SECURE Act Becomes Law

On Friday December 20th, 2019 the SECURE ( Setting Every Community Up for Retirement) Act was signed by President Trump after passing the House and Senate. The SECURE Act contains many provisions that will help individuals save for retirement such as:

  • Removed the age limit on eligibility to make contributions to traditional IRAs. Now anyone with earnings can continue to make contributions to their IRA.
  • The age for Required Minimum Distributions (RMD’s) is now 72 versus 70.5.
  • Smaller employers can now join together in Pooled Employer Plans making it more cost effective and efficient for small employers to offer retirement plans.
  • Annuities (lifetime income option) are now permitted.
  • Expand portability options.
  • Allow certain part time workers to participate in 401(K) plans

While these and other benefits are some the positive points of the plan, there had to be a way to recoup some of the lost income. As feared previously, that primarily came in the elimination of the Stretch IRA. A popular wealth planning tool to pass on accumulated wealth to heirs (ie., grandchildren) was to name a grandchild or a Trust for the benefit of the grandchild, as beneficiary of one’s IRA upon death. Then the IRA could be “stretched” over the life of the grandchild providing both the opportunity for the assets to continue growing and to limit the income paid out over time. With few exceptions, the ability to stretch the income is eliminated. Spouses, minor children, persons not more than 10 years younger than the account owner, disabled or the chronically ill are the few exceptions.

Now, after Dec 31, 2019, the IRA will have to be distributed out over a period of no less than 10 years. This can not only place the beneficiary into a much higher tax bracket but hamper the potential growth of the assets.

As mentioned previously, Conduit Trusts are effectively eliminated while the Discretionary or Accumulation Trust losses some appeal.

Yet, there are still some planning techniques that can be employed to plan for the distribution of your wealth:

  • Discretionary or Accumulation Trusts can still be employed to pass on income and wealth over time and encourage positive outcomes. (The Trust receives the RMDs and then distributes income and or principal per the wishes of the grantor)
  • Charitable Trusts could be named as recipients of IRA’s and trust beneficiaries can receive income over their lifetimes while the principal can benefit the ultimate charities.
  • Traditional IRA’s might be converted to a ROTH IRA which has no RMD requirements or tax on withdrawals (though current taxes are paid on conversions).
  • Transition IRAs to life insurance during one’s life.

First State Trust can help you navigate your options and accomplish your goals. With some additional planning and adjusting, your heirs can continue to be the beneficiaries of your success. Please don’t hesitate to reach out to us to discover how we can be of assistance.

James Okamura

President, FSTC

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.

What Time Is It??

Time To Dust Off Your Documents

 

With the increased exemption amounts for 2020, clients’ initial reaction might be that there is less need for estate planning or trusts. So NOT true.

Clients enter the estate planning process and create trusts to CONTROL wealth. Reducing taxes is often a distant secondary reason. While the increase in the exemption amount is a boost to high net worth individuals, the tax law still doesn’t eliminate these common client concerns:

  • “I love my new son-in-law, but…”
  • “My daughter is 42-years-old and has a history of drug abuse. The last thing she needs is an outright distribution of my wealth.”
  • “Our bank trustee sold significant assets in our trust portfolio. Now the trust has to pay huge capital gains taxes. Why weren’t we informed of this? Why didn’t they consult us?”
  • “My grand-child is special needs. What can we do to help her?”
  • “Since I retired 10 years ago, I have volunteered at the local children’s hospital. The time I spend there and my work there means the world to me. How can I support this organization when I can no longer physically do this job?”
  • “Our son is going through a divorce. We have been cut-off from seeing our grandchildren. We want to fund a college savings plan for each of them but we don’t want money to go to our former daughter-in-law.”
  • “My husband and I are now 82-years-old. We’ve amassed significant wealth over our lifetimes. But now my children are fighting with us support them and give them money. We want them to earn their own money and support themselves.”
  • “My child has autism.”
  • “My current trustee doesn’t speak to us and ignores our calls. Is he allowed to get away with this?”

Clients with these and similar concerns/issues need solutions and ideas. For most individuals, these issues are more important than saving on taxes, rates of return, wild market movements and fees.

 

New Planning Opportunities?

Any tax changes create new estate planning challenges and things to consider for high net worth clients:

  • Consider taking advantage of the increased gift tax exemption amount and possibly the GST tax exemption amount by making gifts to children and/or grandchildren either outright or to new or existing trusts; now might be an ideal time to establish Dynasty Trusts, which allow substantial amounts of wealth to grow and compound free of federal gift, estate and GST taxes; it’s better to give now while the law is certain – remember there is a sunset provision in the new Act that could reduce the new loftier exemptions.
  • Review the terms of Wills and Revocable Trusts to ensure they remain in accordance with the original planning objectives; many Wills and Revocable Trusts create trusts that will be funded according to formula clauses tied to the exemption amount in effect on your date of death; with this amount set for 2020 at $11,580,000 per individual, the funding amount may be significantly more than what was anticipating.
  • Make “catch-up” contributions to irrevocable trusts that were originally used established to reduce future estate tax burdens; for example, if a client funded with an irrevocable trust with $5 million a couple years ago, he/she may want to consider funding the difference to today’s new maximum exemption amount (the trust will have to allow for additional contributions).
  • Grantor Retained Annuity Trusts (GRATs) may be less necessary; for high net worth clients who may have used GRATs extensively in their planning in the past, the larger exemption amounts will permit simpler one-time transfers to irrevocable trusts without the need for the leveraging GRATs provide; this will simplify planning as leakage of annuity payments back into the estate will prove unnecessary; for some high net worth clients, stopping a rolling GRAT plan in favor of a simpler completed gift to an irrevocable trust may prove more advantageous to simply remove assets from their estate.
  • Life insurance to pay an estate taxes may be less relevant for high net worth clients, at least until/if the exemption drops back to a lower amount.
  • Check state estate and/or inheritance tax implications; some states have their own form of death taxes which may or may not be tied to the federal estate tax exemption; additional planning and focus may be needed here for clients when working with their estate planning attorney and/or CPA.
  • Make annual gifts; the annual gift tax exemption will remain $15,000 ($30,000 for a married couples); this could help individuals make significantly gifts to Crummey trusts or outright.

First State Trust Company welcomes the opportunity to work with you and your professional partners to ensure your planning is exactly as you desire.

For more information, please contact:

Jacqueline Jenkins, CTFA

Chief Fiduciary Officer / Managing Director

Phone: 561-515-6156 / Email: jjenkins@fs-trust.com

 

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.

January 3, 2020

Time Flies!

Has it been a year already??? A year ago we started our Blog page to share our insights, thoughts and updates to our readers. Our goal? To showcase the intellectual capital of First State Trust Company and let our readers see another side of our team that might otherwise go unnoticed. After 17 posts, I believe we have delivered insightful and thoughtful writings. From market updates, Decanting to a Special Needs Trust, ESG Investing, Association Retirement Plans, Tax Issues to be Aware of, the Delaware Trust Act of 2019 and others, the topics were diverse and thought provoking. For 2020, we look to deliver even more insight and commentary on a range of topics you find helpful.

2019 was a very positive year for us. We opened a new office in Palm Beach, Florida, engaged with new partners, and continued to grow. In doing so, we believe we helped many new clients and partners service Trust relationships and fulfill the wishes and intents of the grantors. We will continue to stay focused on servicing our beneficiaries, clients and partners. So here is to another terrific year and I wish all of our readers, beneficiaries, clients, advisors and partners a Happy and Healthy 2020!

A special congratulations to the newest member of the FSTC family who arrived on December 27th, 2019. Ava Marie McElwee, was born to our Compliance Officer, Mike McElwee. We wish Mike, mom Taimeka and Ava a wonderful year of firsts and happiness.

James Okamura, President

 

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.

 

January 9, 2020

2019 was certainly a year where everything seemed to work.  Almost all major asset classes were up double digits with US Equities leading the way returning over 30% for the year, the first time that’s happened in a calendar year since 2013. 

 

blog pic mkt recap 2019

                                                         

Two portions of the US Equity Market that contributed to such great performance in 2019 were homebuilders (+49%, ticker: ITB) and the technology sector (+47%, ticker: IYW).  Technology was driven by the strong individual performance of some of the largest companies that comprise that sector like Apple (+86%), Microsoft (+58%), and Facebook (+57%).  While homebuilders benefited greatly from the average 30-year fixed mortgage rate falling from 4.5% to begin the year to a historically low 3.75% at the close of 2019, its lowest level since 2016. 

Both of those segments, and the US market as a whole, were supported by the main driver of the economy: US Consumers.  Consumer spending, which accounts for approximately two-thirds of US GDP, was strong throughout 2019 as consumers benefitted from federal tax stimulus and an extremely competitive job market leading to increased wage growth, particularly for lower and middle-income workers.  The strong job market was another factor that helped homebuilders and the US housing market in 2019. (links: 'Faster Wage Growth for the Lowest-Paid Workers' & 'US Consumption, Incomes Pick Up in Sign of Holiday Cheer' )

Perhaps the biggest surprise of 2019 was the strong performance in fixed income as the Fed shifted their positioning from tightening to begin cutting rates, and yields fell globally across all fixed income sectors.  Contrary to strategists’ forecasts entering 2019, the 10-year treasury yield fell from 2.7% to begin the year to below 1.5% this summer or not far from its all-time low of 1.3% that was established in 2016.   Additionally, the spread between the 2- & 10-year Treasury yields inverted briefly this summer (a common recession indicator) before growing to its widest margin since October 2018 to end the year with the 2-year closing at 1.6% and the 10-year at 1.9%.  This steepening of the yield curve is one of the reasons many economists believe a recession in 2020 is unlikely. 

After seeing such positive performance across the board in 2019, it’s important to look at the environment we’re in today compared to the end of 2018 when investors were fearful, and US Equities experienced a 20% correction.  At the end of 2018, the Federal Reserve was threatening tighter policy, global GDPs & manufacturing numbers were contracting sharply, the trade war with China was escalating, and the yield curve was flattening.  Contrast that with the end of 2019, where we have an accommodative Fed Policy, improving global growth figures, trade wars that have stabilized, and a steepening yield curve implying stronger growth expectations.  So while investors may want to be cautious after a 30% run-up, markets trading at all-time highs, and valuations above their historical averages, there is still reason for optimism as we look forward to 2020.

 

Andrew Gibson, CFA

 

 

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.

Eenie Meenie Miney Mo...

How Do I Know Which Way to Go?

 

Families often desire to leave money in trust for future generations. A trust can provide safety and security that the money will go as the wealth creator directs. Aside from the actual decision on how wealth is to be divided, whom you select as a trustee can be an equally daunting task. Do you choose an individual? Or a corporate trustee? Or perhaps a combination of both? Each has its advantages. I wanted to take a few moments and share with you some reasons to consider a corporate trustee.

A corporate trustee has a duty to be objective. That means that they must weigh each decision fairly for all beneficiaries (current and remainder). A corporate trustee is impartial. A corporate trustee does not have to worry about how people will act at Thanksgiving Dinner if a distribution request is denied. Moreover, unlike an individual, it is not just one person making the decision. A corporate trustee typically makes a decision by a committee vote.

A corporate trustee is heavily regulated. There are both internal and external audits that ensure all trusts are handled properly. Additionally, the trust team is responsible for an annual review of the relationship to ensure everything is being handled prudently.

The decision to be insured is one that few individual trustees purchase. A corporate trustee is insured against any wrongdoing by the company. This provides protection for the beneficiaries and remainder beneficiaries that the trust will be managed properly and there is a mechanism for recourse should something go awry.

With a corporate trustee you are being assigned a trust team that ensures someone will always be available for the client. Individuals take vacations. A corporate trustee ensures that relationships are managed when the primary contact is out of the office. Also, a corporate trustee is knowledgeable of the laws that govern the trust.

Much thought should go into the selection of the proper trustee. Also, the grantor should ensure there is an exit plan for the trustee should the relationship, as it transfers generations, changes and is not what the grantor originally intended.

For First State Trust Company, we have clients in various trust roles (co-trustee, beneficiary, remainder beneficiary, attorney, CPA, etc.) that have indicated they would be a resource for any potential client should they want to get a feel for how it is to work with us. You should ask a potential trust company if they have a client/attorney/CPA list of contacts they can reach out to. Our goal is to be flexible and understanding and caring and taking the role of a trustee as a privilege while at the same time balancing the directions within the four corners of the document.

Make sure you spend time interviewing the various trustee options you have and make certain you are leaving your family in good hands.

For more information, please contact:

Jacqueline Jenkins, CTFA

Chief Fiduciary Officer / Managing Director

Phone: 561-515-6156 / Email: jjenkins@fs-trust.com

 

The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.