Carolyn Stewart

Building a retirement nest egg is one of the most important financial activities you can engage in. And the earlier you can get started on that task, of course, the better.

Mike Switzer interviews Alex Chastain, a certified financial planner at Abacus.

Listen to Alex’s interview on SC Business Review:

X. Alexandra Chastain

If you have been in the market for a new (or used) car in the last 2-3 years, you are probably aware that the cost of buying a car has skyrocketed. According to the Kelley Blue Book, the average price of a new car was $46,526 in April 2022. With pandemic-related supply chain problems still present and no end in sight, you might be considering leasing a vehicle instead of buying. Which is best for you?

For most people, buying a car is still the financially optimal move. No matter what, you are going to come out ahead in the long run when you buy a car—whether you pay cash or use financing—over leasing a car. Even though the lower monthly payments on a lease might look attractive, you will pay thousands more with two separate three-year leases than if you bought a car over the same period. Additionally, with leasing you are simply paying to “rent” the vehicle during the period it’s depreciating the most and not building any kind of ownership interest. Also, what happens if you don’t like the car, or you find out you can’t make your payments? If that is the case, you may be charged up to the full lease amount for early termination.

On the other hand, if you are in a financial position where you are no longer building wealth nor are you worried about running out of money, then the car decision becomes more about priorities than numbers.  If you know you want to drive a new vehicle with the latest features every 2-3 years and simply drop the car off at the dealership at the end of that time, then leasing may be a good option if you want a new car frequently.

With leasing, you may be also surprised to see a relatively small down payment along with the lower monthly payments. Some contracts also include routine maintenance and oil changes. However, always keep in mind that the dealer will make up costs in other ways. A typical lease contract includes mileage restrictions, which could range from 10-15 thousand miles per year and charge between 10-25 cents per mile over that amount. At the end of your contract, you could also be subject to “excessive damage” fees, which may be up to the discretion of the dealer. Generally, they expect the car to be in showroom condition when it is returned. If you don’t expect to drive too much, and/or do not have kids or pets to put your car at an increased risk for damage, then these restrictions won’t matter.

The following graph shows the pros and cons of buying vs. leasing a car:

Buying a new or used car is still the most financially savvy choice despite the higher costs stemming from current supply chain snags.  For those few in the right financial position who don’t drive often and care about having the newest features every few years, leasing could be a better option—it all depends upon what your financial situation is at the time.  As with any major financial purchase, do your homework before making any important new vehicle decision.

Carolyn A. Stewart

The creation of a cash management plan is the best way to optimize your cash. A successful cash management plan incorporates cash needs, time frames, and future expenditures. A variety of options are available to ensure your cash is earning money while it is waiting to be used—from basic to more complicated investment strategies.

The simplest form of cash management is the combination of a checking account and a savings account. A checking account should carry just enough funds to cover upcoming short-term cash needs. A savings account is the next step, which should be used for emergency cash needs and short-term goals like trips and bigger expenditures such as repairs/replacements. With the creation of “online banks,” the ability to earn attractive interest rates is now easier than ever on your account.

From basic banking, cash management moves into more investment focused opportunities.  The three most common types of cash management offerings in the investment world include purchased money markets, US Treasury Bonds, CDs, and pre-refunded municipal bonds.

Purchased money markets are investments offered with the goal of generating higher yield while at the same time providing liquidity and stability. One of the main benefits of purchased money markets is the daily liquidity. For example, a purchased money market can save the day if you have a surprise cash need. (Several rules apply, so it is important to be aware of your particular money market.)

Treasuries and CDs are bonds issued by the US government and banks. These offer a wide variety of maturities and higher yields than purchased money markets. Treasuries and CDs match your need for cash with the maturity of the bond. Matching cash needs with bond maturities is a great way to pick up extra yield for known payments (like taxes).

Pre-refunded municipal bonds are municipal bonds whose payments are funded by a pool of US Treasury bonds. The municipal world is unique in that you cannot pay off a bond before its maturity date, like you can a mortgage. To get around the inability to pay off bonds early, municipalities will go buy enough US Treasury bonds to pay all the remaining interest and principal payments on a bond. Depending upon your tax bracket, pre-refunded bonds can be an excellent source of yield for your cash management needs. (*Other types of bonds can also be used for collateral, so do your homework.)

The final tool for a successful cash management program is using caution. Chasing excessive yield in a cash management program can be dangerous. One of the easiest ways to sell an investment is to advertise a high cash yield to potential investors. The problem is that to generate the high yield, the amount of risk is typically much greater than risks suitable for a cash management program. When it comes time to pay the tax bill or send the first payment to the builder, the investment may have imploded, and the cash is gone. No one wants that. Having a cash management plan can seem daunting at first, but once you have created a workable, solid foundation that optimizes your cash holdings opposed to having them sit idle can provide you with both more income and a greater peace of mind.

Charles B. Flowers

The 2017 Tax Cuts and Jobs Act triggered numerous changes. One was almost doubling taxpayers’ allowable standard deduction, now $27,700 for married filing joint taxpayers. For those committed to charitable giving, the question became whether to take the deduction or to itemize their contributions. Which would maximize their tax benefits? The answer is both.

The key is “bunching” two years of charitable contributions into one year, then itemizing deductions for that year, and taking the standard deduction the next year.

Let’s say a joint taxpayer contributes $12,000 each year to charity over a four-year period. When combined with other deductions of another $15,000 — mortgage interest and state taxes, for instance — the total itemized deduction adds up to $27,000 per year. Since the standard deduction of $27,700 is the greater of the two, taking the standard deduction is most advantageous.
Over four years, the standard deduction results in $110,800 of cumulative deductions. Can that number be beat? Yes, by applying the giving strategy of bunching charitable contributions through a Donor Advised Fund.
To understand the strategy, know that when making charitable contributions through a Donor Advised Fund, it is the contribution to the Fund that receives the tax deduction, allowing you to make gifts to your charities on your own timeline.

For example, if you contributed $24,000 to a Donor Advised Fund in December of 2023, you would receive a deduction of $24,000 in 2023. If desired, you could wait until 2024, 2025, or even later to distribute the funds to your favorite charities, resulting in two years’ worth of tax deductions in
the first year.

This pushes year one itemized deductions to $39,000 which exceeds the standard deduction by $11,300. After taking the standard deduction in year two, the taxpayer “doubles up” again in year three for another $39,000 in deductions.

Over the four-year period, the taxpayer’s cumulative deductions equal $133,400, which exceeds the first scenario by $22,600. For South Carolina taxpayers paying the highest income tax bracket, this amounts to $10,802 in tax savings over four years.

In addition to saving on taxes, taxpayers can use this strategy to increase the basis of stocks in their portfolios. By gifting highly appreciated stock to a Donor Advised Fund, then using the cash originally intended to be given to charity to buy the same stock, the taxpayer effectively “resets” their basis in their stock position. The taxpayer incurs fewer capital gains when the time comes to sell the stock (since the basis will have increased).

Philanthropy is a cornerstone of the Abacus culture. We enjoy helping clients be generous with their resources. We also appreciate paying the IRS its fair share, and no more.

Stephen E. Maggard

The Role of Trustee in Family Governance

One of the most important decisions when you create an estate plan is selecting a trustee to manage your assets.  You have many options when selecting a trustee for a trust.  Some people choose: (1) the beneficiary, (2) another family member, (3) an individual outside of the family, or (4) an entity such as a bank or trust company.  There are pros and cons to any path you choose.  One lens through which you may want to consider this decision is the lens of family governance to ensure that your wishes are carried out after your death. It is always beneficial to make sure that your selected trustee interacts well with your beneficiaries, understands your values, and can manage assets and/or money well.

How will the trustee interact with the beneficiaries?

One role of the trustee is to manage the trust assets on behalf of the beneficiaries, which does not necessarily mean that the trustee will do what the beneficiary wants.  Sometimes the relationship between the trustee and the beneficiary can become contentious, especially if the trustee’s decision(s) conflict with the beneficiary’s wants.  If the trustee has other interactions or relationships with the beneficiary or beneficiary’s family, the conflict may spill over into the rest of the family.

If you choose a family member to serve as trustee, be mindful of the family dynamics.  Will selecting the older sibling to serve as trustee for a younger sibling stir up some underlying tensions?  Will the trustee and beneficiary be able to separate their personal relationship from the relationship of trustee and beneficiary?  Trustees sometimes make difficult decisions, and, if the trustee is family, that person could be setting himself up for some tense family gatherings!

Another factor to consider is that most trusts have more than one beneficiary, and often these beneficiaries have competing interests.  Your trustee will need to be able to navigate these challenges.  For example, the trust may benefit your spouse for his/her life, and then the trust will benefit your children upon your spouse’s death.  Every dollar spent on your spouse reduces the amount your children will inherit. 

Does the trustee share or understand your values?

When you select a trustee, the trustee will be making financial decisions on behalf of your loved ones.  You may want to consider the trustee’s assertiveness, level of caring, financial savvy, and ability to teach and mentor.  The trustee is not you and will undoubtedly make some decisions differently than those you might have. Choose a trustee who will make decisions in line with your value system.  Even if the trustee does not have the same values, ensure the trustee understands your values and will feel comfortable making decisions within that framework. A non-binding letter detailing what is important to you can be helpful. For example, the role of the assets in education, the need to work and save, the ability to live comfortably, the ability to be entrepreneurial, and/or the ability to support a family could be important to you.

How will the trustee manage shared assets?

You may own assets with other people.  Perhaps you own a business with multiple partners, or maybe you own real estate with your siblings.  If you leave these assets in trust, your trustee will need to make ownership decisions with the other owners.  Think of the decisions you currently make with these assets.  With real estate, you may need to renew a lease, make repairs, or consider an offer to sell.  The trustee will have to make these decisions in the best interest of the beneficiaries, which can be challenging. Ensure that your chosen trustee has the necessary skills to successfully negotiate these business decisions.  If the trustee is already a co-owner of the asset, the trustee may face a conflict of interest.  For example, perhaps it is better for the trustee personally to sell the asset to a third party, but the beneficiary would prefer to keep the asset.

Selecting the trustee who will manage assets best for your loved ones may seem like a daunting task as this can be one of your most important life decisions. Putting some thought into family relationships and the person’s abilities to carry out your wishes will help ensure positive outcomes for both the trustee and the beneficiaries.

Jonathan J. Robertson

In goal setting, it’s important to step back and look at where we wish to be and how we spend our time today in the fulfillment of those wishes. 

I was feeling overwhelmed and spread too thin by all the things on my plate: demands at work, volunteer hours in the community, relationships with friends and family, cutting the grass, and keeping up with my Instagram feed. As I whined to her, my confidante and mentor asked,  “Where do you want to be in five years?” I thought she was trying to change the subject.

Explaining further, my mentor encouraged me to envision what I want my life to look like five years from now. She challenged me to think about how each of the items competing for my time and energy was helping me to attain my vision—a new concept for me and a lightbulb moment. I realized that some of the things pulling at me were not things I have to do or even things I like to do. They were things I feel like I should do. The most unfortunate part is that these imagined “necessities” were taking away from better, more efficient ways to achieve my five-year vision. 

As in life, goal setting is foundational to the financial planning process.  When I meet with a new client, one of our early sessions involves visioning exercises to help the client recognize, identify, and clarify his or her goals. Sometimes, these exercises lead a client to admit (perhaps for the first time) a core desire that has remained unmet, which can be incredibly powerful.  One exercise that has proven helpful in untangling competing priorities in life is an exercise that separates obligations from demands. Fill in the following grid (instructions below): 

The “Got to” column is for the things you simply must do for your life to flow. The “Should” column is for things that feel like obligations, and the “Like to” column is your chance to dream. “Have” refers to possessions, “Do” refers to accomplishments and activities, and “Be” refers to states of existence. 

After filling in the grid, analyze the list. Does your “Got to” column far outweigh your other columns? If so, you may be overwhelmed by feeling as if everything you need to do is vital. 

The “Should” column can be highly revealing. Why do we feel such a strong pull from the items in the “Should” column?  From a young age, we internalize messages from family, friends, and culture. Typically, these messages reflect things that are highly valued or represent the notion of success (shoulds), and we begin to process them as truth. (“You need to be making $xxx per year by age 40.”)  Perceived obligations can disconnect us from our true desires. 

When we direct a large portion of our efforts to these perceived obligations, we can miss out on the realization of our hopes and dreams. How do we let go of these feelings of obligation that weigh us down?  UK Psychologist Dr. Sally Hinton notes, “Sometimes it’s hard to know if we want something because we truly want it or because we should want it.” She recommends the following:

Try a simple exercise to figure out the wants from the shoulds. Imagine for a minute that there is no judgement. That whatever you do is equally valued and approved of by society, your parents, your friends or whoever’s approval you most desire. That success hinges only on whether you are personally pleased with your choices, that others’ approval merely reflects your own. How would you want your life to look? Take a few minutes to visualize your ideal day, your lifestyle, how you spend your time and how you contribute to the world.

As you identify the things that suck your time and energy but do not contribute to where you want to be in five years, you can begin to shift away from these priorities. In turn, you will have more freedom to pursue the fun things in life that truly bring you joy, rest, and fulfillment. You can also begin to see how some items in your “Got to” column actually provide the means to pursue things in your “Like to” column. The prospect of saving for a big vacation maybe now gives you a little extra energy for working harder. 

Helping a client come to these realizations brings me joy. In my own life, letting go of an activity in the “Should” column has given me more time to get to the gym, which helps me sleep better at night, which makes me more productive at work, which allows me to leave work on time and get back to the gym. I probably won’t get back into shape like my high school days, but who says I can’t dream and create more goals?

Ann J. Beckwith

With the holiday season fast approaching, many families will be gathering together soon. Now’s a good time to have a family discussion about aging parent care and estate planning.

Mike Switzer interviews Jon Robertson, CFP®, Director of Financial Planning at abacus.

Listen to Jon’s interview on SC Business Review:

Jonathan J. Robertson

Cheryl Holland recently had the opportunity to lead a webinar for Together Women Rise. Cheryl explored how to make the greatest impact with charitable donations and demystified topics such as Donor Advised Funds (DAFs), Qualified Charitable Distributions (QCDs), and Required Minimum Distributions.

Cheryl R. Holland

Are you planning to make a gift to a non-profit organization? Do you frequently sell and realize capital gains on your investments? Does your portfolio need rebalancing to your portfolio targets for growth due to the recent bull market? If so, you may be an ideal candidate to gift shares of appreciated securities directly to a qualified 501(c)(3) non-profit organization. The process is simple:

• You gift the shares to the non-profit organization’s brokerage account.
• The non-profit organization sells your shares and, as a non-profit, does not pay the capital gains tax on the transaction.
• The non-profit organization sends you a charitable verification statement reflecting the value of your gift, which you report on your income tax return as a charitable deduction.

An example might be helpful to understanding the advantages of this strategy for you and your pocketbook. Let’s assume you wish to make a gift of $5,000. You also are planning to sell shares of a stock or mutual fund that have grown substantially, and you want to trim your ownership. You purchased the shares several years ago for $1,000 and the current value is $5,000, which translates to a potential capital gain of $4,000. This chart compares selling the shares in your brokerage account and donating cash to the non-profit organization versus donating the shares to the non-profit organization.

Under both scenarios, you will have a transaction for tax purposes of the fair market value of your shares of $5,000. Assuming your capital gains tax rate is 20%, your state capital gains rate is 3.92%, and you are subject to the 2.9% ACA tax. You would have to pay the following tax:

Tax on Capital Gains
	Sell Shares, Donate Cash	Donate Shares to Charity
Proceeds of Dispositon	$5,000	$5,000
Cost of Shares	(1,000)	(1,000)
Capital Gain	$4,000	$4,000
Taxable Portion of Gain at 26.82%	$1,072	$0

By gifting your shares directly to the non-profit organization rather than selling the shares and donating cash, you save $1,072 in taxes. A gift to the non-profit organization and a tax savings to you. You might also qualify for a charitable deduction on the gift if you have deductions in excess of the standard deduction of $12,550 for single taxpayers and $25,100 for joint filers.

And, finally, if you are gifting an investment that has appreciated but you think has additional long-term appreciation potential, rebuy those shares with the cash you had planned to donate and start the income tax clock back to zero!

Laird W. Green