Global Church of the Nazarene Foundation ~ Saturday, 19 October 2013

Global Church of the Nazarene Foundation ~ Saturday, 19 October 2013

Recently, I have been contemplating the commitment that you have displayed toward Christian ministries. You continue to show your support to those ministries that spread the Good News and share Christ's love around the world.

I feel privileged that our team at the Nazarene Foundation is able to assist you with your God-honoring planned giving. If you have any questions, please don't hesitate to reply to this email or call our office at (913) 577- 2983.

Blessings,

Kenneth R. Roney, J.D.

President

PERSONAL PLANNER

IRA and 401(k) Designated Beneficiary Options

Each year, IRA and 401(k)s are subject to required minimum distributions (RMDs). Because the distributions start at just under 4% at age 71 and then slowly increase, many IRA and 401(k) plans will continue to grow. While the distributions will eventually become larger, most individuals will eventually pass away with an IRA or 401(k) balance reasonably close to the value of their plan at age 70.

For this reason, the eventual distribution options for an IRA or 401(k) are quite important. For you and many other readers, the IRA or 401(k) may be the largest asset in your estate.

IRA and 401(k)s are transferred through a designated beneficiary that you select on your IRA or 401(k) custodian's form. The five common choices for designated beneficiary are the surviving spouse, children, charity, a trust for children or a trust for spouse and children.

1. Spouse as Beneficiary

The most common choice for a married couple is to select the surviving spouse as the designated beneficiary of an IRA or 401(k). When the IRA or 401(k) owner passes away, the surviving spouse has two choices with an IRA. He or she can receive payments under a one-life expectancy schedule or the IRA can be rolled over into his or her IRA.

Because the payments under the IRA schedule are frequently double the required payments with the rollover, nearly everyone rolls over the IRA into his or her own plan.

Assume that Harry Smith is the IRA owner and he passes away with Helen Smith as his designated beneficiary. Helen is age 68 when Harry passes away and rolls over the IRA into her plan.

When Helen reaches age 70½, she must start taking required minimum distributions. The minimum distribution must be taken by April 1 of the next year and is just under 4%. Her distribution will steadily increase as she becomes more senior.

Because Helen rolled over Harry's IRA into her IRA, she qualifies for the lower required minimum distributions under the uniform table. Helen often selects children or charities as designated beneficiaries.

If you are in a community property state and plan to leave your IRA to a trust or other beneficiary that is not your spouse, then it is essential to obtain a written consent from your spouse. In many states, attorneys who prepare estate plans will frequently use a waiver if the spouse is not the designated beneficiary of an IRA.

2. Children

For the surviving spouse, or in cases where there is a blended family, an IRA or 401(k), or any portion thereof, may be transferred to children.

There are two typical methods for designating children as beneficiaries. First, if each child receives a fraction of the plan, then each child may take distributions based on his or her own life expectancy.

Second, if there is a class designation with the IRA designated to a group of children or other heirs, then the age of the oldest beneficiary is used to determine the payouts.

It is best with several children to allocate a fractional share to each child. The opportunity to use the separate share method is quite important because of the payout calculation method. If a 60-year-old child is the beneficiary of an IRA, then he or she may take distributions over approximately 25 years. The distributions would start at age 61 at approximately 1/25th or 4%. Using a method of subtracting one from the denominator each year, the payments would steadily increase until the entire IRA is distributed at approximately age 86.

Does your child have to take the stretch payout? No, and frequently children do not. Many CPAs have indicated to the author that their clients have passed away and given the children an opportunity to stretch out the payouts.

However, this plan is often not successful. Approximately one-half of the children take the distribution early, even though that means paying the income tax earlier and losing the benefit of the tax-free growth for the life expectancy of the child. Parents who wish to encourage lifetime IRA distribution for the child may choose to use a testamentary trust to hold the IRA and payout over the child's life expectancy.

3. Charity

For the IRA or 401(k) owner, the qualified plan is a wonderful benefit and a very good asset. However, for children, the IRA or 401(k) is transferred with a large "you owe the IRS" tax bill attached (with the exception of a Roth IRA that is income tax free). For the vast majority of qualified plans, the child will pay income tax. Worse yet, the IRA or 401(k) distributions may even push the child into a higher tax bracket.

With the income tax on the IRA or 401(k) and no income tax paid on the home, land or stocks, for children the IRA or 401(k) is a less desirable asset. In fact, many will consider this a "bad asset" because of the income tax on most IRA payouts to children.

For this reason, children would far prefer to receive a home, land or stock because there is no income tax bill attached. The wise planning decision is to transfer the home, stocks or land (the good assets) to children and the IRA or 401(k) to charity (the bad assets due to the income tax bill to children).

Because charities are tax exempt, there is no payment of income tax or estate tax. The charity receives the full value tax free. By transferring the IRA or 401(k) to charity, it is possible to turn a bad asset into a good asset.

4. "Give It Twice" Trust

A very good plan for parents who have made lifetime gifts to charity is to combine a benefit to children with a future benefit to charity. This plan is called a "Give It Twice" trust.

A charitable remainder trust may receive the IRA or 401(k) with no payment of income tax. The full value of the IRA or 401(k) may be invested for a term of up to 20 years. Income earned is taxable and that new income is paid to children for the selected term of years. At the end of the selected term, the charity receives the trust principal.

For example, Mary Smith had an $800,000 estate. She lived in a home worth $200,000, had a CD for $200,000 and $400,000 in her IRA. Her IRA was substantial because when her husband Bill passed away, she rolled over his IRA into hers so the combined IRA is now half of her estate.

Mary has two children and decides to transfer the home and CDs to the children in equal shares when she passes away. They each receive $200,000 in value from the home and CDs with no income or estate tax.

After Mary passes away, the $400,000 IRA is transferred into a charitable remainder trust. It receives the IRA proceeds and invests the full $400,000. The trust pays 5%, which is divided between the two children for a term of 20 years. At the end of 20 years, the trust principal plus growth is given to charity.

Mary felt very pleased because she had achieved several goals. First, she had provided both principal and income to her children. This is a very good plan because some children will need a period of time to improve their money management skills. Second, she saved all of the income tax on the IRA. Because the unitrust is tax exempt, it receives the entire IRA tax free. The trust earns income for the children for a term of 20 years and is then transferred tax free to charity.

Because the trust benefits the children with more than $400,000 in income and then is given to charity, it truly may be called a "Give it Twice" trust.

5. Trust for Spouse and Children

For individuals with larger estates, it may make good sense to create a trust for surviving spouse and then a term of years for children. The IRA is transferred after the first person passes away into the trust for the surviving spouse. The trust will distribute income for his or her lifetime and then to the children for a term of 20 years. Following the life of spouse plus 20 years for the children, the trust remainder is distributed to charity.

This trust has several benefits. First, it may save very large income taxes because the trust is tax exempt. Second, the trust can be a "net plus makeup" plan that allows the spouse to choose to save taxes by taking reduced income during life. This will allow the IRA to continue to grow and build up the trust so there is greater income to the children.

This plan is an excellent way to benefit the surviving spouse, children and charity.

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SAVVY LIVING

Help For Those Drowning In Clutter

Ever since my father died a few years ago my mother's house has become a cluttered mess. It is so disorganized and messy that it's becoming a hazard. I think she has a hoarding problem. What can I do?

Compulsive cluttering is a problem that affects up to 5% of Americans. The severity of this problem ranges from mild messiness to severe hoarding. The more severe cases may be related to a mental health disorder like obsessive-compulsive disorder (OCD). Here is what you should know along with some tips and resources that can help your mom.

Why People Hoard

Most people hoard either because they have an extreme sentimental attachment to their possessions or they believe they might need the hoarded items at a later date. Also, hoarding may be an early symptom of dementia or a sign that an older person is depressed.

People who live in excessive clutter experience several common problems. They may trip and fall over loose items. Another common problem is overlooking bills and missing medications hidden in the clutter. Finally, they may suffer from the environmental effects of mold, mildew, dust, insects or rodents.

What to Do

To determine the severity of your mom's problem, download the Institute for Challenging Disorganization's free "Clutter Hoarding Scale" from their website at challengingdisorganization.org.

If you find that your mom has only a mild cluttering problem there are a number of things you can do to help.

Start by having a talk with her. Respectfully express your concern for her health and safety and offer your assistance to help her declutter.

If she accepts your offer, most professional organizers recommend decluttering in small steps. Organize one room at a time or even a portion of one room at a time. This gradual approach will help prevent your mom from feeling overwhelmed.

Before you start, designate three piles or boxes for your mom's stuff: one pile for items to keep and put away, another pile for items to donate and the final pile for items to throw away.

You and your mom should distribute her things among the three piles as you work. If your mom struggles with sentimental items that she doesn't use, such as her husband's old tools or her mother's china, suggest she keep one item for a keepsake and donate the rest to family members who will use them.

You will also need to help her set up a system for organizing the kept items and any new possessions.

Find Help

If you need some help with the decluttering and organizing, consider hiring a professional organizer who can come to your mom's home to help you prioritize, organize and remove the clutter. The National Association of Professional Organizers is a non-profit group that has a directory on their website (napo.net) to help you locate an expert in your area.

If your mom has a more serious hoarding problem you'll need to seek professional help. A hoarding problem is severe when it interferes with your mom's ability to perform daily tasks or causes financial difficulties, health problems or other issues. Antidepressants or therapy can help address any feelings that may underlie hoarding tendencies, such as control issues, anxiety or depression, and make it easier for her to confront her disorder.

To learn more and find professional help see the OCD Foundation website at ocfoundation.org/hoarding. This site provides a hoarding center on their website that offers information, resources, treatments, self-help groups and more. Also, visit hoardingcleanup.com, which has a national database of qualified resources including cleaning companies and therapists that can help.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Senior" book. The articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070.

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YOUR PLAN

Capital Gains Tax Bypassed

Peter and Gail were nearing retirement. Over the years, with the help of their financial advisor, they made solid investments in securities and built a sizable portfolio. While their investments increased substantially in value, their potential capital gains tax bill was rising. Now with retirement on the horizon, they were looking for a way to sell their highly appreciated stock, generate income for their future and avoid paying high capital gains tax.
Peter: For many years we had supported the work of our favorite charity. Through an e-mail we learned that we could make a gift of our appreciated stock to charity and bypass the potential capital gains tax cost we were facing. I was thrilled to learn that after transferring our portfolio to a charitable remainder trust, the trust would sell the stock tax free.
Gail: I liked the fact that the trust would provide us with income for our retirement years. If something happened to Peter, I would still be taken care of for the remainder of my life.
Peter and Gail decided to make a gift of their appreciated stock to establish a charitable remainder unitrust. They were thrilled at the prospect of creating future income while bypassing capital gains tax.
Peter: When I heard that in addition to the other benefits we would receive a charitable deduction for our gift, it was just icing on the cake! I wondered why everyone nearing retirement doesn't set up a charitable trust.
*Please note: The name and image above is representative of a typical donor and may or may not be an actual donor to our organization. Since your unitrust benefits may be different, you may want to click here to view a color example of your benefits.

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WASHINGTON NEWS

Washington Resumes Normal Operation

With passage of a bill to restore government operations, Washington is now returning to the normal level of activity. The bill passed with a vote of 285-144 in the House of Representatives and 81-18 in the Senate. It ends the 16 day shutdown and enables government workers to return to their positions.

Most Americans welcome the reopening of the national parks. Park rangers and other civil service workers from hundreds of departments are now back at work. All of the civil service workers will receive pay for the 16 day shutdown.

The bill funds the federal government until January 15. The debt limit has been increased and is expected to be sufficient to carry the nation through February 7, 2014.

President Obama held a press conference on October 17th and indicated that there were "no winners" in this event. He urged Congress to return to work on three major projects. First, it is important to come to a budget agreement. Second, he hopes that the House will proceed with immigration reform. Third, it is necessary to pass a new farm bill.

President Obama continued to call for a "balanced" approach. The Democratic proposal involves substantial new taxes and spending.

The two Republican leaders of the House and Senate taxwriting committees gave reluctant support for the bill. Sen. Orrin Hatch (R-UT) is the Ranking Member of the Senate Finance Committee. He voted in favor of the bill and stated, "This bill isn't perfect, but it is a path forward to reopen the government and prevent an economy-shaking default. When Republicans control only one-half of one-third of the federal government, we have to understand what is achievable and what is not. This legislation locks in significant spending reductions against bitter opposition from the other side of the aisle who want to raise the American people's taxes to spend more money we simply don't have."

The Chairman of the House Ways and Means Committee is Dave Camp (R-MI). Camp also voted for the bill because he noted it is important to "prevent the country from defaulting on its debt." However, Camp also expressed concern that "families are still struggling in this economy, and they deserve a government that can work together to tackle the tough issues. One of the most important things Congress can do to strengthen the economy, encourage job creation, increase wages and reduce spending is to fix our broken tax code."

Editor's Note: The shutdown and the bill reflect major differences between the two parties. The Joint Budget Committee that is now tasked with creating a resolution will find major challenges in coming to agreement.

Friendly Tone in First Budget Meeting

The four leaders of the House and Senate Budget Committees met for a cordial session on Thursday, October 17. The key Senate leaders in attempting to craft the new budget agreement are Senate Budget Committee Chair Patty Murray (D-WA) and Ranking Member Jeff Sessions (R-AL).

The House Budget Committee Leader is Chairman Paul Ryan (R-WI). The ranking member on the House Committee is Rep. Chris Van Hollen (D-MD). The Thursday meeting was described as "friendly in tone" and will be followed by conferences with the full 30 members of both budget committees.

It is likely that the future meetings will be fairly contentious. However, House Budget Chairman Paul Ryan stated, "We want to look for ways to find common ground. Our goal is to do good for the American people."

Sen. Murray also noted in a positive statement that, "Our challenge is to have a reconciliation between the House budget and a Senate budget." However, Murray warned that this may be difficult. This is the first actual conference committee on the budget since 2009. The House budget drafted by Chairman Ryan includes far greater spending reductions and major changes in Medicare.

The Senate budget created by Sen. Murray reflects a "balanced" approach. This translates into substantial new taxes and higher spending levels. Murray noted that Chairman Ryan is not going to accept her budget. She stated, "I know he is not going to vote for mine. We are going to find the common ground between our two budgets that we both can vote on."

Sen. Sessions also agreed that it is important not "to raise expectations beyond reality." However, he believes there are some potential areas of agreement.

Editor's Note: The bill continuing government operations until January 15 maintains the sequestration levels of spending. However, the House and Senate budgets are approximately $1 trillion apart on spending and taxes. This divide has previously been extremely difficult to bridge. In the meantime, House Ways and Means Chair Dave Camp indicates that he will proceed with the markup of a tax reform bill. The House Ways and Means staff have been drafting bill language for the past several weeks and several committee members hope to have an actual bill to mark up by the end of October.

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FINANCES

Stocks - Rivals Coke and Pepsi Report Earnings

Coca-Cola Co. (KO) and PepsiCo (PEP), the cola and beverage giants, reported their third-quarter earnings back-to-back on October 15 and 16, respectively. Both companies saw revenue decreases while posting net income gains.

Pepsi reported revenue for the quarter of $16.91 billion, which missed expectations by $120 million. The company's net income for the quarter was $1.91 billion, which was a slight increase over the $1.9 billion reported during the comparable period last year.

Pepsi CEO Indra Nooyi had this to say about the company's results, "Our year-to-date results give us confidence in achieving our 2013 financial goals and we continue to believe that we have the right strategies in place to create long-term value for our shareholders."

Coke, on the other hand, reported a 3% decrease in quarterly revenue to $12.03 billion. The company was able to record a 6% increase in net income, however, which increased to $2.45 billion from $2.31 billion.

Coke CEO Muhtar Kent commented on the results, "In all, we delivered 181 billion servings thanks to global volume growth of 2% driven by 2% global growth in brand Coca-Cola."

Both cola giants are under siege by a consumer trend away from soda consumption as consumers become more conscious about high-sugar products. In addition, there have been declining sales of diet soda products because of consumer concerns about the sweeteners used in them. Coke and Pepsi have both introduced new low-calorie and sugar-free products to keep consumers interested. Perhaps as a sign of each company's performance, Pepsi's stock price has risen 20% on the year while Coke's has managed only a 5% rise.

Coca-Cola Co. (KO) shares ended the week at $38.78 while PepsiCo (PEP) shares ended the week at $83.01.

Google Has Monster Quarter

Google Inc. (GOOG) reported its third-quarter earnings on Thursday, October 17. The company's results beat Wall Street expectations and sent the stock to new highs.

Google reported revenue of $14.89 billion, a 6% increase over the $14.79 billion reported during the same period last year. That figure beat expectations that revenue would be $14.8 billion.

Net income for the quarter was $2.97 billion, or $8.75 per share, which greatly surpassed expectations. The net income figure was also significantly higher than the $2.18 billion, or $6.53 per share, reported during the same period last year.

Google CEO Larry Page had this to say about the results, "When you look across the company, it's amazing how all of the teams are executing. For example, we rolled out enhanced campaigns in AdWords across all devices for all our advertisers in less than a year."

Despite having lower ad prices during the quarter than in the past, Google was able to substantially increase revenue and net income. Ad clicks increased 26% over the comparable period last year even as the price per click decreased. As a result of Google's impressive quarter, the company's stock rose over 8% in after-hours trading to $962.00, a $73 increase.

Google Inc. (GOOG) shares ended the week at an all-time high of $1,011.41.

Chipotle Wraps Up Great Third Quarter

Chipotle Mexican Grill, Inc. (CMG) announced its third-quarter results on Thursday, October 17. The company saw huge revenue and net income gains that caused the stock price to skyrocket in after-hours trading.

Chipotle reported revenue for the quarter of $826.9 million, which was an impressive 18% increase over the comparable period last year. Significantly, the revenue growth included a 6.2% increase in comparable restaurant sales.

Net income for the quarter was $83.4 million, or $2.66 per share, a 15.3% increase from the comparable period last year. Analysts, however, had expected earnings per share of $2.78.

"Our unique food culture continues to resonate with our customers," said Steve Ells, Founder, Chairman and Co-CEO of Chipotle. "We are proud of the investments we have made over the years to source sustainably raised ingredients, which allows us to serve delicious food. By sourcing the best possible ingredients and cooking them according to classic cooking techniques we continue to demonstrate that just because food is served fast, it doesn't have to be a typical fast food experience."

Chipotle's third quarter results were impressive, but the company did lower its forecast of same-restaurant growth for the rest of the year. Despite this news, the company's quarterly results were enough to please investors. During after-hours trading the stock price increased close to 8%.

Chipotle Mexican Grill, Inc. (CMG) shares ended the week at $509.74.

The Dow started the week at 15,231 and closed at 15,400. The S&P 500 started the week at 1,700 and closed at 1,745. The NASDAQ started the week at 3,767 and closed at 3,914.

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Bonds - Treasuries Rise Amid Shutdown Fallout

Treasuries rose Friday, two days after lawmakers were finally able to reach a compromise to end the government shutdown and avoid a debt default. With further budget and debt deadlines set for early next year, however, investors continue to trend toward the security of U.S. Treasury bonds.

After more than two weeks of budget brinkmanship, lawmakers were able to hash out a short-term compromise on Wednesday, October 16. Under the compromise, the federal government is funded through mid-January and the debt limit is raised until early February.

The short-term compromise has already created uncertainty and doubt among investors that another round of fiscal brinkmanship will result early next year. Treasuries have benefited from this negative outlook as investors have sought the security of U.S. government bonds. As of early Friday trading, the yield on the benchmark 10-year Treasury note had fallen to 2.59%, pushing prices higher.

Standard & Poor's indicated in a report this week that the government shutdown would decrease U.S. gross domestic product by at least 0.6%. This news, combined with President Obama's nomination of Janet Yellen, a quantitative easing supporter, as the next Federal Reserve Chairman solidified opinions that the bond purchasing program may be around for a while longer.

"The U.S. fiscal debacle provides for a more positive liquidity outlook," said Richard McGuire, Senior Fixed-Income Strategist at Rabobank International in London. "It means tapering is going to happen later rather than sooner. All boats are rising on the back of this central-bank sponsored liquidity, which is why we've seen an ongoing rally in safe havens like Treasuries."

Investors will get further insight into the health of the U.S. economy when the U.S. Department of Labor releases the September jobs report on Tuesday, October 22. The report had been delayed because of the government shutdown. Earlier in the month, other jobs data and employment trackers indicated the month of September was one of anemic job growth.

The 10-year Treasury note yield finished the week at 2.59% while the 30-year Treasury note yield finished the week at 3.65%.

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CDs and Mortgages - Interest Rates Move on Up

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, October 17. Interest rates moved higher this week as the federal budget showdown reached its zenith.

The 15-year fixed rate mortgage averaged 3.33% this week, up from last week's average of 3.31%. Last year at this time, the 15-year fixed rate mortgage averaged 2.66%.

The 30-year fixed rate mortgage averaged 4.28% this week. This represents an increase from last week when it averaged 4.23%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.37%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week's rates, "Fixed mortgage rates edged up leading to the federal budget deadline this week. Recent confidence measures depict some of the effects of the government shutdown and uncertainty of the budget impasse. For instance, consumer sentiment in October fell for the second straight month to the lowest reading since January, according to the University of Michigan. Similarly, October's homebuilder confidence fell to a four-month low. However, despite these downturns in confidence, mortgage applications rose for the second consecutive week as of October 11th, elevated by increases in applications for refinancing."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.7%.

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Are you a Nazarene Legacy Partner (NLP)?  The answer is “YES” if you have designated any gift to a Nazarene ministry in your will, bequest, or estate plan. This could be a tithe on your estate, an insurance beneficiary designation to your local church, college, global mission, or any other Nazarene ministry you support.

Send us your name and contact information by reply email and indicate “I am a Nazarene Legacy Partner” and we will add your name to our NLP honor roll. To model generosity inspires others to do the same. Thank you for your interest in gift planning. To access any of this updated financial and gift planning information, please select our website.

Church of the Nazarene Foundation

17001 Prairie Star Parkway, Suite 200

Lenexa, KS 66220 United States

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