Faith Based Investing

This is a guest post by Alban Smith.   Interested in writing a guest post?  Please email us at info at jayperoni dot com.

Estate Planning: Why is it important?

While most of us are trying to live our lives to the fullest, we don’t want to think about dying, or what will happen in the event of our death. However, the reason we are trying to get the most out of life is that we never know what is around the corner, and looking into your options for estate planning will mean you truly can kick back and enjoy life, because you know every eventuality is taken care of.

What Does Estate Planning Involve?

Estate planning is simply a means of ensuring that your estate is passed on to the people you want to have it when the right time comes, and in the most tax effective manner. Estate planning usually caters to the eventuality of your death, however, can also be useful if you are overseas, or you lose the ability to manage your own affairs due to illness or injury.

Your estate plan should be a part of your financial plans, but rather than just looking after your assets for yourself, your estate plan ensures that your assets are managed correctly during your lifetime, to preserve your wealth in a manner that allows it to be distributed according to your financial plan after you die. Your Will is the basis of your estate planning as the document allows you to choose who will benefit from your estate and what each person will receive.

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Improving the world around us through our gifts

So, you’d like to make some major charitable contributions, but you don’t want to create a family foundation – with its paperwork and management commitment and the possibility of squabbles. Is there an alternative?

Yes, there is. You could consider a donor-advised fund.

How does a DAF work? A donor-advised fund is a private fund established to manage charitable donations of individuals, couples, families and institutions. It is sponsored by a 501(c)(3) non-profit organization. The process of gifting through a donor-advised fund works like this.

• You find a sponsoring organization offering a donor-advised fund. It could be a community foundation down the street; it could be a major investment firm that has started a non-profit charitable endowment.
• You make an irrevocable contribution of cash or securities to the fund.
• You get an immediate tax deduction.
• The fund invests the cash or securities in an account you create; the assets benefit from tax-free growth.
• While the fund has legal control over the irrevocable contribution you have made, you (or your representatives) advise the fund where the assets in your account should go and how they should be invested.
• The fund is the actual grant maker that writes the checks to the charities and nonprofit groups you recommend.

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New year, new laws

Other factors

You may think of life insurance in very simple terms: you buy a policy so that your loved ones will have some financial assistance when you die. But if you have assets of $1 million or more, you should view life insurance as a tool – kind of a Swiss army knife, in fact. Life insurance has many potential uses in estate planning, and a life insurance trust can certainly help a family.

What does a life insurance trust do? It enables you and your family to do three things in particular. One, it provides you, your spouse and your heirs with life insurance coverage after it is implemented. Two, it allows a trustee to distribute death benefits from a life insurance policy as that trustee sees fit. Three, it gives you the chance to reduce your estate taxes.

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My good friend Bob over at ChristianPF.com is once again promoting the life changing 10 day give!

From Bob:

The 10 Day Give starts today! If you haven’t yet signed up and want in on it, you still can – sign up here. I am excited to get started and I just about have all the days planned out. If you need any ideas for giving you can read Craig’s list of some 101 ways to give as well.

Personally, I am really excited that so many people decided to join the 10 Day Give, given the tough economic times that we are in. I think that is all the more reason to do it! God’s economy works different than the world’s system and the Bible says that, “as we give, it will be given unto us...” (Luke 6:38). Not only do we get to bless and help those around us, but we have the promise that it will come back to us! The stock market is up and down, but giving into the lives of others is always a good investment that yields returns in this life and in Heaven!

“Certified Financial Planner” – what does that title really mean? When you search for a financial advisor, it means everything. Let me explain why the CFP^® designation is so important.

Today, the financial world is full of credentials and designations. Some are respected, some aren’t. The CFP^® designation is easily the most respected. You really have to earn it. (There are some financial credentials simply conveyed to people after the completion of a glorified sales course. The CFP^® designation is not one of them.)

It denotes education. To become a Certified Financial Planner™ practitioner, you have to study financial planning at a college or university (or at the very least, through an educational program) that offers a comprehensive financial planning curriculum. You also have to pass a 10-hour exam administered over two days (kind of like a bar exam) which covers financial planning, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance topics.

It reflects ethical and experiential standards. Before you can be certified as a CFP^®, you must pass a strict ethics review and agree to work by the CFP Board’s Code of Ethics and Professional Responsibility. As a CFP^® practitioner, you must put the interests of the client first, and act “fairly and diligently” when providing financial planning advice and services. Those services must be based on the client’s needs, and delivered with objectivity and integrity. You must also have at least three years of experience working within the financial planning field before you can even earn the CFP^® certification.

You must maintain these standards. As a CFP^® certificant, you have to be recertified every two years. That requires at least 30 hours of continuing education, so that you may stay informed of the latest developments affecting the financial planning profession. Two of those 30+ hours must be spent studying the CFP Board’s Code of Ethics and Professional Responsibility or Financial Planning Practice Standards.

This is why the CFP^® designation is so respected. Knowing all this, would you settle for any less qualified financial advisor? I doubt it.

The critical difference. Many people today call themselves “financial planners” without having this kind of experience and knowledge. Many of them work with a sales-based mentality. Often, they will suggest an investment product as a financial solution. Quite often, they get a nice commission off the sale of that product.

On the other hand, CFP^® practitioners know that investments are simply components in an overall financial plan, not financial solutions in themselves. We have the education and experience to create integrated financial plans using not only investments, but also strategies for tax reduction, wealth accumulation, wealth preservation and tax-efficient wealth transfer. We have the knowledge to plan for the long-term goals of our clients, and the experience to implement, oversee and revise these plans through the years.

Choose a CFP^®. If you are searching for financial planning advice, you should first see a Certified Financial Planner™ practitioner. Talk to a CFP^® practitioner today, and enjoy the confidence that comes from meeting with a truly educated and qualified financial advisor.

Question of the week: What are some of the best ways to save for college?

Saving for college is no easy feat. With tuition prices for private and state colleges rising by as much as eight to nine percent per year, how can you keep up? Even online colleges and universities will take proper saving and planning.

If you want to save for college, you may wish to consider an UGMA or UTMA account. These custodial accounts are typically created by parents and other relatives who want to gift minors without having to set up a trust.  Many parents and grandparents create UGMA or UTMA accounts as college savings vehicles. You can invest for a child’s education while transferring income-producing assets to that child (and their presumably lower tax bracket).

The Uniform Gifts to Minors Act (UGMA) allows a child or teenager to take ownership of cash, securities or insurance policies. The successive Uniform Transfers to Minors Act (UTMA) extended the UGMA parameters: it lets minors receive gifts of art, real estate, patents and royalties, and other non-securities assets.

UGMA and UTMA accounts address a minor concern. You may be thinking, “Well, I know outright gifts to a minor aren’t subject to federal tax, so why set up an UGMA or UTMA? Why don’t I just gift the money or securities outright?”

Do you really want to do that?
Let’s face it, you probably want control. Most likely you don’t want your teenager buying and selling securities any more than brokerages do. You might also want to be certain that the cash you gift is not spent frivolously. If these concerns speak to you, UGMA and UTMA accounts may be worth a look.

In 2010, you can use these accounts to gift up to $13,000 in money or property to a minor. In fact, you can gift up to $13,000 each to multiple minors. If you stay under the annual federal gift tax exclusion amount each year, you will only trigger federal gift tax if you transfer more than $1 million during your lifetime.

You are the custodian; the minor is the owner. In colloquial terms, these UGMA or UTMA accounts are “trust funds” – yet they are not trusts that would require the involvement (or fees) of an attorney. While the minor owns the cash or property within the UGMA or UTMA account as soon as the asset transfer occurs, the custodian manages that cash or property until the child reaches the age of maturity (18 or 21 in all but a few cases).

As custodian, you are not the only one who can make irrevocable transfers of cash or property into the account; parents, grandparents, relatives and friends may all do so. A sizable college fund may be built with an UGMA or UTMA account, whether the assets are held in cash or invested. When the account owner reaches “maturity”, he or she may spend that money for college.

Is there a potential downside of UGMA or UTMA accounts?
Yes. To repeat, you are the custodian, the minor is the owner. When that minor becomes an adult under state law, the account terminates and the account owner gets to spend the funds as he or she wishes. It’s a free country … and it is possible that today’s college fund will become tomorrow’s Corvette. So you do want the owner and the custodian on the “same page” when it comes to the intent of the account, and on good terms as well.

Another potential issue to consider: if you are custodian of one of these accounts and you pass away before the account terminates, the assets within the UGMA or UTMA account may become part of your taxable estate.

An underpublicized option worth checking out. UGMA and UTMA accounts may give your family the potential to create a nice pool of money for college while lowering your income taxes in the process.