When retirement finally arrives, hopefully you’ve met with a financial planner (if not, I know a good one I can refer you to ) that has helped you map out your income plan through your golden years.  If you have a philanthropic heart, then passing on a portion of your legacy to a charitable organization may be part of your plan.  But how do you give to charity without jeopardizing your income needs in retirement?   Let’s introduce you to the Charitable Remainder Trust (CRT).  Setting up a trust seems complicated, but with the help with a knowledgeable attorney; setting up a trust can be relatively easy process.  There are many types of trusts that you can set up, but we’ll focus on the CRT.

Trust Recap

If you’re not quite sure what a trust is or how it works, here’s a recap.  Generally speaking, a trust is a legal entity that is central to a three-part agreement in which the owner of an asset, the trust grantor (This is you); transfers a legal title of that asset to a trust for the purpose of benefiting one or more beneficiaries.  I should have warned that trust language can be kind of wordy, so please bear with me. The trust is then managed by one or more trustees. You can determine who the trustee might be.  Either a loved one, close friend or relative, or even a financial institution. Trusts may be revocable or irrevocable, and may be included in any will to take affect of death.  In summary, a trust will address these three items:

• How you want your assets managed, and eventually dispersed?
• Who you want to benefit now and in the future?
• Who you want responsible for carrying out these instructions?

How Does a Charitable Remainder Trust Work?

A charitable remainder trust is what’s also called a “irrevocable” trust,  where once you place the assets in the trust they are in their good.   Generally, you would want to place highly appreciated assets (for example stock) in the trust and then set it up where you receive an income stream from the trust.  The income stream has the option to be set up where it pays you over your lifetime or a period certain- not to be greater than 20 years.  In addition, you can also set it up to where it pays over the lifetime of your heirs.  After the period or the life of the heir has passed, a charity will then receive any portion of the asses left over.

Benefits of a Charitable Remainder Trust

There are several benefits for implementing a CRT.  By placing assets in the trust, you get an immediate tax deduction and since it’s treated as a gift, it can you help you avoid potential estate tax since now the assets are no longer part of your estate.

The other notable benefit is the ability to place assets with an extremely low cost basis in the trust and sell them without incurring any capital gains.   Here’s an excerpt from FindLaw.com that elaborates more:

A charitable remainder trust is not subject to any income tax unless it has unrelated business income. Thus, if you are nearing retirement age and the funds contained in your existing retirement plan are inadequate for your future retirement needs, and if you hold any low basis assets outside your retirement plan funds, you have the opportunity of transferring those low basis assets to a charitable remainder trust and liquidating those assets to allow for a diversification of the proceeds into higher income yielding assets, without incurring any capital gains tax. As the grantor of the trust, you can retain an interest in the trust for your life in an annuity amount or unitrust amount as described above, to enhance the amounts distributed from your retirement plan. As assets are distributed from the charitable remainder trust, you would be taxed on those distributions in accordance with a tier system of income taxation.

CRT Example:  Suppose you sell a real estate property for $1 million that you originally paid $50,000 for. Upon completion of the sale, you would owe capital gains taxes on the $950,000 difference. That tax could easily be greater than $175,000, depending on how long you owned the property and your overall tax situation.

Disadvantages of a CRT

The biggest and most obvious disadvantage of a CRT is that it’s a “irrevocable” trust and you no longer have access to the principle.  You have to be sure that you plenty of access to other funds outside of the CRT that will take care of any immediate income needs.

Another disadvantage is the income tax deduction you get from the CRT.  What makes it a disadvantage is that you you have a limitation in how much of a deduction you can take.  The amount is based on several factors including your life expectancy, number o f heirs you select, and type of CRT you select.

Consult a Professional

If you think a CRT might make sense for your estate plan, be sure to consult with an attorney.  The attorney should draft a personalized document to conform to the  current laws of the appropriate jurisdiction.

Hope the Holiday Season is a good one! Merry Christmas and God bless.

Christmas in the air!

It’s Christmas in the air!
Snowflakes in December
Children site with Santa’s toys
Their gloves wiping crystalline ice,
Off shiny plastic
Our breath thick like fog
Mingles in oneness
As we stand back to
Look upon the completion
Of our Christmas trees
Giggling from heady wine
And feelings shared
It’s Christmas in the air!

Merry Christmas From the Rose’s from Jeff Rose on Vimeo.

Memorial Day 2009

Memorial Day is always a challenging day for me.  It’s a day where I feel so thankful to be at home with my family and realize how fortunate I am to have survived a deployment to Iraq.   There have been countless times where people have thanked me for my service and it always leaves me speechless.  What does one say to that?  Typically, I just respond with, “Thank you for the acknowledgment”.  I mean I just did what was asked.  That’s it.  But there have been thousands of fallen soldiers who gave the ultimate sacrifice and that’s what Memorial Day is about.

If you know somebody who has lost a loved one in the war, tell them your thinking about them.  This day is for them.

You can find a good memorial day read over at Art of Manliness.   He has a guest post from Lt. Buck Compton who is one of the last survivor members of Easy Company (from the HBO documentary Band Of Brothers).  When I think of heroes, these are the guys that I think about it.

Post of The Week

• Digerati Life presents How To Avoid Foreclosure: Keep Your House in Troubled Times
• 41 Bloggers Share Their Best Money Advice at Squawk Fox
• How To Create A Strong Password You Can Remember at Bargaineering
• Never Underestimate (or Overestimate) Small Savings or Income Opportunities Four Pillars
• Gather Little By Little teaches you how to build a compost bin
• Cash Money Life wants to help you Evaluate Which Online Broker Is Right For You?
• My Dollar Plan provides another summary in her article Credit Cardholders’ Bill of Rights Act of 2009.
• 67 Ways to Not Sell a Car over at Man Vs. Debt
• Free From Broke offers 25 Traits of the Not So Well To Do

This week’s carnivals:

• Carnival of Twenty Somethings- Wedding Edition was hosted at Financial Highway.
• Carnival of Money Stories: May Two-Four Edition was hosted at Prime Time Money.
• Money Hacks Carnival – Otter Pop Edition was hosted at The Stretchy Dollar.
• Carnival of road to financial independence #7 was posted at One Family’s Blog.
• 178th Festival of Frugality was hosted at Living Almost Large.
• Personal Investment and Personal Finance Blog Articles this Week was hosted at the Skilled Investor.
• Wealth, Money and Life Carnival – May 23, 2009 was hosted at Dividends Value.
• OneMint – Economy and Your Finances Carnival 24 May 2009 was hosted at One Mint.

Securities offered through LPL Financial, Member FINRA/SIPC

The Weakonomist from Weakonomics tagged me for some meme action.  What we’ve got here is a case of 7 things you don’t know about Jeff Rose.  I’ve seen a few other bloggers take part in this and I’ve almost done it a few times, but never pulled the trigger.  Well, now that I got tagged, I guess I have to fulfill my obligation

7 Things You Didn’t Know About Me” Meme Rules

1. Link to your original tagger(s) and list these rules in your post.

2. Share seven facts about yourself in the post.

3. Tag seven people at the end of your post by leaving their names and the links to their blogs.

4. Let them know they’ve been tagged.

Here are my 7:

1. I played Tenor Saxophone up until 8th grade and pretty well, if I say so myself.   Now, I couldn’t tell you the difference between between B flat or A (are those even notes?)
2. While attending college in California I would also do “extra” work part time.  You know when you’re watching a TV show or movie and you see the “extras” in the background?  That was me.  Most notable shows include: Beverly Hills 90210, Boy Meets World, Buffy The Vampire Slayer and Sabrina The Teenage Witch.  Even met Robin Williams on a movie set and we did the “Nanu Nanu” thing (From Mork and Mindy for all the young ones out there)
3. I am a die hard St. Louis Cardinals fan, but would root for the Cubs if they made it to the World Series.  I know, I know.  You’re thinking what I’m thinking.  The Cubs will never make it to the World Series.  cough*Go Cards!*cough
4. I first saw my wife when she was in high school and I was a freshman in college at a  local gym we used to work out at.  She used to wear tube socks to work out in and my friends and I referred to her as “high sock girl”.   It still think it’s cute
5. My first name is Jan (rhymes with Dan).  Yes, I know.  It was a name that my grandmother liked and my parents bought into it.  My dad’s first name was Ferrell (he went by his middle name, too).  I was very conscious about giving my son a first name that he could actually use.   Do you blame me?
6. My favorite place to eat in the world is In-N-Out Burger.   Unfortunately, their only on the west coast.  Luckily, my mom is retired living in Las Vegas.  When I visit her, guess where my first stop is when we leave the airport?
7. When watching TV I can’t watch two things:  confrontation and something scary.   I always have to cover my face when either one is on.   Whenever Jason was breaking up with Melissa on the Bachelor I had to look away.  My wife gives me all sorts of crap for it.  That’s why I love her.

I’m tagging:

• Think Your Way To Wealth
• Four Pillars
• Ms Career Girl
• Studenomics
• Free From Broke
• Babeled
• House of Rose

This week’s carnivals:

• Learn The Basics of Investing – Edition #197 of Carnival of Personal Finance was hosted at Four Pillars.
• Carnival of Twenty Something Finances – Mustache Edition! was hosted at Pimp Your Finances.
• Festival of Frugality #170 – Frugal Living is Timeless was hosted at Money Ning.
• Personal Finance Blog Articles this Week was held at The Skilled Investor.

Securities offered through LPL Financial, Member FINRA/SIPC

Wow!  What an eventful week last week.  How busy?  Well, busy enough that I’m doing my weekly round up on Tuesday instead of Sunday.  For those that have been keeping up, you may know that I flew out to New York on Friday to meet with the producers from CNBC’s personal finance show called “On The Money“.  It was supposed to be a simple trip that had me leaving St. Louis airport at 8:55 a.m., arriving to Laguardia with plenty of time to get to my appointment at CNBC by 3 p.m. and then catching the return flight back to St. Louis at 7:50 p.m.  Yes, that’s a lot of traveling in one day, but I felt it was worth it.

Well, the day started off with me not being able to sleep (nervous perhaps?) and finally falling asleep at 1:30 a.m. to be awoken by my alarm at 4 a.m.  For those than familiar with the area, it takes about two hours for me to get the airport, so I have to schedule enough time to park, check in and go through security.  So as I’m driving up to St. Louis on minimal sleep, I get a phone call from American Airlines informing that my flight had been cancelled and the next flight would be at 10:55 a.m.  Great!  I could have got more sleep.

We finally board at 10:30 a.m. and then get an announcement that are flight was being pushed back again till 11:30.  Remember my 3 pm appointment with CNBC?  Yeah, it’s getting close now and I’m starting to panic a bit.  So what’s next?  How about another push back to 12:35 p.m.  Are you kidding me?   By this time, I’m e-mailing the producer at CNBC letting her know of my dilemma, but she reassures me that they will wait for me.  That relieves me  a bit, but not enough where I can get any sleep on the flight. Did I mention that American Airlines was nice enough to offer $4 bags of mixed nuts as a token of their appreciation of making me late?  They definitely win the customer service of the year award.

I finally arrive to NYC at about 3:30 (already 30 minutes late) and I have to catch a cab to New Jersey.  After grabbing a pretzel at the airport which was my breakfast and lunch, I flag down a cab and begin my trafficked filled journey across the river.   Did I mention my cab fair was $110?  That’s almost half of the price of my airlines ticket.  Just another reminder why I live in the Midwest.

I finally make it to the studio at about 5:20 p.m.  Remember my return flight is at 7:50 so I don’t have much time.  I had a wonderful meeting with the producer’s and my take away, provided I pass a background test (no skeletons in my closet), they are going to try me out for a segment and see how I do.  If I do well, “we’ll see from there” was the producer’s words.  Woo-hoo! I don’t have a time or date yet, but rest assured; I’ll keep you all posted on the developments.

The meeting ends about 10 after 6 and I’m racing to the next cab (yes, the second $100 cab ride).  I already think that there’s no way I can make it and I already have visions of me sleeping on the airport terminal floor.  Man, I miss my bed.  But thanks to Bruce the cab driver, I make it to the airport at 5 till 7 p.m. and I’m think I’m good.  Actually, I was more than good.   Why?  Because American Airlines pushed back my flight again!  This time I didn’t leave until 9 p.m.   Arriving in St. Louis at 11 p.m., I didn’t make it home until almost 2 a.m. and I was pooped.  I slept like a baby, though.  Happy thoughts of me being on CNBC. 

Good Reads For the Week:

• 5 Dollars Really Adds Up! – A guest post by Bobbi at Gather Little by Little
• 10 Tips to Reduce Your Clutter and Get Organized – Simple. Organized. Life.
• Recession-Proof Your Debt Snowball – Great post over at Frugal Dad.
• Insurance Round Up- Fellow Bloggers share their experiences of how they got their families insured at Prime Time Money
• Stop Lying To Yourself - over at Studenomics.
• I recently wrote a post on Cobra Insurance and then the laws were changed a bit.  Four Pillars offers the Cobra Insurance Subsidy details for 2009.
• Make sure you compare your auto insurance rates.  Amateur Asset Allocator gives some good tips.

This week’s Carnivals:

• Rich Life Carnival #32 was held at Rich Life Equals Better Life.
• Festival of Frugality #166 – The Winter Is Almost Over Edition was held at Student Scrooge.
• Carnival of Personal Finance #193: YouTube Edition
• Money Hacks Carnival: Bailout Edition was hosted at Personal Finance Ology.

Securities offered through LPL Financial, Member FINRA/SIPC.

My Firm LPL Financial just released its Outlook for 2009.  Here is one of the inserts that addresses the likelihood of another Great Depression.  A bit technical, but good information.  If you want the whole report as a PDF, just contact me and I would be happy to e-mail it to you.

The Great Depression came about because of serious economic and monetary policy errors which compounded what was already in serious recession.  Actually, according to the National Bureau of Economy Research, the NBER, the official date setter of US recessions, there were two major back to back recessions in the late 1930s with a significant recovery in the middle.  The economy and regulatory environment of the 1930s are a far cry from today’s, but can great a great depression occur again?  We believe we cannot, but it is important to understand why the 30s Great Depression unfolded as it did, and the lessons that the experience offers today.

There are several key elements of recessions.

There was a recovery that started in 1933 but was aborted in 1937. During the recovery, U.S. industrial production rose 121% before nose diving a second time in 1937 and 1938. Additionally, the unemployment rate followed a similar up, down, and then back up pattern.

The main problem throughout the Great Depression was, in our opinion, highly ineffective monetary policy on the part of the Federal Reserve. As the first recession was underway in mid-1929, the Fed did nothing; actually worse than nothing, it allowed the money supply to contract and did nothing to support the banking system. The Fed is supposed to be the “lender of last resort”, but back then it did not accept that role. Its policy was to lend reserves to banks only if those loans were collateralized by investment grade corporate debt. It would not even accept government securities as collateral.

The Deepening Recession

As the recession deepened, more and more corporate debt on banks’ balance sheets dropped below investment grade. When depositors started withdrawing money from the banks, the Fed refused to give banks enough borrowed reserves to meet the deposit runs, and a wave of bank failures recovery started underway. However, between 1936 and 1937 the Fed doubled the bank reserve requirements. The demand by the Fed for higher reserves triggered a second wave of bank failures, and another deep recession took hold. Industrial production plunged again, real GDP fell again, and the GDP price index, which had already fallen about 25% in the first recession, fell again in the second.

Take a Look at The Monetary Policy

So, although there were a number of serious blunders in fiscal, regulatory, and trade policies, we view the main cause of the depression to be very counterproductive monetary policy by the Fed. Today, we view monetary policy as strongly headed in the exact opposite direction—the right direction. Over the last three months, the Fed has expanded bank reserves from their normal level of about $45 billion to more than $650 billion, accepting just about any assets the banks have as collateral for loans. The Fed is also in the process of generating a major expansion in the money supply, with the monetary base nearly doubling during the last three months. M1 has increased 9% during the last three months. Given these actions, coupled with much improved fiscal, regulatory, and trade policies, we consider the probability of a return to the “Great Depression of the 1930s” to be highly unlikely. Not Repeating the 1930s For the United States to enter into a depression like the one in the 1930s, huge policy mistakes would have to be made, and made quickly. We do not think these mistakes will be made, but want to outline what they might be and how they would impact the economy and markets.

Policy mistakes would include:

• The Fed reversing course and increasing rates over the course of 2009.
• The Fed raising bank reserve requirements.
• The Fed abruptly discontinuing the reflation program that it has already begun.
• A wave of global protectionism.
• The elimination of the TARP and related housing and bank rescue measures.
• Consequences of those policy mistakes for the economy and markets would include:
• Real GDP falls by an annualized 7% per quarter for all of 2009.
• The unemployment rate soars past 25%.
• Deflation grips all assets prices.
• Oil approaches $5 a barrel.
• Massive corporate and personal defaults—greater than 20%-25%
• Social unrest increases in the United States, along with a continued increase in social disorder overseas.
• The US dollar rises due to a flight to quality.
• The Eurozone breaks apart.
• Gold soars.

Equity markets: Under another great depression, we believe the S&P 500 index would fall to a level of 360, driven by an 8 price-to-earnings ratio (P/E) on the next 12-months expected earnings per share (EPS) of about $45 in 2010 and a dividend yield of 5% to 7%. For context, this would be an additional 60% decline from current levels and would erase 12 years of earnings growth. The index would likely be mired there for the next few years. If this scenario of “completely eroded confidence with no end in sight” unfolds, investors would focus on only the most defensive of earnings streams, and relative performance among equity asset classes would be immaterial to the magnitude of the losses across all asset classes.

Fixed income markets: We would expect T-bill yields to turn negative and expect the 10-year Treasury Bill to trade below 1% and move close to 0%. Investors would be seeking any and every safe haven—and government issued and guaranteed debt would be the place to go. With yields at 0% or negative, investors would be paying the government to hold their money.
However, investors acknowledge that knowing their assets are safe is worth the price.

Securities offered through LPL Financial, Member FINRA/SIPC

The sounds of Jingle Bells and snow flurries are in the air.  Christmas is so close, an always exciting time of the year.  Can’t wait to see how our 18 month enjoys his second Christmas.  Hopefully, he will be more into the actual gift than the wrapping paper this year.

In the blogosphere, there was a lot of good stuff to share.  Can’t reference them all, but I’ll try my best. Ho! Ho! Ho!

Jeremy at Gen X Finance had a phone conference with the one and only Suze Orman.  It’s good to see PF Bloggers being recognized for their efforts.  Here soon I’ll be posting on my experience with the Steak-Chili Recipe that Jeremy had on his blog earlier this year.

Paid Twice had a good discussion on what it means to have a fully funded emergency fund. Emergency funds are a key component of any financial plan and sadly most people don’t have them.

With the Recession upon us, many that may have wanted to start a business might have put it on hold.  Dough Roller shares a real life story of somebody that did start a business during these tough economic times and is still around.

Over at Cash Money Life, we had a guest author The Wandering Tax Pro who contributed a series of articles on various retirement plans for businesses.  He covered the Simple Plan, SEP Plan, Solo 401k, and Keogh Plan.  It left me wondering my Good Financial Cents doesn’t have this info yet.  Don’t worry, soon enough.  Good posts to check out.

Consumer Boomer had a really neat personal story about his Terminex experience. For those considering to use them, this might be a good article to check out.  Have to appreciate Papa Boomer’s sense of humor (hence the title of the post).

For the touchy post of the week, we go to Free From Broke.  The post is actually from Mrs. FFB and shares her struggle from being a stay at home mom versus returning to work.  My wife and I dealt with this same struggle, but are very fortunate enough to have grandparents that are close by.

Last, but not least, Moolanomy had a great post on losing money and possibly having to pay taxes this year because of capital gain distributions.  Very good read and strongly recommended.

Securities offered through LPL Financial, Member FINRA/SIPC

VS.

Sorry to get off on my usual discussion of financial planning, but this was worth blogging about.  My Alma mater, Southern Illinois University Carbondale, had an amazing comeback victory against Umass this week in the 2k Classic Tournament.  By winning against Umass, SIU now heads to the Big Apple to play Duke which should be a good battle (fingers crossed).  The game will be televised on ESPN2 on Thursday, November 21st.  Be sure to set your calendars, so you don’t miss out.

Thrilling Come Back!

This is the first year for us to have season tickets, so we’re hoping that SIU basketball will have a good year, and what a way to kick it off.  They were down by 15 in the first half only to have a thrilling comeback in the second half.  Freshman Kevin Dillard and senior Bryan Mullins went 3 point ballistic in the second half and Carlton Fay was Larry Bird-esque scoring 7 consecutive points to lead the team with 16 points for the game.  As a diehard SIU Basketball fan, I can only say one thing……Bring on Duke!
For more great SIU Basketball coverage, check out the Dawg Blog at the Southern Illinoisan.