Whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect their own as well as their beneficiaries' financial security, women play a central role in establishing and preserving family wealth. Women need to be involved, informed, and comfortable with their role as guardians of family wealth. Active participation in wealth management can strengthen women's commitment to protect and grow their assets with the goal of leaving a legacy for their children, their community, and beyond.

Best Practices in Legacy Planning

The following strategies may help assure the smooth transfer of both your measurable wealth and your values surrounding wealth to the next generation.

Education leads to confidence. Attaining financial security for you and your heirs typically requires you to accept responsibility for the management of significant investment assets. Whether you are single, married, or a surviving widow, it is in your best interest to receive as much education as possible about wealth planning, investments, successorship, and related matters. Even if you are not directly responsible for making important financial decisions, it is vital to have knowledge in these areas in order to communicate effectively with professional advisors charged with these duties.

Professionals offer objective, qualified services. Relying on professional advice as opposed to family and friends is extremely important when making decisions affecting the accumulation, preservation, and distribution of wealth. What should you expect from a qualified professional? A good wealth advisor -- or a team with other professionals, such as attorneys and accountants -- should offer guidance and services in most areas of wealth management, including estate planning, retirement planning, insurance needs assessment, and college planning. On a more personal note, a wealth advisor should work closely with you to:

• Identify areas requiring special assistance, such as creating trusts.

• Minimize taxes and planning costs.

• Develop and implement a personalized wealth management plan.

• Review your plan periodically and suggest changes when needed.

Philanthropy is integral to family legacy planning. Wealth holders have a greater opportunity -- if not responsibility -- to make charitable giving an integral part of the legacy planning process. Families that are charitably inclined may have clear goals in mind, but they may not know where to begin. In order to choose the best strategy, you should work with a trusted advisor to evaluate a number of factors, such as tax management objectives, types of assets to be gifted, and your specific strategic intent. Then choose from among a range of charitable giving vehicles, such as donor-advised funds, family foundations, gift annuities, and charitable remainder trusts/charitable lead trusts.

Children should learn about the responsibilities of wealth. Wealth is a gift that opens doors of opportunity not only for you, but also for your children, their children, and generations to come. Yet wealth can be a weighty responsibility that takes time to manage, maintain, and preserve. If you are a parent, you are no doubt concerned about the effects of wealth on your children's values and how the "money" lessons you pass on to them will resonate as they mature to adulthood.

Family values should be held in the same high regard as family wealth. Family values -- those traits, behavioral patterns, beliefs, goals, and morals that are shared by members of a family group -- define a family's character as much as dollar signs measure a family's wealth. By holding shared values in high regard and setting an example of commitment to financial responsibility, philanthropy, and volunteerism for the younger generation, you will enrich your family's legacy for generations to come.

A Woman's Worth

As stewards of the family legacy, women are in a unique and influential position. They are holders of great wealth as well as keepers of the family's moral and philanthropic vision. There are many financial, accounting, legal, and business tools to assist women in implementing a plan of action. Contact your financial advisor for guidance in mapping out a legacy planning strategy unique to your situation.

The eleventh-hour extension of many of the Bush-era tax rates narrowly skirted an across-the-board increase in most federal tax rates. But the new rules differ in a number of ways from the old—particularly for those in the top tax bracket. Here are some of the important tax alterations you’ll want to be aware of as you plan for 2013:

• Higher marginal tax rates: Legislation that resolved the fiscal cliff created the first upward tax-bracket revisions in decades. With the top marginal income tax rate now 39.6%, tax management strategies that once had limited cost-benefit may now be more attractive. For example, if you are relying on cash flow from a fixed-income portfolio in a taxable account, you may find that municipal bonds might offer better net cash flows now than they might have last year, even if their gross yields might be lower.

• Capital gains and equity dividend taxes: The favorable tax rates on long-term capital gains and qualified equity dividends are now effectively graduated for many taxpayers. That means you may have to do a complex calculation to estimate the tax rate you might be liable for on your income from these sources.
  
  As a general rule, long-term capital gains and qualified dividend tax rates for those in the 10% and 15% income tax brackets are zero. For those in the 25% to 35% brackets, the rate is 15%. And for taxpayers in the top bracket (39.6%), it’s 20%.
  
  Here’s where it becomes interesting: You may be subject to a higher rate on long-term gains and dividends than your ordinary marginal tax bracket might imply. That’s because your capital gains and dividend income tax bracket will be assigned according to what your ordinary tax bracket would have been if the capital gains and dividend income were tallied as ordinary income instead.
  
  For example, assume that your employment earnings put you in the 33% tax bracket and you also have significant income from qualified long-term capital gains and qualified dividends. To estimate your dividend and capital gains tax liabilities this year, you’ll need to add your investment income total to your ordinary income total. You could then see what tax bracket the combined tally would put you in, and by how much. In this case, the portion of investment income that brings you up to the 39.6% threshold would still be taxed at 15%, but any portion of capital gains and dividend income beyond that would be taxed at the higher 20% rate. You could pay the top rate on favored investment income even though your ordinary income tax bracket would still be 33% for wages, salaries, interest income and the like.
  
  Keep in mind that the new 3.8% Medicare tax on investment income (more below on this) applies to qualified dividends and capital gains, effectively increasing the net tax rate even further for some taxpayers.

• Medicare tax on unearned income: This tax is new for 2013 even though strictly speaking it was not part of the fiscal cliff legislation, but rather, mandated by the Affordable Care Act. The actual tax is assessed only on “unearned” income— typically interest, dividends, royalties, annuities, rents and other passive activity income, capital gains on investments and trading of financial instruments and commodities. The trigger for this tax is your modified adjusted gross income (MAGI): $200,000 for single taxpayers, $250,000 for those married filing jointly. Any strategy that effectively defers or reduces your reportable income can help you manage the impact of this tax in 2013.

• Estate, gift and generation-skipping taxes: The taxes on inherited wealth and major gifts are higher now than they have been in recent years. But they are lower than they would have been if there had been no new action by Congress. What is more, for the first time in a decade, there may be a sense of statutory stability. As the law now stands, estate and gift taxes will remain as they are, without sunset or expiration provisions. The maximum exclusion amount ($5.25 million in 2013) will be indexed for inflation in the future if needed, but there are no scheduled changes in tax rates or other assessment policies.
  
  One new feature stands out: A taxpayer’s unused estate/gift exclusion allowance can be passed on to a surviving spouse and added to his or her own personal exclusion amount. Keep in mind that this transfer of a future tax benefit can be made only to a spouse who is a US citizen.

• Alternative minimum tax: Like the estate tax, the alternative minimum tax (AMT) gained a new measure of predictability from the fiscal cliff law. Inflation adjustments have become a permanent part of the basic AMT calculation. That means that for income earned in 2012 and reported on tax returns filed this year, the basic exemption amount is $50,600 for individuals and $78,750 for couples. For income earned during 2013, the exemption amounts are $51,900 for singles and $80,800 for couples.

This is only a general summary of highlights from the new laws. It is not tax advice. Before you take any tax management steps you should consult your tax advisor. Also, please keep in mind that in federal tax discussions, tax benefits for spouses are available only to those couples whose marriages can be recognized by federal law.

That said, please feel free to contact me with any investment-related tax questions you might have. I would be pleased to help you assess the impact of tax changes on your investment and financial accounts.

Sources: Tax information was compiled from Internal Revenue Service Revenue Procedure 2013-15, IRS news release IR-2013-4 (Annual Inflation Adjustments for 2013, January 11, 2013), Internal Revenue Bulletin No. 2013-2 (January 7, 2013), and IRS news release IR-2012-78 (In 2013, Various Tax Benefits Increase Due to Inflation Adjustments, October 18, 2012).

When retirement is on your horizon, there are many financial issues to consider, such as when to retire, when to begin collecting Social Security and how to lower risk in your retirement portfolio.

Are you thinking of retiring? Whether you’re approaching a long-anticipated retirement date or beginning to cut back your work hours, planning ahead for your retirement is a wise move. Even if you’re on track to meet your retirement savings goals, there are other considerations you’ll want to address before taking the big step.

Timing Is Everything

Planning is essential to achieve the retirement you envision. And the first thing you’ll want to decide is when you plan to retire. This is a big decision and should factor in lifestyle as well as financial considerations. Although age 65 is considered the “traditional” retirement age, in practice, it varies widely. According to the U.S. Census Bureau, the average American retires at age 62, well before they are eligible to receive workplace pension plan payments, Medicare coverage and full Social Security benefits. When deciding on when to retire, keep the following factors in mind:

• Retirement savings A major factor determining when you can retire is your retirement nest egg. Will it be enough? The average life expectancy of a 65-year-old is 18.5 years, but many live well into their 90s, meaning your savings may need to last 30 years or longer.¹ The good news is that you still have time to make up any shortfall by maximizing your contributions to your IRA or retirement savings plan. In addition to regular contributions, the IRS allows you to make “catch up” contributions if you are 50 or older, permitting you to contribute up to a total of $23,000 to a 401(k) and $6,500 to an IRA in 2013.

• Pension timing If you qualify for a pension, either through your current or former employer, keep in mind that most plans will not pay full benefits unless you are age 65 or older. But many will pay a reduced amount depending upon your length of service and retirement age. Ask your plan administrator what payments you will qualify for at different ages.

• Health care costs Seniors age 65 and older have guaranteed access to health insurance through Medicare and, for lower income seniors, Medicaid. But if you plan to retire before then, you’ll need to provide for your own health insurance--which can be a significant cost. Check to see if your employer offers a retiree health plan, if you qualify and how much you’ll pay. Keep in mind that a provision of the Affordable Care Act is scheduled to take effect in 2014 which may provide another option for securing health insurance if you retire before 65. Nearly everyone in the United States will be required to be covered by health insurance or pay a penalty for failing to do so. States will create American Health Benefit Exchanges where individuals can purchase health insurance if they don’t have employer provided insurance.

• Social Security You can begin collecting Social Security as early as age 62. But if you choose to collect before your “normal” retirement age (65 to 67, depending on when you were born), you’ll face a reduction in monthly payments of as much as 30%. What’s more, if you opt for early collection and continue working, you’ll be subject to an annual earnings limit until you reach your full retirement age. If you exceed this limit, $15,120 in 2013, you’ll pay a stiff penalty: for every dollar you earn over this amount, $0.50 of your Social Security benefit will be withheld.²

Structuring Your Portfolio for Retirement

One critical step you’ll want to take before you retire is to reduce risk in your retirement portfolio. Since you will soon have to depend on your portfolio for income, you’ll want to begin shifting a greater portion to bonds or other lower risk, income-producing investments. You’ll also want to review the specific holdings in your portfolio. Are there some higher-risk stocks you might replace with more stable holdings? Could you lower risk by shifting some of your lower-rated bond issues to US Treasuries or municipal bonds? You might also consider dividend-paying stocks.

These and other risk-reducing strategies can help to structure your portfolio for the day when you’ll need to draw on it for regular income.

At Morgan Stanley, we work closely with clients to put in place a retirement income strategy that is tailored to their unique needs. Let me work with you to assure a smooth transition.

We all know that money doesn’t grow on trees, but do your children really know how to manage it? Making the connection between saving first and spending later makes possible a lifetime of responsible money management. You can emphasize this connection by following a plan of age-appropriate techniques designed to emphasize the importance of controlling impulsive behavior.

Why Starting Early Is Important

Before teaching children about money, it is important to help youngsters control their impulses, potentially as early as age three. According to a study presented to the National Academy of Sciences in January 2011, a child’s self-control, as evidenced by traits such as conscientiousness and persistence in striving for goals, are strong predictors of success, including wealth, later in life.¹ Children who scored lower on self-control were more likely to experience problems with saving, home ownership, credit and money management.

Depending on the age of your children, consider whether the following suggestions are compatible with your views about children, self-control and money.

Ages 2 to 8

• Buy a piggybank where your children can deposit money that they earn from chores or receive as gifts. A visual chart showing how much they save over time can be a motivator to save more.²

• Provide an incentive to reach a savings goal. For example, when your children save $25, consider adding a few more dollars or letting them buy a treat under your supervision.

• Make children wait until after meals to eat treats or until an occasion such as a birthday to receive a special toy. The practice of delayed gratification can help build self-control at home, according to Mary Alvord, a clinical psychologist and author of Resilience Builder Program for Children and Adolescents.³

Ages 9 to 12

• Consider whether you want to start an allowance. Tying an allowance to chores is a matter of debate, with some parents believing that children should not be paid for helping around the house. An allowance is a family decision that reflects your values about money.

• If you pay an allowance, require your children to put a portion of it into a savings account and use the remainder for personal items, gifts and entertainment.

Ages 13 to 18

• Even if your family has means, consider letting your teenaged child have a part-time or summer job to earn their own money. Require them to set aside a portion of their earnings for personal or college expenses.

• Establish clear rules for curfews and completion of homework before screen time. These practices will help older children control themselves without your intervention, according to Ms. Alvord.

• In a few years, your teenager will be approached by credit card companies looking for college-age customers. Now is the time to review the importance of paying a balance in full every month and reserving credit for items of value.

Ages 19 and Older

• If your family pays tuition and other college costs, require your college student to pay at least a portion of personal expenses.

• If your adult child cannot find work and ends up living with you, resist the temptation to start paying your adult child’s bills or student loan debt.

Let me work with you to identify opportunities to reinforce the connection between saving and responsible spending. Because starting early and presenting a consistent message will enable your children to develop sound habits that last a lifetime.