Press Release — Advisor Completes Challenging Decade Safeguarding Howard County MD Pension

Baltimore MD – Oct. 1, 2013 – Christopher P. Parr, of Columbia-based Parr Financial Solutions, Inc. completed his 2nd, voluntary five-year term as a member of the Howard County MD Pension Oversight Commission.

Mr. Parr also served as chairperson of the Commission since 2007 and during the turbulent “Great Recession” of 2008 – our country’s most serious financial crisis since the Great Depression of the 1930’s.

He was appointed by County Executives James N. Robey and Kenneth Ulman, and approved by the Howard County Council. The Commission Code does not permit members to serve a third term.

“I am pleased that the recommendations of our Commission over the past decade have helped make the Columbia Pension stronger.”

See full media release HERE

 

 

BankRate – Smart Financial Moves for College Freshmen

Alyssa walking between buildings with bicycles - small (2)Alyssa Parr, daughter of Christopher P. Parr who heads Parr Financial Solutions, a wealth management firm in Columbia, MD., discusses some of the big financial mistakes she made her first semester at California Polytechnic State University. “(In the) first quarter, I spent so much money, but I learned a lot,” says Parr.  Tamara Lytle, who wrote the Bankrate piece, “Smart Financial Tips for College Students,”   says any freshmen — managing their lives on their own for the first time — make even bigger mistakes than Parr and provides a few ways freshmen can avoid flunking Personal Finance 101.

Financial Planning Magazine – Safer Strategies for Leveraged Investing

Christopher P. Parr comments on leveraged investing in Financial Planning Magazine :  “My advice to clients over my 20-plus years has always been to never buy on margin,” says Chris Parr,  who heads Parr Financial Solutions, a wealth management firm in Columbia, Md. “You should not invest what you don’t have.” Several planners agreed that margin loans have a place – but that place isn’t in the stock market.

Read full article here.

 

Baltimore Sun – Wall Street Shrugs Off Sequester

Christopher P. Parr, when interviewed by Baltimore Sun columnist Eileen Ambrose on whether Wall Street ignoring political drama in Washington is the new norm, said “Wall Street has gotten ahead of the game.”

“Sure, there are positive signs, Parr said, but the economy’s annual growth rate will be cut by at least half a percentage point once the sequester cuts are in force. That’s significant, given the current modest growth rate,” he said.

“I’m more worried about: Is this the time to dump fresh money into the market?”

Wall Street Journal – Adopting? Prepare to be Surprised

Christopher P. Parr was interviewed by Veronica Dagher, columnist for Wealth Management at WSJ.com, about the financial impact of adoption that prospective parents don’t realize until they start paying.  “Unexpected costs often crop up,” said Christopher Parr.  He recommended that “clients budget for costs to be at least 20% higher than they originally estimated.”

“Those pursuing international adoptions might find themselves facing unexpected lodging and meal expenses.”  He noted hearing  “of people having to provide tips to service providers for ‘going the extra mile’ on an adoptive parent’s behalf in certain foreign countries.”

He suggested that “prospective parents seek recommendations from professionals in the field and from families who have been through the process when deciding which type of adoption to pursue.” He also recommended that “parents interview several agencies and attorneys to ensure they’re experienced with adoptions to help avoid scams.”

Read full article here

The Business Monthly: Five Steps to Prepare for Tax Uncertainty

In this article, Christopher Parr provides five steps to prepare for major or potential income and investment tax changes for the 2013 tax year.  He first explains the several earned income-related changes and the investment income-related changes that require monitoring and planning as the status becomes clearer.  Earned income-related changes include employee social security, Medicare payroll and self-employment tax.  An investment income-related change is the favorable Bush-era tax rates on investment dividends expire and reset.   In the attached chart, find A Recap of Key Tax Law Provisions and Rate Changes provided by Parr Financial Solutions.

Feel free to contact us if you have any questions or comments.

Christopher Parr CFP® is founder of Columbia-based Parr Financial Solutions Inc., a fee-only wealth management firm. 

The Business Monthly: Watch Out for Three Potential Traps When Searching for Higher Interest Rates

Christopher P. Parr’s article on the potential interest rate traps of seeking higher interest rates, was written in response to the low interest rate environment.  He explains the concept of financial repression and how it punishes savers and forces consumers to take more risk in an attempt to earn inflation-beating returns.  The article was inspired by two actual client situations.  The first trap referred to an unsolicited letter sponsored by AARP promoting a 9% annuity.  The second trap involved the purchase of an expensive, illiquid, and poorly-timed private real estate partnership investment.

This article was published in the June, 2012 Banking & Finance feature section of The Business Monthly.

Please feel free to contact us if you have any questions or comments.

 

Financial Advisor Magazine: Trust and Estate Documents & Planning

Christopher P. Parr was interviewed by Senior Editor Wayne Rasmussen for the Wealth Management & Estate Planning section of the May, 2012 issue of “Financial Advisor Magazine” about the perils of flawed language in trust documents.

The key takeaways from the interview are:

1. All estate documents should be reviewed and updated when your life situation changes, to make sure your wishes are current and represented effectively.
2. Be sure to plan for any potential contingency scenarios. Even the best intentions can go bad if a trust document is not well thought out and well written.
3. Trust language can be nuanced and often confusing. It is best to hire an attorney who specializes in estate planning issues and is not a legal generalist.
4. A good financial advisor can take a leadership role in helping families think through complex family issues and how to plan effectively for them.
5. Consider hiring a corporate trustee to provide trust administration services, when a financially competent family member who is also objective and unbiased is not readily available.

To read the full article please click this link: http://www.fa-mag.com/news/the-horror-10529.html

The Business Monthly: When Does A Revocable Living Trust Make Sense?

A Revocable Living Trust (RLT) is one of the most misunderstood tools in estate planning. The RLT is sometimes over-hyped by aggressive estate planning seminar marketeers targeting senior citizens. It is important to emphasize that not all seminars on estate planning and revocable living trusts are hype. The best estate planning attorneys objectively explain when such a planning technique should, and should not be considered on an individual case-by-case basis.

A Revocable Living Trust is a legal entity to which the grantor transfers personal assets during his or her lifetime while retaining ownership and control of the trust assets. It is a separate legal document that serves in conjunction with a will. Even if an RLT is established, a “Pour-over Will” is still necessary to make tax elections, appoint a personal representative and guardian for minor children, and transfer assets that were neglected to be titled in the name of the trust.

Many people erroneously believe that a Revocable Living Trust provides income and estate tax advantages. Because the RLT is revocable, the grantor retains control of the trust assets and can change or amend the trust at any time. Income taxes must be paid on trust earnings during the life of the grantor. At the death of the grantor, the trust assets are included in the grantor’s estate and subject to estate tax. The RLT does not reduce or avoid estate taxes. It is the specific provisions that must be included in the RLT that lead to the minimization of estate taxes. Similar provisions can alternatively be included in a will.

Another often-hyped benefit of the Revocable Living Trust is the ability to avoid probate. It is true that assets held in a properly drafted and funded RLT will not be subject to the probate process, but instead will be disposed of as provided in the Trust Agreement. The probate process does involve court costs and perhaps legal fees, but the net present value (NPV) of these future costs could actually be less than the costs today of establishing an RLT.

A third typical hyped advantage of a Revocable Living Trust is that it offers the ability to avoid “living probate”. A nationally recognized seminar marketing outfit defines this term as “the expensive court proceeding to manage your estate if you are disabled.” While an RLT does in fact provide this advantage, a properly drafted Durable Financial Power of Attorney can accomplish the same objective at much less the expense and effort to implement.

One common problem with an RLT is the failure of the grantor to fund the trust. After the trust document is drafted by the attorney and executed by the grantor, it is necessary to transfer assets into the trust to fund it by changing the title and beneficiary designations on existing assets. Many individuals never transfer assets to the trust, or forget to continue to do so as specific assets change over time. An unfunded trust is worthless.

To this point we have discussed some of the misperceptions and problems associated with Revocable Living Trusts. Let’s explore the advantages of this estate planning technique. Here are five situations in which the use of an RLT should be strongly considered.

1. Poor Health (Mental or Physical) – Under the terms of the RLT the grantor appoints a trustee to succeed the grantor in the event of incapacity or death. This provides a clear chain of command for ongoing management of the trust assets through the designation of trustees, successor trustees, and trustee powers. An RLT provides an ideal solution in the case a married couple where one spouse has historically handled responsibility for most financial decisions, but may not continue to be able to do so.

2. Multi-State Property Owners – A person who owns real estate and other property in several states can simplify legal proceedings after death with a Revocable Living Trust since the probate process in multiple states can be avoided.

3. High-Probate States – If a person owns property in one of the few states with high probate costs or complex probate rules, an RLT could be useful. A few specific states that come to mind are California, Massachusetts, and Florida.

4. Privacy – Wills are public documents. If the intent of the grantor is to maintain the privacy of the names of heirs and the size of inheritances, the RLT should be considered. An RLT is not subject to public scrutiny.

5. Fragmented Families – If the potential for a will to be contested is a concern, the RLT is much harder to contest.

This is an updated post of an article that originally appeared in the May 2000 issue of The Business Monthly.

Copyright © by PARR Financial Solutions, Inc. 2012

Please feel free to contact us if you have any questions or comments.

The Business Monthly: Gifting Appreciated Securities – A Win-Win Deal

Charitable contributions are an important part of many household budgets. It is quite common for families who budget carefully to base annual contributions to charities on a targeted percentage of gross household income. Charitable donations generally range between 1% to 10%. A typical percentage is perhaps 3%.

Most donees, however, overlook a gifting strategy that can provide significant economic as well as other benefits. This relatively simple strategy involves gifting appreciated shares of stock or mutual funds to your favorite charity in-lieu-of cash.

The most important economic benefit of gifting appreciated securities is that the donor reaps immediate tax savings. Assume a donor originally purchased 100 shares of stock at $10.00 per share net cost (including transaction charges) for a total cost basis of $1,000. With the help of the recent extended bull market, the market value of those shares could have easily doubled over the past 3-5 years to $20.00 per share or $2,000. By donating these shares, your favorite charity will receive the average market value of the shares on the date of receipt. The donor will get credit for the same $2,000 donation on Schedule A, although the original out-of-pocket cost was $1,000. By gifting the shares, the donor avoids having to pay tax on the $1,000 capital appreciation ($2,000 market value of gift less $1,000 original cost). In this example, the donor avoided the 20% long-term capital gains tax ($200) as well as brokerage transaction costs that would have been incurred to eventually liquidate those shares.

A second advantage of gifting appreciated securities is that this technique can be used to periodically rebalance your portfolio. If you are fortunate to own shares of a high-flying stock and are concerned about a potential “crash”, gifting appreciated shares in a timely manner can alleviate this problem. There is no extra cash outlay on your part since you planned to donate the same dollar amount to charity anyway.

Another reason to rebalance your portfolio could be that a particular stock prudently represented 2-3% of your portfolio at the time of original purchase, but has swelled to10% of your total nest egg by outperforming the rest of your portfolio handily during the past few years. Your portfolio risk has increased significantly. Perhaps you have too many eggs in one basket. This is a nice problem to have, but rebalancing may be prudent strategy to reduce risk.

A third example of gifting appreciated shares as part of a portfolio rebalancing strategy is to reduce the exposure of an income generating asset in a taxable portfolio in favor of a more tax-efficient holding.

A final advantage of gifting appreciated securities applies to those who contribute weekly/frequently. Religious organizations are the example that quickly comes to mind. Since gifting securities are drawn from investments instead of income, monthly cash flow can be improved. This technique is particularly beneficial for those who are self-employed and have irregular income streams. It can also benefit those who for whatever reason, fall behind in their annual pledges, or happen to “come-up-short” between pay periods. Since securities contributions are made in one lump sum, eliminating the need to tediously write that weekly check also saves time. Some organizations offer “the convenience” of automated payroll deductions for contributions. Gifting appreciated securities is a superior strategy since it involves pre-tax (capital gains) funds rather than after-tax cash.

When considering gifting securities, here are a four potential pitfalls:
1. Do not donate securities that have depreciated (suffered a loss in value). It makes more sense to gift cash instead.
2. To achieve maximum tax advantages, do not gift securities that are held in tax-deferred retirement accounts.
3. Consider gifting appreciated securities for donations of at least $500. This arbitrary requirement is due to the time and paperwork required to process, and potential benefit.
4. Be sure to identify specifically in a letter to the brokerage custodian which shares of a particular holding that you intend to gift. This is particularly important for mutual fund accounts that have reinvested dividends. Gift the shares with the lowest tax-basis.

In conclusion, by gifting appreciated securities in-lieu-of cash, your favorite charity still wins as you intended, but the donor also wins at the expense of Uncle Sam. To initiate a gift of appreciated securities, contact your favorite charitable organization, your brokerage firm, or your financial adviser for assistance.

This is an updated post of an article that originally appeared in the May 1999 issue of The Business Monthly.

Copyright © by PARR Financial Solutions, 2011

Please feel free to contact us if you have any questions or comments.