Naughty and nice investments: 4 strategies for the holidays
Making it, keeping it, growing it
While gift giving can be one of the greatest joys of the holiday season, it can also be the cause of great stress.
To blow off a bit of steam, some may turn to their vices to make it through December and into the New Year.
Perhaps that is why “sin stocks” of tobacco, alcohol and gaming companies appeal to certain investors, while others actively seek out the opportunity to invest in socially responsible, morally rigorous investments or use the end of the year to present the nicest gift of all: investing in one’s own family or favorite charities.
As you make your list and check it twice, here are investing and gifting options for both the Naughty and Nice.
I believe that stressed consumers help fuel the vice industries with their coping mechanisms during the holiday season.
A recent survey from Caron Treatment Centers found that 75% of adults do not drink in moderation during the holidays and “64% of Americans have called in sick or know someone who has missed a day of work due to a hangover after a holiday party”1. These survey results suggest to me that some consumers could be fueling the vice industries if they are missing work to do more drinking — or shopping, eating or gambling — while celebrating the holiday season. If so, and assuming such behavior reflects consumer demand in vice industries, then I would suggest to Naughty investors that they watch for investment opportunities resulting from this year’s holiday revelry.
Putting vices aside, let’s focus on the nice list for this year.
Gifting comes in many shapes and sizes — some even with tax benefits for the informed giver.
2012 is indeed a year that may have many overwhelmed by a sense of uncertainty when considering tax implications. I believe the main reasons for this level of uncertainty are the exemptions on the estate tax, the lifetime gift tax and the generation-skipping tax. All are set at $5 million but headed for expiration by the end of 20122. Should these taxes go up next year, there is all the more reason to gift wisely this year.
Here are three ideas to consider
1) Direct Annual $13,000 gift tax exempt donation placed into 529 plans
For holiday giving, many clients put annual tax-free gifts of $13,000 for each child or grandchild directly into 529 accounts. These accounts allow tax-free accumulations of investments in accounts earmarked to pay for higher education expenses. Imagine the smiles that come with knowing money is being saved up!3
2) Weighing the Value of Big Gifts Now vs. Later
Above and beyond the annual exclusion gift limit of $13,000, the federal applicable exemption amount for transfers during life (gifts) and death (estates) has increased (by indexing) to $5,120,000 per person for 2012 — the highest it has been since the establishment of the estate tax.
The pressure of the $5 million estate and lifetime giving tax weigh heavily for many clients. Do you gift now or later? After all, the current status means that before they die a client can give up to $5 million to any individual —including their grandchildren — without paying taxes on the money. For couples, the limit is $10 million with a 35 percent tax on assets above that amount.
For some, taking advantage of this type of gifting works with their family dynamics to be a gift that positions the family members towards their career ambitions and goals4.
3) Donate highly appreciated stocks as your charitable giving
This allows a client to avoid gifting cash while keeping up with their giving and avoiding paying capital gains taxes on low-cost basis investments.
However you choose to give this season, do so wisely! As the New Year awaits, be sure to give to yourself and your family but make sure to have your estate manager and private wealth manager on hand to help make smart decisions that weigh tax implications at every twist and turn.
David Osborne is the founder of Osborne Advisors, an independent private wealth management firm offering wealth management to high net worth individuals, families, estates and corporations since 1999.
Securities are offered through SWS Financial Services, Inc., a registered broker-dealer and registered investment adviser that does not provide tax or legal advice, located at 1201 Elm Street, Suite 3500, Dallas, TX 75270 (Member: FINRA/SIPC; 214.859.1800).
1. “Hungover at Work During the Holiday Season?” Caron Treatment Centers.
2. Brunet, Gillian. “New Estate Tax Rule Should Expire After 2012.” Center on Budget and Policy Priorities.
3. Galteri, Pat. “Gift & Estate Tax Exemptions from Tax Relief Act of 2010 Expiring 12/31/12 – Generation Skipping Transfer Tax (GST).”
4. Erb, Kelly Phillips. “Tax Increases Looming in 2013: Who Pays, How Much and Will They Stick?” Forbes.