Kitces.com - Advancing Knowledge in Financial Planning

Charitable Contributions from IRAs are Back! And Overhyped! And Still an Inferior Gifting Strategy!

December 29, 2010 04:03 pm 7 Comments CATEGORY: Taxes

Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (or the "Tax Relief Act" for short!) signed into law by President Obama on December 17th, taxpayers over age 70 1/2 may once again make up to $100,000 per year of so-called "qualified charitable distributions" out of their IRAs and directly to a charity, for the 2010 and 2011 tax years. Doing so allows the entire amount of the distribution to be excluded from income, effectively ensuring that those IRA dollars are never taxed, while also satisfying charitable goals.

Unfortunately, the problem is that this is actually a remarkably INefficient way to make significant charitable gifts, compared to other alternatives available under the tax law!

Is There A Double-Standard For Measuring the Effectiveness of Active Management?

December 27, 2010 02:52 pm 3 Comments CATEGORY: Investments

Determining whether an active manager is having a positive impact is a difficult thing to measure, without a doubt. Yet before one can even begin to determine if a manager is delivering value, you must first consider what it takes to constitute "value" in the first place. How much does an active manager need to outperform, in order to be delivering value to the client, to be worth the fee that is paid to the manager? Yet for some reason, we scale we use to measure the cost is very different than how we measure (out)performance. Is there a double-standard here?

If All "Market Timing" Is Bad, Maybe It’s Time For A New Definition

December 24, 2010 03:34 pm 8 Comments CATEGORY: Investments

Once again the charge of being a “market timer” is being hurled at active portfolio managers in a recent discussion thread initiated by Bob Veres on Financial-Planning.com. The term itself seems to get planners into such a tizzy, though, while the actual definition of what constitutes “market timing” is unclear at best; perhaps a new definition of market timing is in order. To say the least, the most common definition of market timing, the one that implies that market timers are similar to “retail” day-traders willing to take their portfolios to extreme asset allocations based on their very short-term predictions of future market behavior, is badly in need of an upgrade.

Is It Time To Bypass The Bypass Trust? Estate Planning in 2011…

December 21, 2010 04:24 pm 4 Comments CATEGORY: Estate Planning

Planning around estate taxes by using a Bypass Trust is a "basic" strategy that has been around for decades. In fact, for many clients, it was a major impetus to get their estate planning done in the first place - if your estate was above a certain threshold and you didn't get estate documents that would put a proper Bypass Trust in place, it could cost your beneficiaries hundreds of thousands of dollars.

Yet with the new provisions of the tax legislation signed into law last week by President Obama, Bypass Trusts will no longer be necessary for many clients to maximize the use of a couple's estate tax exemptions - which means it may be time to bypass the Bypass Trust planning strategy.

Setting a Price on the Value of Financial Planning… Compared to What?

December 20, 2010 06:33 pm 5 Comments CATEGORY: Practice Management

As with many labor-intensive professional services, financial planning is not inexpensive to provide for clients. There are overhead costs, potential staffing costs, regulatory and compliance costs, in addition to the costs for software and services to support how professionals deliver their value. Accordingly, all of this is wrapped into the price that financial planners must charge their clients to earn a reasonable living and an adequate business profit. Yet often clients balk at the cost of financial planning. Which begs the question - if your clients think financial planning is expensive... to what are they comparing that cost?

Retirement Income Guarantees: Must It Be All Or None? Should It Be?

December 16, 2010 07:32 pm 7 Comments CATEGORY: Retirement Planning

For many years, the use of annuities for retirement income guarantees often fell along all-or-none lines - either you annuitized the entire amount of income the client needed, or you didn't. In more recent years, this view has shifted, whether it means just annuitizing a portion of the client's assets to satisfy some of the income needs, or using a variable annuity with income/withdrawal guarantees to insure at least a portion of the income goals.

Although these strategies are viewed by many as a more balanced and "diversified" way to distribute income needs amongst various products and risks - for instance, insuring 50% of the income goal and investing towards the other 50% - it begs a fundamental question: what exactly does it mean to insure half of a client's retirement income goal?Read More...