Women, Wealth and Legacy Planning
Whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect their own as well as their beneficiaries' financial security, women play a central role in establishing and preserving family wealth. Women need to be involved, informed, and comfortable with their role as guardians of family wealth. Active participation in wealth management can strengthen women's commitment to protect and grow their assets with the goal of leaving a legacy for their children, their community, and beyond.
Best Practices in Legacy Planning
The following strategies may help assure the smooth transfer of both your measurable wealth and your values surrounding wealth to the next generation.
Education leads to confidence. Attaining financial security for you and your heirs typically requires you to accept responsibility for the management of significant investment assets. Whether you are single, married, or a surviving widow, it is in your best interest to receive as much education as possible about wealth planning, investments, successorship and related matters. Even if you are not directly responsible for making important financial decisions, it is vital to have knowledge in these areas in order to communicate effectively with professional advisors charged with these duties.
Professionals offer objective, qualified services. Relying on professional advice as opposed to family and friends is extremely important when making decisions affecting the accumulation, preservation, and distribution of wealth. What should you expect from a qualified professional? A good wealth advisor -- or a team with other professionals, such as attorneys and accountants -- should offer guidance and services in most areas of wealth management, including estate planning, retirement planning, insurance needs assessment, and college planning. On a more personal note, a wealth advisor should work closely with you to:
- Identify areas requiring special assistance, such as creating trusts.
- Minimize taxes and planning costs.
- Develop and implement a personalized wealth management plan.
- Review your plan periodically and suggest changes when needed.
Philanthropy is integral to family legacy planning. Wealth holders have a greater opportunity -- if not responsibility -- to make charitable giving an integral part of the legacy planning process. Families that are charitably inclined may have clear goals in mind, but they may not know where to begin. In order to choose the best strategy, you should work with a trusted advisor to evaluate a number of factors, such as tax management objectives, types of assets to be gifted, and your specific strategic intent. Then choose from among a range of charitable giving vehicles, such as donor-advised funds, family foundations, gift annuities and charitable remainder trusts/charitable lead trusts.
Children should learn about the responsibilities of wealth. Wealth is a gift that opens doors of opportunity not only for you, but also for your children, their children, and generations to come. Yet wealth can be a weighty responsibility that takes time to manage, maintain, and preserve. If you are a parent, you are no doubt concerned about the effects of wealth on your children's values and how the "money" lessons you pass on to them will resonate as they mature to adulthood.
Family values should be held in the same high regard as family wealth. Family values -- those traits, behavioral patterns, beliefs, goals, and morals that are shared by members of a family group -- define a family's character as much as dollar signs measure a family's wealth. By holding shared values in high regard and setting an example of commitment to financial responsibility, philanthropy and volunteerism for the younger generation, you will enrich your family's legacy for generations to come.
A Woman's Worth
As stewards of the family legacy, women are in a unique and influential position. They are holders of great wealth as well as keepers of the family's moral and philanthropic vision. There are many financial, accounting, legal, and business tools to assist women in implementing a plan of action. Contact your financial adviser for guidance in mapping out a legacy planning strategy unique to your situation.
Seema Ramroop, financial advisor, Morgan Stanley Smith Barney, can be reached at [email protected] or call (727) 773-4629.
ACCOUNTING
TAX Talk – RENTAL INCOME
Residential rental properties, revenues and activities have been increasing over the years. There are many tax implications and reporting related to the rental activities. (Reference - IRS publication 527)
What to report
You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. Form Schedule E along with the regular tax return is filed to report the rental activities. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.
When to report income
Report rental income on your return for the year you actually or constructively receive it, if you are a cash basis taxpayer. You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account.
Advance rent
Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.
Security deposits
Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
If the security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it.
Expenses paid by tenant
If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses.
Deductions/expenses
Depreciation – You begin to depreciate your rental property when you place it in service. You can recover some or all of your original acquisition cost and improvements by using Form 4562 beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings.
Repairs and maintenance – Repairs just keep your property in good working condition but do not add to the value of the property. However, you may not deduct the cost of improvements. This cost is recovered through depreciation.
Operating expenses – Advertisement, cleaning, insurance, management fee, loan/mortgage interest, legal and professional, property taxes, travel, etc.
Uncollected rents – If you are a cash-basis taxpayer, you cannot deduct uncollected rents as an expense because you have not included those rents in income.
If you rent a dwelling unit to others that you also use as a personal residence, then your deductible rental expenses may be limited. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of:
14 days, or 10 percent of the total days it is rented to others at a fair rental price.
Renting vacation homes
Vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short – normally less than 15 days.
Sale or other disposition of rental properties has significant tax consequences – Refer IRS publication 544.
There are various limitations and thresholds for many of the tax deductions. Please consult your CPA/Tax attorney/or tax consultant for proper guidance with the above subject matter.
DISCLAIMER: In accordance with IRS Circular 230, the above information is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.
Suresh Kumar, CPA, MBA is the Principal of Kumar Consulting, PA, a CPA & Consulting firm licensed in the states of FL, KS, and MO and can be reached at (813) 421-5068, e-mail [email protected] or visit www.kumarconsultingcpa.com