When a Client Struggles With Memory Loss

AUSTIN KILHAM for the Wall St Journal writes:  The 74-year-old man struggled with degenerative memory loss and was forgetting to complete financial tasks.

He needed help, and turned to financial planner Audrey Wehr Jones, of Casselberry Fla.-based Financial Life Designs. Ms. Jones doesn't manage client assets, but has worked for 15 years advising high-net-worth individuals on tax and estate planning and retirement cash flow. She has 15 clients.

"The client brought me onboard to try to make things as easy as possible for him and his wife, who has not taken care of their daily finances for the last 50 years," says Ms. Jones

The client found it especially difficult to remember to make his quarterly federal estimated tax payments, she says. His assets included an IRA, a trust fund and a pension. These tax responsibilities, combined with his required minimum distributions and charitable giving plans, involved a lot of moving parts for the client to remember. So Ms. Jones devised a strategy that consolidated the tax payments, streamlined his giving--and reduced his tax liability.

First, Ms. Jones tackled the client's estimated federal tax payments. He usually owed about $8,500 annually on the income from his trust and pension. Rather than pay estimated taxes four times a year, she suggested that the year's payments be calculated in the fall, and then paid off in December using a loan from the man's $600,000 IRA account.

IRA holders can take a loan once every 12 months, and because the client was older than 59 1/2 years, there was no withdrawal penalty. He also would owe no taxes on the distribution provided he repays it within 60 days, so Ms. Jones suggested her client transfer assets from his trust fund to replenish the IRA.

The strategy meant the client no longer had to remember to make quarterly tax payments. Instead, Ms. Jones would arrange the IRA distribution and tax payment, and then simply ask him once a year to sign an approval to transfer the funds from his trust.

Next, the adviser turned her attention to her client's charitable giving, which was extremely important to him. Because the client no longer needed the income from his required minimum distributions to cover quarterly tax payments, she suggested he use the funds for philanthropy instead. The American Taxpayer Relief Act of 2012 allows older IRA owners to make donations up to $100,000 a year with IRA withdrawals, so Ms. Jones knew he could make qualified distributions directly to charity.

"This is a great way to get a tax deduction without itemizing," she says.

She used his $22,000 required minimum distribution to directly fund his selected charities, which included research institutions and environmental causes. The technique not only streamlined his giving, it also eliminated the taxes on his required minimum distributions. And because he didn't itemize, he could still claim the standard federal tax deduction of $14,600.

Ms. Jones worked closely with the client's accountant on the transaction. She cautions that it is important for the CPA to change the 1099 the client receives for this kind of distribution to note the charitable donation.

In the end, the client was relieved he no longer had to remember to pay his taxes each quarter, or itemize his charitable giving. Ms. Jones says the strategy is a solution for clients struggling with memory loss.

"It's a good way to ease the worry about estimated taxes and charitable giving," she says.