Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

 

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How To Make Your Charitable Dollars Go Even Further

Written by Les Detterbeck.

donate dollars

 

There are more than 1.5 million charitable organizations in the U.S. They are established for the public benefit and all the money they raise has to go towards achieving their aims such as relieving poverty, or advancing the arts, culture, heritage or science. We are a giving society. Americans gave over $400 billion to charity in 2018 with 75% of that amount coming from individuals. 30% of the adult population volunteer their time, talents and energy to religious, cultural, and educational organizations to make a difference.

The U.S. income and estate tax regulations have historically supported charitable contributions by providing tax reductions for contributions. However, because of recent changes to the tax code, many charitable contributions now have no impact on your income taxes or eventual estate taxes. While donors many times would have made the gift without a tax benefit, we believe it is valuable to try to organize your philanthropy in a manner that will provide a tax benefit, if possible. That either makes the gift a little easier to fund or perhaps encourages you to give a little more.

The Tax Cuts and Jobs Act of 2017 increased the standard deduction (up to $24,800 in 2020 for married couples). It also capped the state and local tax deduction at $10,000 if the taxpayers were itemizing deductions. The result is that 90% of taxpayers now use the standard deduction. Couples with total itemized deductions less than the standard deduction receive no tax benefit from their charitable contributions. In addition, the lifetime exemption on payment of estate and gift taxes was increased at the same time and is now $11.6 million per person ($23 million per couple). Fewer estates are taxable. And, those estates that provide a specific bequest or percentage bequest to charity, get no tax benefit from their philanthropy.

Fortunately, there are a number of strategies that can help you get more “tax bang from your charity buck.”

 

Donor Advised Funds (“DAFs”).   For charitable gifts, this simple, tax-smart investment solution has become a real favorite, particularly starting in 2018. The concept of DAFs is that taxpayers can contribute to an investment account now and get a current deduction yet determine in the future where and when the money will go.

Taxpayers can get a benefit by “bunching” their contributions using a DAF.   For example, if a couple made annual charitable contributions of $10,000 per year, they could contribute $40,000 to the DAF in 2020, e.g., and certainly, in that case, their itemized deductions would exceed the standard. The $40,000 would be used as their charity funding source over the next four years. In this manner, they would receive the full $40,000 tax deduction in 2020 for the contribution to the account, though they will not receive a deduction in the years after for the “grants” you advise to be made from this account.

Now, what’s really great about a DAF is that if long-term appreciated securities are contributed to the DAF, you won’t have to pay capital gains taxes on them and the full fair market value (not cost) qualifies as an itemized deduction, up to 30% of your AGI. Why use after tax dollars for charity, when you can use appreciated securities? And, after a big equity value increase in 2019, this is an excellent tax strategy for rebalancing your portfolio.

Within the DAF, your fund grows tax-free. You or your wealth manager can manage the funds. The funds are not part of your estate. However, you advise your custodian, such as Schwab, the timing and amounts of the charitable donations. In general, your recommendations as donor will be accepted unless the payment is being made to fulfill an existing legal pledge liability or in a circumstance where you would receive benefit or value from the charity, such as a dinner, greens fees, etc.

Many taxpayers are using the DAF as part of their long-term charitable giving and estate planning strategy. They annually transfer long-term appreciated securities and/or cash to a DAF, get a nice tax deduction, allow the funds to grow tax-free (unlike Foundations which are expensive to administer and have a 5% minimum distribution, there are no minimum distributions for DAFs), remove these assets from their estate and then, before or after their passing, the charities they support receive the benefits. Some even provide that, on their passing, the funds will not be given outright, but instead their children will become the account holder(s) and determine future grants to charities providing a legacy of giving.

 

Qualified Charitable Distributions (“QCDs”). A QCD is a direct transfer of funds from your IRA to a qualified charity. These payments count towards satisfying your required minimum distribution (“RMD”) for the year. You must be 70 ½ years or older, you can give up to $100,000 ($200,000 for couples) regardless of the RMD required and the funds must come out of your IRA by December 31. You don’t get a tax deduction, but you make charitable contributions with pre-tax dollars. Each dollar in QCDs reduces the taxable portion of your RMD, up to your full RMD amount. Distributions in excess of your RMD are not deductible, but they do allow you to fund your charitable goals with pre-tax dollars and reduce the income tax on those assets for you or your heirs in the future. The DAF restrictions as to fulfilling pledges or receiving a small benefit from the charity do not apply to QCDs.

QCDs can help keep your Medicare Part B premiums down.In 2020, the minimum monthly premium for Part B is $144.60. This premium applies to couples with joint adjusted gross income of $174,000 or less. Premiums go up for larger incomes; to $492 per month for Part B for those with income above $750,000. The use of QCDs reduces your gross income and thereby helps to keep your Medicare Part B premiums low.

For taxpayers 70 ½ or older, their annual charitable contributions generally should be QCDs and if their gifting exceeds their RMDs, they can either do QCDs up to $100,000 annually or, instead of QCDs, fund a DAF with long-term appreciated securities and bunch the contributions to maximize the tax deduction.

 

Conclusion. Every situation is different. Your goals, assets and legacy plans are uniquely yours. If charitable giving is a one of your goals, as it is for many of our clients, we encourage you to look at your overall planning and find ways to use the tax benefits available. Reducing your taxes has the long-term effect of either providing more money to your family and/or more money to charity. Regardless, your legacy is enhanced.

We are charitable givers, both with funds and volunteer work. We applaud other givers and want to help you. We are happy to give our time without charge to reviewing your specific details and helping you identify ways in which Uncle Sam can reward you for your charitable giving. Just give us a call. All discussions will be kept strictly confidential.

 

 https://dwmgmt.com/

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MLK Would Have Loved Finland

Written by Les Detterbeck.

MLK blue what are you doing for others

 

We hope everyone enjoyed the Martin Luther King, Jr. holiday on Monday. We hope you spent at least a few minutes thinking of Dr. King and his legacy. His stirring words and writings remain as relevant today as they were 50 years when he was alive. I am always moved by his comments, particularly on equality, such as:

  • “We may have all come on different ships, but we’re in the same boat now,”

  • “We must learn to live together as brothers or perish together as fools,”

  • “The time is always right to do what is right,” and

  • “In some not too distant tomorrow the radiant stars of love and brotherhood will shine over our great nation with all their scintillating beauty.”

 

As I thought about these quotes, it made me think of Finland, recently deemed a “Capitalist Paradise” by the NYT and lauded by the Economist for slashing homelessness while the rest of Europe is “failing.”

As many of you know, my maternal grandmother was Finnish and Elise and I spent a wonderful homecoming in Finland this past summer, meeting relatives and experiencing life first-hand in Finland. Dr. King certainly would have loved a country like Finland that provides a real-life example of a system that works to provide equality and happiness to all.

Finland hasn’t been operating independently all that long. Located between Sweden and Russia, Finland was under Swedish rule from 1250-1809. In 1809 it became a Grand Duchy in the Russian Empire until it declared its independence in 1917. In 1918, Finland experienced the Finnish Civil War; the “whites” were primarily Swedish descendants who were anti-socialists and the “reds” who supported Russian socialism. The whites won and established a republic. World War II saw Finland under attack from Russia and ultimately joining forces with Germany.

After WW II, Finland did not want to become a socialist country. Its capitalists cooperated with government to map out long-term strategies and discussed these plans with unions to get workers on board. Finnish capitalists realized that it would be in their best interests to accept progressive tax hikes. The taxes would help pay for new governmental programs to keep workers and their families healthy, educated and productive. Fast forward to today, the capitalists are still paying higher taxes and outsourcing to the government the responsibility of keeping workers healthy and educated.

The NYT article “A Capitalist Paradise” was authored by a couple who moved from Brooklyn to Helsinki two years ago. Both are US citizens, experienced professionals and enjoyed a privileged life in the States. However, they were both independent consultants with uneven access to health insurance, and major concerns about funding for day-care, and education, including college. What may come as a surprise to some, is that they have experienced since the move an increase in personal freedom.

In Finland, everyone is covered by taxpayer-funded universal health-care that “equals coverage in the U.S. but without piles of confusing paperwork or haggling over huge bills.”   Their child attends a “fabulous, highly professional and ethnically diverse” public day-care that costs about $300 per month. If they stay in Finland, their daughter will attend one of the world’s best K-12 education systems at no cost to them, regardless of the neighborhood they live in. College would also be tuition free.

Many Americans may consider the Finnish system strange, dysfunctional or authoritarian, but Finnish citizens report extraordinarily high levels of life satisfaction. The World Happiness Report announced recently that Finland was the happiest country in the world, for the second year in row, leading Norway, Denmark, Switzerland and Iceland in the poll.

Finland has also become one of the world’s wealthiest countries and, like other Nordic countries, home to many highly successful global companies. A spokesman for JPMorgan Asset Management recently concluded that “The Nordic region is not only ‘just as business friendly as the U.S,’ but also better on key free-market indices, including greater protection of private property, less impact on competition from government controls and more openness to trade and capital flows.” “Furthermore, children in Finland have a much better chance of escaping the economic class of their parents than do children in the U.S.”

Finland’s form of capitalism has worked for businesses and citizens alike. Since Independence, Finland has remained a country and economy committed to free markets, private businesses and capitalism. Its growth has been helped, not hurt, by the nation’s commitment to providing generous and universal public services that support basic human well-being. Finland and the Nordic countries as a whole, including their business elites, have arrived at a simple formula: “Capitalism works better if employees get paid decent wages and are supported by high-quality, democratically accountable public services that enable everyone to live healthy, dignified lives and to enjoy real equality of opportunity for themselves and their children.”

This system works. Over the last 50 years, if you had invested in a portfolio of Nordic equities, you would have earned a higher annual real return than the American stock market according to Credit Suisse research. It’s not a surprise since Nordic companies invest in “long-term stability and human flourishing while maintaining healthy profits.” We made a similar point in our September blog "Reinvent Capitalism?"

Dr. King’s quotes resonate loudly today. We Americans are a country of immigrants- “We came on different ships, but we’re in the same boat now.” In a time of tribal politics- “We must learn to live together as brothers or perish together as fools.” However, since “The time is always right to do what is right,” let’s keep optimistic that “In some not too distant tomorrow the radiant stars of love and brotherhood will shine over our great nation with their scintillating beauty.”

https://dwmgmt.com/

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DWM's 4Q19 Market Commentary & A Look Into 2020

Written by Brett Detterbeck.

Light Prism

Happy 2020! No doubt you have heard the term “20/20 vision” over the last several weeks as we enter this new decade and all of the imagery that comes with it. As you probably already know, 20/20 vision is synonymous with perfect vision. As financial Sherpas, we are always striving to provide our clients with that – to observe, to envision, to help foresee, to project, and to be on the lookout! We can’t guarantee that our outlook will be spot on, but we certainly can help our clients plan and make projections for what’s next on the horizon.

But before telescoping ahead, let’s look back on fourth quarter 2019 (“4Q19”) and calendar year 2019 and the bedazzling year it was! We’ve put the magnifying glass on this investment landscape panorama so you can visualize the details!

Equities: No, it wasn’t a hallucination… Equities, as evidenced by the MSCI AC World Index, rallied to close the year, up 9.0% for 4Q19 and an eye-popping 26.3% for the year! Domestic large cap stocks*, particularly the growth-oriented FAANG group**, kept outperforming, up 9.1% and 31.5%, 4q19 and YTD, respectively. International equities* also participated in the 4Q19 rally, +8.9% for the quarter, to finish the year +21.5%. Unlike the growth and momentum-driven environment of late, we and many other experts expect valuations to actually matter in 2020.

Fixed Income: Don’t get bleary-eyed just yet, as the positive readings keep coming! In a blink of the eye, the Fed went from a hawkish stance to a dovish one which amounts to massive liquidity support and lower rates, which in turn pushes bond prices up as evidenced by the Barclays US Aggregate Bond Index & the Barclays Global Aggregate Bond Index turning in a solid quarter, up 0.2% and 0.5%, and an eye-catching year-to-date (“YTD”) return of 8.7% and 6.8% respectively!  The Fed appears to be on hold for the foreseeable future, thus barring a setback on trade, we expect Treasury yields to move higher as recession fears fade.

Alternatives: Sometimes this asset class goes unnoticed or invisible, but not in 2019 as alts produced some very good returns. In fact, the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, showed a 2.2% gain on the quarter and finished up 8.1% for the year! Standouts include infrastructure*** (+2.9% 4Q19 & +27.8% YTD) and gold**** (+2.8% on 4Q19 & +18.0% YTD). Such spectacles!  

Recall that in 2018 almost every asset class and investment style went down; 2019 was pretty rare in the sense that it was just the total opposite of that – virtually everything went up, i.e. no blind spots! In fact, the balanced investor – those with sizable allocations to equities, fixed income, and alternatives – should be seeing double-digit returns in the teens! Pretty amazing! The key is not to be short-sighted and getting caught up in recency bias. One needs to be realistic when planning for the future. If you are thinking that the environment is as pretty as the light prism above, you have blinders on. Alas, here is some near term darkness:

Investor sentiment is really high now with all the recent good news. That typically is a leading indicator of less-than-stellar times. And because of this high investor sentiment and recent stock market rally, valuations in certain areas, particularly the S&P500, are getting uncomfortably high. The market seems almost priced to perfection. So far the market has shrugged off scary news like the recent US killing of Iran’s most famous military commander. But it’s only speculation that that can continue. Further, manufacturing and business investment is still struggling, which will most likely continue until we get a more comprehensive trade deal, more than the vague preliminary one being discussed now. The good news is that it appears that US and China are both working on a resolution, but don’t be dazed and confused if talks fall apart. And, of course, we have an upcoming Presidential election which brings more uncertainty into the mix.

In conclusion, it’s a beautiful scene right now with most investors’ portfolio values near all-time highs. But like rays of light, the direction of the markets and portfolios don’t forever stay the same. We are here to help now and also when the light ray inevitably bends.

DWM enjoyed watching out and doing all it could for its clients in the last decade. And as we now start into this new decade, we continue to be on the lookout over our clients, their portfolios, and their wealth management needs. Serving our clients make us smile. On the flash of light, we say “cheese”! 

Cheeky Smiles

As always, don’t hesitate to contact us with any questions or comments.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

*represented by the S&P500 Index

 

** FAANG = Facebook, Amazon, Apple, Netflix and Google 

 

***represented by the Frontier MFG Core Infrastructure Fund

 

****represented by the iShares Gold Trust

 https://dwmgmt.com/

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