Category: Newsletters

Lisa has a special-needs adult child and wants to ensure the child has the money necessary for care after she is no longer here to provide it herself. Can a special needs trust help, and how does she get one started?

A special needs trust can help. When drawn up properly with the help of an estate planning attorney, this type of trust can hold and manage the assets necessary to care for special-needs children throughout their lives.

Trusts are complicated, but the short description of one is a vehicle that takes ownership of assets for the benefit of a beneficiary — in this case, a special-needs child. A trustee, who can be a family member or trusted advisor, would manage this trust.

Lisa will need to decide whether she will make this trust revocable, which wouldn’t remove assets from her estate, or irrevocable, which would. This can be an important question, as the wrong move could disqualify Lisa’s child from receiving government benefits, for which qualifying is based on a very low threshold of assets owned by the child.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

The first of the youngest group of workers — Generation Z — is making its way into the workplace. How will they differ from previous generations and what should employers know to communicate best with them, whether about company culture or employee benefits? If you have a business you hope to take far into the future, you should get to know Gen Z.

THE NEXT WAVE

Who comprises Generation Z? The Pew Research Center notes members who were born after 1996, making the oldest 22 years old — old enough to have completed four years of college and begun a career. Others estimate the generation beginning a year or two before.

Either way, Generation Z is the most diverse workforce ever. They are fluent in the use of mobile devices and have shown a willingness to become involved in social issues. While few were old enough then to remember the September 11, 2001, terrorist attacks, a defining event for most Americans, they are typically aware and active both socially and politically.

YOUR FUTURE WORKFORCE

Generation Z will look the same and different than previous generations in the workplace. Companies looking to communicate effectively with them must be mobile-friendly to match Gen Z’s preferred means of communicating. Firms may also attract job candidates by emphasizing their community outreach initiatives, which many in Gen Z value.

Like Millennials, Gen Z members are preoccupied with their higher education debt, so companies addressing this need may have an advantage. And, like generations before them, the youngest workers will want to see tangible and intangible rewards for their good efforts. Companies would do well to survey their workforce to learn which benefits Generation Z believes have the most value. Ultimately, companies with the right mix of compensation and benefits will attract and retain the workers of tomorrow.

If you have unsuccessfully tried to ignore the flood of warnings about how much healthcare, long term care and increased longevity will cost in retirement, you have company. While you shouldn’t ignore any information that can help you prepare, you need to examine the aspects of retirement that are most likely to affect your savings. Here are some common warnings, and ways you might want to respond to fit your situation.

LONGER LIVES

Longer lives require greater savings, but even with an average life expectancy increasing to around age 79, this number is an average and not your number. If you are relatively healthy and have good genes, you may live beyond the average. Healthier older people might also want to work longer, which helps to close any savings gap.

INADEQUATE SAVINGS

Working beyond the normal retirement age of between 66 and 67 and contributing to a workplace 401(k) plan can increase your retirement funds in two ways: First, you add to, rather than deplete, your retirement balance while you work. And if you delay taking Social Security past normal retirement age, this benefit will grow significantly.

EXPENSIVE HEALTHCARE

Yes, healthcare can be expensive. No, it won’t devour all retirees’ savings. Healthier lives can lead to fewer medical conditions. The federal government offsets some medical costs for most, and subsidizes other medical care. Plus, there’s always hope that a solution to expensive healthcare is on the horizon. In the interim, plan and save for future costs based on your unique medical history.

OTHER STRATEGIES

When you understand your financial risks, you can plan accordingly. If you haven’t saved enough and you don’t want to continue
working, you might downsize your home. Or consider a reverse mortgage if you want to age in place. If you live in a high-tax area, consider moving. Most importantly, talk to your financial and tax professionals to learn how different risks may affect your financial resources in retirement.

Retirement Revised – Examine the aspects of retirement that are most likely to affect your savings.

Next Up: Generation Z – If you have a business you hope to take far into the future, you should get to know Gen Z.

Client Profile – Special Needs Trust.

Filling The Gaps – What to consider if your business is looking at temporary staffing solutions.

Advise From The Master – Three pieces of wisdom from John Bogle.

Questions And Answers

Short Bits

Insights And Tips

LENIENCY GRANTED.

The IRS announced it will generally waive an underpayment penalty for taxpayers who come up short on their withholding or estimated tax payments, but paid at least 85% of their total tax liability for 2018. Typically, taxpayers have to cover at least 90% of their tax owed to avoid a penalty. The IRS is granting this break due to the uncertainty that came with the 2018 tax law changes.

DEDUCTION INCREASED.

Speaking of tax breaks, the IRS increased the deduction taxpayers can take when using their vehicle for business to 58 cents per mile. That’s up 3.5 cents from 2018. The standard mileage rate remains 14 cents per mile for use of an automobile in “rendering gratuitous services to a charitable organization” and is 20 cents per mile (up 2 cents) for vehicles used to obtain certain medical care. The business depreciation deduction for vehicles bumps up a penny, to 26 cents per mile.

SIZE MATTERS.

The bigger your company, the more likely it is to offer employees a retirement plan. The life insurance marketing organization LIMRA found that 42% of small businesses, those with between 2 and 99 employees, offer retirement benefits. LIMRA and other researchers have shown that the availability of retirement benefits encourages employees to save.

INFLATION TAMED.

The Consumer Price Index (CPI), which accounts for all urban consumers of all items, rose a modest 1.9% in 2018. Airline fares declined 2.6%, while shelter at 3.2% led the annual increases.

QUESTION

My fiancée and I will marry soon and wonder how we can best avoid arguments over money. Any tips about how we can keep the peace?

ANSWER

Start by having a conversation with each other and then with a financial professional. Establish your goals, wants and needs. Then create a strategy to meet these financial goals. Determine who will handle which financial chores. If one handles the checking and banking, make sure you both keep abreast of what’s happening. If you have opposite money styles, learn to compromise and be honest about areas where you can’t. Budget for short-term goals and build an emergency fund for unforeseen financial setbacks.

QUESTION

I own an ice cream shop that stays open only from May through October. Do I need the same types of insurance coverage a year-round business needs?

ANSWER

If you own just about any type of business and have employees, state laws will likely require you to carry worker’s compensation insurance and to pay into your state’s unemployment fund. In fact, your insurance needs may be no different than a year-round business, just for a shorter timeframe. Look for an insurance agent who can talk to you about business insurance coverage for liability, property, commercial auto, cyber liability and more.

A handful of court decisions have sided with states that want to levy sales taxes on online purchases from companies located outside their states. Retailers who operate in more than one state may want to reexamine their tax practices in order to comply with each state’s tax laws.

THE BACKGROUND

As online purchases have grown to comprise a greater percentage of retail sales, many retailers doing business this way have not charged customers tax if the company did not have a physical presence in the customers’ states. Some states, however, have argued against this practice and in 2018 the Supreme Court agreed — specifically, that South Dakota could tax out-of-state online retailers (within certain limits) that don’t have a physical presence in the state. Other states are now following suit.

NEXT STEPS

As this issue evolves, it is important that business owners affected by this ruling seek both tax and legal counsel, including information about varying thresholds at which states and localities will tax out-of-state retailers.

Many businesses, from farms and ski resorts to surf shops and landscapers, depend on seasonal employees to keep them successful. Seasonal businesses come with added risks because they don’t have the entire year to make up for a bad month or two.

MAKE A PLAN

If you own a seasonal business, you can limit some risks by taking precautions. A few tips that can keep you humming through the slow times:

BRANCH OUT

If, for example, your business is dependent on good weather, consider adding another facet to your business that isn’t weather-dependent.

FOSTER RELATIONSHIPS

It’s not easy having to hire an entire workforce each year. And many seasonal businesses hire teens and young adults, who may not be as dependable as you want. Why not try semi-retired people who look to work only when your business operates?

TARGET-MARKET

Learn where your customers come from and whether they get their information via your website or social media, and then target your marketing efforts at them through these platforms.

KNOW YOUR NUMBERS

When your business revenue isn’t spread out, you need to pay extra attention to your income and expenses. That’s where a tax professional can help. You’ll also want to make sure your business is adequately insured.

Rafael wants to offer employees his company’s public stock as one of the investments in his firm’s employer-sponsored 401(k) plan. He heard there are limits to how much company stock employees can buy, but I told him there weren’t. Who’s right?

You are right. There are no limits to how much participants can invest in their company stock through a 401(k) plan, but his firm still must prove that it is a prudent selection. For that, he may want to bring in a fiduciary that can provide an educated opinion on the stock’s appropriateness.

One alternative Rafael might consider to potentially avoid liability is to carve out the company stock from the 401(k) plan and offer it through an employee stock purchase plan (ESPP), a free-standing program separate from the 401(k). Employers can offer their company stock separately in an ESPP at a discount (subject to limits), then employees who sell the stock are responsible for paying taxes on the discount and any gain. The ESPP doesn’t have the same tax benefits as a 401(k) plan.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

Like all good things, investing requires moderation. For example, owning too many shares of your company’s publicly traded stock in your 401(k) plan can hurt your retirement income prospects. Enron employees learned this painful truth in the early 2000s when the company’s stock, in which many of them were heavily invested, became worthless.

CAUTION AHEAD

Since then, companies have increasingly avoided offering their own stock to 401(k) plan participants. While employers can’t aggressively tout their own stocks, they can include them as an investment option or use them to match employee contributions. This can add up over time.

Owning too much stock in any single company is a lesson in how not to diversify. So it makes sense to monitor your 401(k) portfolio to make sure your holdings in company stock are appropriate for your time horizon, risk appetite and financial goals. Regularly rebalancing your portfolio to ensure diversification will help limit your risk.

DIVERSIFICATION MATTERS

Dividing your assets appropriately among the three major asset classes — stocks, bonds and cash investments — is the foundation for any investment strategy. Typically, younger 401(k) participants have the time to potentially outlast market volatility, so they can invest more aggressively. The closer you get to retirement, the more conservative your investment strategy should be.

Even within asset classes, you will diversify further with a mix of investments — or mutual funds that do the same. You can, for example, own domestic and international securities, fixed income investments that mature in anywhere from months to 30 years, and companies by capitalization (small-cap, mid-cap, large-cap). With so many choices, don’t let company stock dominate your holdings.