Archive for category: HUB Blog

By: Tricia Mulcare

06/28/2019

Divorce affects one in four marriages for couples over the age of 50. As soon as the decision to divorce is made and your emotions settle, you need to muster your own team of professional advisors. In addition to your divorce attorney, hire a CPA or financial planner knowledgeable about divorce planning.

Marital dissolution can be managed in various ways. Many couples choose arbitration or mediation in an effort to avoid the fees associated with litigation. One model, collaborative law, is a process in which each party hires its own team of professionals (attorneys, therapists, financial advisors, etc.) and all parties agree to focus on a mutually agreeable settlement.

No matter the legal situation, your financial planner should walk you through these important first steps toward establishing financial freedom:

1. If you do not already have a budget, develop an estimate of your current necessary monthly expenses.
2. Open a separate post office box to ensure delivery of confidential documents.
3. Establish separate checking, savings, brokerage, and credit card accounts, all of which will allow you to begin building individual credit. Be aware that on a joint credit account, all named individuals are liable for debts incurred.
4. Review credit reports from each of the three major credit agencies. Check the reports for accuracy and identify all joint accounts that will need to be closed.

Your team of financial advisors will often request specific documents to support your assets and expenses. You will also want to contact your insurance agent for copies of your insurance policies and gather vehicle registrations, property deeds, and any recent property appraisals. Finally, copies of payroll stubs, W-2s filed with your previous tax returns, a marriage certificate, and employment contracts may be requested.

Your attorney will likely advise you to consider which martial assets are especially important or have sentimental value. Your team of advisors should evaluate the tax consequences of keeping certain assets. Often overlooked marital assets include season tickets, club memberships, and timeshares.

There may be considerations to make with respect to your career as well. For example, small business owners should inform any partners of a pending divorce. Similarly if you and your spouse are involved with a family business, examine the roles of each spouse and how they will be affected.  Stay at home moms should consider the implications, via a cash flow analysis, of continuing in this role versus going back to work.

Georgia applies a doctrine of “equitable division of marital property” in divorce. This doctrine is designed to ensure that property accumulated during marriage is fairly distributed and can frequently override the current legal title of property owned by both parties in the divorce. As a result, the spouse who does the best job of planning in advance of the divorce hearing is often the party who stands to gain the best settlement. For this reason, be sure to select a team that has experience with your special needs during this time of transition.

 

The information reflects Homrich Berg’s views, opinions and analyses as of 6/28/2019 unless otherwise indicated, with no obligation to update. The information is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any investment product. The information does not represent legal, tax, accounting or investment advice; recipients should consult their respective advisors regarding such matters.

By: Ford Donohue

06/21/2019

For months headlines have been dominated by the US China Trade War. As an investor, it’s easy to get caught up in the day to day swings in the market; but we believe that it’s important to take a step back, understand the drivers behind the US-China trade tensions, and make decisions that put portfolios in the best position for long-term growth.

There are two main factors driving the trade war between the US and China: the large bilateral trade deficit and China’s lack of protection for US Tech Intellectual Property (“IP”). As an example of the first factor, the US imports roughly $540bn in goods from China on an annual basis, while China imports just $120bn worth of goods from the US. As an example of the second factor, China often forces US tech companies to divulge proprietary technological information in order to gain access to its market.

The large trade imbalance put consumers at risk when the cost of goods coming from China increase, and the IP transfer issues negatively impact our prized tech sector. Although not everyone agrees on an exact strategy, many politicians and economists agree that imposing tariffs may be an effective way to battle the trade imbalance with China. Due to the large trade deficit, a trade war fought via tariffs is likely to have a much bigger impact on China than it will on the US.

The trade war continues to evolve in real time, and it is difficult to predict where it will go in the weeks and months to come. The US has currently placed 25% tariffs on $200bn worth of goods imported from China and that may increase to cover more imports in the months ahead. However, taking a long-term view, both the US and China have leaders with strong incentives to see their economies grow, not stagnate. As a result, it is unlikely that the trade war continues to escalate significantly from here. At some point, we expect tensions to ease as both leaders will be looking to claim a “victory” in this dispute, although it is impossible to predict exactly when and how.

As investors, it is important to be aware of the facts and understand the impact that the tariffs will have on both economies. We expect the overall impact of this trade dispute on US corporate earnings and GDP to be minimal. Therefore, we believe that investors should stay committed to their long-term plans given the current situation and incentives for both sides.

06/07/2019

By: Julian Davis

In today’s world of Amazon, Apple Pay, Venmo and many other convenient technologies that make it so easy (maybe too easy) to spend money without much effort or thought, it can be hard to keep up with where your money is going. You don’t have to pull out your wallet or checkbook, or even get out of bed, to spend money. On the other hand, there are many technological products – ranging from Microsoft Excel to various free and paid budgeting apps – that make it convenient to track your spending without having to balance a checkbook or utilize the envelope system.

While I personally enjoy making a budget and tracking my adherence (or lack thereof) to the plan, I realize that not everyone considers this a favorite pastime. However, the first step in achieving your financial goals is establishing your financial goals. A key factor in setting and achieving these goals is to manage the demand for your dollars. Ultimately you want to make sure you are living below your means (spending less than you earn) and working to increase your personal bottom line a.k.a. your net worth.

It may sound very simple, but many people cannot identify where their money has gone at the end of each month. I am not suggesting that you track every penny, but you should have a general idea of the categories in which you are spending your hard-earned money. A rule of thumb that I find helpful is the 50/30/20 rule. The basic premise is that you should allocate 50% of your take-home earnings toward your “needs” or fixed costs, 30% toward your “wants” or variable costs, and 20% toward your financial goals or increasing your net worth by savings and/or debt reduction.

We all have different lifestyles so one person might consider cable television with the premium channel package or super high-speed internet as “needs”, whereas another person would classify these as “wants”. In general, expenses such as housing, transportation, and groceries would go in the “needs” bucket. Taking vacations, going shopping, or buying season tickets to the Falcons game would typically fall under “wants”. There is some gray area, for instance, while going shopping may be a “want” you could argue that clothes are a “need” (just maybe not the latest trends that everyone “likes” on Instagram). The point here is not to get bogged down in the details, but to develop a plan that fits your lifestyle, work to achieve that plan, and potentially set your sights toward more lofty goals (40/30/30 rule?) once you’re able to consistently achieve the current plan.

There are a couple of nice features of the 50/30/20 rule. Many people like to see tangible results or milestones when working toward achieving goals. Whether you are working to pay off student loans (unless you are a fortunate member of Morehouse College’s Class of 2019) or you are making maximum contributions to your 401(k), this rule of thumb gives you credit for both actions because they both positively impact your net worth. We often hear that we should avoid “lifestyle creep” as our earnings increase over the course of our careers. While this is good advice to follow, most of us like to reward ourselves for working hard. The 50/30/20 rule allows you to perhaps increase your vacation budget as long as you are still paying yourself 20% first. At the end of the day, one of the ultimate rewards of hard work is achieving your financial goals and attaining financial freedom.

By: Todd Hall

05/23/2019

The Tax Cuts and Jobs Act, which took effect in 2018 was a significant tax overhaul that has impacted the way that taxpayers give to charity. The new law significantly increased the standard deduction, which can reduce or even eliminate the tax benefit that some taxpayers get from annual donations to charity. Many taxpayers won’t collect the necessary deductions to surpass the new standard deduction threshold. And the elimination or reduction of many popular deductions may put itemization out of reach entirely.

One way to overcome this issue involves the use of a charitable vehicle called a Donor Advised Fund (DAF). DAFs have been around for many years, but they are now an even more valuable tool for many charitably minded taxpayers. Donors with DAFs can use a strategy called “bunching,” in which they fund a DAF with multiple years’ worth of charitable gifts in a single year in order to surpass the itemization threshold, and distribute cash to charities from the DAF over time. Some donors will only itemize deductions in the “bunching” years, and take the standard deduction in off-years (or “skip-years”). Bunching can also be beneficial if a donor has a year with abnormally high income (e.g. from the sale of a large asset or payout of a large bonus). Funding several years’ worth of charitable gifts in the high-income year will maximize tax benefits.

What is a DAF?

A DAF is a charitable account that allows a donor to:

1) “Pre-fund” future charitable gifts when it is advantageous for the donor, and

2) Make large or small grants to charities of the donor’s choice over any period of time. Any amount not granted right away can be invested and will grow tax-free.

The donor receives a charitable deduction for making contributions to the DAF account. This is generally done with appreciates securities when possible, but the account can be funded with cash or other assets as well. The donor can then make grants to virtually any 501(c)(3) IRS-qualified public charity – that means everything from the donor’s alma mater to the local church. Donors can even support international causes through a DAF.

How a DAF Works

A DAF is technically an account at a public charity that enters into an agreement with a donor. The agreement gives the donor the right to advise the fund on how the donor’s contributions will be invested and how grants to charities will be made. Because the DAF is technically an account at a public charity, contributions to the DAF are irrevocable, and qualify the donor for an immediate tax deduction (subject to the same Adjusted Gross Income limitations as other public charities).

Donors decide on their own fund name (e.g. The Jones Family Fund) and who will have authority to request grants from the account. During life, the donor (or the donor’s designee) can make ongoing, non-binding recommendations to the fund as to how much, when, and to which charities grants from the fund should be made. Additionally, the donor can advise on how contributions should be invested. The donor may suggest that, upon death, grants be made to charities named in his or her will, or the donor may designate a surviving family member(s) to recommend grants.

In order for gifts to a DAF to qualify for a charitable deduction, the gift must be irrevocable and technically the charity that holds the DAF account is not obligated to follow any of the donor’s suggestions — hence the name “donor-advised fund.” As a practical matter, though, the fund will generally follow a donor’s wishes.

See Figure 1 for an illustration of how DAFs work.

Some Additional Advantages of DAFs

Using a DAF to “pre-fund” future charitable gifts can have several advantages, including:

• Simplified process for making multiple gifts – For example, if a donor has appreciated stock worth $5,000 and would like to make gifts of $500 each to 10 charities, paperwork is only needed once to transfer the stock to the DAF, and there is only one charitable gift to report for tax purposes. Grants can easily be processed online from the DAF to the desired charities.
• Anonymity – Grants from DAFs are typically identified as being made from a specific donor’s account, but they can be made anonymously at the donor’s request.
• Expert advice – Many charities that offer DAF accounts offer expert advice on grantmaking.

How to Establish a DAF

Donors can open a DAF at several organizations. Below are some common examples:

• National low-cost options include:
  • Fidelity Charitable – a separate charitable entity affiliated with Fidelity Investments
  • Schwab Charitable – a separate charitable entity affiliated with Charles Schwab
• Local community foundations – Usually community foundations will have specific expertise in local community needs and the charities established to meet those needs. Often they will provide additional support in connecting donors to charities in the community. Community foundations often charge higher fees than the national organizations in order to support these additional services. The Community Foundation for Greater Atlanta is an example. Many other large cities have similar organizations.
• National and local religious charities – Like Community Foundations, religious charities have specific expertise in charities that support their religious philosophy or affiliation. Examples include:
  • National Christian Foundation
  • Jewish Federation of Greater Atlanta (or other local affiliates in various cities)

Other Important Details

There are fees associated with establishing and/or maintaining DAFs. Large national organizations generally charge between 0.10% and 0.60% of assets in the account, depending on the balance. Other administrative fees may also apply, though these are generally small. Charities that offer significant additional services such as community foundations and religiously affiliated organizations generally charge more. However, many donors view these higher fees as an additional charitable donation to help support causes they care about. There are also management fees charged for underlying investments that can vary significantly. With large enough account balances, HB can manage the account, which may enable you to choose investments with lower fees than the investment options for smaller accounts.

Some DAFs can accept non-cash assets other than securities, such as real estate, private alternative investments, or certain complex assets such as privately held company stock. Not all DAFs are equal in this regard, so you will want to plan ahead and work with your HB advisor if you plan to fund a DAF with non-cash assets other than publicly traded securities.