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Forbes article by Craig L. Israelsen
If your retirement portfolio is following the old axiom “your age in bonds” (that is, the-percentage-of-your-portfolio-allocated-to-bonds-should-equal-your-current-age) you may want to reconsider.
Bonds certainly present less volatility than stocks, but that is not the only consideration when building a retirement portfolio. The portfolio needs to control downside risk while achieving a reasonable rate of growth.
Why Diversification Matters
Also, the order in which your investment returns occur has a dramatic impact on how long the money in your portfolio will last. Low returns in the early years when you begin drawing money out can be disastrous for a retired investor. Consequently, a retirement portfolio must also be sufficiently diversified to minimize what’s known as “timing-of-returns” risk.
In short, building a retirement portfolio with a very large allocation in any one asset class is simply asking for trouble. For evidence, take a look at the results of a recent historical analysis I did comparing returns of three types of investment portfolios from 1926 to 2014 to see how likely they’d last to age 100, assuming the investor began retirement at 65.
Comparing Durability of 3 Types of Portfolios
The first portfolio consisted of 100% U.S. bonds. Over the 89-year period from 1926 to 2014, U.S. bonds averaged an annualized return of 5.41%.
The second portfolio was an “age-in-bonds” model which allocated 65% to U.S. bonds at the start of the retirement simulation (when the retiree was 65) and increased the bond allocation to 66% the next year, 67% the next year, and so on; the remaining allocation each year was in large-cap U.S. stocks. (These stocks, as measured by the S&P 500 Index, produced an average annualized return of 10.12% from 1926 to 2014, and had negative years 27% of the time.) So, at age 80, the age-in-bonds model was 80% in bonds and 20% in large cap U.S. stocks. At age 90, it was 90% U.S. bonds and 10 percent large cap U.S. stocks.
The third portfolio was an equally-weighted, annually-rebalanced mix of four major asset classes (U.S. bonds, U.S. large cap stocks, U.S. small cap stocks and cash). Over the past 89 years, small U.S. stocks produced an average annualized return of 11.40% and experienced a one-year loss nearly 32% of the time. From 1926-2014 cash (represented by U.S. Treasury bills) had an average annualized return of 3.60%.
The equally-weighted four-asset portfolio averaged 8.55% over the 89-year period; its worst one-year return was -23.59%.
The objective of this analysis was to determine how often each retirement portfolio remained solvent for a full 35-year period (from age 65 to 100) over 55 rolling, 35-year periods from 1926 to 2014. A retirement portfolio that remains intact until an investor is 100 is a noteworthy achievement and represents a reasonable, if not admirable, goal for any investor.
As part of the analysis, I compared results with three annual withdrawal rates — 3%, 4% and 5% (with an annual cost-of-living adjustment of 3%) — and arbitrarily set the starting portfolio balance in retirement at $250,000.
Here’s what I found:
A 100% bond portfolio with a 3% withdrawal rate had a success ratio of 69% — that is, it lasted a full 35 years in 38 out of 55 rolling periods — or 69% of the time.
By comparison, both the age-in-bonds and the four-asset portfolio lasted a full 35 years in all 55 rolling periods, which led to a success ratio of 100% for both models.
What Happened With Higher Annual Withdrawal Rates
When the withdrawal rate was increased to 4% (the traditional rule-of-thumb withdrawal rate), the all-bond portfolio survived for a full 35 years in only 44% of the periods. Furthermore, in 16 periods, the all-bond portfolio was out of money before the investor was 90.
By comparison, with the 4% withdrawal rate, the age-in-bonds portfolio had an 82% success rate and the four-asset portfolio a 98% success rate.
At a withdrawal rate of 5%, the all-bond portfolio survived for 35-years only 31% of the time, the age-in-bonds portfolio had a somewhat better success ratio of 55% and the four-asset portfolio survived for 35 years a full 89% of the time.
The importance of a diversified portfolio during retirement is clearly illustrated —particularly as the initial withdrawal rate increased from 3 to 5%.
For retirees seeking an initial withdrawal rate of 5% or higher, it will be incumbent to build a diversified portfolio with growth potential and prudent downside protection — the hallmarks of what diversification can achieve.
An all-bond approach and, to a lesser degree, the age-in-bonds approach ignore the virtues of diversification when it is arguably needed the most: during the retirement years.
There is no perfect retirement portfolio, of course, because every investment faces some type of risk. The key is to build a portfolio assembled in such a way that it addresses each unique risk while maintaining adequate exposure to needed portfolio growth.
Diversification across asset classes is one such way. While it’s not perfect, a lack of diversification is likely to be far less perfect and far more risky.
–Craig L. Israelsen, Ph.D., is a Next Avenue Contributor and teaches in the personal financial planning program at Utah Valley University in Orem, Utah.
Posted by: Steven Maimes, The Trust Advisor
TD Ameritrade Institutional and National Advisors Trust Company Form Strategic Alliance to Offer Trust Services for RIAs
New trust services program can help advisors guide clients in the preservation and transfer of wealth across generations
With baby boomers projected to pass on trillions of dollars in the coming decades, registered investment advisors (“RIAs”) not only must focus on attracting younger clients, they need to help existing clients preserve their wealth and hold on to the assets they already manage.
“Advisors Private Wealth Trust offers advisors an attractive solution for providing trust services to their clients. We believe advisors and their clients will benefit by working with a trust services company that’s owned by advisors, understands the needs of RIAs and has a history of stable ownership.”
With that in mind, TD Ameritrade Institutional1 has formed a strategic alliance with National Advisors Trust Company, FSB, an independent, advisor-owned trust company, to create Advisors Private Wealth Trust (“APWT”), a corporate trustee offering exclusive to RIAs that custody assets with TD Ameritrade Institutional. These services are available now.
Advisors who offer trust services can better position themselves to attract clients who are looking to preserve their family’s wealth for future generations. And for advisors, designating a corporate trustee can address what’s known as “successor trustee risk,” which emerges when a new trustee takes over after the primary trustee dies. In such cases, trust assets could move away from the independent advisor and into a local or national bank that was appointed the successor trustee.
Independent advisors can improve their chances of retaining assets they manage by offering clients a trustee choice that also supports the independent investment management model of RIAs. Moreover, advisors can put themselves in front of the next generation investors, a group projected to inherit as much as $30 trillion in financial and other assets from baby boomers by the year 2030.2
This strategic alliance combines the reach of TD Ameritrade Institutional, one of the country’s largest custodians with more than 4,500 RIA clients, and NATC, a nationally chartered trust company that was founded by advisors and has no competing investment management business. APWT will serve as TD Ameritrade Institutional’s corporate trustee solution, one that is integrated with TD Ameritrade Institutional in terms of client service and technology.
“As the baby boomers age, demand for trust services will only increase, particularly among high net worth investors. With Advisors Private Wealth Trust, RIAs can grow their businesses and gain a share of the wealth set to be transferred between generations,” said Jim Dario, managing director of product management and services at TD Ameritrade Institutional. “This new offering can help advisors build stronger relationships with the next generation and it puts them in a better position to keep the assets they already manage.”
Service and Support
“We look forward to rolling out a comprehensive suite of corporate trustee services to advisors on the TD Ameritrade Institutional platform,” said Jim Combs, president and chief executive, National Advisors Trust Company. “Advisors Private Wealth Trust offers advisors an attractive solution for providing trust services to their clients. We believe advisors and their clients will benefit by working with a trust services company that’s owned by advisors, understands the needs of RIAs and has a history of stable ownership.”
Advisors Private Wealth Trust offers advisors a conflict-free way to access corporate trustee services, with custody of the assets remaining at TD Ameritrade Institutional. Beyond competitive pricing, advisors receive ongoing support from TD Ameritrade Institutional as well as dedicated trust officers to help establish trust accounts and provide administrative services.
By offering trustee services through Advisors Private Wealth Trust, advisors can ensure their clients’ trusts receive independent, impartial oversight from a committed, dedicated trustee, all while continuing to manage the assets. Clients can be assured their trusts will receive professional fiduciary oversight, a duty that family or friends may not always be equipped to handle, and that they can still work with their advisor to manage the assets.
Advisors can take the opportunity to review any trusts they manage and now can provide another option for clients to appoint an RIA-friendly successor trustee, such as Advisors Private Wealth Trust, helping increase the likelihood they will retain assets when the current trustee dies or becomes incapacitated. If the successor is an unaffiliated financial institution, such as a big bank, advisors risk seeing those assets walk out the door.
About National Advisors Trust Company
National Advisors Trust Company (NATC) is an RIA-owned firm dedicated to the success of independent financial advisors. NATC helps advisors grow their business by providing world-class trust and custody services in every state in the nation. A federally chartered institution, NATC is the nation’s largest RIA-owned independent trust company, with $10 billion assets under administration. Visit www.natrustco.com.
(1) TD Ameritrade Institutional is a division of TD Ameritrade, Inc., a brokerage subsidiary of TD Ameritrade Holding Corporation.
(2) Accenture, The “Greater” Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth, June 2012. (http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-CM-AWAMS-Wealth-Transfer-Final-June2012-Web-Version.pdf)
Posted by: Steven Maimes, The Trust Advisor
Enterprising Investor post by Lauren Foster
Greater attention is being paid to financial technology (fintech) and the online landscape of wealth management, with wirehouse advisers becoming more active in their use of social media to gain new clients and attract more assets. Demographic shifts mean that more women are likely to be the high-net-worth (HNW) clients of the future, but they are also more likely to change financial advisers due to communication problems. In the coming year, it will be more important for advisers to engage with clients by using a broader spectrum of communication styles and platforms.
As 2015 gets under way, we asked April Rudin, founder and president of The Rudin Group, to share her thoughts on the outlook for the US wealth management industry:
CFA Institute: How would you describe the landscape of the wealth market in the United States?
April Rudin: It is probably the most exciting time to be a wealth manager in the United States, given the opportunities to leverage the seismic wealth transfer from baby boomers to next gen, and tech tools that enhance the client experience and highlight the role of advice in the client relationship. The landscape of the market is a fairly well-known and traveled terrain, but there are new elements emerging that may provide interesting new paths — including robo-advice models, equity and debt crowd-funding, the mainstreaming of alternatives, and other forces being driven by regulatory, technological, and general investment trends.
What are the major trends you see?
One of the major trends in wealth management is the rise of the independent fee-based adviser. Organic growth in the RIA [registered investment adviser] channel, as well as the continued exodus of wirehouse brokers to the independent space, is gradually shifting the balance of power in this space. This in turn drives the argument for a fiduciary, rather than a suitability, standard of practice, which plays directly into the CFA mission. Other related trends include the impact of tech and regulation, the JOBS Act in particular, which will drive new business models and attract the oversight of regulators. But in all of these cases, the role of CFA [Institute], as an educator and a powerful voice representing the best interest of the investing public, may never be more critical.
Overall, is the market growing? Why?
Overall, the market is growing. Advisers’ average age is around 55, new wealth is being created at a much younger age, and the value of advice is not going away, particularly in the private wealth space. So-called “robo-advisers” are simply tools for the 21st century wealth manager, family office, or RIA.
What segments (RIAs, family offices, etc.) are growing? Is there a market share shift?
RIAs and family offices (especially single-family) are growing. The next generation of wealth holders seeks independent advice and transparency over their advisers and investments.
Who are the major players now? Do you see that changing in the future?
The major players remain the incumbent wirehouse brokers and, increasingly, the large discount and direct brands, like Schwab, Vanguard, and Fidelity. While the wirehouse position is large and entrenched, the trend to independence is growing — in fact, the smarter brokerages are building fee-based and “independent” characteristics into their offerings. But over the near term, we can see continued growth from discount and direct models, and a proliferation of the trends (robo, alternatives, etc.) being supported by them as well. Schwab and Vanguard’s recent forays into robo are a clear example of this. But in the longer term, I would venture to say that the real winners in the provision of “investment advice” and “asset management” to the masses will be the Apples, Googles, and Facebooks of the world — who have the brand, tech savvy, and consumer trust to expand into the realm of finance.
Is there growth in discretionary vs. non-discretionary assets under management (AUM)?
This question really points at so many underlying issues on advice, fiduciary responsibility, etc. It is important for wealth managers to understand/distinguish for clients what the risk/benefits are here. I have seen significant growth in investors wanting non-discretionary accounts from their advisers. Advisers need to create important dialogue with their clients around this issue.
Broadly speaking, what types of assets are advisers managing for high-net-worth (HNW) clients?
Today’s HNW investor has an eye for “doing good while doing well,” so impact investments are important and are passions of HNW investors. Many advisers need to learn more about the alternatives marketplace, including the new platforms that allow HNW/accredited investors to directly access deals without using advisers. Also, new digital investments like bitcoin are popular among today’s HNW individuals. Advisers must continually be ahead of their clients instead of lagging behind.
Based on what you’ve heard and where you sit, what types of analytic tools do you think would be beneficial? What are the “critical” needs?
The types of analytic tools today are simply a precursor to what will be available in the future. Advisers who make investments in fintech, especially client-facing ones, will be well-positioned for their future clients. Reporting software, graphical user interfaces, mobile devices, even 3-D printing, will enable wealth managers to communicate complex portfolios to HNW clients with compromised attention spans. Advisers need to “up” their tech game and be informed of tools that will enhance their ability to communicate with clients and future clients.
The 2015 CFA Institute Wealth Management Conference, which is open to CFA Institute members and non-members, will be held in New Orleans, Louisiana, on 4–5 March.
Posted by: Steven Maimes, The Trust Advisor
MoneyNews article by Mohamed El-Erian
Yet he didn’t squander the opportunity offered by this widely watched speech. The president was able to discuss an issue that is of considerable interest to the American people, and to frame the national economic debate before the 2016 elections.
And if he is lucky, he may well end up achieving a few other goals, too.
In highlighting the significant accomplishments of the economy in 2014 — which he called “a breakthrough year for America” — Obama correctly noted that “the shadow of the crisis has passed.”
Americans, he said, “have risen from recession freer to write our own future than any other nation on Earth.”
Yet too great a share of the associated gains has accrued to only a small portion of the population: the very wealthy.
So the president was correct to stress that it is time to “turn the page” and “commit ourselves to an economy that generates rising income and chances for everyone who makes the effort.”
Now that America has recovered from the worst of a global financial crisis that almost tipped the global economy into a multiyear depression, Obama is urging Congress to help him execute a pivot: away from growth that is frustratingly sluggish and narrow, and toward long-term prosperity that is a lot more inclusive.
To that end, the president called upon Congress to “make child care more available, and more affordable;” “to lower the cost of community college — to zero;” and to advance an “infrastructure plan.”
To fund these proposals, he proposed tax increases on the wealthiest Americans, including by closing tax loopholes that disproportionately benefit them, as well as measures to raise more revenue from large corporations.
Obama is responding to growing concern about the significant worsening of what I have called the inequality trifecta — of income, wealth and opportunity.
This phenomenon has adverse consequences that extend well beyond its social, moral and ethical dimensions.
By undermining both consumption and improvements in labor productivity, worsening inequality also creates headwinds to a lasting and broad-based economic expansion.
Regardless of their merits, most of the economic proposals made by the president this evening face almost certain defeat in the Republican-controlled Congress.
Indeed, it didn’t take long for Speaker John Boehner to take to Twitter to dismiss them: “All POTUS offered in more taxes, more government.”
Higher taxation is anathema to Republicans, as is greater government spending and involvement, both of which the president would like to see. Some will go further, and assert that Obama is seeking to fuel “class warfare.”
At the same time, few Democrats or Republicans seem eager to cooperate with colleagues across the aisle for fear of making their re-election more challenging.
None of this would come as a surprise to Obama. He would be the first to admit that most of his economic proposals are unlikely to be approved by Congress. Yet it still made sense to put them on the table.
First, and foremost, the proposals are likely to fuel and prolong a national discussion about inequality, the hollowing-out of the middle class and the co-optation of parts of the political class by wealthy individuals and corporate lobbies. Democrats believe this debate will work in their favor as they position themselves to retain the White House and reclaim at least one chamber of Congress.
Second, by providing the Republicans with something they can visibly and successfully oppose — higher taxes — Obama could improve the chances of bipartisan agreement on some of the smaller issues he mentioned and for which there already is some political common ground, including trade agreements, immigration and infrastructure.
Third, Obama could end up putting the Republicans in a position that undermines that party’s efforts to come across as more encompassing.
The more vocal and visceral the Republican opposition to the proposals, the greater the probability of the party being portrayed as beholden to the “1 percent,” possibly costing any chance of a Republican winning the While House next year.
Meanwhile, the Democrats could position themselves as the party that embraces the idea that “this country does best when everyone gets their fair shot.”
The unrealistic economic measures Obama presented this evening weren’t the political equivalent of a “Hail Mary” pass.
Instead, he adopted a longer-term strategic approach aimed at improving the Democrats’ chances of continuing the successes of his presidency, including the Affordable Care Act, which, as he noted, has provided “the security of health coverage” to about 10 million previously uninsured Americans.
Posted by: Steven Maimes, The Trust Advisor
Denver Business Journal article by Heather Draper
Janus Capital Group CEO Dick Weil confirmed that bond manager Bill Gross has invested $700 million of his own money into his Janus Global Unconstrained Bond fund.
“Bill [has] invested more than $700 million of his personal money … he believes in eating his own cooking,” Weil told analysts during the company’s fourth-quarter earnings call Thursday morning.
“Bill’s proud of investing in what we do. That should give clients additional confidence in what we do,” Weil said.
A Wall Street Journal report earlier this month said that more than $700 million of the money routed to Gross’ bond fund in October and November came from the Morgan Stanley wealth management office in La Jolla, California, where Gross’s personal financial adviser works.
The transfers accounted for more than 60 percent of the roughly $1.1 billion raised by Gross in the first few months after he left Pacific Investment Management Co. (Pimco).
Denver-based Janus Capital Group Inc. (NYSE: JNS) reported an 18 percent year-over-year jump in fourth quarter profits and an increase in assets under management after its high-profile hire last September of Gross.
The mutual fund company on Thursday also reported it recorded $2 billion in net inflows in the fourth quarter, its first quarter of net inflows into its funds, after 21 quarters of net outflows.
But Weil told analysts that Janus’ success in 2014 was due to “much more than just Bill Gross.”
He cited the firm’s strengthening fund management team, which included other high-profile hires last year, such as Nobel Prize-winning economist and finance expert Myron Scholes and Ashwin Alankar, who was a chief investment officer at AllianceBernstein.
“In 2014, it’s clear we’ve taken a major step forward. We’ve added significant talent to our already strong team,” Weil said. “Today we are financially stronger and stable than we’ve been.”
Janus CFO Jennifer McPeek told analysts the company plans to increase its headcount by 3 to 4 percent this year. “This is our largest headcount increase since the financial crisis,” she said.
Janus will also be giving salary increases and larger cash bonuses this year, McPeek said.
The company hasn’t disclosed Gross’ compensation package, but McPeek confirmed that “key high-profile hires will mean long-term incentive costs will go up.”
Posted by: Steven Maimes, The Trust Advisor
NYT article by Jack Ewing
Financial instability is again a prime source of anxiety for participants at the World Economic Forum after receding last year. Russia and Ukraine, cheap oil, volatile currency markets, deflation, terrorism and even Switzerland are unsettling the global economy and sowing nervousness among the people attending the forum, many of them bankers or investors.
The sense of being blindsided by events was summed up by David M. Rubenstein, co-chief executive of the private equity firm Carlyle Group. He told the audience at a panel on Wednesday that they should take everything he said with a grain of salt because his predictions last year were way off.
“I wouldn’t have predicted oil prices would go down,” Mr. Rubenstein said. “I wouldn’t have predicted U.S. growth would be as strong as it has been, I wouldn’t have predicted the slowdown in some of the emerging markets, I certainly wouldn’t have predicted deflation in Europe.”
The sense of nervousness has been heightened by the terrorist attacks in Paris earlier this month. Security at the World Economic Forum, which every year turns the town into a virtual military protectorate, was tightened even further. In a new practice, the Swiss police shined flashlights into the shuttle vans that bring participants to hotels and events, requiring passengers to show their credentials.
“It’s that fear factor,” Anne Richards, chief investment officer of Aberdeen Asset Management, said in an interview. “What is going to hit now?”
Even recent economic events that are mostly positive create instability, panelists said. The plunge in oil prices is great for consumers, but has undercut the Russian economy, with repercussions for Europe. Mr. Rubenstein said that Russian companies had borrowed $650 billion from Western countries, mostly European banks.
“If the Russian companies, because of their economies, can’t service that debt, that’s going to be a problem,” he said.
Douglas Flint, chairman of HSBC Holdings, noted that when regulators tested the resiliency of banks this year, none considered situations in which oil was $50 a barrel. “The last several years have taught us to expect the unexpected and to prepare for the worst,” Mr. Flint said at a different panel discussion.
The discussions came a day before the European Central Bank was expected to announce that it would begin broad-based bond purchases to try to stimulate the European economy. But there was pessimism that central banks could continue to rescue global economies.
“We are looking forward to the E.C.B. announcement tomorrow,” said Min Zhu, deputy managing director of the International Monetary Fund.
But he said that the eurozone economy required policies to stimulate demand, like spending on public infrastructure or changes in laws that restrict hiring and firing. “Interest rates are zero already. What do they do?” Mr. Zhu said of central banks. “We need supply-side policies.”
Even a month ago, no one would have predicted that Switzerland, one of the wealthiest and most stable countries in the world, would become a subject of concern. But the country faces an economic crisis after the Swiss National Bank last week abandoned attempts to check the rise of the Swiss franc against the euro. The franc has risen 20 percent against the euro since then, an increase that made the stay in Davos even more costly than usual and, more important, threatened the competitiveness of Swiss industry.
Axel Weber, chairman of the Swiss bank UBS, said the Swiss central bank “did the right thing” in acknowledging that it could no longer keep a cap on the franc. He predicted that the Swiss currency would retreat from current levels.
“There are challenges and pressures, but I think they are manageable,” said Mr. Weber, the former president of the Bundesbank, the German central bank.
But he was pessimistic about Europe. Noting that he had appeared at a panel called, “Is Europe Back?” last year at the forum, he said this time around, “Europe’s not back,” adding, “The problems are back.”
A hint of geopolitical tension, in the otherwise convivial atmosphere at the gathering, emerged at a panel sponsored by The Wall Street Journal that examined why economies and financial markets have become more volatile. Arkady Dvorkovich, deputy prime minister of Russia, was critical of the United States.
“The problem with American growth, it is more at the expense of other countries sometimes,” said Mr. Dvorkovich, who also called sanctions imposed on Russia in retaliation for its behavior in Ukraine “stupid.”
Still, some experts said the gloom was overdone. “The rest of the world will recover over time,” Kenneth Rogoff, an economics professor at Harvard University, said on the same panel. “These things don’t last forever.”
Posted by: Steven Maimes, The Trust Advisor
Main Street article by Robert Flach
1. Resolve to become more educated and informed about income taxes
It is impossible to know the right moves you should make in your daily financial life without a basic knowledge of the tax implications of your actions.
You can follow my tax tips and articles throughout the year here at MainStreet. Or take a basic tax course offered by your local Board of Education’s adult or evening education program.
Learn what items you can, and cannot, deduct on your tax return, including the special items that are unique to your trade or profession. Learn the rules governing any special situations that apply to you, and keep up-to-date on federal and state tax law changes.
Even if you use a tax professional to prepare your return, the more informed you are on taxes, the more prepared you will be when you go to your annual appointment.
2. Resolve to keep good tax records
Set up a filing system for maintaining tax records and receipts. You are required to keep good, contemporaneous records of all your income and deductions in the manner prescribed by the IRS and the Tax Code.Go out and buy an accordion file folder. Label the first pocket “Income Tax Returns.” This is where you will put your copy of your federal and state income tax returns once completed.
Label the second pocket “Information Returns”. As you begin to receive Form W-2s, 1099s, 1098s, 1095s, K-1s, etc next January and February put them in this pocket.
The remaining pockets should be labeled in the various types of deductible expenses, such as (where applicable) -
- Charitable Contributions
- Child Care Expenses
- Education Expenses
- Employee Business Expenses
- Gambling Losses
- Investment Expenses
- Medical Expenses
- Mortgage Interest Expense
- Moving Expenses
- Retirement Plan Contributions
- Stock and Mutual Fund Purchases
During the year put acknowledgements, receipts, statements and other forms of documentation in the applicable pockets.
If a receipt is not self-explanatory, write a brief description on it. If, for example, you buy Money or some other investment or tax publication while shopping for groceries at the local supermarket, circle and describe the item on the receipt.
Some deductions require special record-keeping or additional information, such as charitable donations; gambling losses; and business travel, meals and entertainment.
You must have a hard-copy receipt for every dollar you contribute to a church or charity, regardless of the amount. Whenever possible give a check. If you give cash you must get a written receipt from the charity. You cannot deduct the $1 you give to the Salvation Army Santa unless he gives you a receipt!
You can no longer say you put a five- or ten-dollar bill in the collection plate at church each week. If that is what you do, take advantage of the church’s “envelope” system, which will provide you with a written receipt at the end of the year.
If you give $250 or more in one gift you must get a written receipt or acknowledgement from the charity at the time the donation is made. This receipt or acknowledgement must show the name and address of the organization, the date and amount of the contribution, and it must include the statement, “No goods or services were provided by the organization in return for the contribution.”
When you donate clothes, books, food, household items, or furniture to a church or charity, make a detailed list of the individual items that includes the condition (such as good, excellent or new) and the value what you are giving, and, of course, get a receipt. If you put a bag full of clothes in the Goodwill bin make a list of what is in the bag.
Are you a frequent visitor to the track or casinos? Keep an accurate diary of your gambling winnings and losses. You must have receipts, tickets, statements or other records. If you play the lottery, keep your losing tickets. If you play the ponies, keep the daily track programs and your losing tickets. For more detailed advice on recordkeeping for gambling winnings and losses see “Not Keeping Track Turns Gambling Winners Into Tax Losers.”
Do you use your car for business? Maintain a travel diary listing the date, location, business purpose or client visited, and miles driven. Keep track of the total miles driven for the year (both business and personal) by recording the odometer readings on January 1 of each year.
You should also keep track of miles going back and forth to doctors, dentists, therapists, hospitals, and clinics for medical care, and for any miles driven in the course of providing volunteer services to a qualified church or charity, such as travel to and from committee and board meetings or delivering meals to shut-ins for the local Meals on Wheels program.
For business meals and entertainment record the cost, date, name and business affiliation of each person involved, where the meal or entertainment took place, and the business purpose of the meeting. You can make the appropriate notations on the back of your credit card receipt.
A simple pocket date book can act as your travel diary. Also record business parking, toll and pay phone expenses in the diary, as receipts are not always available for these items, and details of your business meals and entertaining.
It is better to save too many receipts than too little. Even if you normally do not itemize, it is a good idea to keep records and receipts for all “itemizable” expenses just in case.
Posted by: Steven Maimes, The Trust Advisor
FOX Business Network announced it will debut ‘Strange Inheritance,’ a new primetime story-driven reality series hosted by Jamie Colby, on Monday, Jan. 26, 2015, at 9 p.m. ET.
The series examines real-life stories of unconventional inheritances and will appear Mondays-Thursdays, with new episodes debuting every Monday and Tuesday, said Bill Shine, Senior Executive Vice President, FBN and FOX News Channel (FNC). In addition, FBN will air ‘Strange Inheritance Unpacked,’ a behind-the-scenes look at how each story unfolded, every Wednesday and Thursday at 9:30 p.m. ET.
Shine said of the new series, “We’re excited to bring viewers an entertaining and informative program that delves into the emotional and financially extraordinary situation of inheritance.”
Each evening, two half-hour episodes will air back-to-back featuring Colby as she explores a range of unusual circumstances from a family trying to keep a 900-acre bug museum in business to the discovery of a rare 1913 Liberty Head nickel.
Posted by: Steven Maimes, The Trust Advisor
Wills, Trusts & Estates Prof Blog post by Gerry W. Beyer
Steven J. Horowitz (Associate, Sidley Austin LLP) and Robert H. Sitkoff (John L. Gray Professor of Law, Harvard University) recently published an article entitled, Unconstitutional Perpetual Trusts (PDF DOWNLOAD).
Provided below is the abstract from the article:
Perpetual trusts are an established feature of today’s estate planning firmament. Yet little-noticed provisions in the constitutions of nine states, including in five states that purport to allow perpetual trusts by statute, proscribe “perpetuities.”
This Article examines those provisions in light of the meaning of “perpetuity” as a legal term of art across history. We consider the constitutionality of perpetual trust statutes in states that have a constitutional ban on perpetuities and whether courts in states with such a ban may give effect to a perpetual trust settled in another state.
Because text, purpose, and history all suggest that the constitutional perpetuities bans were meant to proscribe entails, whether in form or in function, and because a perpetual trust is in purpose and in function an entail, we conclude that recognition of perpetual trusts is prohibited in states with a constitutional perpetuities ban.
Posted by: Steven Maimes, The Trust Advisor