Does it feel like just a few weeks ago that we ushered in 2016? It seems that every year goes by more quickly than the one before. And each year we make a few promises to ourselves that for a variety of reasons never come to fruition. So perhaps we should make a resolution to keep at least one resolution this coming year.
The usual resolutions seem to revolve around a few general themes: The physical (to lose weight or to end a bad habit), the philosophical (to be more generous or to be a better person in some way), or the practical (to get organized or to achieve a goal). Some people might consider financially-oriented resolutions to be in a separate category, but I think that they more properly belong in the categories I’ve already listed. In fact, I think that the resolution that is most worth keeping this year is to stop putting our financial affairs in some category by themselves.
One of my favorite family stories is about an aunt who gave up smoking because she realized that she had spent as much on cigarettes in one year as the price of a used car. She quit that day, and a year later bought a car similar to the one she had seen that had made her do the math. I’m glad to say that she did not start smoking again once she got the car.
Our goals and dreams all have costs. Sometimes, like my aunt, we can find ways in which paying the cost is actually helpful to us rather than a setback. Sometimes the personal costs we pay for a financial reward can lead us to better habits with our money and a better appreciation for the things we have worked hard to achieve. The cost of getting in shape financially is the benefit of peace of mind.
In my world of estate and tax planning, I’ve seen that while people are concerned about the tax consequences of their plans, the real purpose of their planning is to take care of loved ones, allow for family members with challenges to have support, and to meet personal goals of charity and leaving a legacy. Our personal and financial worlds are one and the same. The emotional cost of working out our estate plan is replaced with the reassurance of knowing our family is provided for and of reducing the burden in dealing with it.
In estate and tax planning as well, we can find ways in which bringing about the goals can be done in a manner where paying the costs provides financial or tax benefits. Charitable remainder trusts are an excellent example of just such an arrangement. An income stream is set up for yourself or another, such as your spouse, for life or a term of years, and a charitable beneficiary receives the remainder.
The charity benefits, allowing you to exercise your generosity; but the cost does not involve losing income. Instead, it becomes a steady stream, with a deduction on your tax return at the time of funding. The same concept is involved in setting up a trust to benefit one family member for life with the remainder going to another family member (without the tax deduction, but possibly with estate taxes held at bay depending on the arrangement).
So as those tax forms, 1099, 1098, W-2 and all their friends show up in your mailbox this January, make a resolution to talk to your accountant about the whole fabric of your life. And start making some plans with all of your goals in mind. You’ll be glad you did.