A Deeper Sense of Self: Ruminations on Philanthropic Giving

A Deeper Sense of Self: Ruminations on Philanthropic Giving

Have you ever thought about giving financially to support a cause that’s important to you? Would you like to leave a legacy? Do you believe that money is more than something to accumulate? Studies have shown that charitable giving has psychological and health benefits, and that it can also help train your heirs to have certain values you might want them to have. According to charitable giving expert Lorraine del Prado, some of these values include: Inoculation of heirs “from ‘affluenza,’ the dysfunctional relationship with money. Giving provides a psychological boost for those of inherited wealth, who suffer from guilt and low self-esteem from money they haven’t earned. Giving reduces the sense of separation from the larger world. Philanthropy provides good training in letting go. A forum for meaningful intergenerational communication.”* Of course philanthropy offers economic benefits as well, including, but not limited to, reduced income, capital gains, gift, and estate taxes, diversification of one’s inheritance, and unlocking income from underperforming or highly appreciated assets. And while tax savings are important, they generally aren’t the primary drivers of philanthropic giving. Instead, del Prado maintains that a deep sense of community, family, and strong values are often what lead people to give. Even though wealth is not merely a tool given that it’s needed for basic economic security, wealth can and often should be viewed as an instrument that helps one accomplish greater good for one’s self, family, and community. Personally, the idea that there’s a nexus between wealth and the greater good is exciting to me. Our society needs strong families and communities and wealth can be a wonderful means to...
Why Families Should Talk about Inheritance Planning

Why Families Should Talk about Inheritance Planning

  At our firm we regularly talk with families about the importance of having open money conversations. This can also be helpful when it comes to talking about family inheritances. A CNBC article by Kelli Grant on the topic of family inheritances recently pointed out that, according to a recent Ameriprise financial report, “Only 21 percent of parents expecting to leave an inheritance to their children have told them how much they will receive.” Why is this? The article points out that some are afraid that having detailed inheritance conversations will lead to family tension, or perhaps result in children making bad financial decisions. But it also points out, according to Marcy Keckler, a vice president at Ameriprise Financial, that “there are plenty of good reasons to share specifics with your heirs…. Doing so gives you a chance to head off family fights on controversial or unexpected plans — such as leaving money to a pet, for example; splitting money unequally among children; or leaving someone out of the will….” Grant goes on to point out that candid money conversations can align children’s and parents’ expectations, help children be more prepared, and can help ensure that parents’ wishes are effectively accomplished. The full article has some helpful statistics on wealth transfers amongst families and also offers some tips on how families can successfully broach the topic....
Where People Go Wrong with Their Understanding of Money

Where People Go Wrong with Their Understanding of Money

  Scott Sonenshein, Management Professor at Rice University, gets it right when he points out that people often misunderstand how money relates to their broader life goals: People often misunderstand that their relationship with money and how they manage their personal finances don’t exist in isolation of their well-being and the pursuit of their life goals. Since money is a component of our well-being, and a means to supporting our life goals, it warrants careful consideration. […] Too often we mindlessly chase after money (and lots of other things too). Sometimes the pursuit of more money might lead us astray from a meaningful goal, such as having enough time outside of work to enjoy family and friends, or the pursuit of a deep interest, such as learning a new language or how to play an instrument. There are even times when we’re so focused on accumulating money that we miss opportunities to do things that would bring us real pleasure, such as a barbeque with friends or a playing a recreational sport. This is something we talk with our clients about every day. In fact, helping people understand where money fits within their broader objectives and values is one of the greatest ways a financial planner can help, and this is why it’s a critical part of our own financial planning process. Again, Sonenshein, is spot-on when he says that “The best way to figure out the role of money is to reflect on and define our life goals.” This is important because it not only helps one have a holistic view of money, but it also can drive important tax, investment,...
Quick Tip: Estate Planning with a Discretionary Trust

Quick Tip: Estate Planning with a Discretionary Trust

When it comes to estate planning, there is certainly no “one-size-fits-all” approach to how an estate should be transferred. One tool that can be helpful in the right circumstances is what is known as a discretionary trust. A discretionary trust can be used for a variety of purposes, but one common use is to place restrictions on the transfer of assets to a beneficiary. For example, one might have a family member who struggles with substance abuse or behavioral issues, in which case a parent may not want to make an outright transfer of assets to that child. With a discretionary trust, a trustee has absolute and total discretion over how and when the assets are to be distributed. If it would do more harm than good to transfer assets to a beneficiary, a trustee may elect to withhold a distribution. A discretionary trust can also be used in conjunction with a special needs trust for a child with special medical needs. One scenario where this can be helpful is when a transfer needs to be made to a child, but the child needs to ensure that government benefits such as SSI or SSDI aren’t jeopardized by the transfer. Trusts are flexible estate planning instruments. When they are structured properly by a qualified legal professional, they can be an immensely helpful tool in one’s overall financial...
Creating Wealth by Understanding Risk

Creating Wealth by Understanding Risk

To avoid common potholes that can lead to financial ruin, it is critical to understand the role that risk plays in one’s personal finances. From my experience as a financial planner, it has become clear that many people have an overly narrow view of risk. When people think of risk, they all-too-often think in terms of how to avoid or minimize something, namely investment losses. Taking a more holistic view, however, I try to help my clients understand that risk is not necessarily something to avoid or minimize. Sometimes I even try and help clients embrace and take on more risk. While it may seem counterintuitive, it is critical to understand that a failure to embrace risk can lead to financial disaster. This is because a myopic view of risk divorces one’s financial goals from one’s total financial picture. In other words, when risk is too narrowly defined, it can result in important financial decisions being made in a vacuum, the end result of which is that one’s financial choices become constrained and goals aren’t accomplished. To put this in practical terms, a failure to understand risk might mean that one doesn’t retire on time, college funding goals might not be met, and quality of living during retirement might deteriorate. Understanding risk is important. One scenario that I regularly encounter is that of the retiree or prospective retiree who, because of a definition of risk that is centered on avoiding losses, invests significant sums of money in low-interest bearing investments such as CDs or other cash equivalents. The thinking behind such a decision is that these investments are “risk free” or “safe”. What this...
Why Debt Is Not Always Bad: Understanding Your Debt to Equity Ratio

Why Debt Is Not Always Bad: Understanding Your Debt to Equity Ratio

An important part of analyzing the health of a business involves taking a look at its debt-to-equity ratio. A company’s debt-to-equity ratio tells analysts and prospective investors how much debt a company holds relative to its assets. This is expressed by the following formula: Debt-to-equity ratio = Total Liabilities  / Total Shareholders’ Equity (i.e. assets minus liabilities)   Analyzing a company’s debt-to-equity ratio is helpful because it tells investors how efficiently a company is running its business. In an article for Harvard Business Review, Amy Gallo explains that “if your debt-to-equity ratio is too high, it’s a signal that your company may be in financial distress and unable to pay your debtors. But if it’s too low, it’s a sign that your company is over-relying on equity to finance your business, which can be costly and inefficient.” Many of us have heard from our grandparents, especially those of us who have relatives who lived through the Great Depression, that we should avoid debt at all costs. In a debt-saturated country such as ours, this is not necessarily a bad thing for us to hear. While keeping debt low is usually a sign of financial health, there are cases when having too little debt, or not making efficient use of debt, can be detrimental to one’s financial success. Just as a company needs to make efficient use of debt in order to grow, an individual can, and often should, do the same thing. A similar formula can be expressed for individuals: Debt-to-equity ratio = Total Liabilities  / Total Assets I have clients, for example, who have accumulated significant estates and who are in a position to grow them. The germane...