The Braddock Blog

The Braddock Blog
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The Power of the Salon

A young woman named Kimberly Lo wrote a post on her blog in August 2013 about the importance of young Americans bringing back the concept of a salon.  The salon Ms. Lo referenced is not to be confused with a place to get a haircut, although some characteristics of classical salons can still be found in traditional barbershops today.  Prior to chat rooms and online forums, groups of diverse people would routinely gather to discuss issues ranging from art to politics.

Upon first blush, the concept may seem a bit silly in current times.  Why would people get together to discuss issues?  Doesn’t a person in attendance run the risk of being offensive?  Absolutely.  However, these salons were viewed as extremely vital towards the creation of many valuable works we cherish today.  Ernest Hemmingway and Pablo Picasso both attended a salon hosted by a female Jewish American novelist in Paris.  Her name was Gertrude Stein, and she was from Pittsburgh, PA.  You would have to be extremely naïve to believe that this group of magnates didn’t maintain conflicting opinions.  In fact, in one of Stein’s works, she called Hemmingway “yellow,” which did not sit well with Hemmingway in the most generous sense of the term.  Yet, many experts agree that her salon played an integral role in helping to define modernism in art and literature.

A recent article in the Wall Street Journal highlighted the experience of Professor Amy Wax, a University of Pennsylvania law professor who wrote a controversial op-ed about the impacts of bourgeois culture on America’s economic dominance in second half of the 20th century.  Her somewhat alternative opinions, which were argued well whether or not you agreed with them, earned her so much backlash that the dean asked her to take a leave of absence next year and cease teaching a first-year course in response to colleague requests.  Over 30 colleagues issued a statement inviting students to monitor the professor and report any stereotyping or bias they might experience or perceive when learning from her.  Professor Wax said only a small handful of people engaged in a debate about her stance using facts.  She recalled the bulk of her interacts consisting of nothing more than hurled insults.  In her conclusion, Ms. Wax writes, “Democracy thrives on talk and debate, and it is not for the faint of heart… Offense and upset go with the territory; they are part and parcel of an open society.  We should be teaching our young people to get used to these things, but instead we are teaching them the opposite.”

Might I remind you, this happened within one of the nation’s best law schools – a place where students go to learn how to research and craft compelling arguments to defend or influence competing values.  Many people have taken to social media discussing their solution for someone else to implement.  Instead, we’d like to tell you what we’re going to do right here in Columbia, SC, to begin changing the status quo:

We’re bringing back the salon.     

Money is only as important as the values that define the goals being pursued.  If we can’t have a conversation about conflicting values, is the importance of financial planning diminished?   

Three Keys to Special Needs Planning in 2018

If you have a child with special needs, you need to become well acquainted with the changes inside the Federal Tax Reform that was passed at the tail end of last year.  Tax experts argue that many families won’t fully understand the breadth of the reform until they file their 2018 taxes in the early months of 2019.  However, if special needs families wait until 2019 to understand how their present actions may affect their household wealth down the road, they may subject themselves to unnecessary out-of-pocket costs that could derail their Special Needs Plan.

1, Understand Gift Exemptions

The annual gift exemption amount has risen to $15,000/individual.  This means that married couples can gift up to $30,000/year to a parent of a child with special needs without it counting toward their lifetime gift tax exemption.  This can be very helpful in multi-generational planning to cover immediate expenses.  Because of the way special needs trusts are designed, any gift towards the special needs trust will require you to file a gift tax return and therefore will not be excluded from the lifetime gift exemption amount.  You should look at special needs trust contributions as way to satisfy longer-term expenses.  The new tax bill has created the opportunity between 2018 and 2025 to transfer as much as $22.4 million into a special needs trust without being subject to estate taxes.  The provision sunsets in 2025 and is scheduled to revert back to the $5.1 million base/individual, so assuming one can afford to, it makes sense to begin having gifting conversations today to take advantage of this opportunity.

2. Be Aware of HSAs

Going forward, families should seriously examine whether or not they qualify for a Health Savings Account (HSA) and how a Health Savings Account can help.  HSA accounts allow families on high-deductible health plans to contribute pre-tax funds into a special savings account.  Some employers even contribute to the account on the employee’s behalf.  When funds are added to the account, they can be invested and can grow tax-deferred over time.  Once the family is faced with a qualified medical expense, they can withdraw the funds from the account tax-free either at the time of payment or in the form of a reimbursement. 

This strategy can be useful given the new standard deduction amounts.  The new tax reform raises the standard deduction for married couples from $12,700 to $24,000.  According to 2015 IRS data, 30% of all returns filed that year itemized rather than taking the standard deduction.  Forbes Magazine estimates that the number of Americans itemizing will drop to 7.6% under the new tax code.  When a family spends more than 10% of their adjusted gross income on qualified medical expenses, they usually itemize to deduct those payments from their taxes.  This year, assuming no other deductions are to be used, a family would have to rack up $24,000 in out-of-pocket medical expenses before it would make sense to use those expenses to offset their tax bill.  This becomes more challenging if the household income is higher than $240,000/year.  A higher standard deduction is not necessarily a bad thing for families; however, for families who routinely see $50,000+ in annual out-of-pocket medical expenses, they may see their tax benefits cut significantly.  This means that out-of-pocket medical expenses will be just that – out of pocket expenses.  Therefore, families should explore whether or not a HSA accounts can help provide some tax relief. 

3. Explore ABLE Accounts
Families should explore whether or not an ABLE account makes sense inside their Special Needs Plan.  ABLE accounts are becoming available in various states across the country.  They work similarly to 529 College Savings Plans in that they allow for contributors to receive a state tax deduction (if they live in the same state where the plan is set up).  They also allow for tax-deferred growth of assets and assets inside the account can be withdrawn for qualified disability expenses, which include a variety of expenses including medical expenses.  In 2018, parents with a child who has a disability can now roll over a 529 plan where the child is named beneficiary into an ABLE account for the child’s benefit.  There are a number of restrictions with ABLE accounts that vary based on the number of services your special needs family member receives, so it is crucial that you sit down with your financial advisor before opening an ABLE account.

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