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3 ways to increase your wealth—and maximize your legacy

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The coronavirus derailed many plans this year but it hasn’t made a dent in two major priorities: maximizing wealth and ensuring a legacy for heirs, loved ones and philanthropic causes.

Unfortunately, much of what’s worked for investors over the previous five years likely won’t work over the next five years.

How Annuities Could Protect Your Retirement Income

Taxes are expected to rise. So is inflation. Given that backdrop, now’s the time to consider a three-bucket approach to achieving your financial goals: savvy tax planning, real estate strategies and charitable giving.

To some extent, these three are proven tactics, but they’re more important in coming months than at any other time in recent memory. Why? For one, rising U.S. debt will have long-term economic ripple effects. This year through September, the federal government piled up a record $3.1 trillion deficit as it borrowed to fund its massive coronavirus stimulus packages. Debt levels are now higher than the value of the U.S. economy, as measured by gross domestic product. Another stunning figure: U.S. debt has climbed to totals unseen since World War II.

It’s pretty safe to assume we’re coming into an era of higher taxes as the government seeks to retire that debt. Putting effective tax, real estate and philanthropy strategies into place—now—is more relevant than ever.

Meanwhile, the Federal Reserve is loosening its guidelines on inflation. Their new stance isn’t surprising since the U.S. government has flooded the economy with dollars to fund its stimulus plans. The Fed has almost doubled its balance sheet to $7.1 trillion from $3.7 trillion in September 2019.

As the cost of goods and services rise, investors and savers will likely see cash flow and discretionary income suffer. Their ability to invest, build wealth and fund their legacies will also likely diminish.

Now imagine the higher inflation scenario paired with higher taxes. Disposable income will likely dwindle at the same time the government is asking for more through tax revenue.

Wise investors need to develop financial plans for what may be an era of tax hikes and inflationary prices. A solid three-basket strategy may help you protect wealth and legacy savings. The three baskets are:

1. Tax strategies. Have you done all you can to maximize pre-tax contributions? There are useful strategies for owners and employees alike.

A firm owner may want to investigate an employee profit-sharing plan or cash balance plan. The IRS considers allocations into these trusts as deductible expenses for employers.

An option for some employees could be deferred compensation plans, which allows them to defer a percentage of their salaries—and the taxes they pay on that portion—until they are in a lower tax bracket (i.e. retirement). These plans are generally best suited for highly compensated employees who can afford to put money aside.

Small business owners and the self-employed may consider simplified employee pension IRAs. Known as SEP IRAs, these are tax-deferred retirement accounts.

2. Real estate. In a financial environment with higher taxes and greater inflation, certain real estate sector investments allow investors to take depreciation and amortization deductions over the short term while winning growth and capital gains over the long term. Note of caution however: These types of investments, while tax beneficial, tend to be illiquid, or challenging to sell quickly. The risk is that an investor may have their capital locked up in an asset they can’t immediately liquidate.

3. Legacy. Now may be the time to consider creating a charitable lead trust or family foundation. Donations to these non-profit organizations can provide hefty tax deductions today while allowing assets to appreciate significantly over time to the benefit of favored causes in the future. In recent months, unusually low interest rates have made charitable lead annuity trusts especially attractive.

This three-basket strategy could offer significant benefits, particularly when taxes and inflation are rising. But each strategy must be integrated properly into overall portfolios and it’s important to discuss the overall plan with experienced attorneys or financial planners.

At the same time, remember that changing one asset allocation can have significant but unintended consequences on the rest of the portfolio — when you pull one lever, you invariably move another. It always makes sense to consider the fate of the entire account before rebalancing three individual baskets within.

It’s also important to acknowledge that some of these strategies may cost some liquidity. Investors could receive immediate tax benefits, but at the cost of locking up significant sums for a time. At this stage of life, are you prepared to take some money out of circulation? Are you ready for college tuition for the kids and other major family expenses? How about a retirement home? Major travel?

Some of these protective financial moves aren’t necessarily easy or obvious, but they could be very rewarding. Would you rather put your hard-earned dollars toward something close to your heart, or would you rather pay taxes?

Coronavirus and the government’s response to it will create financial uncertainties for months and perhaps even years to come. With some thought and foresight in a new financial era, you may be able to create a valuable legacy for yourself and your family for a secure future.

Osman Minkara is the founder and managing principal of CIG Capital Advisors in Southfield, Mich.



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My brother owes $10K to our late father’s estate. There’s no loan agreement and I’m executor. How should I approach repayment?

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Dear Quentin,

My father passed and I am the executor of his will.

We sold the house and Dad’s assets with my brother’s help. Probate is done. We are ready to distribute the remainder of my father’s estate, but my brother owes the estate $10,000.

He feels that if he had paid this money back before Dad passed, he would still get half back, and therefore owes $5,000. (Dad also told me that he owed the money before he passed.)

My father’s will says his estate should be split 50/50. I feel my brother owes $10,000 to the estate. I do not want to rock the boat, and will do the right thing in order to keep peace.

What is the proper way to split $200,000 in cash when he owes the estate $10,000? For the record, my brother will abide by whatever I decide. Thank you in advance for your help.

Trying to Do the Right & Proper Thing

Dear Right & Proper,

You are right to not look for trouble where there is none.

Given that there is no notarized loan agreement between your brother and your late father and there is money to be distributed, it would seem simpler and faster to have him sign a note now saying he owes the estate $10,000 and deduct the $5,000 from his eventual inheritance. Done and done. He could, after all, say that the loan was only due to be repaid when your father was alive or, indeed, say the loan was a gift. (The subject of countless episodes of “Judge Judy.”)

Your story is a cautionary tale of what could go wrong. “A hug or a handshake is not sufficient to bind someone to loan repayment. Loans and repayment obligations should be spelled out in writing and include repayment terms upon the testator’s death,” according to the Absolute Trust Counsel, a California law firm. “It is the responsibility of the executor to collect the balance due. An estate cannot be settled until all loans are collected and all debts settled or paid.”

“When an estate is insolvent, the collection of outstanding loans becomes especially important. Creditors want to be paid and will pursue all available resources to accomplish that,” the firm adds. “Many times, unpaid loans create dissension among heirs. In some cases, heirs who owe money still expect to receive an equal share of an estate.”

There is a healthy cash sum from which to deduct your brother’s loan: $105,000 for you and $95,000 for him. It could get sticky otherwise.

Thankfully, your brother also wants to do what’s right and proper.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

The Moneyist: ‘Warren Buffett and Harry Potter couldn’t get those two retired early’: Our spendthrift neighbors said our adviser was ‘lousy.’ So how come WE retired early?

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These money and investing tips can help you sail the stock market’s choppy seas

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, give you tips about how to navigate the financial markets after February’s bumpy second half and signs pointing to March blowing in with more unpredictable winds.



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This 57-year-old said ‘screw this’ to San Francisco — and retired to ‘delightful’ Albuquerque, where she slashed her expenses by 70%

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When Roberta Reinstein moved to the Bay Area roughly 30 years ago to go to law school, it felt to her like a different place than it does now.

“It was possible for a student to live there…it was filled with artists,” she says. But Reinstein, 57, watched as real-estate prices skyrocketed (in just the past decade or so, home values have nearly doubled, according to Zillow) and many artists and less wealthy people had to move out. Nowadays, “San Francisco is only for the wealthy — the super wealthy — unless you’re willing to live with five roommates,” she jokes.


Do you have an interesting retirement story? Email helpmeretire@marketwatch.com with your story.

As she was watching San Francisco become a hub for the rich, she had a financial setback of her own: a divorce, in which she and her spouse had to split up their assets. And the divorce necessitated she move out of the family home, so she was spending $4,000 a month on a tiny pad to share with her daughter, Eva, she says.

“When Eva was in high school I started to think, do I really need to be here? There are lots of other places I can go.” And the more she thought about it, the more she realized: “Screw this, I gotta get out of here,” Reinstein says with a laugh. “I was ready for a break from the high cost, crowds and Google-fueled insanity of the Bay Area.”

Plus, she loved to flip houses (she’d done a couple in California years ago, before the real-estate prices were so high) and knew that was out of the question for her to do in the Bay Area — so she and her new partner, Peter, considered where else they could live. “We thought for a microsecond that Arizona might be the place, but it was way too hot in the summer.”

Roberta Reinstein and her partner, Peter.


Roberta Reinstein

They settled on Albuquerque for a number of reasons, including the weather, affordability of real estate, access to outdoor activities and the fact that Reinstein’s best friend had recently moved there.

Here’s what life is like in ABQ.

The area: Though it’s perhaps best known for its annual hot-air balloon festival and being the setting for AMC’s hit show “Breaking Bad”, ABQ — which has a population of roughly 550,000 — has a lot more going for it than that. “Albuquerque is a delightful, quirky hidden gem,” says Reinstein.

The Albuquerque Skyline at dusk.


iStock

It’s an artsy spot — there are hundreds of galleries and art studios; monthly art crawls, and a robust performing-arts scene — and a city where outdoor enthusiasts flock to. That’s helped along by the miles of hiking and biking trails in the adjacent Sandia and Manzano Mountains, as well as the roughly 300 days of sunshine. (Though January average lows are in the mid-20s, and July highs hit the low 90s.) And Reinstein tells MarketWatch she loves that it’s a diverse city with its own unique cuisine and celebrations.

Of course, there are downsides: Overall crime is high, though Reinstein says that while there are some not-so-desirable neighborhoods, there are plenty of areas that are safe. She adds that she’s never been the victim of a crime other than someone stealing a hose from one of the homes she was flipping. And there is “a fair amount of poverty,” says Reinstein. Plus, she says, the city can feel like it has a lot of sprawl, and she misses great Asian food.

View of the mountains from Reinstein’s yard


Roberta Reinstein

Here’s what MarketWatch recently wrote about Albuquerque.

The cost: Though Reinstein doesn’t keep a strict budget, she estimates that she probably spends about $3,000 a month to live in Albuquerque — despite having pricey hobbies like owning two horses — it costs her $1,250 a month to board them, which is her most significant expense. She says that most things are cheaper in Albuquerque than they were in San Francisco, including energy and gas, and estimates that she spends roughly 70% less a month than she did in the Bay Area.

Reinstein at the nearby stables.

The biggest way she saves money is by not having a mortgage on her home: She bought the four-bedroom, three-bath home that sits on an acre of land for $240,000, using a combination of savings, her divorce settlement and proceeds from homes she bought and flipped in Arizona and New Mexico, she says. And she adds that you can get a “nice house in a decent neighborhood for under $200,000” with smaller homes to be had for $100,000 or so, and can rent a nice place for $700 to $800 a month. Plus, she drives an older car — “a ratty Toyota Tundra truck” — she explains, so she doesn’t have a car loan.

The sitting room in Reinstein’s home.


Roberta Reinstein

Indeed, the cost of living and property taxes in Albuquerque are slightly below average for the U.S., median homes cost under $200,000, according to Sperling’s Best Places — and you can read about New Mexico’s tax situation here.

The bottom line: Reinstein says she plans to stay. “People are super friendly,” she adds, noting that it’s easy to make friends and get involved in things here. She’s part of a ladies walking group in the neighborhood and has made friends from her barn. “I have like two people I still correspond with [from the Bay Area],” she jokes, adding that “I was so wrapped up in my own world there.” But in ABQ, she says: “I had to go back to managing my schedule because I can’t get stuff done. I have so much to do here.”



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