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Investor’sEdge

Inside this issue

1-2 Estate planning essentials for blended families

3 Explore the benefits of asset consolidation

4 Year-end tips for charitable giving and tax planning

5 Four ways your hobby may contribute to well-being in retirement

Fourth Quarter 2016

Estate planning essentials for blended familiesNational Estate Planning Awareness Week will be observed October 17-23 this year. While almost everyone can benefit from comprehensive estate planning, it is especially important for “blended” families.

By blended families, we mean families which may include:

• children/grandchildren and spouses from previous marriages,

• a current spouse,

• his or her children/grandchildren from previous marriages, and

• any children/grandchildren brought into the current marriage.

Indeed, the topic of this article may be of greater urgency these days because the number of blended families is on the rise. A recent U.S. Census report on remarriage in the United States says four out of 10 marriages in the past year involved a second (or third) marriage for at least one of the newlyweds. This is up from three in 10 marriages involving at least one previously married spouse reported in the 2008-2012 survey results.

These facts may come as no surprise. In fact, you may know a blended family or two. And if you are part of a blended family, your loved ones may appreciate the time you take to ensure your estate plans are in order – well before they are needed.

The power of a nameEstate planning can be complex. But by taking one simple – yet powerful – step, you can avoid one of the most vexing problems associated with “who gets what” when blended families try to settle estates.

Specifically, you will want to update the beneficiary designations on your retirement accounts and insurance policies. These designations supersede all the carefully worded language you might have constructed in your estate planning documents, such as your will or revocable living trust.

For example, if your updated will directs everything to your current spouse but your former spouse is still listed as the primary beneficiary of your IRA, then your former spouse – not your present-day spouse – will receive the IRA assets.

While updating your beneficiary designations is important, it is not the only beneficiary-related concern. With the intention to provide everyone with something, it is not uncommon for a spouse to name a current spouse as primary beneficiary and to name children from a previous marriage as “equal contingent beneficiaries.”

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However, in this case, the primary beneficiary receives all the assets, and is free to do whatever he or she wants with the money. To help ensure that your wishes are carried out, you can name multiple primary beneficiaries and designate the percentage of the asset each beneficiary will receive.

A revocable living trust may benefit youA last will and testament is a key estate planning tool. Yet if you want to avoid the time, expense and publicity of probate – while gaining the ability to be quite specific about how, and when, you want your assets distributed – you may want to consider establishing a revocable living trust.

You could create a revocable living trust and serve as trustee yourself. After you pass away, the trust can provide your surviving spouse with income for life. Then, after your spouse dies, your children from an earlier marriage can receive the remainder of the trust.

However, problems can arise if you name your surviving spouse or one of your children as the “successor trustee” who will take charge of the trust upon your passing. Here is why.

Let’s say your spouse, acting as successor trustee, decides to invest only in income-producing securities. If he or she lives another 20 years, the value of the investments within the trust may decline considerably – leaving your children with less than you might have wanted. On the other hand, if you name one of your

children as trustee and he or she invests strictly in growth-oriented investments, your surviving spouse may be left with a greatly reduced income stream.

To be fair to everyone, you may want to engage a professional third-party trustee. This individual, or company, is not a beneficiary of the trust and is not entitled to share in the assets of the trust.

Prenuptial agreement: A wedding gift that lastsIf you remarry, you may find that drawing up a prenuptial agreement can remove a source of potential stress for your new spouse and your children from an earlier marriage.

As a binding contract, a prenuptial agreement needs to be coordinated with other elements of your estate plans. Once assets are blended in financial accounts, spouses can have a claim on them. So if you and your new spouse have agreed to keep your assets separate – in order to pass an inheritance to your own children – you need to spell out that separation in your “prenup,” your will, your living trust and any other relevant estate planning arrangements.

Communication is keyWhether you are updating beneficiary designations, creating a revocable living trust, crafting a prenuptial agreement or assigning a health care power of attorney (designating someone to make health care decisions for you if you become incapacitated), clear communication will be key to effective estate planning. By sharing your plans with your current spouse, children from a previous marriage and anyone else affected by your wishes and decisions, you can help spare your loved ones from hard feelings – and perhaps even a few unpleasant surprises.

To discuss your estate planning needs, please contact your financial advisor.

This information was adapted from an article originally published on Forbes Wealthvoice.

Our firm does not provide tax or legal advice. Consult your tax advisor or attorney regarding your specific circumstances and goals.

Estate planning essentials for blended families, continued

A recent U.S. Census report on remarriage in the United States says four out of 10 marriages in the past year involved a second (or third) marriage for at least one of the newlyweds.

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Explore the benefits of asset consolidation

As you know, diversification can play a key role in long-term investment success. After all, owning a variety of investments – mutual funds, domestic stocks, international stocks, corporate bonds, government securities, real estate and so on – may both expand your exposure to upside potential and limit your exposure to risk.

With such clear benefits to your financial well-being, you might be tempted to take this line of reasoning to its extreme. You might think it would be prudent to further apply the principles of diversification by maintaining multiple accounts with multiple financial advisors at multiple institutions. If some diversification is good, more must be better. But is this actually a good idea?

In the case of having multiple advisors, the answer is often “no.” The fact is, consolidating your investments with a single wealth manager can offer important advantages you cannot enjoy any other way.

Improve portfolio efficiencyIf your investments are spread among different accounts at different financial services providers, you are responsible for managing your “overall portfolio.” In addition to putting yourself at potentially greater risk of an accidental wash sale (see “Year-end tips for charitable giving and tax planning” on page 4), you have to watch for duplication of assets that may result in an over weighted position. Or worse, you have to watch for assets that are a poor “fit” with each other that may result in less-than-optimal performance. Plus, you need to determine whether assets are held in taxable or nontaxable accounts.

These asset allocation and management decisions are not simple. They are

ongoing tasks best left to an investment professional with the expertise, discipline and tools necessary to help ensure your portfolio is structured properly to follow a single, unified investment strategy through market ups and downs.

Enjoy greater cost savings If you have accounts at several different locations, you might be paying multiple fees and maintenance charges. Individually, each of these fees or charges may not seem like much, but they can add up – and eat away at investment returns.

Reduce paperwork and simplify administration When you consolidate your investments with one provider, you will receive fewer brokerage statements and 1099 forms. As a result, the tax reporting on investment income and withdrawals may be more manageable and accurate. This may possibly help lower your tax preparation expenses as well.

Retire with confidence Once you reach age 70-1/2, you will need to take annual required minimum distributions (RMDs) from your 401(k) and your traditional IRA. Calculating the correct amount to withdraw may be complex if you have multiple accounts. Get your RMD wrong and you could face a financial penalty if you withdraw too little.

With all your accounts in the same place, your provider can calculate the RMD you will need to take each year. He or she can also help you make well-informed choices about how to draw down your assets efficiently over the course of your retirement and even advise you on whether you can, or should, take out more when your portfolio is up.

Ease estate settlement Consolidation streamlines estate administration, simplifies matters for your executor and potentially lowers settlement costs. Another important benefit is that you enjoy peace of mind knowing your loved ones will have one point of contact you trust to manage their inheritance and help ensure they are provided for adequately.

Two other key advantages include having one main contact for questions and one single liaison to consult with tax and legal professionals. So as you can see, there are many practical reasons to NOT take the diversification strategy any further than the securities in your investment portfolio.

Should you have questions or care for assistance, please call your financial advisor.

Our firm is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor.

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As we ease into the holiday season and enter the last quarter of 2016, you may be thinking about both charitable giving and year-end tax planning. Here are a few ideas to consider.

Let your generosity showIf a charitable organization has 501(c)(3) tax status, your gift can be tax-deductible. On the most basic level, a gift of cash can earn you a tax deduction. For example, if you are in the 25 percent tax bracket and you give $1,000 to a qualified charity, you lower your tax liability by $250.

Donating appreciated securities may offer a greater tax benefit. If you give appreciated securities held for more than one year, you can deduct the full fair market value, up to 30 percent of your adjusted gross income. In addition to the deduction you receive, neither you nor the qualifying charity will owe capital gains taxes on the donated investments.

Beyond the transactional approach to sharing your goodwill, charitable trusts can be established to help you accomplish long-term philanthropic and tax management goals. They may also be a practical means of providing income and/or transferring assets. Or consider donor advised funds, which provide a means to help support worthy causes of your choice while improving portfolio tax efficiency on an ongoing basis.

Look into “tax loss” sellingYour portfolio may hold investments that lost value in 2016. Should you sell one or more of them, the loss can be used to offset taxes on investments sold for a capital gain during the same

tax year. If the loss is greater than your capital gains, you can further deduct up to $3,000 against other income. And if your loss exceeds your capital gains by more than $3,000, you can carry the remaining loss forward to offset capital gains in future tax years.

Keep in mind that it may not be prudent to sell an investment for tax purposes only if it is still suitable for your goals. Plus, if you buy the same security (or a “substantially similar” security, as defined by the tax code) within 30 days before or after the sale, the IRS will disallow the capital loss on your tax return under the “wash sale rule.”

You may, however, sell a municipal bond for a capital loss and immediately reinvest the proceeds in another municipal bond. This is sometimes called a “bond swap strategy.” It allows you to avoid the wash sale rule as long as two of the following three characteristics of the bond you buy are different from the bond you sell: the issuer, the maturity and the coupon rate.

Wait until dividends are paid before buying new fund sharesIn December, many mutual funds pay out dividends and capital gains that

have built up during the year. The IRS views these payouts as income, and you will be taxed on them, even if you automatically reinvest the money in extra shares.

Since the fund company reduces the share price by an amount equal to the dividend, another benefit of waiting is you may get a relatively better price. For example, if the fund pays $2 per share in dividends, it also lowers the share price by $2. Keep in mind, however, that market factors can also affect the pricing of securities transactions – which means any markdown you receive may be more or less than the dividend paid.

Tax-smart investing and charitable giving can pay off for you in many ways. So make the most of your opportunities between now and December 31, 2016.

To discuss your year-end charitable giving and tax planning goals, please call your financial advisor.

Our firm is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor.

Year-end tips for charitable giving and tax planning

Donate appreciated securities outright

Donate $10,000 cash

Sell securities and donate cash

Charitable deduction $10,000 $10,000 $10,000

Ordinary income tax savings (assumes 35 percent rate)

$3,500 $3,500 $3,500

Capital gains tax paid (assumes 15 percent tax rate on $8,000 gain)

$1,200 saved N/A $1,200 paid

Net tax savings $4,700 $3,500 $2,300

1) Fill time meaningfullyAfter three or four decades spent building your career, leaving the professional world behind can be quite a change in your daily schedule – and it may suddenly seem that the hours make you yearn for something of significance to occupy them. As you might imagine, your favorite activities may fill many of the hours of the day in a productive and enjoyable manner.

2) Maintain social relationships During your working years, your job provides you with a regular source of social engagement. Apart from your normal conversations about business matters, you probably enjoy coffee breaks, lunches and happy hours that help establish personal relationships with co-workers. In fact, you may spend almost as much time with these people as you do with your own family.

Once you retire, your social network may shrink considerably – creating a void that could be filled by sharing your talents with individuals or groups that have similar interests. Enriching the lives of others can be deeply rewarding personally as well.

3) Stay active – physically and mentally

It is no secret that staying physically and mentally active can benefit you in many ways – from helping you maintain a positive outlook on life to keeping you fit enough to chase after your grandchildren. When you retire, you do not want to sit around, risking declines in your health and your mental acuity. Pursuing your passion may help you keep your body and mind in good shape.

4) Earn money You may never have thought much about whether your favorite activity could have monetary value – but you might be surprised. Did you know cruise ships sometimes hire dance instructors and bridge teachers? You could see the world and earn money while pursuing your passion. And if you are a painter, you could sell your work at art fairs – which may offer travel destinations and a means to help fund the trips.

Depending on your expertise, you may have other opportunities. If you are a history or literature buff, you could teach classes in local community education programs. The possibilities are abundant. And to restate the second half of a well-known adage, if you do what you love, it may not feel like work.

By earning money during retirement, you may be able to withdraw less from your IRA and 401(k) each year, potentially helping these accounts last longer. If you earn enough, you may even be able

to delay starting Social Security – which will increase the predictable monthly payments you receive for the rest of your life after you begin taking benefits.

(Important caveats: Increases in your benefit stop at age 70, and once you start collecting Social Security, any earned income you receive may lower your benefit, at least until you reach your “full” retirement age, which will likely be 66 or 67 if you have not already retired.)

In many ways, your career gives meaning to your life and even helps define who you are. So when you retire, you may need to “repurpose” yourself – and an increased focus on the skills you have developed outside the professional world could do just that.

To discuss how hobby-related employment opportunities may fit into your retirement income planning, please call your financial advisor

Our firm does not provide tax or legal advice. We will work with your independent tax/legal advisor to help create a plan tailored to your specific needs.

Four ways your hobby may contribute to well-being in retirement

Are you a ballroom dancer? Do you paint with watercolors? Have you played competitive bridge? If you have a special passion you have pursued throughout your working years, you may well have developed some enviable talents. And if you continue to exercise these skills during your retirement, you may find that they can fulfill you in several different ways.

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The information contained herein is based on sources believed to be reliable, but its accuracy cannot be guaranteed. Our firm does not provide tax or legal advice.All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor. The articles and opinions in this advertisement are for general information only and are not intended to provide specific advice or recommendations for any individual. All information as of 08/10/2016. © 2016 RBC Capital Markets, LLC. All rights reserved. RBC Wealth Management, RBC Correspondent Services and/or RBC Advisor Services, are divisions of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC. 16-01-5500 (09/16)