Press Room: Financial & Estate Planning

Juggling the Retirement Pieces


Juggling the Retirement Pieces

Q: When we discuss “juggling the retirement pieces”, what is the point?

That is an observation that comes out of multiple observations over our 47-year history from working with client families who face the transition from their previous life of living on a regular paycheck to a new life of creating their own paycheck.  In many cases, if not most cases, there are decisions to be made regarding how to create the cash needed to maintain the family’s lifestyle in retirement.  Most of the time, there are numerous alternative sources for cash.  Today’s retirees are not “living their grandfather’s retirement” where there was nothing much to think about beyond being sure the pension check and Social Security payment made it to the bank for deposit before the bills came due.

Q: Are you saying that you cannot simply plan retirement cash flow by using the rules of thumb we have from history?

The answer would be “Correct”.  But Warren Buffett put that far better than we could when asked about how he’d become rich.  His answer was, “If past history was all that is needed to play the game of money, the richest people would be librarians.”  Those rules of thumb are not 100% wrong, but the main danger is that they are over-simplifications.

Read the Full Conversation

Where Are We Headed in 2018?


2017: A Tough Act to Follow…
Where Are Markets Headed in 2018?

Q: We’ve just closed out a pretty remarkable year for investors in 2017. Where is our Investment Committee’s thinking? Will this continue?

You’ve posed the most frequent question we get from clients. This question was being asked even before the end of 2017, because this strong up move in the financial markets has been in place, virtually uninterrupted since early 2016. We are close to the two-year mark of this upward advance. The U.S. market returned almost 22% last year (S&P 500 Stock Index). Foreign stock markets, in the aggregate (excluding the U.S.) did even better, surpassing 27%. Even dull and boring bonds had a nice year, producing a solid inflation-beating return of more than 3% with little volatility. It’s hard to remember a year when portfolios moved ahead “hitting on all cylinders.”

Q: That is good perspective. Does that mean we have concluded the party is about over?

The short answer: not necessarily. We get this question from clients and friends for a few reasons. One reason often behind the question: this bull market has extended longer than average in terms of time and advance. That said, it does not represent the all-time record. The answer to your question has to be more than some simplistic appeal to “reversion to the mean.” Yes, the U.S. market has attained record levels of price appreciation when you look at popular benchmarks, but that is only part of the story. It is equally true that we are in an economy where the corporate profits encompassed within the U.S. stock indices are also at record levels, and that is before counting the positive effects of the recent tax changes. What we tell clients is that you must put this question in some sort of frame to have a sensible perspective. The “frame” on one side is a U.S. economy that appears to be in steady growth mode with no serious signs of impending recession risk. The other side of that frame is that U.S. stocks, while not a bargain, are nonetheless selling at reasonable price multiples relative to expected earnings. There are a number of ways to measure valuations. Our team looks at several different metrics and compares them to historical averages, different periods in history, and makes adjustments for the current economic environment. In that sense, we believe U.S. equity markets are fairly valued.

Read the Full Conversation

Tax Cuts & Jobs Act: A Few Initial Takeaways and Key Changes to Consider

TAX CUTS and JOBS ACT: A Few Initial Takeaways and Key Changes to Consider

Congress and the President successfully passed new tax legislation, known as the Tax Cuts and Jobs Act (TCJA). The TCJA impacts individuals, as well as businesses large and small. It’s very early in the process, and many of the details are still being sorted out. The IRS will undertake the process of working through the particulars, and they’ll ultimately issue final regulations, which will certainly help clarify planning opportunities. How the changes will impact individuals and businesses is difficult to say, as each particular circumstance is unique.

There are a few clear winners from the TCJA. Corporations stand to benefit from a materially lower income tax rate. Businesses that distribute “pass through” income to their owners are favored. In fact, possibly some of the biggest planning conversations ahead will revolve around business entity selection or related topics. Larger estates will also benefit, given an increase in the exemption amount that can pass to one’s heirs free of the death tax.

For many individuals, the direct benefits of the TCJA are a bit more complicated and dependent on one’s situation. Though there has been plenty of political “hype” in all the discussion, we do agree that all individuals are likely to be indirect beneficiaries of the new law, as corporations and businesses employ some of their tax savings in ways that foster long-term economic growth – more on that below.

Regrettably, the new law does significantly reduce some popular deductions for individuals, including state and local income taxes, sales taxes and property taxes. Thus, for individuals with relatively large itemized deductions, there is a chance they could see taxes increase, in spite of lower tax rates.

Also, despite the perpetual political promise of “simplification”, the tax code will remain as complicated as ever. Thus, planning will remain highly essential, especially considering all of the different effective dates and sunset provisions included in the new law (see chart below). It is also a bit disappointing that provisions like the individual Alternative Minimum Tax (AMT) did not get the axe entirely, but at least there was improvement.

Additionally, with respect to estate planning, it’s important to note that the higher exemption amounts are not permanent. Therefore, there’s at least a decent chance that today’s lower exemption amounts will return. You might recall it wasn’t all that long ago that the exemption amount was less than $1 million, impacting a much higher percentage of individuals. And, even if your estate is well under the new exemption level, there are many reasons, outside of tax considerations, to properly plan your estate.

In general, the new tax legislation has been well received by financial markets. The reduction in the statutory corporate tax rate to 21% makes the United States’ corporate tax structure much more competitive globally. The previous rate of 35% was one of the highest in the developed world. Now, not all large U.S. based companies have been paying the full freight, but still, their effective tax rate is expected to drop between 5 – 6 percentage points, which Wall Street analysts estimate could add about $10 per share to S&P 500 earnings. This improves after-tax earnings and improves free cash available to businesses to reinvest and distribute to shareholders.

Small and mid-size companies – which are not typically included in the S&P 500 – could experience an even greater relative improvement. Exactly how companies plan to use this new windfall is not completely predictable, but it is likely that some of it will be used for accelerated business investment, new hiring, and higher worker pay. Anecdotally, we have already seen a number of one-time bonuses paid out to employees across various industries.

Another, and perhaps underappreciated, aspect of the legislation is the shift to what is referred to as a territorial tax system. After an initial repatriation charge on cash held overseas, companies will henceforth be allowed to return international earnings back to the United States tax free. This is most important to technology, healthcare, and pharmaceutical companies which tend to have the most money held outside of the United States. It wouldn’t surprise us to see an increase in mergers and acquisitions, stock buybacks, and dividends from these sectors.

Let’s discuss and make observations on a few of the details, good and bad… let’s start with the good:

  • There are still seven tax-brackets for individuals, but the highest tax rate as well as intermediate rates are now lower than before. The highest rate has dropped from 39.6% to 37%.
  • The standard deduction is now higher for both individuals and married taxpayers. One of the most visible and talked about changes is the increase in the standard deduction from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married couples.
  • 529 Education Fund savers can now use up to $10,000 per student per year for public, private or religious elementary or secondary schools, where previously these could only be used for traditional college costs. The $10,000 limitation does not apply for post-secondary school expenses.
  • Charitable contributions are still available as an itemized deduction, and the AGI threshold for cash gifts to charity increases from 50% to 60%.
  • For individuals age 70 ½ or older, qualified charitable distributions (QCDs) from retirement accounts are still available up to $100,000. Note that QCDs are an above the line deduction for tax purposes, as opposed to an itemized deduction.
  • Medical expenses in excess of 7.5% of adjusted gross income are deductible. In the past, the AGI threshold was 10%. (This is a temporary change, for the 2017 and 2018 tax years only).
  • The “Pease” limitation, aka the 3% phase-out for itemized deductions above a certain income threshold, have been suspended for 2018-2025. This provides significant relief to taxpayers with higher incomes who previously were losing as much as 80% of the benefit from their itemized deductions.
  • Favorable tax rates for long-term capital gains and qualified dividends were unaffected, and tax rates will generally remain subject to a maximum rate of 15% or 20% on higher amounts.
  • Proposed legislation requiring investors to sell their oldest, and likely most highly appreciated, shares first did not make it into the final law. Despite much discussion, the 3.8% Medicare Surtax applied to investment income above certain thresholds did not get eliminated.
  • Owners of pass-through businesses will be allowed a 20% deduction for qualified business income from a partnership, S-corporation and sole proprietorship. This is for income below certain thresholds ($315,000 for Married Filing Jointly and $157,000 for Individual filers).
  • The Alternative Minimum Tax (AMT) system is still in place. However, since it raises the income exemption levels to $70,300 for individuals and $109,400 for married filing jointly, fewer people will be impacted by the tax. (Previously, these exemptions were $54,300 and $84,500 respectively.) This is welcome news for many.
  • The Gift & Estate Tax exemption doubles to $10,980,000 per person, and $21,960,000 per married couple. This change eliminates estate tax considerations for a whole new level of taxpayers. The rate for estate taxes remains at 40%, but the higher exemption amounts are scheduled to sunset after 2025.
  • Section 179 changed so that businesses can deduct a higher portion of capital investment as a current expense. This amount increased to $1 million from $500,000, while increasing the cost of property subject to the phase-out to $2.5 million from $2.0 million.

And now, the not so good news…

  • Not as prominent in discussions as the Standard Deduction is that the Personal Exemption, currently $4,050 per person, is eliminated.
  • For alimony paid after December 31, 2018, payments are not deductible by the payer spouse, nor is it includible as income by the payee spouse. This only affects divorces that are finalized beginning in 2019 and will not impact existing alimony arrangements.
  • Regarding itemized deductions, there are many changes. Perhaps the most notable being:
    • State and local income taxes, property taxes and sales taxes are limited to $10,000 (combined).
    • Mortgage interest deductions are capped at interest on $750,000 of acquisition indebtedness for a primary residence and second home (combined) for loans established after December 15, 2017. Debt incurred before this date is “grandfathered” under old rules.
    • Interest on HELOC loans is no longer deductible, unless specifically used for home improvement.
    • Miscellaneous itemized deductions subject to a 2% floor have been eliminated.
  • College Athletic Fund Contributions to athletic funds in exchange for preferred event seating will no longer be deductible.
  • Net operating losses (NOLs) are now limited to 80% of taxable income, and the two year-carryback provision, which allowed losses to be calculated against prior year returns, has been eliminated. However, taxpayers can now carry forward NOLs indefinitely instead of the prior limit of 20-years.

There are many additional changes in the TCJA not addressed in this relatively short piece. Thus, we highly recommend visiting with your CPA or other tax advisor as to how these and other changes may impact you personally. And, keep in mind, that the new rules take effect and potentially sunset at different times, making long-term planning difficult at best.

We’re in the very early stages of the game with these new rules, so much is still to be seen. That being said, it’s clear that tax planning and modeling will remain an essential part of any personal financial discussion. This relates to both decisions around personal income and business tax planning, as well as estate tax planning.

To conclude, please keep in mind that this is only a brief summary. It’s a bit staggering that we’ve already seen summaries on the new tax law that are in excess of 150 pages in length. There are many changes and certainly many nuances with the tax code to consider. Again, we highly recommend visiting with your CPA or other tax advisor to ensure you have a good understanding of how the new law will impact you personally.


Financial Lessons Learned: What Next? Picking Up the Pieces After the Storm


Picking Up the Pieces After the Storm…


Living through a natural disaster like Harvey creates unforgettable memories for all of us. In our 46 years, we have stood with our clients through a number of similar disasters, each one a little different. In most cases, the financial lessons learned have dealt with insurance or planning for unforeseen and out-of-pocket expenses.


Probably the most common take-away from the financial effects of Harvey is a reminder to stay disciplined when it comes to periodic reviews and updates of property and casualty insurance. It’s understandable that most people do not enjoy sitting down with their agent and devoting an hour or two to a detailed conversation regarding options, costs, and the various trade-offs for putting together a well-conceived insurance program. In addition to busy lives, not being made aware of its importance can make it easy to just pay the quoted renewal premiums and move on down the road another year. It is a fairly common practice at renewal time to primarily focus on cost. Thus, the quality of their program may suffer, leaving gaps for exposures for things like floods.

Read the Full Conversation

“Debt-Free” – Mantras & Rules of Thumb




Being debt-free is a popular topic for advice today on radio talk shows and internet blogs. Google the subject and you’ll see all sorts of tag lines: “5 steps to becoming debt-free,” “10 steps to debt freedom.” We would classify much of this as overly simplistic since this is not a question where a “one-size-fits-all” approach is the best path to follow. Paying off every last penny of debt might feel really satisfying, but it may, or may not, be the right move. Not all debt is created equal, so be careful about rules of thumb.


Simply that you need to really look at each specific question about indebtedness on its own facts and merits. In our 46 years of advising families, we have learned that generalizing “all debt is bad” can lead to poor financial decisions. In some cases, those who are providing advice may have a conflicted agenda, wherein they may really be selling a “program,” a book, or even a software program to help you manage your way to debt freedom. If you are going to get financial advice on this topic, seek help from a wealth advisor who is a pure fiduciary, legally obligated to put your interests first and to fully disclose any conflicts of interest. That is the approach we follow at Linscomb & Williams. Regardless of whether individuals choose to come to us or not, we strongly recommend that they seek advice from a similarly inclined fiduciary, who delivers client-centered advice.

Read the Full Conversation

Avoiding Medicare Premium Shocks




Yes. In our 46-year history of advising clients, we’ve consistently received questions about this milestone. People worry a good deal about their health insurance, so it’s often a key item for them as they approach age 65. However, you might be surprised to know that we actually receive more questions after clients have enrolled. Medicare premiums are not one size fits all, so it’s often a shock to someone when their premiums increase, sometimes, significantly.


Depending on an individual’s total income, Medicare premiums can jump by more than 200%.  This jump can be triggered by a bump in your income, including retirement payments, selling property at a capital gain or receiving Required Minimum Distributions (RMDs) from IRAs. We recently met with a retired power company executive who had sold a few shares of company stock to pay off his daughter’s student loans. This one-time sale generated a relatively small, $6,000 capital gain. However, this sale also had the unintended consequence of increasing the retiree’s Medicare premiums by $2,100. That’s a 42% adjustment!

Read the Full Conversation

Facing Corporate Restructurings: The Terminator




“Terminator” is from the movie by the same name; but we’re talking about the increasingly common occurrence where companies engage in restructurings and some long-tenured employees receive termination notices earlier than they might have expected. If you are one of these individuals, you suddenly face a number of important financial decisions that may be compressed into a short time period. Perhaps a severance package sweetens the deal, but not always. Regardless, it can feel somewhat overwhelming to confront these important decisions that may have lifelong implications.


Sure. Some relate directly to your separation from the company where you’ve been working. Health benefits and their continuation are critical to almost every family. If you have investments in a 401(k) plan, there will be decisions related to that account. If you have a pension benefit, there may be certain elections related to the timing and form of your benefit. These decisions are typically overarching and create interplay with other personal financial planning objectives.

Read the Full Conversation

Women and Social Security: What Every Woman Needs to Know




It is very well recognized that women, on average, live longer than men and therefore are likely to spend a longer time in retirement. As a consequence, they will need more money. The decisions about how to make wise Social Security elections is therefore of special importance to women because poor decisions can have long-run consequences for them.

Read the Full Post

Taxing Your Portfolio


Q:  2016 was a pretty good year for most investors. Now it’s time to settle up with Uncle Sam, right?

A: Yes, but most investors are over-paying their income tax because their advisors are not managing their assets in a tax friendly way. According to the Schwab Center for Financial Research, minimizing taxes falls directly behind investment selection and asset allocation in the list of the most important determinants of investment success. What we’ve learned in our 45 years of talking to families is that most families and their investment professionals do not manage their investment portfolio with tax impact anywhere on the radar screen. The result is that their clients end up paying “stealth” taxes – more than they need to be paying.

Read the Full Post

Turkey, Football and Year-End Planning

Financial markets have had their ups and downs this year centered on events that are largely outside of any one person’s control. Examples include the U.S. presidential election, the U.K.’s vote to leave the European Union (“Brexit”), as well as the potential for the Federal Reserve to raise interest rates. As year-end draws nearer, we wanted to take a step back from the news headlines and focus attention on those planning opportunities that are much more within our control… some food for thought if you will ahead of the Thanksgiving holiday.

If you have taxable investment accounts managed by L&W, we will be sending our Tax Planning Estimates Report to clients around December 1st. However, you do not have to wait… Using the link below, you can access portfolio related information in addition to the investment reports we send each quarter. Given the nature of this particular article, I’ll specifically mention three reports that are available through the portal under the “Reports” heading: 1) Income & Expenses, 2) Projected Income, and 3) Realized Gains/Losses. All three of these reports can be used for tax planning purposes ahead of year-end. Click the following link and take a few minutes to explore your Client Portal.

Have you contributed to your employer retirement plans, IRAs, and Roth IRAs?

Contribute the maximum amount to a retirement plan you are eligible and able to make. Be sure to make catch-up contributions if you are age 50 or older. Also, if you have children with earned income, they should consider contributing to an IRA or Roth IRA to get a head start on saving. (A $5,000 contribution to an IRA that earns 8 percent for an 18-year-old will be worth $186,000 at age 65. The same contribution made at age 25 will only be worth $108,000 at age 65. They’ll thank you later!)

Are you getting the most out of your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Click here to continue reading Getting the Most Out of Your 401(k).

Have you spent all of the funds in your flexible spending account (FSA)?

Any funds remaining in your FSA could be lost if not spent on qualified expenses before year-end.

Did you take your required minimum distributions (RMDs)?

Once you reach age 70½, you are generally required to start taking RMDs from traditional IRAs and employer sponsored retirement plans by year-end. RMDs are also required for non-spousal inherited IRAs (including inherited Roth IRAs).

Are there charitable gifts you would like to make before year-end?

Cash gifts are simple, but there are other strategies that may further maximize your tax benefits, including gifts of appreciated securities, Donor Advised Funds (DAFs) or Qualified Charitable Distributions (QCDs) for IRA owners age 70 ½ and older. Click here to continue reading more about Charitable Planning Strategies.

Are there annual exclusion gifts you would like to make before year-end?

You can gift up to $14,000 ($28,000 per married couple) to as many individuals as you want without incurring federal gift tax or utilizing a portion of your gift tax exemption. Keep in mind that gifts to 529 plans or trusts holding life insurance may utilize all or a portion of your exclusion in a given year.

Have you considered important thresholds when planning for income taxes?

There may still be opportunities to plan around income tax thresholds that could result in higher taxes. This might include the relatively new 3.8 percent Medicare surtax, phase outs for itemized deductions, and higher tax rates for long-term capital gains and qualified dividends. Planning for trust distributions is especially important as the various thresholds come into play much sooner than they do for individuals. Often, distributing some income earned by a trust to the beneficiaries can avoid imposition of this surtax.

Have you withheld enough to avoid underpayment penalties for federal income taxes?

Check your federal income tax withholding and estimated quarterly income tax payments to verify you won’t be subject to underpayment penalties for 2016. The IRS safe harbor rules require that individuals pay in at least 90 percent of their current year income tax liability or 100 percent (110 percent above certain income levels) of their prior year liability.

Should you pay property taxes before year-end or wait until early 2017?

For income tax purposes, sometimes it may be beneficial to “double-up” and pay two years’ worth of property taxes in a single year. If your annual Itemized Deductions are only moderately higher than the Standard Deduction, there is a good chance this doubling up strategy could benefit you. Don’t forget to watch out for the alternative minimum tax (AMT).

Are there opportunities for harvesting losses or gains in your portfolio?

Harvesting investment losses can be an effective tax savings strategy, especially when you can offset short-term capital gains that would be otherwise taxed at higher rates.

Are you considering participating in your employer’s deferred compensation plan?

When it comes to making decisions about deferring compensation, your options are numerous, essential to your financial security, complicated, and often irrevocable. Click here to read more about Deferred Compensation.

Have you ever considered the use of a Family Limited Partnership?

The IRS has issued proposed regulations that could eliminate valuation discounts for family limited partnerships (FLPs). This change could occur close to year-end or shortly after the new year. With the maximum gift and estate tax rate currently set at 40 percent, valuation discounts have been a very useful tool for those individuals with a taxable estate. Current exemption amounts are $5,450,000 per person or $10.9 million for a married couple. Visit with your estate planning attorney or Wealth Advisor if you’d like to learn more about planning opportunities and the proposed regulations.

We encourage your feedback and don’t hesitate to contact your Wealth Advisor if you have any questions. Have a great Thanksgiving and Holiday Season!