By Anthony J. Curatolo, Advisor

The holiday season has begun. With that comes the gathering of loved ones to celebrate the season and share in hopes and dreams for the New Year. It is not uncommon for families to share glimpses into idealized futures, but one area that is often left untouched is the discussion of legacy planning. Leaving a legacy that thrives and grows is a goal of many, but the undertaking itself involves a great deal more emotional strain.

Humans are complex. Unconscious psychological phenomena are ingrained into nearly every decision, whether we like it or not. Understanding the behavior behind decision making could assist you with the conversations you have with your loved ones.

One is the loneliest number 

It’s in our nature to crave familiarity. Most of us have our daily routines which provide a sense of comfort and security. This can also occur with our loved ones. Within your family structure, you may have a child or family member who you have a close relationship with who you place a greater deal of responsibility.

In behavioral finances, the tendency to seek out the known is called the familiarity bias. Though it may be helpful to have an individual who can take charge when the time comes, overburdening one person, and potentially leaving out others, could lead to stress and discord within your family

Sometimes less is more

Individual autonomy and freedom of choice are important pillars of the human experience. It’s estimated that an individual makes roughly 35,000 conscious decisions a day. While having greater freedom of choice may allow you to personalize your life in ways not previously available, too many choices could become stifling.

Overchoice or choice overload is a cognitive process in which a person becomes overwhelmed with the sheer abundance of options. This typically leads people to select the easiest and least complicated option. The same principles could apply to involving your family in your estate planning process. It could be beneficial to have discussions early on with your family to layout the framework of your plan so they are less burdened with the difficult decisions surviving relatives often have to make.

You miss every shot you don’t take

The feeling of regret is a bit like a heavy, wet, wool blanket. It’s confining, uncomfortable, and difficult to shake off. The feeling is so universally disliked that many will forgo decisive action to avoid it. Regret aversion bias is a cognitive bias where a person, to avoid the emotional toll of a regretful decision, forgoes taking any action. Research has shown that in terms of financial reward, people typically feel the pain of financial loss to a greater extent than the satisfaction from a gain of equal value.

The same behavior could occur when handling estate planning discussions with your family. The fear of possible discord or repercussion could prevent you from discussing the more difficult points of your estate plan’s palliative care wishes. It may be beneficial to first discuss with a third-party mediator, such as your attorney or advisor, about your goals and desires for end-of-life care. They may be able to help you then create a guide for starting the conversation or possibly sit in on the discussion to assist.

The pen is mightier than the sword 

Our teachers may have been on to something when they told us to take notes. Aside from a written record typically being essential for preventing legal difficulties, it could be imperative to full mental acknowledgment. Psychological research has demonstrated that written intention can be quite powerful. In a study done at Dominican University in California, researchers found that participants were 42 percent more likely to achieve goals just by writing them down.

When it comes to laying out your legacy, various strong emotions tend to bubble to the surface. Articulating those ideas and then conveying them to your family may seem like a difficult task. If you don’t have a written statement clearly outlining the intent of your plan, you may be susceptible to the influence of your relative’s whims. While it may be helpful to allow feedback from your loved ones, your estate plan is a reflection of you and should encompass the legacy that you hope to leave for generations to come.

Overall, the legacy planning process is often not a one-time event and may take multiple conversations over years to accomplish. Predictive models and graphs can be a great asset, but they may not include the complexities of human behavior. Utilizing the concepts of behavioral finance into your family discussions could help to bridge the gap between strategic planning and emotional biases.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

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Jill Ciccarelli Rapps, CFP | èBella Magazine | November 2019

Women have made phenomenal strides in nearly every job sector. Many now hold equal responsibility with their partner in supporting the household financially. In fact, studies have revealed that more than 50 percent of working women are responsible for half or more of a household’s income.

Although women are taking greater roles in building household income, when it comes to assuming an active role in long-term financial decisions, many women still struggle to maintain equal footing. A UBS Global Wealth Management report found that 56 percent of women between the ages of 20 and 34, and 54 percent of women over the age of 51, leave crucial financial decisions to a significant other.

In the past, it was common for women run the household and leave financial planning to the husband. This practice today could leave many women in a financially insecure predicament. A life-changing event such as divorce or the loss of a spouse can leave you suddenly and unexpectedly with full financial responsibility, perhaps unsure about how to move forward.

One question that often arises regarding finances in a relationship is, “When should we begin discussing money?” Many relationship experts agree that financial discussions should begin early and continue often. A survey conducted by LendingClub found that those who discuss important financial topics early in a relationship are less likely to feel isolated and more likely to prioritize personal health and well-being.

That said, understanding the need for discussion, and putting it into practice are two very different concepts.

Some people may be hesitant to discuss money. It can be hard to overcome the internalized alarms in our brains telling us to retreat when we approach an uncomfortable subject, but that alarm could also signal that we need to have that discussion. You could start small with metaphorical “discovery” questions such as, “Would you rather spend a moderate amount of money on a small vacation every year, or save a substantial amount and go on a big vacation every few years?”

Some women may still feel that taking a more involved role in the household’s financial affairs is just not for them, leaving them in a particularly vulnerable place.

Let’s take the fictional couple, John and Mary. Mary left the workforce years ago to care for their children and aging parents. With the stress of overseeing the care of the family, Mary has left the financial planning to John. One day, John has a stroke and is left severely incapacitated. Since Mary has not been actively involved in the finances, she lapses on the payments for John’s credit card, which was paying the mortgage and utility bills. She has difficulty making financial decisions and incurs penalties and fees. On top of overseeing the care of the family, Mary is now also responsible for the finances and becomes overwhelmed.

Taking part in the financial conversation can be scary, but it can also be extremely rewarding. Having financial autonomy not only provides a sense of security, but it also promotes leadership, accountability and positive self-esteem.

A study done by Everyday Health found that 63 percent of millennial women reported low self-esteem and self-confidence. Having a sense of independence and something to work toward together could help provide that extra boost of confidence.

“Independence” and “togetherness” may often seem like two conflicting terms but having the ability to achieve both can be highly beneficial in a relationship. Especially when money is concerned. Women often have different financial needs, especially when it comes to retirement. Staying uninvolved could leave women unprepared and overwhelmed; but having a say in how and where you want your money spent is empowering.

Becoming financially autonomous in a relationship is not an arbitrary goal. It could be a matter of necessity, and a goal all women should aim to reach.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

By Raymond F. Ciccarelli

Finding opportunities to bring your family members together could be a challenge for many individuals. Work, school, and life obligations can put a strain on “family time” and create a disconnect between members. Participating in charitable giving could be a beneficial way to gather your family together around a worthy cause. There are many ways your family could become philanthropically involved. One option you may want to consider is a donor-advised fund.  

A donor-advised fund (DAF) is a specific type of fund that allows you to make charitable contributions and receive an immediate tax deduction for your gift. The accounts are controlled by a nonprofit sponsoring organization, and they invest the assets and manage the donor’s account. Donors retain advisory privileges to disburse charitable gifts over time and advise on how the funds are used. Donations made to the fund are irrevocable, and while you get to enjoy the immediate tax benefits of your charitable contribution, you are not obliged to distribute to an IRS-qualified public charity until your choosing. Contributions can continue to grow and compound for years while you and your family decide where your support is most needed.

Donor-advised funds could be a great option for family philanthropy due to their flexibility, tax-favorable treatment, and longevity. There are nearly half a million donor-advised funds across the country, with that number increasing steadily every year. Some sponsoring organizations may have contribution minimums and certain donation rules. DAFs, in general, are a favorable option for nearly any family situation. Some of the potentially beneficial aspects of a donor-advised fund may include:

Fewer time constraints

There could be a great deal to consider when deciding where you would like to donate and how you hope those funds are utilized. When donating the traditional way, where you give money directly to a charity, you need to know who and how much you would like to contribute at the time of the donation. For individuals involved in a charitable endeavor, this may not be an issue. Those not actively involved in an organization might need time to discover a non-profit they would like to build a relationship with. Donors can donate to a DAF for years until they decide where they would like the funds distributed.

Tax-efficiency

Donor-advised funds could be one of the more tax-efficient ways to conduct philanthropy. When a person donates to a DAF, in almost every case they receive an immediate tax deduction. Since they are considered a public charity, individuals can typically deduct a larger portion of their contributions than contributions made to a private foundation. Most can receive a deduction of up to 30% of their adjusted gross income (AGI) and some could even receive as high as 60%. For some, it could also be a great way to avoid capital gains taxes. By donating a highly appreciated asset to a DAF directly, rather than liquidating it and then donating, donors may be able to eliminate the taxes they would have incurred.

Flexibility with donations

There are various ways a person can give, and DAFs are often very open to accepting both liquid and illiquid forms of support. Depending on the sponsoring organization, they will usually accept a broad range of asset types. Most welcome cash, publicly-traded assets like stocks, mutual funds, and bitcoin. Some will even accept private equity, real estate, and artwork. They may require you to make a yearly minimum gift deposit, but most are quite lenient with the donation schedule, allowing you to gift at your own pace.

Long-term capability

Many involved philanthropists hope that their charitable endeavors will extend beyond their lifetime. The involvement of your children and grandchildren in your family’s donor-advised fund could potentially serve as a cornerstone of your children’s philanthropic legacy. DAF is typically a stable long-term charitable giving vehicle. Donors can contribute funds into the account for years before granting out funds, allowing it to grow and generate more for charity. Some may also have the ability to dictate in their Will that contributions occur even after their passing or their successors may continue to donate themselves.

Engaging family tradition

Traditions bring families together and often serve as a cornerstone of your family’s legacy. The technical work of making a family charitable donation could be a difficult task. Since it is very common for family members to live in separate regions, the pressure of deciding on where and when to give could rush the process and cause a strain on familial relationships. A DAF allows family members to place their donations and then make their charitable selections at their convenience. They could also perform the more technical tasks of the donation process and vetting of nonprofits to check that your support is going to legitimate nonprofit organizations.

Giving as a family could be a wonderful way to make memories and engage with your community. In today’s fast-paced world, where technology often takes the place of close connections, it could be important for families to find a cause that brings them together. A donor-advised fund could give your family more freedom in the process of charitable giving and foster a philanthropic legacy for generations to come. The upcoming holiday season may have many in the spirit to give. If you or your family are considering opening a donor-advised fund to provide support, your advisor could assist you with the process.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

By Paul F. Ciccarelli CFP®, CHFC ®, CLU®

2019 has maintained its status as a year of tumultuous political and economic change, and there may be more developments just around the corner. On May 23, 2019, the House of Representatives approved a bill, which if passed into law, could change the face of retirement savings and how inheritance is passed to your beneficiaries.

The SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement Act of 2019” was introduced to the House of Representatives on March 29, 2019. Some have called the SECURE act the most important piece of tax legislation for IRA owners in a generation. If passed, among other changes, it could have a profound impact on non-spouse beneficiaries when it comes to inheriting large IRA assets. This could be the end of the “Stretch IRA” era. Many experts share the opinion that the SECURE Act will pass, in part because it does not affect the current IRA owner or their spouse during their lifetimes. However, at death, it could raise significant taxes from your children.

The bill would modify the current requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts. The aim of this modification is to encourage greater retirement savings in the general population. There has been a concern by some economists and lawmakers that the U.S. retirement savings gap could become a crisis by 2050. Reports on the size and severity of the U.S. retirement gap vary, but the fear that today’s workers will outlive their assets prompted policymakers to create legislation to address perceived shortcomings in our current retirement system. 

The bill includes 29 provisions aimed at increasing access to tax-advantaged accounts and preventing elderly Americans from outliving their assets. Some of the provisions in the Secure Act include:

• Repeal of the maximum age for traditional IRA contributions
• Increase of the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70 ½)
• Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment
• Allow long-term part-time workers to participate in 401(k) plans
• Allow more annuities to be offered in 401(k) plans
• Parents can withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses
• Parents can withdraw up to $10,000 from 529 plans to repay student loans

To many, these provisions sound like the ideal solution to the retirement savings problem. There are, however, two sides to every coin. Many of these modifications to the current tax code, such as the increase in the RMD and the tax credit, would require that funding comes from another source. To do this, the SECURE Act would do away with the “stretch IRA”.

The stretch IRA is an estate-planning tool that allows non-spouse heirs to inherit an IRA and “stretch” withdrawals over their life expectancy. This could allow the money in the account to continue to grow tax-deferred for potentially decades. It is a popular planning option for parents or grandparents hoping to provide greater security for their heir’s lifetime.

The change to the stretch IRA would make it a requirement for non-spouse heirs to withdraw funds from inherited IRAs within 10 years of receiving it. There are some exemptions to this rule and they include: if the heir is no more than 10 years younger than the account owner, a minor child, and those who are chronically ill or disabled. In the case of the minor child exemption, the 10-year countdown would still come into effect once they reach the age of majority.

The Senate may add an additional provision on to the bill so that the limitation on inherited IRAs only applies to individual account balances of over $450,000. Overall, the change could most likely impact individuals in their middle ages inheriting an account from their parents while at the height of their career, earning their highest income. Being forced to withdraw money from the account could have noticeable tax consequences for those individuals.

The bill has not yet been signed into law. It has thus-far only passed through the House of Representatives but has been stalled in the Senate. Senate leaders attempted to have it pass via unanimous consent but it was blocked. At this point, it will have to go through the Senate floor and be debated and voted on again. Lawmakers may attach it to one of several spending bills in order to pass it before the 2020 election. However, as it stands, the SECURE Act remains in legislative limbo until further notice.

Those worried that the SECURE Act will upend their beneficiary’s lifetime security may have to consider other options to protect their family’s wealth. In the event that you are passing on significant IRA assets to children and grandchildren, you may have to rethink your estate planning strategy.

There are two possible alternatives that are being discussed among financial planning experts. One idea would be to convert as much of your traditional IRA assets during your lifetime and pay the taxes on them under the current tax rate. The theory behind this strategy is that you will take advantage of the current tax rate since many experts feel the rate might increase in the future.

When a Roth IRA is inherited by a child or grandchild, there is no tax liability associated with the asset. The 10 years maximum withdrawal period is still in effect, but there are no taxes on Roth IRA withdrawals for the beneficiary. The SECURE Act would require non-spouse beneficiaries to empty inherited Roth IRA accounts within 10 years of your passing. In order to optimize the benefits of your Roth IRA conversions over the next 4 years, significant tax and income planning may need to be undertaken. In the long run, a tax of 24% paid today may be significantly lower than what your beneficiaries could pay later.

Another alternative plan combines charitable giving by keeping the assets in the family. In the event you are leaving assets to your favorite charities, you could consider leaving IRA assets to the charity and non-IRA assets to your family.

Some individuals may consider creating their own private “Family IRA STRETCH” that would pay income to beneficiaries over their lifetimes and provide the remainder to the family’s favorite charity after the death of the last survivor. This technique may not affect the original account holder and their spouse during their lifetime, but instead would “turn on” upon the death of the survivor. This technique could also lower the taxable estate value if the estate is taxable at the time of the survivor’s death.   

Since the SECURE Act is not yet law, we can only estimate and prepare for any potential impact it may have. Our advisory team remains up-to-date on legislation that could affect your estate plan and will maintain a vigilant eye on any upcoming changes. We will also be discussing the SECURE Act at our 2020 Wealth Symposium if you are interested in learning more about the topic. Please CLICK HERE for event details.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

By Ciccarelli Advisory Services

The terms “residency” and “domicile” are terms that are often used interchangeably in our routine vernacular, but they have distinct differences when establishing legal obligations and domestic rights. It may seem a simple task to determine where one’s home lies. Home, after all, is where the heart is. However, state regulatory bodies and differing legal jurisdictions often make the issue more complex. It may be helpful for homeowners who own multiple properties across state lines to understand how your “home” status is determined to hopefully prevent any mishaps come tax season.

In general, a residence is a place you expect to inhabit for a fixed period, whereas a domicile is a home you plan to live in for an indefinite period. Income tax regulations make it clear that a person can have multiple residences, but only one domicile. Even if you have homes in two different states and split your time evenly between both, you can still only claim one as your domicile. The decision of which state fills that role may be more complicated than just determining where the most time is spent.

Take for example this scenario: you spend many years in Illinois, you work there, raise a family, and own a home there. You then buy a home in Florida, where you begin to spend more than half the year. You vote there, have mail delivered, register your car, and change your license. However, you continue to maintain ties to Illinois, conducting business and drafting up legal documents in the state. Now comes the question of which residence is your domicile? Since you have created ties to Florida and spend more time there, you may feel that Florida is your domicile. You may even file a declaration of domicile (a document declaring your intent to remain in that state permanently), but it may take more than this to prove to Illinois that you have made Florida your domicile.

In the 2012 court case, Cain v. Hamer, the Illinois Department of Revenue sent the Cains a notice of tax deficiency for unpaid state income taxes a few years after they established Florida as their domicile. They had been Illinois residents from 1964-1995, but in 1990 they built a second home in Florida. By 1996 they were splitting time evenly between both homes but took steps to establish permanent residency in Florida. The court used the domicile test to determine which state they had a domicile in. This test was based on four factors:

1. Physical abandonment of the first domicile
2. An intent not to return to the first domicile
3. Physical presence in the new domicile
4. An intent to make that one’s domicile

The court investigated everything from credit card statements, telephone records, club memberships, political affiliations, and even planned burial arrangements to determine the couples domicile. In the end, the court decided that since the couple had taken steps to establish a permanent home in Florida (obtaining Florida driver’s licenses, voting in the state, developing relationships with Florida medical professional, and purchasing burial plots there) they were domiciled in Florida, and held a residency in Illinois. The case was a close call though, and factors such as continued business relations and charitable contributions with Illinois based organizations nearly turned tides the other way.

Since this case, higher-tax states have tightened up regulations and added stricter authentication processes to determine the resident’s true domicile. Since the recent $10,000 cap the Federal Government has placed on deductions of state and local taxes, many wealthier individuals are making the move to domicile in low to no income tax states. Tax officials in California and New York have begun performing residency audits on high-earning individuals with multiple residences who change their domicile.

Florida is a highly appealing move due to its lack of state income tax, estate tax, and inheritance tax. In 2018, more than 63,000 New York residents transplanted to Florida. In select cases, millionaires in California and New York have been able to save more than $1 million in taxes each year by relocating to Florida. Many residents who live part-time in both the Sunshine and Empire State, but wish to change their domicile to Florida, have had to demonstrate quite extensively that they have cut ties with their former home. Tax officials have looked into even the most unassuming of details to ascertain the true extent of one’s residency. In one case a man nearly lost his audit case due to the purchase of a New York in-state fishing license after claiming domicile for his Florida residence.  

Depending on the regulations and guidelines in each state, you may need to be prepared to substantially sever ties with your original domicile. This could mean keeping detailed records of where you are spending your time, where your valuable possessions are kept, professional and charitable affiliations, club memberships, voting and mailing records, and financial accounts. If you are planning on changing your domicile or considering changing it in the future, you may want to discuss the decision with your advisor to determine if any adjustments need to be made to your financial plan.

If you are interested in learning more about residency and domicile, we will be discussing the topic at our upcoming 2020 Wealth Symposium. CLICK HERE for more details!

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

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