What is a Fiduciary?

 A fiduciary is a person or institution with a legal duty to act in the best interests of the person or people whose assets they manage.  An executor and trustee are the two most common fiduciaries to be selected in estate planning.

An executor, or personal representative, serves for a finite period immediately following a death until the estate has been settled, typically not more than a couple of years.  They are responsible for wrapping up the deceased’s affairs including gathering their assets, ensuring distribution according to their Last Will & Testament, and filing any related tax returns.

In contrast, a trustee usually serves for a longer term – for life or until a beneficiary reaches a certain age.  Their role is to oversee the management of the trust assets and make distributions according to the terms of the trust; they are often required to use their subjective discretion in determining the degree to which distributions should be made.  In many cases, the same person is named as both executor and trustee.

A couple of other fiduciary roles for consideration in estate planning can include:

• Trust Protector – someone who can supervise the trustee and be granted certain powers such as modifying the trust to conform with changing tax laws
• Investment Advisor – an individual or firm with responsibility for managing the financial assets of the estate or trust.

Whom should you Choose?

 There are a number of factors to consider when determining who is best suited to serve in these roles for your family.

1.)   First and foremost, it is important for a fiduciary to be ethical, someone who you implicitly trust to be fair and ensure wishes are carried out when you are no longer able to do so.

2.)   Ideally, those named as fiduciaries should also have a certain level of financial expertise – or at least the ability to identify when professional advisors are needed and enlist their assistance accordingly.

3.)   In some situations, diplomacy can be a desirable fiduciary trait as well, particularly if there are potentially acrimonious situations, such as protecting the inheritance of children from a first marriage while continuing to support a beloved surviving spouse in their accustomed manner of living or managing the assets of a financially irresponsible child or one dealing with substance abuse issues.

4.)   Longevity is another factor to consider – you may not want to name someone who is unlikely to outlive the term of the trust.  Regardless of whom you select, it is advisable to build-in flexibility to allow for unforeseen changes in circumstances.

So, who to name?  After careful consideration, most people choose an individual: a family member, close friend, trusted advisor such as CPA or attorney.  Others choose an institution: a trust company or bank trust department.  For some family situations, a combination of individual and institutional fiduciaries makes the most sense for their situation.  Naming co-fiduciaries can work well if, for example, you would like a family member to serve but perhaps they lack financial expertise or you don’t want to place too much of a burden on one person.  There are many reasons for choosing to name an individual: familiarity with family dynamics, personal trust, privacy, cost and simplicity.  Some people, however, do not have anyone well-equipped for the role within their family or close inner circle of friends.  Institutional fiduciaries can provide an alternative.  In most cases, they can provide expertise, objectivity and longevity.  On the flip side, some complain about the cost of institutional fiduciaries and dissatisfaction with high turnover among relationship managers within those institutions.

While the decision of naming an executor or trustee is intrinsically personal in nature, we would be happy to share the insights we’ve gleaned from working with various fiduciaries in assisting our clients and their advisors with their estates.

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Windham Brannon Financial Group, LLC (WBFG) obtains historical and other information from a wide variety of publicly available sources. We have taken reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information from this article. WBFG and its affiliates do not have, nor claim to have, sources of inside or privileged information regarding expected future returns on any investment proposed. The recommendations developed by WBFG are based upon the professional judgment of WBFG and its individual advisory affiliates and neither WBFG nor its affiliates can guarantee the results of any of their recommendations. Clients at all times may elect unilaterally to follow or ignore completely, or in part, any information, recommendation, or advice given by WBFG and its affiliates. Past performance is not necessarily indicative of future results.

© 2013 Windham Brannon Financial Group, LLC. All rights reserved. Any use of information contained in this article, including reproduction, modification, distribution or republication, without the prior written consent of Windham Brannon Financial Group, LLC is strictly prohibited.

With advanced education as a prerequisite for most jobs and rising education costs that outpace broader inflation, how can you plan for your family’s education?

529 Savings Plans

Contributions to 529 plans are made with after-tax dollars and are allowed to grow tax deferred with tax-free distributions for qualified education expenses. Qualified expenses include almost all collegiate education-related expenses. Contributions must be made in cash with lifetime limits set by individual state plans, usually $200,000+ per beneficiary.  Limits on the amount that can be contributed are not phased out based on income.  Donors may even “frontload” these plans by contributing up to 5 years’ worth of annual exclusion gifts in one year ($14,000 for 2013 x 5 years = $70,000).  A gift exceeding these amounts can also be made; however, the excess (over $70,000 per person) will be reported as a taxable gift. Additionally, many states offer tax deductions in varying amounts for residents contributing to their state’s plan.  Investment options vary among plans.

Recommendation:  West Virginia’s plan through DFA and Iowa’s plan through Vanguard are most consistent with our investment strategy.
West Virginia: www.smart529.com
Iowa:  https://collegesavingsiowa.s.upromise.com/

Frequently Asked Questions on 529 Plans:

How will funding a 529 plan affect the beneficiary’s ability to obtain financial aid?  Assets in the student’s name may negatively affect their eligibility for financial aid.  Because parental assets are given less weight in calculations for financial aid eligibility, it is recommended that 529 ownership remain with parents/grandparents for the benefit of the student.

What are the gift and estate tax benefits of 529 plans?  As long as the amount contributed for each beneficiary is no more than the annual exclusion amount (or 5x that amount if frontloading), the transfer will not be subject to gift or GST taxes (Generation Skipping Transfer Tax).  An additional benefit of 529 plans is the ability to remove assets from the owner’s taxable estate, while maintaining control of the asset, a feature somewhat unique to this vehicle.

What if the beneficiary does not need all of the funds in the 529 plan?   Earnings withdrawn for nonqualified expenses are subject to ordinary income tax at the owner’s tax rate, as well as a 10% penalty (contributions may be returned tax-free).  Alternatively, the account owner can change the beneficiary to another qualifying family member, without incurring any tax or penalty. In the case of a student receiving a scholarship, the 10% penalty may be waived but earnings would still be subject to income tax.

How should my student’s 529 plans be invested? Most states that administer 529 plans have age-based risk programs that automatically shift the investment allocation based on the appropriate risk/return level for the beneficiary’s age.  While we do not provide the investment options, we are able to manage and monitor them for our clients to ensure proper investment allocation and distributions.

Other Funding Options

Taxable Investment Accounts:  Payments for tuition made directly to an educational institution on behalf of a student do not count towards the student’s annual gift tax exclusion amount. For example, a grandparent could fully pay for their grandchildren’s tuition (but not other educational expenses) while still making annual exclusion gifts to the beneficiary.

Custodial Accounts: UGMA/UTMA accounts are a good way to pass assets down to children for education purposes, but use caution because once the child turns the age of majority, there is a change of control and the child owns the assets outright.

Home Equity:  Rates are typically variable and liquidity may be an issue in the current real estate market; however, interest (in some cases) may be tax deductible.

Loans: If liquid assets are insufficient, a student loan may be necessary.  In addition to some private loans, government loans may also be available. The government’s Stafford student loan ranges from $3,500 – $5,500 per year with payments deferred until graduation.  Payments for parental PLUS loans begin immediately. www.fafsa.ed.gov

Life Insurance:  Some life insurance policies (high cash surrender value and low death benefit), can cover education expenses in the event of premature death while also providing the option to use loans against cash surrender value as a tax-deferred source of education funds during the life of the insured.  Furthermore, life insurance assets are typically excluded from financial aid calculations.

Retirement Accounts:  If the qualified plan (excluding IRAs) has loan provisions, clients may be able to take a loan against their retirement account leveraging the benefit of tax-deferred assets.  As long as the loan and interest are repaid within 5 years, income taxation and penalties on the withdrawal may not apply. However, extreme care should be taken when considering retirement assets since other financing is available for education funding, but not for retirement!

EE Savings Bonds: Fixed income instrument that returns a fixed amount in interest every year for 30 years. Interest on these bonds is tax-free if used for qualified education expenses. EE’s must be issued in the name of the issuer age 24 or over (usually the parent/grandparent). This exemption phases out for joint filers between $109,250 and $139,250.

Tax Credits and Deductions

Education tax credits and deductions may be available depending on individual tax situations:

American Opportunity Credit:  Up to $2,500 per student is available for the first four years of undergraduate education with a phase out for joint tax filers between $160,000 and $180,000 of modified adjusted gross income (MAGI).

Lifetime Learning Credit:  20% of qualified expenses up to a $2,000 maximum credit for undergraduate or graduate expenses with a phase out for joint tax filers between $107,000 and $127,000 of MAGI.  Only the American Opportunity Credit or the Lifetime Learning Credit can be used in the same year.

Deductions:  Additionally, up to $2,500 of student loan interest may be deductible (phase out for joint filers between $125,000 and $155,000 of MAGI) as well as up to $4,000 for qualified higher education expenses (phase out between $130,000 and $160,000 of MAGI for joint filers).

www.savingforcollege.com is an excellent resource for additional information on college funding options.

Windham Brannon Financial Group, LLC (WBFG) obtains historical and other information from a wide variety of publicly available sources. We have taken all reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information from this presentation. WBFG and its affiliates do not have, nor claim to have, sources of inside or privileged information regarding expected future returns on any investment proposed. The recommendations developed by WBFG are based upon the professional judgment of WBFG and its individual advisory affiliates and neither WBFG nor its affiliates can guarantee the results of any of their recommendations. Clients at all times may elect unilaterally to follow or ignore completely, or in part, any information, recommendation, or advice given by WBFG and its affiliates. Past performance is not necessarily indicative of future results.

© 2013 Windham Brannon Financial Group, LLC. All rights reserved. Any use of information contained in this presentation, including reproduction, modification, distribution or republication, without the prior written consent of Windham Brannon Financial Group, LLC is strictly prohibited.

CHARITABLE DONATION AS A TAX CREDIT

A taxpayer can donate up to $1,000 if single and $2,500 if married to an approved Student Scholarship Organization (SSO) and take that amount as a tax credit (see below). This SSO will then pool these donations to provide scholarships to deserving families to help cover the cost of private school education.

The SSO forwards the pooled donations to the schools designated by the individual donors.  Then the schools award the scholarships to individuals they pick based on their criteria.

TAX BENEFIT

For a taxpayer’s Georgia tax return, the amount of the donation is a tax credit.

For a taxpayer’s Federal tax return, the amount of the donation is an itemized deduction as a charitable gift.

For most taxpayers, this means that the tax benefit could be in excess of the donation. As always, you should consult your CPA first.

THE PROCESS

If you are interested, here is the general process, but the each SSO website also provides detailed instructions.

1. Select your Student Scholarship Organization (SSO)
2. Request pre-approved from GA Dept of Revenue by November 1^st
3. Obtain approval by mail from the GA Dept of Revenue
4. Make contribution to the SSO and designate the recipient school by December 31^st
5. File your tax returns with all confirmations from the SSO and the GA Dept of Revenue.

Note: You cannot electronically file your Georgia tax return.

Student Scholarship Organizations (Click on the below links to learn more about each organization and the schools they support.)

http://www.goalscholarship.org/

http://www.gracescholars.org/

http://www.apogeescholarships.org/

If you have any further questions, feel free to give us a call.

In addition to your Social Security number, you will be asked a series of questions with other identifying information.  If this information is authenticated, your report(s) will be available immediately.  If your identity is not readily authenticated, you will receive instructions to receive your reports by mail.  Failure to authenticate immediately is not necessarily indicative of identity theft or fraudulent activity.

Credit reports include information about you that could be provided to third parties such as lenders as well as information on inquiries made into your credit.  After obtaining your report, you will be given the option to purchase your credit score for a small fee. In the event you would like to dispute or obtain additional information on an item on your report, you should follow up directly with the specific credit bureau reporting on the item in question.  Social Security-only ID theft, where someone (often undocumented workers) use your Social Security number with their own name can be harder to detect and may not be caught through reviewing credit reports.

We recommend “spreading out” your 3 free annual credit reports over the course of the year.  By requesting one from a different agency every 4 months you will be able to keep an ongoing eye on any suspicious activity and catch errors earlier.  If you do find yourself or a loved one as the unfortunate victim of identity theft, our series of articles on Identity Theft, particularly the Recovery Steps piece, offers guidance on how to remedy the situation.  We also recommend using caution with “credit clinics” or services claiming to offer help restoring your credit for a fee.

Recent media attention on the exploitation of children’s identities has highlighted the need to monitor their credit reports as well.  A recent survey of 40,000 children by identity reporting company Debix revealed the identities of 10% had already been tainted.  The FTC recommends a thorough check of children’s credit at age 16 to provide ample time for restoration if there are any issues.  Additionally, checks may be performed every 3 to 4 years or if you suspect they are being victimized.  Doing so more frequently may result in creation of a premature credit file which may inadvertently make exploitation of their identity easier for criminals.)  Possible signs of identity theft to minors may include unsolicited offers for credit, IRS inquiries or medical claims for services not performed.

The three credit reporting agencies do not knowingly maintain files for children under 13 because the Children’s Online Protection Act restricts collection of information for children under this age.  While information may be collected for minors between the ages of 14 and 18, it is unlikely that they will have credit files.  As such, for inquiries on your children, you should contact the reporting agencies directly (versus through the annual credit report website).  Be prepared to provide copies of their birth certificate and Social Security card in addition to the standard identification data as well as proof of legal guardianship.  Transunion appears to have the most user-friendly process for obtaining a minor’s credit report.  If the Transunion report shows anything of concern, you should also follow up with Experian and Equifax using the form that can be accessed via the following link:

http://www.idtheftcenter.org/artman2/publish/v_templates/Letter_Form_120.shtml .

If you are still particularly concerned about identity theft or have been victimized in the past and don’t want to go through the hassle and stress again, commercial services provide monitoring services and some offer assistance to members who become victims of fraudulent activity.  While these services are not able to do more than you could on your own to restore your identity and clean up credit records, they can save you time by dealing with much of the hassle for you – not insignificant since it is estimated that restoring credit can take up to 40-600 hours!  Lifelock is one such service; for less than $300/year, their Ultimate Plan offers daily monitoring of your reports with the three credit bureaus as well as help if you are victimized in addition to other benefits.

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www.annualcreditreport.com

“Stop ID Thieves From Stealing Your Kid’s Credit” by Bob Sullivan. May 12, 2011. MSNBC

 © 2012 Windham Brannon Financial Group. All rights reserved. Any use of information contained in this article, including reproduction, modification, distribution or republication, without the prior written consent of Windham Brannon Financial Group (WBFG), is strictly prohibited. We have taken all reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information from this article. The recommendations developed by WBFG are based upon the professional judgment of WBFG and its individual advisory affiliates and neither WBFG nor its affiliates can guarantee the results of any of their recommendations. Clients at all times may elect unilaterally to follow or ignore completely, or in part, any information, recommendation, or advice given by WBFG and its affiliates.

Donors receive an immediate deduction for the full amount of their gift (subject to normal AGI limitations that apply to gifts to public charities) even though the funds may not be distributed to the specific charities until later years.  In the meantime, the funds can grow tax-free while invested in the DAF’s investment options at the donor’s direction if so desired.  Schwab Charitable Fund, The Community Fund for Greater Metropolitan Atlanta and the National Christian Foundation, among others, allows donors to name their personal investment advisor for accounts exceeding minimum thresholds.  Typically, a DAF has greater flexibility with required annual distributions in comparison to private foundations or charitable trusts.  As long as 5% of the total of the overall funds administered by the charity on behalf of all of the individual donors is distributed each year, minimum distributions will not be required for individual sub-accounts and with most large funds, this requirement rarely, if ever, is an issue.

In addition to handling all recordkeeping and required filings, many DAF’s offer resources to assist donors in identifying charities that align with their personal values.  A DAF can also provide an opportunity to establish a family charitable legacy as funds can be given a family name with designated successors to continue directing charitable gifts from the account upon the death of a donor.

As we focus on Charitable Giving in our “Seasons of Planning,“ we would be happy to talk to you more about a DAF or other strategies to accomplish your charitable goals.

© 2012 Windham Brannon Financial Group. All rights reserved. Any use of information contained in this article, including reproduction, modification, distribution or republication, without the prior written consent of Windham Brannon Financial Group (WBFG), is strictly prohibited. We have taken all reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information from this article. The recommendations developed by WBFG are based upon the professional judgment of WBFG and its individual advisory affiliates and neither WBFG nor its affiliates can guarantee the results of any of their recommendations. Clients at all times may elect unilaterally to follow or ignore completely, or in part, any information, recommendation, or advice given by WBFG and its affiliates.