FINANCE
Manage Your Money Carefully This Holiday Season
by Ken Stelts, Edward Jones Financial Advisor, AAMS A
s you know, the holiday season can be joyous, hectic, celebratory - and expensive. And while you
certainly enjoy hosting family gatherings and giving presents to your loved ones, you’ll find these things even more pleasur- able if they don’t add a lot more weight to your debt load. And that’s why you’ll want to follow some smart money-management techniques over the next few weeks. To begin with, try to establish realistic
budgets for both your entertaining and your gift giving. When you host family and friends, don’t go overboard on your expen- ditures. Your guests will still appreciate your efforts, which, with a little creativity, can create a welcoming and fun experi- ence for everyone. As a guiding principal, keep in mind these words attributed to Jo- hann Wolfgang von Goethe, the famous German poet and philosopher: “What you can do without, do without.” Set a budget and stick to it.
long-term investments to pay for fabulous parties or mountains of gifts. It’s never a good idea to tap long-term investments for short-term needs, but can be especially bad when your investment prices are down, as they may well be this year. So, if you want to stick to a budget but
As a guiding principal, keep in mind these words attributed to Johann Wolfgang von Goethe, the famous German poet and philosopher: “What you can do without, do without.” Set a budget and stick to it.
And the same rule applies to your gift-
ing. You don’t need to find the most expen- sive presents, or overwhelm recipients with the sheer volume of your gifts. This is especially true if you like so many people have been affected by the tough economy. Everyone you know will understand that gifts don’t have to be lavish to be meaning- ful.
Furthermore, by sticking to a budget, you won’t be tempted to dip into your
you don’t want to raid your investments, how can you pay for your holiday season expenses? If you can spread out your pur- chases, you may be able to pay for them from your normal cash flow. But if that’s not possible, you might want to consider “plastic” - your credit card. Using your credit card does not, by itself, need to amount to a financial setback, especially if you’ve chosen a card that offers favorable terms and you’ve already shown the disci- pline not to over-use that card. Just try to minimize your credit card usage over the holidays and pay off your card as soon as you can. Of course, you can make your holiday season much easier, financially speak- ing, if you’ve set up a holiday fund to cover your various expenses. While it may be too late to set up such a fund this year, why not get an early start on the 2012 holiday season? All you need to do is put away some money each month into an easily ac- cessible account, separate from your everyday accounts. You don’t have to put in a great deal, but you do need to be consistent, which is why you may want to have the money
moved automatically, once a month, from your checking or savings account to your holiday fund. When next year’s holiday sea- son rolls around, you might be pleasantly surprised by how much you’ve accumu- lated. But for now, following some common-
sense money management practices can help you get through the holiday season in financial shape - and that type of result can get your new year off to a positive start.b
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Gifting Strategies For The Holidays.
by Michael Vandenburg, CFP® T
here were a few changes in the tax legislation passed last December that will finally be of use to many
Americans, albeit, only for this year and next. There was no change to the annual gift tax exclusion, which allows small amounts to be given every year. There was however, a rather large change made to the lifetime gift tax exemption. This is the amount you are allowed to give over your lifetime, though normally it is only done after you are gone. The lifetime gift tax ex- emption was modified from $1,000,000 up to $5,000,000. This very large change can completely alter the course of your estate plan and reduce or eliminate your estate tax liability. First lets start with the annual gift tax
exclusion. Under current laws you are al- lowed to give up to $13,000 per year to any individual ($26,000 per year for mar- ried couples). Gifts made to spouses are unlimited and gifts made directly to col- leges or hospitals for another person are unlimited and do not count against the an- nual exclusion. These annual exclusions can be very helpful to grandparents or other family members assisting their fam- ilies with school tuition or with medical bills. It may not be the most exciting gift to open under the tree this year but if you are currently paying college tuition for one or more kids, I’m sure it would be a very welcome gift. Just make sure the checks are made payable directly to the school or hospital to avoid any potential is- sues. The lifetime gift tax exemption is the
amount you can pass to your heirs without paying taxes. This is the same as the estate tax exemption, which you would use after your death, but instead use it during your lifetime. For example, if you have an estate worth $10,000,000 and you have five chil- dren, you could give each child $1,013,000 tax-free. When you pass away years later you would be paying taxes on whatever as- sets you have left, because you have al- ready used your exemption. Your children would benefit from getting the assets ear- lier and you would benefit by lowering your taxable estate while it still has years to grow. You can gift all types of assets in- cluding stock, cash, real estate, businesses, jewelry, or any other personal property. In order to truly benefit from the in-
creased exemption, you obviously need to have a fairly substantial net worth, as well as assets that will appreciate in value. It also should be noted that these gifts are ir- revocable, so understanding your needs and assuring that you don’t reduce your as-
sets to below what you are comfortable with is imperative. Simply giving away gifts of this magni-
tude is also one that shouldn’t be taken lightly. It gets a little more complex than writing a check to your children, especially if you want to be sure the funds will last for future generations and are protected from creditors or predators. There are a few strategies you should look at: Dynasty Trusts – A dynasty trust is
meant to last for multiple generations. You can set the terms equally or unequally to beneficiaries, allow for support, education, and medical care. You could also set up sev- eral dynasty trusts for each child. Qualified Personal Residence Trust
(QPRT) – This allows you to place a highly appreciated personal residence or second home in a trust for a specified term. At the end of the term the property passes to the beneficiary tax-free. If the donor wishes to stay in the property after the term is up
First lets start with the annual gift tax exclusion. Under current laws you are allowed to give up to $13,000 per year to any individual ($26,000 per year for married couples).
they may reduce their taxable estate fur- ther by renting it back from the benefici- aries. However, if the donor passes away during the term of the trust the property will revert back to the estate. Family Limited Liability Company
(FLLC) - This works well for families with large real estate holdings or family busi- nesses. It also allows some measure of con- trol for the donor by transferring minority interests to your children. You can also take valuation discounts that result from the lack of control and marketability thereby leveraging the amount of the gift given. Grantor Retained Annuity Trust (GRAT)
– this allows you to transfer assets into a trust and take back a fixed income for a specified term. At the end of the term the assets pass to the beneficiaries free of gift and estate tax. All of this sounds great for those who
are fortunate enough to be in a position to make such gifts but you’d better act fast as this is set to expire in 2012. For many fam- ilies, shifting a highly appreciating asset to the next generation today to avoid paying taxes on the higher value at the time of death can be a very tax-smart decision. b
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