Client Successes
Many client engagements comprise the classical situations of building education funds for children, developing a retirement fund, and preparing for wealth transfers through the execution of estate planning documents. There are those situations, however, that present an unusual opportunity to help clients with situations that call for unique techniques and out of the box thinking. It is these situations that make our work most rewarding. All of the names in the situations below have been changed to protect client confidentiality.
Premature IRA Withdrawals Allowed Without 10% Penalty
During our initial meeting with Linda, then 49, she made a point of saying that she was a cancer survivor and looked at life differently. That was a startling announcement for an initial meeting, but her frankness became the key to our helping her later on.
After her divorce settlement, which largely comprised a substantial IRA settlement from her ex-husband, it became apparent that Linda was struggling day-to-day in a low paying job ($7 per hour), while shouldering the responsibilities of rounding out the education of her two teenage daughters. Reflecting on her statement about looking at life differently, we recommended that Linda consider using a little-known section in the tax code that permits substantially equal periodic payments from an IRA without incurring the well-known 10% premature withdrawal penalty. The calculations showed that Linda could receive payments of $28,000 per year, which would greatly help her living situation.
The $28,000 payments were made for several years, and then a brain tumor developed. Before she succumbed to this malady, we were able to arrange a trip for Linda, along with six of her family and friends, to the Hawaiian Islands. Linda was a class lady who lived her short life to the fullest, giving strength to her now 20-something daughters who must persevere without her love and guidance.
Widow With Unfunded Trusts
Carla, 65, came to us after being widowed unexpectedly. Although she and her late husband had executed trusts for their benefit, they had not funded (placed their assets into) their trusts. We tallied up her husband’s estate and found that it did not fully utilize his unified credit. By having Carla execute several disclaimers wherein she effectively refused acceptance of assets from her late husband’s estate, we were able to optimize his estate tax credit situation so that succeeding generations would not have to needlessly pay taxes on their dad’s assets.
Real Estate Broker Too Close to the Problem
Larry and Mary, both well-established real estate brokers, came to us after selling a $600,000 condo complex in a distant state. They were intent on identifying replacement properties within 45 days so that they could perform a like-kind exchange, thereby avoiding taxes on the sale of the condos.
After appraising their overall situation, including their tax status, we told Larry and Mary to slow down and stop looking for properties. They had forgotten that they had substantial capital loss carry forwards on their tax return that effectively allowed them to take the $600,000 in cash from the out-of-state condo sale and simply put it in their pockets.
With no tax to pay on the proceeds, we helped them move forward immediately with the construction of their dream home. We identified a solar contractor to install a solar hot water system, along with a water-source heat pump for low-cost heating and air conditioning, which irrigated Mary’s garden with the effluent.
Charitable Gift Annuity with a Major Canadian University
Martha called us to help her with cash flow concerns. At first blush, the engagement with this 70-something widow seemed rather simple. In getting to know Martha, however, we learned that she was considering a bequest of $250,000 to a Canadian university after her death.
In working on Martha’s financial plan, it became apparent to us that Martha’s planned gift to the Canadian university should be accelerated from a bequest after her passing to a lifetime gift in the here and now. With the collaborative efforts of the university planned giving officer, we were able to show Martha that a gift to the university now, in exchange for a charitable gift annuity from the university, would actually increase her cash flow, and simultaneously reduce her income taxes. After working many months as the intermediary, we arranged for the university planned giving officer to meet Martha and finalize the annuity paperwork. She was delighted with her increased cash flow, and the university now has, not only the money for additional nursing scholarships, but also her late husband’s papers for their historical archives.
Young Doctor - Good With Needles, But Not With Nails
Libby’s mom called us to help Libby, 30, who had just taken her first professional assignment as a new anesthesiologist. Libby graduated with lots of knowledge about medicine, a mountain of med school debt, and no practical knowledge about home ownership.
After getting to know Libby a bit, we established an IRA account to get Libby focused on her long-term future. We also established a brokerage account to invest some of her current earnings for a down payment on a home, and helped her refinance her med school loans to reduce current cash flow requirements.
Libby eventually found her dream home, which we helped inspect to ensure that she was getting a fair deal. Together with the home inspector, we identified the major improvements that she would have to make to round out a comfortable home. We helped Libby through the home modifications to ensure that the tradesmen carried out the renovations properly. We can’t take credit for finding Libby’s husband, but she is now happily married, debt-free, and living in a comfortable home in the Boston suburbs.
Email your questions to info@mackensen.com