctor can also arrange care anywhere in the world. If an emergency arises, a private jet or helicopter can be chartered so you can receive the best care possible.
While affluent individuals appreciate how to use their money and the art of delegation, they may not always be aware that the option of concierge medicine is available to them.
Once clients understand the advantages of concierge medicine, two of the biggest questions they ask us are if concierge care is covered by their current health insurance policy and if their costs are tax deductible. Because insurance coverage varies from state to state, as well as practice to practice, it’s important to ask your insurance provider and prospective concierge physicians about your specific situation. Additionally, if you itemize medical expenses on your tax return, you may be able to deduct the annual subscription fee. As with all things tax-related, consult your tax advisor.
While we serve as wealth and investment managers for our clients, we also believe in looking at the total life picture, which includes health planning. We discuss the often-difficult “what if’s,” the financial impact of dealing with a chronic or debilitating illness, and the various ways to develop a sound yet flexible plan. That could include long-term care insurance, a special needs trust or considering joining a concierge care practice. As a client of JJ Burns, you can rely upon us to make the full range of your financial interests a priority.
June 15, 2018 9:26 am
Over the years, I’ve received the standard ties, mugs and handmade items that are synonymous with Father’s Day. But the greatest gift of all has been raising money-smart kids. However, with one in college and three more waiting in the wings, I’ve also seen my kids make some “interesting” money choices—and they’re still learning how to manage their funds.
Here’s how you can help your kids navigate the financial waters at key stages of their lives.
The Younger Years
Teach them the concept of earning money. When your kids see you paying for groceries or buying a present with a credit card, they probably don’t associate those actions with you going to work each day to earn that money. A credit card is an intangible idea for most young ones. Paying your kids to do extra, age-appropriate chores, such as taking out the garbage, helping in the yard or washing the car, can instill in them the value that money is earned and doesn’t just magically appear on a small piece of plastic.
Practice goal setting. What do your kids really want? A new bike? The latest Xbox game? Rather than buy it for them (because you can), have your son or daughter save for that special item. Tell them that you’ll match whatever they come up with. Then they can choose to put a percentage of their allowance or a monetary gift from the grandparents toward reaching their savings goal.
Open a savings account with your child. Most banks and credit unions offer savings accounts for the under-18 crowd. With a little research, you can find accounts that offer up to a 1% annual percentage yield, as well as no monthly service fees or minimum opening deposits. Plus, with the online tools available, you and your child can track savings progress and set new goals.
Learn to budget. This is the perfect age to understand how to make—and follow—a budget. Back-to-school, the holidays or planning a weekend family vacation are ideal times to demonstrate budgeting. For example, give your kids a set amount for new school clothes. They can buy whatever they want; but once the money is gone, it’s gone. Your son or daughter may find that they have to make some hard choices about their purchases, or use their own money to make up the difference if they decide to splurge.
Understand how to spend smarter. Children may not be aware of the many ways there are to make the value of dollar last. For instance, a child who wants a new cell phone may not know that last season’s model is less expensive than the current “it” model. Point out sales or how using coupon codes can help you save on purchases every day.
Encourage entrepreneurship. Whether it’s running a corner lemonade stand, watering a neighbor’s plants while they’re on vacation or starting a dog-walking service, pre-teens can learn a lot from coming up with creative ways to make a buck. Sure, mom or dad may have to supervise a bit, but being entrepreneurial may spark a new interest for your child that lasts for years to come.
Introduce investing. If your kids have been regularly building up their savings since they were young, now is the time to show how investing can grow their hard-earned money even more. There are plenty of online tools available that demonstrate the power of compounding interest, understanding risk, and the importance of asset allocation. Or, consider having your teen invest his or her summer earnings in a Roth IRA to experience first-hand the value of compounding interest.
Talk about smart credit management. It’s a fact that credit rules our lives. And it’s relatively easy for older teens and college students to receive multiple credit offers from department stores, their financial institution or other credit issuer. Teach your teen sooner than later what a FICO score is and how credit usage can impact that score. Another credit management tool is to link your credit card to one for your teen. Monitor spending together and reinforce the importance of paying the balance in full each month to avoid interest charges.
Allow your kids to make money mistakes. We all make them—no matter what our age. By letting your kids experience the sting of a $35 overdraft charge or a hefty late fee when they don’t pay a bill on time, they become comfortable asking questions and learning from their financial choices. This helps prepare them to seek guidance in the future when they’re faced with making much larger financial decisions.
Of course, the best lessons you can teach your kids about money is through your own actions. Every family handles money differently so there’s no one-size-fits-all approach to financial education. By being open about your values and financial philosophies, you can help your kids develop a solid financial foundation to carry into the rest of their lives.
This Father’s Day, take some time to start the financial conversation with your kids. You’ll be glad that you did. Happy Father's Day!
May 29, 2018 2:11 pm
As a CFP® professional, one of the most important lessons I’ve learned is that before you can talk savings strategies for your children’s college education, you must be crystal clear on how you are going to pay for it. By taking a hard look at your current financial situation and current family dynamic (including how many children you have), you will gain valuable perspective on how much money you can realistically contribute.
Throughout this exercise, you should be asking yourself the following questions:
Do I want to pay, in full, for my child’s college education?
Do I want my child to share in some of the expense?
Do I want to apply for financial aid?
How do I feel about my child having to repay loans?
Do I realistically believe my child will get a scholarship?
Do I want my child to have unlimited choices, or will their options be limited by their scholarship and financial aid offers?
Is there anyone else in our family who wants to help fund my child’s education?
What are my views on public versus private universities?
What is my opinion of advanced education such as an MBA, law degree, etc. and how will this be funded?
Take a few minutes and write down the answers to these questions as they will create a roadmap for developing a sound long-term college savings plan. You can then begin working with your CFP® professional to develop a savings strategy to meet your goals.
For example, saving for Harvard College with a 2018-2019 tuition of $46,340 (or $67,580 with room and board) is going to be very different than saving for Binghamton University with a New York State resident tuition of $6,870, or the University of Michigan with a nonresident tuition of $23,975.
For many families, a 529 plan can form the foundation of their college savings strategy because:
You can invest in a 529 plan regardless of how much you earn. There is no minimum to get started, so the sooner the better!
The account grows tax-free. Distributions are free of federal and most state income taxes when used to pay for qualified education expenses (tuition, books, computers, etc). This is especially advantageous if the account is started when the beneficiary is very young and has ample time to reap the benefits of the tax-free compounded growth. Further, if you have multiple children, the tax-free benefits that are not used by a 529 beneficiary can be transferred to a sibling.
Anyone can own an account for a beneficiary (e.g. relatives or friends) or contribute to a 529 plan. Another bonus? Accounts owned by non-parental relatives/friends will not have an impact on the student’s eligibility to receive financial aid. There’s also the option to change the beneficiary on the account from one eligible family member to another without penalties or taxes. As of 2018, a 529 plan can also cover $10,000 in annual tuition expenses for elementary or secondary public, private, or religious schools. Not all states allow tax-free distributions for K-12 education yet, so check with your state before you make any withdrawals.
For most people who don’t have a plan and don’t consider the many variables that affect them, the biggest issue to be aware of is the penalty. Earnings on distributions not used for education expenses are taxed as ordinary income at the recipient’s federal tax rate and usually incur a 10 percent penalty tax.
For more information and guidance, a CFP® professional can help you clarify your college savings objectives and determine which plan and investment options are best suited to help you meet your goals.
May 7, 2018 8:10 pm
Recently, I watched a segment on 60 Minutes that moved me to tears. It was about a couple living with Alzheimer’s, and I’d like to share a few national statistics about this terrible disease:
Alzheimer’s is the 6th leading cause of death in the U.S.
An estimated 5.7 million Americans of all ages are living with Alzheimer's dementia in 2018
16.1 million Americans provide unpaid care for people with Alzheimer’s or other dementias
While these statistics are powerful, they don’t tell the story of what it’s like to live with the devastating emotional, physical and financial effects of Alzheimer’s. But 60 Minutes did tell that story in heartbreaking detail. For 10 years, Dr. Jon LaPook has been checking in on and interviewing Carol Daly, a woman diagnosed with Alzheimer's, and her caregiver husband, Mike. As you step into their shoes and live the devastating impact the disease is having on each of them, you learn the real costs of Alzheimer’s.
I encourage you to take 12 minutes and watch this piece.
Our role as a trusted advisor to several hundred families is incredibly fulfilling. We’re able to help people clarify, plan for and achieve their most important life goals. Yet it is also filled with many heartbreaking moments, often centered around a change in their health. Of all the issues we help clients with—from unexpected changes in their job, to challenging family dynamics, to divorce—the one that I find to be the most devastating and insidious to a family is either a sudden loss or a diagnosis such as Alzheimer’s.
What most people don’t talk about is the potentially catastrophic financial effects of a life-sentence disease. While the emotional and physical stress is certainly overwhelming, it is the financial stress that often breaks the proverbial camel’s back. People are faced with a dizzying array of choices and decisions that they must make under emotional duress when it’s most difficult to clearly evaluate choices rationally. The costs of care from prescription drugs, to therapies, to care services, to care supplies, to travel and more add up at an alarming rate.
What I believe in my heart, and what most people fail to grasp, is that financial planning and wealth management is so much more than just investment management and how to grow and/or draw income from assets. It is about developing a sound yet flexible plan that addresses both the highs and the lows that life inevitably serves up. As a trusted advisor to my clients, it is incumbent upon me to raise awareness about these issues. And as a client of JJ Burns, you can expect our help in addressing the full range of your financial interests—even those that may not be fun to address.
Client needs are best served by developing a sound wealth management plan. A sound plan is one that lifts the hood and looks at and coordinates all areas of a client’s financial life from living wills, durable powers of attorney, types and rules of medical coverages, insurance policies, taxes and so much more. This is the stage I call “prepare for the worst and hope for the best while living fully.”
I am grateful for the opportunity to serve my clients. I know that in tough times, after immediate family members, we are the ones receiving the next call. As disheartening as it is to hear from a client, “I’ve been diagnosed with Alzheimer’s,” we take great pride in knowing we have been there doing the hard work.
As our client, you will know you are prepared for difficult moments AND you will also know that we are right beside you all the way. That is the power of planning, that is the security of a plan, that is the comfort in having a truly great team.
On behalf of our entire wealth management team at JJ Burns & Company,
James J. Burns, CFP®
March 29, 2018 10:53 am
JJ Burns & Company
Last night as I went out to my chicken coop to collect eggs for Easter (see picture below), I was reminded of the age-old lesson: don’t put all your eggs in one basket. This principle serves as the core foundation upon which we build long-term investment plans for our clients.
At heart, we’re all little kids. Our big hearts tell us to run out to the coop, fill up our baskets with as many eggs as we can possibly fit. Then we run back inside to count our eggs. We hope we’re the best and that we have more than our siblings. We make grand plans for how we will color them, where we’ll hide them or what we will trade them for.
But what happens to my little 9-year-old “mermaid” Caroline, who in all her excitement, running back to the house, drops her basket and all her eggs go crashing to the ground? She has lost almost everything! While some may be salvageable, the others are permanently gone. Worse yet, she is emotionally scarred by the experience, vowing never to make that mistake again. But when next year comes around, will she remember the lesson of Easter 2018? Or in her exuberance, will she be doomed to make the same mistake again?
Fortunately for Caroline, she has parents who are there to help her, to teach her, to coach her and to guide her. Her parents have learned the principle: don’t put all your eggs in one basket. We spend time teaching her how many baskets to have, how many eggs she should have in each basket, how some eggs might be better than others, which chickens to choose from, and how many trips to make. We teach her the value of those eggs, what she needs to do to protect them, and what she can do with them.
When it comes to investing, for many investors regardless of how old we are, our age-old wiring is very similar to my precious Caroline. We either put all our eggs in one basket, or we don’t choose the right basket, or we don’t choose the right eggs, or some combination of all of the above. We are each wired a little differently when it comes to how risky we want to be with our proverbial eggs. This is why our baskets might be balanced differently, yet the principles still remain the same.
The foundational principle for a sound long-term investment plan is DIVERSIFICATION. There are many reasons why we diversify. In light of what we’ve shared about volatility in recent weeks, one of the key benefits of diversification is that it makes for a smoother ride on your path to achieving your goals. A well-diversified portfolio can provide the opportunity for a more stable outcome than a single security.
Put even more broadly, a well-diversified portfolio can provide for a more stable outcome than a single asset class.
A disciplined approach built on foundational principles of investing can provide for a more stable outcome. It’s the best defense and offense we have to help investors ride out the inevitable emotional ups and downs on your path to achieving your most important life goals. It may not feel as good as we’d like at times, but it’s a lot better than the alternative.
So, as you go about collecting your eggs this Easter holiday weekend, remember: don’t put all your eggs in one basket. Or as Barry Goldberg, our Director of Business Development likes to say, “Don’t put all your matzah balls in one bowl!”
From our family to yours, we want to wish you a Happy Easter and a Happy Passover. We are grateful for the work that we do in helping families like you live more confidently and securely. Thank you.
March 23, 2018 3:22 pm
Tariffs, trade wars, interest rate hikes, the Facebook data scandal, the omnibus spending bill…Today’s headlines are filled with market turmoil and it appears that everyone is tuning in. The question many investors are asking is “Should I be concerned and if so what should I do about it?”
The market is volatile, there’s no doubt about that. Volatility is normal, it is to be expected. The challenge that many investors face is that they are bombarded on all fronts by stories, opinions and so called expert recommendations. In today's on-demand era, “wait and see” can be a frustrating tactic. Yet consider it this way: Markets discount widely-known information. Expectations for $60 billion in tariffs and corresponding retaliation from China are probably baked into prices now. If Thursday’s volatility is any guide, investors are generally unhappy with this possibility. But as markets look forward, they move most on the gap between expectations and reality. Compared to what people evidently fear today, even watered-down tariffs would be a positive surprise. Heck, even simple math might be a positive surprise: $60 billion amounts to just 2% of total 2017 imports. That’s not a lot. If China retaliates in kind, they would apply further tariffs to just 2.6% of the US’s total 2017 exports which is also not a lot. Seems to us like there is a lot of room for negative sentiment to catch up to a more benign reality.
Most people are long term investors who are targeting a specific rate of return based on their individual goals. What people often forget is that when targeting an annualized rate of return you will have vast differences in year over year returns. In fact, there are few years when either stocks or bonds delivered returns that are even close to the market averages.
To illustrate this point, between 1926 to 2016 the annualized return for U.S. stocks was 10.16%. During that time returns fell within 2 percentage points of the annualized return of 10.16% in only 6 of the 91 years.
When considering the U.S. bond market, between 1926 to 2016 the annualized return for the U.S. bond market was 5.37%. During that time returns fell within 2 percentage points of the annualized return of 5.37% in 24 out of 91 years.
Financial markets, particularly stocks are inherently volatile over the short term, as we are once again experiencing.
When we understand, and come to peace with this data, we can begin to understand equity volatility as a positive phenomenon, and in fact the reason for the premium return from equities. The term “volatility” refers to the relatively large and unpredictable movements of the equity market, both above and below its permanent uptrend line. Equities can, and frequently are, up over 20% one year and down 20% the next, and vice versa. However, if we accept that the long run returns of equities will approximate the past return, we begin to understand that these periods of downside volatility must likewise at some point be corrected by a period of upside volatility, greater than the long-term average of roughly 10% per year.
The premium returns of equities are, therefore, the efficient market’s way of pricing in adequate compensation for tolerating such unpredictability. Volatility is the reason equity investors are rewarded over time with premium returns, as long as we have the emotional strength to live through it. Volatility is not to be survived, it is to be embraced and thrived upon.
You Have a Plan
The very best investors have a disciplined approach to making portfolio decisions, and always stick to their plan, no matter what the rest of the world is doing. They are able to live through the peaks of euphoria, as well as the depths of terror, with a healthy understanding that a well-designed written investment and financial plan will get them through both.
No predictions. No witch doctor investment sorcery or magic investing formulas. No “Black Boxes.” Just hard work, patience and discipline.
February 10, 2018 8:52 am
“Ladies and gentlemen this is your Captain speaking. It appears we’ve hit a bit of turbulence. For your safety and for those around you, please stay calm, seated and keep your seatbelts securely fastened”.
If you fly enough, you have undoubtedly heard an airline Captain say these words. Many passengers would find it more comforting to hear the Captain say the following: “This turbulence is normal and is to be expected. We never know when it will hit or how long it will last, yet it’s important for everyone to know that we built this into our flight plan before takeoff. Please know that we are making the necessary adjustments to our flight plan which are based on the fundamental principles of flying. I understand this can be a bit frightening, however it is important that everyone remain seated and calm. While I also know that it feels like this time it’s different, it’s not. This is normal and we will pass safely through it. And as a friendly reminder, we’ve experienced this turbulence many times before during our flight and we’ve always made it through okay.”
The same advice can be given about the recent events in the financial markets. Turbulence must be expected and investing is never a smooth ride.
The volatility we are experiencing this week is normal. In fact, since the beginning of this prolonged bull market which began in 2009, there have been 9 times that we have experienced this type of volatility. The three most recent pull backs are highlighted below:
January 2016 – Over the course of three weeks the S&P Index was down 11 percent and by April of that year all the January losses were gone.
August 2015 – A 1,000-point drop in the DJIA on August 24th. The S&P lost 11 percent over the course of six sessions only to recover the losses in the next two months.
October 2014 – There was a 460-point rout in the Dow average on Oct. 15, widening a selloff that started a week earlier to 5 percent. The rout faded as quickly, and the Dow recouped all the losses in the next two weeks.
Even for the most disciplined of investors, this week’s market volatility is bound to strike up some negative emotions. This is completely normal. The key is to not act on those emotions or make irrational decisions.
What is causing these market moves?
U.S. equities have had an unprecedented run and we were overdue for a correction. Since the election in 2016, the S&P 500 gained 32% peaking on January 25th without any substantive pullback. In the month of January alone, the S & P 500 ran up 7.4% to a new high before experiencing the current market turbulence. These upward moves, while pleasant to investors, are unsustainable without consolidation. Even though the economy looks promising going forward, corporate profits are rising, and tax cuts should spur additional growth, the financial markets simply got ahead of themselves. The economic fundamentals are still intact and we see no signs of a slowdown on the horizon.
Investors had become complacent. As the equity markets reached new highs, many more investors piled in pushing the markets up further. We saw risk parameters of investors change, eschewing the safety of bonds for big gains in equities. These investors lost sight of the fact that stocks could be volatile and as quickly as they piled in, they are retreating. Additionally, the Bitcoin phenomenon has taken on a life of its own. We believe this is the epitome of speculation. Speculators piled into Bitcoin driving it up to over $19,000 looking for quick gains. Most people who invested in this cryptocurrency did not understand the fundamentals, they did it to make a quick buck. As of this writing Bitcoin is valued at $8,300. The risk of stock investing was not enough for these cryptocurrency speculators, they wanted more risk and got burned. We do not invest in cryptocurrencies at JJBCO but we use investor sentiment in it as a gauge of fear and greed in the overall markets.
Interest rates have been rising and this has a tendency to scare equity investors. Since September of 2017, the yield on the 10 year US Treasury Bond has increased from 2.06% to 2.85%. Why would this be a concern? Markets get nervous when yields rise because of competition for investment dollars. If an investor has an opportunity to lock in guaranteed income at higher rates they may be less likely to take the risk of investing in stocks. We believe the orderly increase in bond yields is a good thing. It shows that the economy is strengthening and it will allow our clients who need retirement income to meet their needs without subjecting themselves to undue equity risk.
At the end of the day this market turbulence we are experiencing is not unprecendeted….it is normal. Yes, it is unpleasant to go through and it will shake some weaker hands out of the market. The key is to have a target allocation and a plan. Many investors just react with emotion because they do not know what they are investing in or the goal they are investing for. We build portfolios on sound fundamental principles of investing which include:
Asset Allocation – The long term mix in your portfolio of stocks, bonds and cash.
Diversification – Within each asset class holding a globally diversified portfolio built upon the dimensions of returns.
Rebalancing – The simultaneous buying and selling of assets to maintain your target allocation and manage the risk inside your portfolio.
What happened in the markets over the last two weeks is normal. There is no need to panic. The fundamentals of the economy have not changed. If you have any questions or wish to speak to us directly please feel free to contact us.
On behalf of your NY based flight crew, this is your Captain signing off.
January 31, 2018 12:24 pm
As the year begins, the pundits and talking heads are out in full swing with their predictions for 2018. But can anyone really predict the future consistently and predictably? Much of what investors see in the financial media is just noise. Some of that noise appears to be based on fundamentals but when one digs deeper, this is rarely the case.
For example some of the more popular headlines are about the “January Indicator” or “January Barometer.”
This theory suggests that the price movement of the S&P 500 during the month of January may signal whether that index will rise or fall during the remainder of the year. In other words, if the return of the S&P 500 in January is negative, this would supposedly foreshadow a fall for the stock market for the remainder of the year, and vice versa if returns in January are positive.
So have past Januarys’ S&P 500 returns been a reliable indicator for what the rest of the year has in store? If returns in January are negative, should investors sell stocks? The chart below shows the monthly returns of the S&P 500 Index for each January since 1926, compared to the subsequent 11-month return (i.e., the return from February through December). A negative return in January was followed by a positive 11-month return about 60% of the time, with an average return during those 11 months of around 7%.
This data suggests there may be an opportunity cost for abandoning equity markets after a disappointing January. Take 2016, for example: The return of the S&P 500 during the first two weeks was the worst on record for that period, at -7.93%. Even with positive returns toward the end of the month, the S&P 500 returned -4.96% in January 2016, the ninth-worst January return observed from 1926 to 2017. But a subsequent rebound of 18% from February to December resulted in a total calendar year return of almost 13%. An investor reacting to January’s performance by selling out of stocks would have missed out on the gains experienced by investors who stuck with equities for the whole year. This is a good example of the potential negative outcomes that can result from following investment recommendations based on an “indicator.”
Over the long term, the financial markets have rewarded investors. People expect a positive return on the capital they supply, and historically, the equity and bond markets have provided meaningful growth of wealth. As investors prepare for 2018 and what the year may bring, we should remember that frequent changes to an investment strategy can hurt performance. Rather than trying to beat the market based on hunches, headlines, or indicators, investors who remain disciplined can let markets work for them over time. At JJ Burns & Company, we adhere to a disciplined investment strategy focused on broad global diversification, asset allocation, rebalancing, dollar cost averaging and managing costs.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss.
There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Investors should talk to their financial advisor prior to making any investment decision. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.
November 14, 2017 8:31 am
There are many ways making donations can reduce your taxes, but how do you start a planned giving strategy? Which charities should you support? What type of assets should you donate? These are questions to consider. It’s also important to make sure your donation aligns with your values and fits in with your overall financial picture.
Giving to charity can often begin with something close to your heart. For instance, this year JJ Burns & Company participated in The Leukemia & Lymphoma Society’s (LLS) Light the Night Walk in honor and memory of my late father, James Burns.
He was a police officer and the day he sat down and showed me those blood test results it started a journey that changed my life. Through the darkness, LLS brought light and supported our family and especially my dad. Now we support this organization that touched our lives so personally.
Participating in an event like this is only one way to make a donation. There are many causes to support. Write down what matters to you. Think about things close to your heart you feel are important. Involve the whole family. Make a list, then select three or four ideas to start. Now think about what impact you would like to make for these causes.
Begin with more familiar groups. You can shift or expand your contributions as you become more comfortable with other organizations and as you define your financial goals. Start with charitable information services such as GuideStar.org, the BBB Wise Giving Alliance (Give.org), and CharityNavigator.org. Some allow you to review data, while others provide ratings for charities.
Time and money are not the only ways to make a donation. You can leverage your gift to support the charity and help you for the most tax benefit at the same time. Using our collaborative wealth management approach, we can work with your accountant to help analyze and explain your options.
Spread your donations throughout the year. This gives more time to evaluate the charities—and more time for the organizations to process your paperwork. If you have special requests or require appraisal before transfer, processing will likely be easier and quicker before the end-of-year rush.
Donor Advised Fund (DAF)
Are you just donating cash, or are you also considering stocks and other financial instruments? One way to increase your donation options and help create more tax benefit for yourself is with a donor-advised fund (DAF). A DAF is established at a public charity. You make contributions as often as you like and receive an immediate tax benefit. The gifts can be invested and grow tax-free. Over time, you recommend grants from the DAF account.
Annuities (CLAT & CRAT)
A charitable lead annuity trust, or CLAT, pays a charity a set amount of money over a period of time. At the end of that period, any remaining money is paid to you or your family and are free from gift and estate taxes.
A charitable remainder annuity trust, or CRAT, is the opposite. It pays you and your family a set amount over a period of time. The charitable organization receives the remaining money at the end of the period.
Activating Your Plan
Take all your notes to your financial team. At JJ Burns, we will review your ideas and see how to help you meet your wealth management goals, while also supporting the causes you feel passionate about. By collaborating with all members of your financial circle, we can help you maximize your impact and work toward your greater good.
October 11, 2017 11:43 am
Whether it’s going away for the weekends, for a month, or for an entire season, having a second or third home can be a blessing for families that creates lasting memories. It can also come with some significant financial considerations.
Moreover, if you’ve purchased multiple properties for investment purposes, once you get into your retirement years, you’ll want to figure out how to make the most of your portfolio of property investments to generate a steady stream of income.
Here are some key issues to think about:
Plan and Manage
In this case we mean planning about your properties—not your stock investment portfolio. Who is going to be your partner in managing the properties? If your family is not interested in management, is it worth it to hire a property manager? Secondly, do you want to eventually gift your properties to members of your family? Who can walk you through the process and give you solid tax and financial advice?
We hear about many people who spend hundreds of thousands of dollars a month renting luxurious estates and apartments. That’s certainly wonderful if you are the landlord. However, you may not have the experience or time to manage all the business aspects of such a transaction. Consider hiring a knowledgeable financial advisor who can give you the full perspective of owning and managing multiple homes, and refer you to other qualified professionals to make the most of your real estate investments.
Understand Tax Planning
When you own multiple properties, you can deduct the interest on your mortgage just as you can with your primary home mortgage. According to tax law, you can write off 100% of the interest you pay up to $1 million of total debt, which includes the mortgages on homes, as well as money spent on any improvements.
Deduct Your Property Taxes
In addition to mortgage interest, you can also deduct your homes’ property taxes. The good news is that unlike the mortgage interest tax deduction, there’s no dollar limit on the amount of real estate taxes that can be deducted on the homes that you own.
Rent Out Your Homes
For many people who own multiple properties, it makes sense to rent out your empty home when you’re not there. If you rent out your home for 14 days or less during the year, that rental income is tax-free.
However, if you intend on using Airbnb, other rental sites or a real estate broker for more than 14 days after your private rental, it’s important to know that this income is taxable. You'll want to calculate the number of days you rented your home and divide that by the total number of days you or a renter used your home. This is where an advisor like JJ Burns & Company, who’s coordinating with your accountant, can help you make the most of mortgage interest, depreciation, business expenses and other home ownership issues to stay right with the IRS.
Simplify Your Investments
Rather than own residential real estate that may be inconvenient to manage, many people look to invest in commercial buildings. These properties still generate income and may have similar tax advantages, but if professionally managed, do not require the hands-on responsibilities of home or estate ownership.
Depending on your circumstances and the number of properties you have, you may want to consider selling some properties due to taxes, maintenance or the location. You should evaluate which ones generate the most income—especially if you’re retired—and how the sale may impact your taxes.
Something else to think about when selling is how a sale can impact the balance of your portfolio and income-generating investments. At JJ Burns, we can review the full picture of your investment portfolio, pensions, IRA and 401(k)s, rental income, and annuities to give you informed advice about the steps you can take to maximize your current—and future—wealth.
Seek Legal Advice
Retirement planning, real estate, and family law are complex areas that require legal counsel. Unlike working on your homes on the weekends, this is not do-it-yourself territory.
If you decide to keep your properties to generate retirement income—or want to protect your real estate investment portfolio and pass it on to your heirs without going through probate–you can create a Limited Liability Corporation (LLC) or a Family Limited Partnership. Because the laws vary throughout states, counties and cities, it is best to leave the decision to the legal professionals.
We’ve also known about families that have spent fortunes in court, only to be torn apart battling over estates. An LLC gives each family member an equal interest, which avoids future disputes over any properties. There’s also flexibility to transfer shares, consolidate individual properties into a master LLC or into a revocable trust.
Owning a number of homes can definitely enhance your life. And investing in properties is a smart way to bring in income during retirement, as well as diversify your financial portfolio. Whether you intend to manage your properties, sell it, or pass it on to your heirs, JJ Burns can help you collaborate with all aligned professionals to create a tax-efficient plan that works best for you and your family.