lending money to a family member or friend? · 2020. 5. 28. · ric edelman was three times ranked...

Ric Edelman was three times ranked the #1 independent advisor in the nation by Barron’s1 Edelman Financial Engines is ranked the #1 independent investment advisory firm in the nation by Barron’s2

Ric Edelman’s Inside Personal Finance MAY 27, 2020 RicEdelman.com 1

Lending Money to a Family Member or Friend? If you do, be aware of the potential consequences.

You might be fine financially, with ample income and assets to get you through the Covid-19 crisis. Friends and members of your family might not be so fortunate. If one of them asks to borrow money, recognize that it’s unlikely you’ll be paid back. You know that old joke: When lending money to a friend, be prepared to lose the money or the friend. When providing money to friends and family, you can avoid future relationship problems by deciding up front whether you’re providing a gift or a loan. With a gift, you have no expectation of getting the money back. But be aware that gifts of more than $15,000 per person per year could make you (not the person receiving the gift) subject to the federal gift tax. If you’re married, you and your spouse could give an individual up to $30,000 per year with no gift tax. If the recipient is married, you and your spouse could give the two of them a combined $60,000 per year. And if you provide gifts in December, you can do it again in January (two different tax years), for a total of $120,000 in gifts that are free of gift taxes.


Keep in mind that gifts of any kind count, not just cash. If you give someone a car, jewelry or a house, the item’s value is a gift in the view of the IRS. If you exceed the annual limits, you can apply the excess against your lifetime gift limit, which is $11.58 million ($23.16 million for married couples). All you need to do is file Form 709 with your tax return. So, the vast majority of Americans should never incur a gift tax. Bear in mind, though, this could have consequences to your estate taxes, so be sure to consult both your financial planner and tax advisor before proceeding. Loans are not considered gifts, since you’re going to get the money back. But the IRS considers money you lend to a family member to be a loan only if you sign a loan agreement, charge interest and try to collect (to the point of hiring a debt collector or taking the borrower to court). If you fail to meet all three requirements, the IRS will say your loan was actually a gift that’s subject to the gift tax. The biggest challenge with providing money to friends and family members is often emotional, not financial. You might become annoyed at having to provide financial support, or at the fact that family turns to you often, expecting you to help and getting angry when you don’t. When you help one family member, others might become angry that you didn’t provide equal amounts to them. And when in-laws get involved, all sorts of drama can ensue. You can reduce or avoid some of that drama through clear communication. Tell the recipient whether you’re providing a gift or a loan. If the latter, treat the transaction the same way you would if you if you were lending money to a stranger. You can establish any repayment plan you want, with payments that are monthly, interest-only or deferred. You must charge interest, but the IRS allows you to charge reduced rates — currently 1.5 percent for loans under three years, 1.53 percent for loans of three to nine years and 1.93 percent for loans of more than nine years. If you don’t collect interest, the foregone interest will be considered a gift. It gets complicated. That’s why you should talk with your Edelman Financial Engines planner, to see how much you can truly afford to provide to friends and family without compromising your own financial security.


And remember, giving money might not solve their problem. Some people are spendthrifts. Others are unable to manage money properly. And many are struggling with drug or alcohol abuse. So, if someone you love needs financial aid, consider paying some of their bills or buying groceries for them. And if you need a way to decline without the guilt, you can always blame us. “I’d love to help you, but my financial planner won’t let me.” We’re happy to be the bad guy for you.


Webinar: Managing Your Personal Finances During Covid-19

Join Ric, Yahoo Finance and the Funding Our Future coalition at this special digital event.

Join Ric Edelman and other experts for a webinar on Tuesday, June 2, at 2 p.m. ET, and you’ll get guidance on managing your personal finances during the pandemic. The event is presented by the Funding Our Future coalition and Yahoo Finance, and sponsored by the Bipartisan Policy Center, which founded the coalition along with Ric. This special webinar will provide you with helpful personal finance tips and resources, options for managing student loans, and strategies to consider during these difficult times.

Register Now

http://bpcevents.cloudapp.net/Pages/Home.aspx?eventid=%7B641DC394-0F9A-EA11-A811-000D3A1BBB23%7D


When to Call Your Edelman Financial Engines Planner?

As often as you wish. During this crisis, you might need to call us more than usual. Feel free to do so. You know you’re welcome to call us

anytime you want, about anything you want. And many do! Clients usually call us when an event has occurred, such as:

• Market, political, social, national or global news. Headlines often cause the financial markets to react. If the news is making you nervous, call us. We can help you decide what actions, if any, are needed. Whether you’re frightened, concerned or confused — or feeling excited, opportunistic or just plain greedy — call us. Let us verify whether acting on your gut is in your best interests (it usually isn’t!).

• Change in income or job status. We can help you manage expenses, evaluate new job offers and make decisions about managing your retirement account, bonuses, stock options, pension benefits, health insurance and more.

• Change in marital status. Newly married, separated, divorced or widowed? Call us right away — before you make any financial decisions.

• Issues involving kids. Whether you’re focusing on getting kids or grandkids into college or out of rehab, we have the experience you need. We can show you how to afford braces and other medical expenses, save and pay for weddings, even when to start allowances for youngsters.

• Births and deaths. No event generates as much emotion as a birth or death, and that’s a dangerous time to make financial decisions. We can give you the objective guidance you need during intensely emotional life moments.

• Relocation. We’re ready to offer advice when you’re ready to buy or sell your primary residence, second home or investment property.

• Large purchases. Whether you are trying to determine if you should buy or lease a car or put that addition on your house, give us a call to see how this will impact your overall financial picture.


We’d much rather you call us more often than less – and not just during crises. Anytime you are facing any issue involving a dollar sign, call us. We’re here for you!


Video: Could the Pandemic Delay Your Retirement? A woman near retirement may have her pay cut because of COVID-19. Ric helps her gain some important perspective.

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https://players.brightcove.net/1053415298001/AtzUoyNBXz_default/index.html?videoId=6157538760001


Are Your Beneficiary Designations Correct? If you haven’t looked at your selections recently, now’s a good time to review them — especially in light of Covid-19.

Have you reviewed your beneficiary designations since the Covid-19 crisis began? The pandemic highlights the importance of making sure your beneficiary designations are current. You’ll find them listed on your annuities, retirement accounts, life insurance, IRAs and trusts. If it’s been years since you’ve read those documents, it’s time to do so — especially if your family has had any births, deaths or changes in marital status.

Another reason to review your beneficiaries: You might have forgotten that a person you no longer like is one of your designees!

If you want to make changes, call us. We can help you make sure your assets will be distributed as you wish.


SUPPORT NETWORK Q: I know that everybody should have a trustworthy someone who can take care of their end-of-life and after-death details like power of attorney, health proxy, executor, then later disbursement of estate property, possessions, money, assets, whatever. Many people may not have that someone or they thought they did but now they don’t due to geography, family or personal relationships, aging issues or death. So I’m wondering what someone would do if they find themselves without that someone? You’re right: Millions of Americans don’t have that social circle. Some are an only child whose parents are deceased, are not married themselves and don’t have children. Perhaps they’ve relocated and they don’t know anyone. Or maybe their close friends and family are thousands of miles away. There are no easy answers for these situations. The best solution is to develop a new social circle. Ask your clergy, estate attorney, doctor or accountant for help in finding someone you can designate as your executor, trustee and attorney-in-fact. All these folks are familiar with this issue, and they can help you think of someone who you might hire – a professional to act specifically in your best interest – to carry out your wishes.

Q


You might also consider joining local community groups. Talk with people in your neighborhood, and say, “I need help fulfilling this role. I don’t need anyone to make any decisions. I’ve made the decisions. I just need someone to help implement my decisions if and when the time comes.”

DEBT SCAM Q: I have a concern about a company that I’m using for a debt consolidation. Should I pay the company’s fee before or after they deal with one of my credit cards? Absolutely not. Under no circumstances should you ever pay fees to anyone to help you eliminate your debts. Anyone who demands that you make a significant payment is likely to be a crook, preying on you and exploiting your desire to eliminate your debt. I recommend you contact www.nfcc.org. This nonprofit organization can connect you with credit counselors who will typically charge you just $25. Anyone who asks for thousands of dollars should be avoided.

Q


Audio: Tips for Financing a New Car

The zero interest offers seem like they’re everywhere. Ric Edelman reveals a hidden risk to taking a long-term car loan.

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https://players.brightcove.net/1053415298001/AtzUoyNBXz_default/index.html?videoId=6159300120001


New Technology Could Help Fight Infectious Diseases Like the Coronavirus A promising device could control the spread of pathogens. Surgical masks are a common sight during pandemics. Those used by doctors and nurses are said to block 99 percent of most pathogenic organisms, but most bacteria and viruses are so tiny they can penetrate over-the-counter masks. A new technology called a nonthermal plasma reactor is being touted as a way to slow or stop the spread of airborne diseases. Researchers at the University of Michigan say the reactor oxidizes viruses, disabling their ability to enter human cells. Lab and livestock testing show the reactor to be 99 percent effective. The technology is being developed for use in animal agriculture, but it might also be useful for people concentrated in enclosed spaces, like airplanes. Developments in Technology

• Engineers and scientists at the University of Massachusetts Amherst have created a device that generates electricity from water vapor in the air.

• A device that records muscle activity associated with swallowing will soon

be on the market. Developed at Purdue University, it will help those with swallowing disorders.

• A Massachusetts Institute of Technology team has developed a sensing

system that lets autonomous vehicles “see” under road surfaces without lasers or cameras. This addresses the problem of driving in fog and snow.


• Duke University researchers have created a cancer-detecting tool that uses DNA to identify cancer cells. With current methods, healthy cells are often mislabeled as cancerous, but the new tool decreases the risk of false alarms – which could result in fewer unnecessary treatments.

• Antibiotic-resistant infections kill 35,000 Americans yearly. An algorithm at MIT examined 6,000 drugs and found a new antibiotic within hours that proved effective against C. diff and other resistant bacteria. The program is being used to examine more than 1 billion drugs and compounds to find more medical treatments.


Ask the Bank for a Break One in three credit card holders and homeowners have called their bank and asked for a break — and 91 percent who asked got one, according to online lender LendingTree. If someone you know is facing financial challenges due to the COVID-19 crisis, have them call their credit card company or their auto or mortgage lender. They can ask the lender to raise their credit limit, reduce the interest rate, delay payment deadlines, lower minimum payments, waive the late fees or not report late payments to the credit bureaus. The worst thing the lender might do is say no. But in these unprecedented times, they’ll likely say yes.


An attorney worked part time for the Caltrans, the California Department of Transportation. He was also self-employed part time. The attorney’s office was in Folsom, CA, about 25 miles from Solano County, where he commuted to and stayed for eight weeks to represent Caltrans at trial. California law and his collective bargaining agreement with Caltrans provided for the reimbursement of the attorney’s travel and lodging costs related to the Caltrans trial. But the attorney didn’t ask for reimbursement from Caltrans. Instead, he deducted the expenses on the tax return he filed for his law practice. The IRS audited the attorney and denied the deductions for lack of proof. The attorney took his case to trial, arguing that he could at least deduct his travel expenses as an unreimbursed employee expense. What did the court decide?

The Verdict

The court ruled that the attorney could not deduct the expenses because they were not “necessary.” According to the judge, the attorney should have asked for the expenses to be reimbursed. Because he did not, the tax court disallowed the deductions.


Finish the Hike

Some years ago, Ric and I were vacationing with some friends. It was our first trip to the French Alps. We were looking for something to do and the hotel staff recommended we take a walk. A funicular would take us up a mountain to a café, and from there we’d walk to a second café and its funicular would take us back down.

We all love to walk, so off we went. Now, being Little Miss Girl Scout — “Always Be Prepared” — I am the one who always thinks to bring water and snacks. But given the casual way the hotel staff talked about the “nice walk” and the cafés, I figured we would get something along the way.

Our antennae should have gone up when we got off the funicular. But the view was so beautiful we didn’t have any concern. After all, the front desk said it was just a walk. It was 11 a.m. and the sign said the last funiculars depart at 5 p.m. No worries, plenty of time. So we were chatting and laughing and taking our time as we walked toward the other café — that’s where we’d get our snacks.

We saw no one on the trail for three hours. When someone approached — they were coming from where we were headed — we asked them how far it was to the funicular that would take us down the mountain.

They pointed … far off into the distance, there was a small dot. That was the café?! Between us and the dot were two large hills, and the dot itself looked to be at a lot higher elevation than we were. And we had no snacks with us.


We all looked at each other and laughed hysterically. Why? Because we couldn’t go back to where we’d started — it was too far away. With no other option, we were committed. We had to go forward and reach the top of that peak two hills over. Fortunately, we each had a water bottle, but we all lamented the wonderful snacks we’d left back at the hotel and our lack of preparation. We were in shorts and T-shirts, without even a hat against the summer sun.

One thing we did know: The nighttime temperature on the mountain would fall to the 40s. So we had to reach that funicular by 5 p.m. We dug deep, found our courage, put our heads down and walked up that mountain.

This adventure of many years ago came to my mind because of our current situation. I find myself in disbelief, just like I did while hiking — yes, hike, that was no walk! What is happening, I asked myself. How did we get here?

I am asking the same questions today.

On our hike, we experienced fear, like we do today. Will we reach the top in time to board that last funicular?

Today, our fear is how do we stay safe and not get sick? On our hike, we discovered the mountain was known for drastic, unexpected weather changes. Our fear rose as we saw clouds moving in. Today, our fear rises when we hear the latest news — to the point that some of us have shortness of breath and heart palpations.

I felt cheated as we hiked that amazing mountain. We were now rushing to reach the funicular by 5 p.m. We could not take in the beauty around us.

Today, this virus has given us a gift of time. We need to make sure we don’t waste it.

When we were hiking up the mountain, rushing to get to the top, we did not have the time to process what we were feeling.

In our busy, pre-COVID-19 lives, we pushed our emotions away. We did not give them time or space to process them. Today, as we stay at home, there is room for the emotions we have stuffed away to bubble up.

My personal solution is to WAVE at these emotions. Welcome them. Accept them and let them go. Value ourselves, for we are doing the best we can. Embrace these moments.

We have today to learn. We have tomorrow to grow and make a difference.

This is an amazing time in our human history. Nothing will be the same. Much is being asked of us.


We are understanding how connected we are.

We are understanding how much we need each other.

We are realizing not to take any moment for granted.

We will find the courage to finish this hike. Yes, this virus is the biggest mountain we have ever had to climb.

And we will make it to the top, and the view will be glorious.

Here come the storm clouds. Our little walk involved a 4,000-ft elevation change. The women here show the scale of the mountain. That “walk” was really quite a hike!


The Squirrel Manifesto Coloring Corner

Ric and Jean’s children’s book, The Squirrel Manifesto, continues to be a big success following its November 2018 debut at #1 on Amazon’s best-seller list for Children’s Money & Saving Books.* Looking for a fun activity to do with the kids and grandkids? Print these images from the book’s most popular pages, courtesy of our illustrator, Dave Zaboski.

You’ll have fun while creating the opportunity to tell your young ones how to spend a little, save a little, give a little and tax a little. *Amazon.com, Amazon Best Sellers New Releases Children’s Money Books. November 2018.


BLACK SWAN

I should have known a crisis was coming. I saw this bird when I was in Australia back in February!

1 Rankings for 2009, 2010 and 2012. Barron’s ranking has three major components: assets managed, revenue produced and quality of the advisor’s practice; it does not assess investment returns. Quality-of-practice component includes advisor regulatory record. Ranking is based on universe of applications submitted through self-nomination to Barron’s. 2 The 2019 Top 50 Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, the size and experience of teams, and the regulatory records of the advisors and firms. Firms elect to participate but do not pay to be included in the ranking. Investor experience and returns are not considered. The 2018 ranking refers to Edelman Financial Services, LLC, which combined its advisory business in its entirety with Financial Engines Advisors L.L.C. (FEA) in November 2018. For the same survey, FEA received a precombination ranking of 12th. Barron’s Hall of Fame advisers have been ranked for 10 or more years on the Barron’s Top 100 Financial Advisors list. Barron’s listings are based on data compiled by many of the nation’s most productive advisers, which has been submitted to and judged by Barron‘s. Key factors and criteria for each award include assets under management, revenue produced for the firm, regulatory and compliance record, and years of professional experience. This award is not indicative of this advisor‘s future performance. All information provided through Inside Personal Finance is for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Whenever there are hyperlinks to third-party content, this information is intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals or points of view outside Edelman Financial Engines. All examples are hypothetical and for illustrative purposes only. Please contact us for more complete information based on your personal circumstances and to obtain personal individual investment advice. Videos presented on this website are for educational purposes only and do not constitute investment advice or an offer to buy or sell any security or insurance product. © 2020 Edelman Financial Engines, LLC. Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor and wholly owned subsidiary of Edelman Financial Engines, LLC. Results are not guaranteed. AM1197522

lending money to a family member or friend? · 2020. 5. 28. · ric edelman was three times ranked...

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