No matter how the 2017 Tax Cuts and Jobs Act (TCJA) may alter your tax planning, we’d like to believe one thing will remain the same: With or without a tax write-off, many Americans will still want to give generously to the charities of their choice. After all, financial incentives aren’t usually your main motivation for giving. We give to support the causes we cherish. We give because we’re grateful for the good fortune we’ve enjoyed. We give because it elevates us too. Good giving feels great – for donor and recipient alike.

That said, a tax break can feel good too, and it may help you give more than you otherwise could. Enter the donor-advised fund (DAF) as a potential tool for continuing to give meaningfully and tax-efficiently under the new tax law.

What’s Changed About Charitable Giving?

To be clear, the TCJA has not eliminated the charitable deduction. You can still take it when you itemize your deductions. But the law has limited or eliminated several other itemized deductions, and it’s roughly doubled the standard deduction (now $12,000 for single and $24,000 for joint filers). With these changes, there will be far fewer times it will make sense to itemize your deductions instead of just taking the now-higher standard allowance.

This introduces a new incentive to consider batching up your deductible expenses, so they can periodically “count” toward reducing your taxes due – at least in the years you’ve got enough itemized deductions to exceed your standard deduction.

For example, if you usually donate $2,500 annually to charity, you could instead donate $25,000 once each decade. Combined with other deductibles, you might then be able to take a nice tax write-off that year, which may generate (or be generated by) other tax-planning possibilities.

What Can a DAF Do for You?

DAFs are not new; they’ve been around since the 1930s. But they’ve been garnering more attention as a potentially appropriate tax-planning tool under the TCJA. Here’s how they work:

1. Make a sizeable donation to a DAF. Donating to a DAF, which acts like a “charitable bank,” is one way to batch up your deductions for tax-wise giving. But remember: DAF contributions are irrevocable. You cannot change your mind and later reclaim the funds.

2. Deduct the full amount in the year you fund the DAF. DAFs are established by nonprofit sponsoring organizations, so your entire contribution is available for the maximum allowable deduction in the year you make it. Plus, once you’ve funded a DAF, the sponsor typically invests the assets, and any returns they earn are tax-free. This can give your initial donation more giving-power over time.

3. Participate in granting DAF assets to your charities of choice. Over time, and as the name “donor-advised fund” suggests, you get to advise the DAF’s sponsoring organization on when to grant assets, and where those grants will go.

Thus, donating through a DAF may be preferred if you want to make a relatively sizeable donation for tax-planning or other purposes; you’d like to retain a say over what happens next to those assets; and you’re not yet ready to allocate all the money to your favorite causes.

Another common reason people turn to a DAF is to donate appreciated stocks in kind (without selling them first), when your intended recipients can only accept cash/liquid donations. The American Endowment Foundation offers this 2015 “Donor Advised Fund Summary for Donors,” with additional reasons a DAF may appeal – with or without its newest potential tax benefits.

Beyond DAFs

A DAF isn’t for everyone. Along the spectrum of charitable giving choices, they’re relatively easy and affordable to establish, while still offering some of the benefits of a planned giving vehicle. As such, they fall somewhere between simply writing a check, versus taking on the time, costs and complexities of a charitable remainder trust, charitable lead trust, or private foundation.

That said, planned giving vehicles offer several important features that go beyond what a DAF can do for a family who is interested in establishing a lasting legacy. They also go beyond the scope of this paper, but we are happy to discuss them with you directly at any time.

How Do You Differentiate DAFs?

If you decide a DAF would be useful to your cause, the next step is to select an organization to sponsor your contribution. Sponsors typically fall into three types:

1.     Public charities established by financial providers, like Fidelity, Schwab, TD Ameritrade and Vanguard
2.     Independent national organizations, like the American Endowment Foundation and National Philanthropic Trust
3.     “Single issue” entities, like religious, educational or emergency aid organizations

Within and among these categories, DAFs are not entirely interchangeable. Whether you’re being guided by a professional advisor or you’re managing the selection process on your own, it’s worth doing some due diligence before you fund a DAF. Here are some key considerations:

Minimums – Different DAFs have different minimums for opening an account. For example, one sponsor may require $5,000 to get started, while another may have a higher threshold.

Fees – As with any investment account, expect administration fees. Just make sure they’re fair and transparent, so they don’t eat up all the benefits of having a DAF to begin with.

Acceptable Assets – Most DAFs will let you donate cash as well as stocks. Some may also accept other types of assets, such as real estate, private equity or insurance.

Grant-Giving Policies – Some grant-giving policies are more flexible than others. For example, single-entity organizations may require that a percentage of your grants go to their cause, or only to local or certain kinds of causes. Some may be more specific than others on the minimum size and/or maximum frequency of your grant requests. Some have simplified the grant-making process through online automation; others have not.

Investment Policies – As touched on above, your DAF assets are typically invested in the market, so they can grow tax-free over time. But some investments are far more advisable than others for building long-term giving power! How much say will you have on investment selections? If you’re already working with a wealth advisor, it can make good sense to choose a DAF that lets your advisor manage these account assets in a prudent, fiduciary manner, according to an evidence-based investment strategy. (Note: Higher minimums may apply.)

Transfer and Liquidation Policies – What happens to your DAF account when you die? Some sponsors allow you to name successors if you’d like to continue the account in perpetuity. Some allow you to name charitable organizations as beneficiaries. Some have a formula for distributing assets to past grant recipients. Some will roll the assets into their own endowment. (Most will at least do this as a last resort if there are no successors or past grant recipients.) Also, what if you decide you’d like to transfer your DAF to a different sponsoring organization during your lifetime? Find out if the organization you have in mind permits it.

Deciding on Your Definitive DAF

Selecting an ideal DAF sponsor for your tax planning and charitable intent usually involves a process of elimination. To narrow the field, decide which DAF features matter the most to you, and which ones may be deal breakers.

If you’re working with a wealth advisor such as FMB, we hope you’ll lean on us to help you make a final selection, and meld it into your greater personal and financial goals. As Wharton Professor and “Give and Take” author Adam Grant has observed, “The most meaningful way to succeed is to help others succeed.” That’s one reason we’re here: to help you successfully incorporate the things that last into your lasting, charitably minded lifestyle.

You may think the best financial advice is that which makes you the most money. Think again. You may get lucky on bad advice but at some point, the luck will run out, putting your financial future into jeopardy. Separate the good from the bad by making sure the financial advice you’re receiving checks all five of these boxes.

1. It’s aligned with your goals. If your financial advisor doesn’t know what your investment goals are, how can you be certain that advice is right for you? If your advisor doesn’t ask about these goals—such as when you want to retire and how—your plan will not be customized to your distinct needs. A good relationship and easy communication with your financial advisor is also essential to ensure your plan is updated with your latest milestones and growth goals in mind.
2. It sounds reasonable. Free or cheap financial advice is usually a telltale sign of bad financial advice. After all, becoming an investment professional requires school, certification exams and continuing education. Another red flag is when an advisor promises unrealistic returns. As the old adage goes: If it seems too good to be true, it probably is.
3. Compensation is transparent. Investment professionals are paid through fees, commissions or both. According to the National Association of Personal Financial Advisors (NAPFA), fee-only advising is the most transparent and objective, and in fact, NAPFA members aren’t allowed to accept commissions for their work. That doesn’t mean commissions are a sign of bad advice, though. The proof is in how transparent the advisor is willing to be. If he or she is not forthcoming about details, that could be a red flag.
4. It serves your best interests. Believe it or not, many investment professionals do not have a fiduciary duty to act in their customers’ best interests. Many brokers, for example, operate under a suitability standard—the advice they give is suitable for a customer like you, but not necessarily specific to you. This advice can be harmful to your portfolio if the financial advisor has his, not your, best interests at heart. According to a 2015 report from the White House Council of Economic Advisers, non-fiduciary advice can cost investors 1 percentage point of their return annually. The quickest way to find out if your financial advisor is a fiduciary is to ask. If the answer isn’t straightforward, you might seek advice elsewhere.
5. It’s easy to understand. Be wary of economic jargon designed to get you to say, “OK, that’s over my head, but I trust you.” Good investment advice is something you can understand. If you can’t understand it but want to, a good investment professional will work with you until you do.

Your relationship with your financial advisor is an important one that impacts the fate of your finances, retirement savings, and family legacy. It is important to trust the management of your wealth to a financial advisor who is reliable, honest, and has your best interests at heart.

Hackers have dismantled hospitals, held a North Carolina county’s computer system hostage, and stolen the personal information of basically half of all Americans. And that was just in 2017.

Who’s to say they won’t go after investment accounts next? Lucky for you, the industry is already on it.

Sheltered Harbor, which launched quietly as an idea in 2014, is a not-for-profit, industry-led initiative to enhance the protection of the retail financial services industry. It’s so under the radar there’s not even a Wikipedia page about it. But rest assured, some of the nation’s biggest financial institutions, clearing houses, core processors and industry associations have been working diligently to create standards and test its process with early adopters to prepare for the worst-case scenario—a cybersecurity attack on U.S. bank and brokerage accounts.

The voluntary Sheltered Harbor Specification (detailed here) went live last year. In a nutshell, it pairs up banks and brokerage firms to support each other as “restoring institutions” in the event of a disabling attack. Participating organizations do this by standardizing their data formats and uploading their customer data daily to a secure data vault.

“The data will stay intact and accessible if needed—exactly as when it was archived,” explains the organization. “Think of this as a fall-out shelter for customer data, with each institution providing its own data vault.”

It’s not so much a safeguard for the bank or brokerage firm, but for the customer, who can gain basic access to their accounts and funds through the restoring institution. (In other words, no need to panic.)

According to a December 2017 Bloomberg article, banks, credit unions and brokerages representing 400 million accounts—or 70 percent of the U.S. retail accounts and 60 percent of brokerage accounts—have signed up to participate.

According to another Bloomberg article from this month, Sheltered Harbor is expected to expand to cover retirement accounts, like 401ks, soon, although the organization is mum for now on any details.  

The expansion makes sense to many, considering that a recent Investment Company Institute report pegged total U.S. retirement assets at $27.2 trillion, with $7.7 trillion in all employer-based defined contribution retirement plans and $5.3 trillion in 401ks.

Some cybersecurity experts say participation in Sheltered Harbor, which is fee-based, doesn’t look all that different from having a solid backup and recovery plan in place. There are, however, some skeptics who say that Sheltered Harbor may just be a marketing tool in disguise. No matter which you believe, there is no doubt that some sort of security measure for your nest egg is vital.

A call to your financial institution should let you know if they participate—or plan to. If the answer is no, it’s still a good idea to understand their consumer account protection offerings.

Your FMB Wealth Management advisor can also help you understand what these safeguards mean for your accounts.

Have you caught cryptocurrency fever, or are you at least wondering what it’s all about? Odds are, you hadn’t even heard the term until recently. Now, it seems as if everybody and their cousin are getting in on it.

Psychologists have assigned a term to the angst you might be feeling in the heat of the moment. It’s called “FoMO” or Fear of Missing Out. Education is the best first step toward facing FoMo and making informed financial choices that are right for you. So before you make any leaps, let’s take a closer look.   

What is cryptocurrency?

Crytpocurrency is essentially a kind of money – or currency. Thanks to electronic security – or encryption – it exists in a presumably secure, sound and limited supply. Pair the “encryption” with the “currency,” and you’ve got a new kind of digital asset, or electronic exchange.

Well, sort of new. Cryptocurrency was introduced in 2009, supposedly by a fellow named Satoshi Nakamoto. His Wikipedia entry suggests he may not actually be who he says he is, but minor mysteries aside, he (or possibly “they”) is credited with designing and implementing

bitcoin as the first and most familiar cryptocurrency. Ethereum is currently its second-closest competitor, with plenty of others vying for space as well (more than 1,300 as of early December 2017), and plenty more likely to come.

Unlike a dollar bill or your pocket change, cryptocurrency exists strictly as computer code. You can’t touch it or feel it. You can’t flip it, heads or tails. But increasingly, holders are receiving, saving and spending their cryptocurrency in ways that emulate the things you can do with “regular” money.

How does cryptocurrency differ from “regular” money?

In comparing cryptocurrency to regulated fiat currency – or most countries’ legal tender – there are a few observations of note.

First, since neither fiat nor cryptocurrency are still directly connected to the value of an underlying commodity like gold or silver, both must have another way to maintain their spending power in the face of inflation.

For legal tender, most countries’ central banks keep their currency’s spending power relatively stable. For cryptocurrency, there is no central bank, or any other centralized repository or regulator. Its stability is essentially backed by the strength of its underlying ledger, or blockchain, where balances and transactions are verified and then publicly reported.

The notion of limited supply factors in as well. Obviously, if everyone had an endless supply of money, it would cease to have any value to anyone. That’s why central banks (such as the U.S. Federal Reserve, the Bank of Canada, and the Bank of England) are in charge of stabilizing the value of their nation’s legal tender, regularly seeking to limit supply without strangling demand.

While cryptocurrency fans offer explanations for how its supply and demand will be managed, it’s not yet known how effective the processes will be in sustaining this delicate balance, especially when exuberance- or panic-driven runs might outpace otherwise orderly procedures. (If you’re technically inclined and you’d like to take a deep dive into how the financial technology operates, here’s one source to start with.)

Why would anyone want to use cryptocurrency instead of legal tender?  

For anyone who may not be a big fan of government oversight, the processes are essentially driven “by and for the people” as direct peer-to-peer exchanges with no central authorities in charge. At least in theory, this is supposed to allow the currency to flow more freely, with less regulation, restriction, taxation, fee extraction, limitations and similar machinations. Moreover, cryptocurrency transactions are anonymous.

If the world were filled with only good, honest people, cryptocurrency and its related technologies could represent a better, more “boundary-less” system for more freely doing business with one another, with fewer of the hassles associated with international commerce.

Unfortunately, in real life, this sort of unchecked exchange can also be used for all sorts of mischief – like dodging taxes, laundering money or funding terrorism, to name a few.

In short, cryptocurrency, blockchain technology, and/or their next-generations could evolve into universal tools with far wider application. Indeed, such explorations already are under way. In December 2017, Vanguard announced collaborative efforts to harness blockchain technology for improved index data sharing.

That said, many equally promising prospects have ended up discarded in the dustbin of interesting ideas that might have been. Time will tell which of the many possibilities that might happen actually do.  

Even if I don’t plan to use cryptocurrency, should I hold some as an investment?

If you do jump in at this time, know you are more likely speculating than investing, with current pricing resembling a fast-forming bubble destined for collapse.

Bubble or not, there are at least two compelling reasons you may want to sit this one out for now. First, there are a lot of risks inherent to the cryptocurrency craze. Second, cryptocurrency simply doesn’t fit into our principles of evidence-based investing … at least not yet.

Let’s take a look at the risks.

Regulatory Risks – First, there’s the very real possibility that governments may decide to pile mountains of regulatory road blocks in front of this currently free-wheeling freight train. Some countries have already banned cryptocurrency. Others may require extra reporting or onerous taxes. These and other regulations could severely impact the liquidity and value of your coinage.

Security Risks – There’s also the ever-present threat of being pickpocketed by cyberthieves. It’s already happened several times, with millions of dollars of value swiped into thin air. Granted, the same thing can happen to your legal tender, but there is typically far more government protection and insurance coverage in place for your regulated accounts.

Technological Risks – As we touched on above, a system that was working pretty well in its development days has been facing some serious scaling challenges. As demand races ahead of supply, the human, technical and electric capital required to keep everything humming along is under stress. One recent post estimated that if bitcoin technology alone continues to grow apace, by February 2020, it will suck away more electricity than the entire world uses today.

That’s a lot of potential buzzkill for your happily-ever-after bitcoin holdings, and one reason you might want to think twice before you pile your life’s savings into them.

Then again, every investment carries some risk. If there were no risk, there’d be no expected return. That’s why we also need to address what evidence-based investing looks like. It begins with how investors (versus speculators) evaluate the markets.

What’s a bitcoin worth? A dollar? $100? $100,000? The answer to that has been one of the most volatile bouncing balls the market has seen since tulip mania in the 1600s.

In his ETF.com column “Bitcoin & Its Risks,” financial author Larry Swedroe summarizes how market valuations occur. “With stocks,” he says, “we can look at valuation metrics, like earnings yield. With bonds, we can use the current yield-to-maturity. And with assets like reinsurance or lending … we have historical evidence to make the appropriate estimates.”

You can’t do any of these things with cryptocurrency. Swedroe explains: “There simply is no tangible relationship between any economic or financial parameters and bitcoin prices.” Instead, there are several ways buying cryptocurrency differs from investing:

•      Evidence-based investing calls for estimating an asset’s expected return, based on these kinds of informed fundamentals.
•      Evidence-based investing also calls for us to factor in how different asset classes interact with one another. This helps us fit each piece into a unified portfolio that we can manage according to individual goals and risk tolerances.
•      Evidence-based investing calls for a long-term, buy, hold and rebalance strategy.

Cryptocurrency simply doesn’t yet sync well with these parameters. It does have a price, but it can’t be effectively valued for planning purposes, especially amidst the extreme price swings we’re seeing of late.

What if I decide to buy some cryptocurrency anyway?

Even though it is far more of a speculative than investment endeavor, you may still decide to give cryptocurrency a go, for fun or potential profit. If you do, here are some tips to consider:

(1)  Think of it as being on par with an entertaining trip to the casino. Nothing ventured, nothing gained – but don’t venture any more than you can readily afford to lose!

(2)  Use only “fun money,” outside the investments you’re managing to fund your ongoing lifestyle.

(3)  Educate yourself first, and try to pick a reputable platform from which to play. (CoinDesk offersa pretty good bitcoin primer.)

(4)  If you do strike it rich, regularly remove a good chunk of the gains off the table to invest in your managed portfolio. That way, if the bubble bursts, you won’t lose everything you’ve “won.” (Also set aside enough to pay any taxes that may be incurred.)

Last but not least, good luck. Whether you win or lose a little or a lot with cryptocurrency – or you choose to only watch it from afar for now – we remain available to assist with your total wealth, come what may.

If you’re turning 65 soon, it’s time to learn the ins and outs of Medicare, the federal health insurance program for seniors that is run by the Centers for Medicare & Medicaid Services (CMS). Currently, 57 million beneficiaries—or about 17 percent of the U.S. population—are enrolled in Medicare. And that number is expected to soar to 79 million by 2030, according to the AARP.

To fully understand Medicare, here’s what you need to know:

The Parts of Medicare

There are four components, or parts, to Medicare:

• Part A covers hospitalizations, hospice, skilled nursing care and home health.
• Part B covers outpatient care, preventive care and medically necessary services and supplies, like wheelchairs or walkers.
• Part C, or Medicare Advantage, is private insurance that offers Medicare Part A and Part B services, and usually additional coverage, like vision, dental, hearing and prescription drug coverage.
• Part D is prescription drug coverage, which is separate from Part A and Part B, but is sometimes covered in Part C.

You may also have heard of a Medicare Supplement, which covers what Part A and Part B won’t, including copayments, coinsurance and deductibles.

How much does Medicare cost?

Becoming eligible for Medicare is one of the biggest selling points of turning 65. But Medicare isn’t free. While most people won’t pay a premium for Part A coverage (that came out of your paycheck all those years), the other parts carry premiums that are typically much lower than private insurance premiums.

Part B premiums are based on income from two years ago. So, if you recently retired, you might pay more because of your income. Monthly premiums range from $134 to $428.60, depending on your income level.

Part D is also based on income—sort of. In addition to a monthly premium, which MyMedicareMatters.org says is $34 on average, CMS may also tack on an income-related monthly adjustment amount (IRMAA), based on your tax return from two years prior. The IRMAA kicks in for individuals making more than $85,000 and joint filers making more than $170,000. The more you make, the higher the IRMAA, which ranges from $13.30 to $76.20.

If you’re nearing 65 and have a Health Savings Account, make sure the contributions stop once you enroll. The good news is you can still use the funds to pay for qualified medical expenses, even if you’re on Medicare.

How do I sign up?

When you’re first eligible for Medicare, you have a seven-month initial enrollment period to sign up for Part A and/or Part B. This enrollment period begins three months before your birthday month and ends three months after the birthday month. If you don’t enroll during the period, you may have to pay a penalty for the rest of the time you’re on Medicare. CMS gives you a little more time to secure Part D coverage—63 days after the initial enrollment period ends—before paying a permanent monthly penalty.

Every year, Medicare Part D and/or Medicare Advantage enrollees can review their coverage and choose another option during the Medicare open enrollment period, which runs this year through Dec. 7.

Many financial planners dream of landing an athlete or celebrity as their client, but the truth is, not every financial planner has the tools and expertise to handle the complexities of managing a portfolio like this. Most clients have built their wealth over time; for athletes, it can happen in a day. Add uneven cash flow, job insecurity and no idea what to do with all of that money into the mix, and it becomes clear pretty quickly that not just any financial planner will do.

If you are a professional athlete searching for the right financial planner, make sure to follow these tips to find the best one for you:

Do your homework: Finding the right financial planner is a lot like finding the best contractor or surgeon. It’s important to do your research first. Look for reviews, ask for recommendations, and read through their website before reaching out for an in-person or phone consultation.

Check their credentials: Many former athletes go into business as financial planners. Just because they have been in your shoes, however, doesn’t make them qualified as a provider of sound financial advice. Ask about what licenses and certifications they hold, or better yet, research them with online tools like Broker Check from the Financial Industry Regulatory Authority (FINRA) or the Investment Adviser Public Disclosure tool from the Securities Exchange Commission. You’ll also want to find out what special certifications they have, such as Certified Financial Planner, Certified Public Accountant or Chartered Financial Analyst.

Ask the right questions: You’ll want to make sure your financial planner understands the unique challenges associated with managing an athlete’s money. The best way to do this is by asking hard questions about how they’ll work with you on things like becoming financially savvy, budgeting, goal-setting and creating an investment strategy based on your goals. Newsflash: A good financial planner will be vetting you, too, so maintain eye contact, ask good questions and otherwise be engaged in the process. Also, ask for (and check) references.  A good Advisor will give you honest and straight answers.  Even if this means that they are not giving the answers you want to hear, but rather providing you with a realistic path for your financial future.

Do a gut-check: Based on the information you’ve gathered, how do you feel about this person or firm? It’s okay to rely on others to help you make this decision, but don’t forget that it’s your hard-earned money, so ultimately it’s your decision. You want someone you feel you can trust to help you make smart financial decisions that will set you on a path to financial security, whether or not you’re still in the game.