Whittier Trust is excited to announce the promotion of Tom Suchodolski to Vice President, Client Advisor at its South Pasadena Office. Tom has more than five years of experience providing ultra-high-net-worth clients with strategic wealth management services and advice.
As Vice President, Tom Suchodolski plays a key role in providing comprehensive financial services to high-net-worth individuals and their families. His deep knowledge across various disciplines, including trust and estate planning, investment management, and wealth preservation, enables him to deliver comprehensive and tailored solutions to our valued clients.
"I couldn’t be more excited to announce Tom Suchodolski's well-deserved promotion to the role of Vice President at Whittier Trust." said Kim Frasca-Delaney, Senior Vice President at Whittier Trust. “Tom’s qualifications reflect a deep understanding of financial intricacies and trust matters and enable him to provide guidance and solutions to his clients.”
Tom joined Whittier Trust in April 2019 and has continued to demonstrate his ability to successfully execute his clients needs. Before joining Whittier Trust, Tom worked as a Litigation Support Associate in the forensic accounting group at CBIZ MHM, LLC in Los Angeles. He worked closely with ultra-high-net-worth clients and their legal representatives, providing assistance on intricate family-related matters of significant complexity.
Tom possesses an array of skills and qualifications. Holding an active Certified Public Accountant (CPA) license and a Certified Trust and Financial Advisor (CTFA) license, Tom demonstrates his expertise in the field of finance and accounting, showcasing his strong understanding of financial regulations, tax laws, and investment strategies. Moreover, Tom’s dedication to development led him to embark on a transformative four-month language-intensive study abroad program in Berlin. As a result, he obtained a B1 certification for the German language.
Tom is a graduate of the University of Redlands, where he earned a Bachelor’s in Accounting. Tom remained on the Dean’s list throughout the entirety of college as a four-year student-athlete on the Varsity men’s tennis team.
By Tom Frank, Executive Vice President, Northern California Regional Manager, Whittier Trust
The topic of estate planning frequently conjures up ideas about leaving money to heirs. However, recent statistics from the U.S. Census Bureau indicate that more than 16% of Americans do not have biological children. Additionally, there may be many more cases where people feel like they have already given their biological heirs plenty of assets and aren’t interested in further enriching them. Over the course of decades of working with wealthy families, Whittier Trust has seen the gamut of situations—people who want their families to keep every dime possible and others who feel that enough is enough at a certain point. This raises the question, What should I do with my money if I have no heirs? Common wisdom suggests there are three possible places for wealth to go upon death: family and friends, charity or the government.
If there are no family members, where should we look next? It’s common for people to want to make gifts to close friends. This raises questions about when to give the money, how to structure a gift and how much to give. Sometimes gifts during the donor’s lifetime are the most effective because we get to see the money help our friends. Lifetime giving is relatively easy, as it’s possible to give cash or potentially other assets. While a gift is not income taxable to the recipient, they do take the gift with the donor’s tax basis. This is something to consider when gifting assets other than cash.
Take for example, a tech entrepreneur who wants to give stock in their company to a friend. While the face value of the gift (and the amount reportable on a gift tax return) is the fair market value of the stock, the friend receives the gift with the donor’s tax cost basis. So if it's the founder's stock, for example, it may have a basis of $0 or close to $0. That means if and when the friend sells the stock, they will have to pay capital gains taxes on the proceeds. In such a case, while a gift is still generous, it’s likely a lower value than a cash gift might be.
If the same gift of stock is made at the donor’s death, the tax code permits a “step-up” in the cost basis to market value on the date of death. Any gift made at death passes free from any unrealized capital gain. So, it’s probably advisable to make lifetime gifts with cash rather than using appreciated assets.
What about a large gift to a friend? There will naturally be considerations of how this may affect the dynamic of the friendship, but aside from that, it’s important to consider whether the friend is capable of managing a large gift. The same concern might exist if it is a gift of complex property, either a portfolio of stocks and bonds or something like real estate. In such an instance, it may be advisable to consider making the gift to an irrevocable trust for the benefit of the friend. A professional trustee would be able to carefully manage the gift, while still making sure that funds are available to enhance the friend’s lifestyle or provide for necessities. Irrevocable trusts also confer asset protection benefits by protecting the assets from creditors of the friend.
No discussion of gifting beyond family and heirs would be complete without discussing gifts to charity. Direct gifts to charity are usually pretty straightforward. Gifts of cash and appreciated assets may be made to public charities quite easily. The main consideration when gifting to a public charity is one of structure. If the gift is particularly large, does the charity have the ability to properly manage and steward the gift or will it be overwhelmed? If the latter is a concern, spreading the gift out over a number of years may make sense. Alternatively, making the gift to a donor-advised fund (DAF) that will then parse the funds out over time is often an excellent solution.
Some donors want the recognition and flexibility of creating a private foundation, though there are administrative burdens and expenses that come with that approach. It’s easy to get tripped up by the rules, so expert advice is highly recommended. Also, private foundations are less attractive if the donation of assets such as appreciated real estate are contemplated since a donor can only deduct their basis in the property (which may be depreciated) rather than the full fair market value. An additional point for consideration is who will manage the private foundation down the line. Again, a donor-advised fund may solve some of these issues.
Many donors consider a split-interest trust—either a charitable remainder trust or a charitable lead trust—that will benefit friends and charity. Each of these tools are worthy of separate articles but should be on the table when thinking about planning for estate disposition beyond family members.
Gifts and bequests beyond family members are not as simple as one might think. This is particularly the case with assets other than marketable securities or with large gifts. Expert advice and counsel, in the form of good accountants and attorneys, are essential to maximizing the benefits of any gifting strategy.
Financial markets defied expectations as fears of a sharp and imminent recession failed to materialize. The S&P 500 index gained 16.9% in the first half of 2023. The Nasdaq 100 index soared 39.4% to lead the stock market rally. And even the lagging Russell 2000 index of small company stocks showed belated signs of life and rose 8.1%. As the economy showed unexpected signs of strength, the 10-year Treasury bond yield rose above 3.8% after trading below 3.3% in early April.
Headline inflation also surprised investors with a more rapid rate of decline than expected. The Consumer Price Index (CPI) stands at 4.0% year-over-year as of May 2023 … well below its June 2022 high of 9.1%. The Fed’s preferred inflation gauge based on Personal Consumption Expenditures (PCE) is also significantly lower at 3.8% through May. Core inflation measures remain sticky for the moment but are expected to decline meaningfully in coming months.
The impact of this progress on inflation has been felt in many different areas. The Fed stopped its string of 10 consecutive rate hikes in June. It has also signaled that the skip in rate hikes could eventually lead to a longer pause in the tightening cycle. The Fed’s shift in monetary policy from rapid tightening also spilled over into other markets.
The prospects of eventually lower policy rates along with unexpected economic resilience triggered the stock market rally. And more importantly for our discussion here, it continued to extend the recent bout of U.S. dollar weakness. The direction of the dollar has recently become a topic of intense debate as a number of threats have emerged to its status as the world’s reserve currency.
We assess the outlook for the U.S. dollar in light of the recent trend towards de-dollarization. We focus specifically on the following topics.
Recent catalysts for de-dollarization
Viable alternatives to the dollar
Fundamental drivers of dollar strength
Let’s begin with a brief history of events that have led to the hegemony of the dollar so far.
A Brief History
We can think of a reserve currency as one that is held by central banks in significant quantities. It also tends to play a prominent role in global trade and international investments. The last couple of centuries have essentially seen two primary reserve currencies.
The British pound sterling was the dominant reserve currency in the 19th century and the early part of the 20th century. The United Kingdom was the major exporter of manufactured goods and services at that time, and a large share of global trade was settled in pounds. The decline of the British Empire and the incidence of two World Wars and a Great Depression in between forced a realignment of the world financial order.
The dollar began to replace the pound as the dominant reserve currency after World War II. A new international monetary system emerged under the 1944 Bretton Woods Agreement, which centered on the U.S. dollar. Countries agreed to settle international balances in dollars with an understanding that the U.S. would ensure the convertibility of dollars to gold at a fixed price of $35 per ounce.
The Bretton Woods system remained in place until 1971, when President Nixon ended the dollar’s convertibility to gold. As we are well aware today, the U.S. typically runs a balance-of-payments deficit in global trade by importing more than it exports. In this setting, it became hard for the U.S. to redeem dollars for gold at a fixed price as foreign-held dollars began to exceed the U.S. gold stock.
The dollar continued to maintain its dominant role even after the end of the gold standard. Its position was further bolstered in 1974 when the U.S. came to an agreement with Saudi Arabia to denominate the oil trade in dollars. Since most countries import oil, it made sense for them to build up dollar reserves to guard against oil shocks. The dollar reserves also became a useful hedge for less developed economies against sudden domestic collapses.
The dollar’s hegemonic status is important to the U.S. economy and capital markets and their continued dominance in the global economic order. The U.S. is unique in that it also runs a fiscal deficit where the government spends more than it collects in revenues. The U.S. dollar hegemony is central to this rare ability of the U.S. to run twin deficits on both the fiscal and trade fronts.
The virtuous cycle begins with a willingness by other countries to accept dollars as payment for their exports. As they accumulate surpluses denominated in dollars, the attractiveness of the U.S. economy and the faith in U.S. institutions then bring those same dollars back into Treasury bonds to fund our deficit and into other U.S. assets to promote growth.
The dominance of the dollar in the world’s currency markets is truly remarkable. Our research indicates that the dollar currently accounts for more than 80% of foreign exchange trading, almost 60% of global central bank reserves and over 50% of global trade invoicing.
The importance of dollar hegemony cannot be overstated. At the same time, its dominance in perpetuity also cannot be taken for granted. In fact, the constant assault on the dollar has already seen its share of foreign exchange reserves decline from over 70% in 1999 to just below 60% now.
A number of new threats to the dollar have emerged within the last year or so. These developments have triggered renewed fears of de-dollarization and are worthy of discussion.
Recent De-Dollarization Catalysts
The main impetus for de-dollarization in recent months stems from a rise in geopolitical tensions. The war in Ukraine has played a meaningful role in the escalation of these risks. The U.S. and its Western allies have retaliated against Russia with a number of sanctions since the war began. On the other hand, Russia’s traditional allies in the East have been conspicuously silent in their condemnation of its actions in Ukraine. This misalignment on the geopolitical front has led the BRICS bloc (Brazil, Russia, India, China and South Africa) to decouple from the U.S.
We highlight a number of catalysts that may sustain this trend to reduce global reliance on the dollar. Our discussion attempts to steer clear of any political ideology and focuses solely on the likely economic impact of actual or potential policy actions.
Preserving Monetary Sovereignty
The mere premise of trading a country’s basic goods and services in a foreign currency presents a certain level of risk to that country’s monetary sovereignty. The domestic economy now becomes more vulnerable to currency and inflation shocks as well as foreign monetary policy. This proved to be particularly true for Russia whose commodity exports are largely dollarized.
As the BRICS bloc increases its global impact and ramps up its strategic rivalry with the West, it is mindful of the need, and opportunities, to become more independent in an increasingly multipolar world.
Security of Currency Reserves
The immediate and punitive sanctions on Russia also highlighted the reach and influence of Western institutions on emerging market economies.
As an example, the freezing of Russia’s foreign exchange reserves held abroad impaired its central bank’s ability to support the ruble, fight domestic inflation and provide liquidity to the private sector as external funding dried up. The actions of the U.S. and its Western allies were a reminder of how the dollar, and other currencies, can get politically weaponized.
Russia had already started its de-dollarization in 2014 after the Crimean invasion. Russia’s central bank has since cut its share of dollar-denominated reserves by more than half. It has also announced plans to eliminate all dollar-denominated assets from its sovereign wealth fund.
Shifts in Trade Invoicing
The efforts to de-dollarize have been most intense in this area. China has been a key force behind this trend, especially after the onset of its trade war with the U.S. in 2018. In a major threat to petrodollar hegemony, China is currently negotiating with Saudi Arabia to settle oil trades in Chinese yuan. On a recent state visit to China, French President Macron announced yuan-denominated bilateral trade in shipbuilding and liquefied natural gas.
Russia has also been active in shifting away from the use of dollars in foreign trade. It has steadily reduced its share of dollar settlements from 80% to 50% in the last ten years. India has been paying for deeply discounted Russian oil with Indian rupees for several months. India has also announced bilateral arrangements with several countries like Malaysia and Tanzania to settle trades in rupees. And in an unusual development, Pakistan recently paid for cheap Russian oil in Chinese yuan.
A desire on the part of the BRICS bloc to further extend membership to Iran and Saudi Arabia later in 2023 is another sign of petrodollar diversification and divestment.
Alternate Payment Systems
The lifeblood of international finance is its payment system. The gold standard for international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications (SWIFT). SWIFT does not actually move funds; it is instead a secure messaging system that allows banks to communicate quickly, efficiently and cheaply. China and Russia are now building international payment systems that can actually clear and settle cross-border transactions in their currencies.
These new trends will play a meaningful role in the eventual increased polarity of the currency world.
Reserve Currency Alternatives
We have already highlighted strong economic growth and institutional governance as important factors for ascendancy in global currency markets. The dollar has benefitted from those attributes among others for several decades now.
As the chatter on de-dollarization picks up, we take a quick look at how viable other currencies are to replace the dollar as the world’s reserve currency. We examine the current mix of global currency reserves to identify some candidates.
Figure 1 shows the composition of central bank reserves over time. Even with the steady decline in the dollar’s share this century, it is still almost three times as large as the second-largest currency in foreign exchange reserves.
Source: International Monetary Fund (IMF) COFER. As of Q1 2023, share is % of allocated reserves
The euro is the second largest currency within global central bank reserves with a share of around 20%. The share of other currencies tapers off rapidly thereafter with the Japanese yen and the British pound at 5% apiece and the Chinese yuan at 3%.
The broad-based malaise in their local economies and markets work against both the U.K. and Japan. The U.K. is adrift and directionless post-Brexit, and the pound has been in a steady decline for many years. The Japanese economy has been in the doldrums for several years now. The Japanese stock market peaked more than 30 years ago, and the Japanese yen is heavily influenced by the Bank of Japan. We rule out the pound and the yen as viable alternatives to the dollar.
This leaves us with three potential alternatives for the next reserve currency of the world.
Euro
Chinese yuan
Basket of multiple currencies
We defer a discussion on central bank digital currencies to a later date based on their sheer nascence and lack of practicality. We also exclude monetary gold, which is not part of the foreign exchange reserves reported by the IMF.
Euro
The euro is the official currency of 20 out of the 27 members of the European Union. This currency union is commonly referred to as the Eurozone. The euro has a number of advantages that make it a viable contender for a more prominent role in the global currency market.
The Eurozone is one of the largest economic blocs in the world. It is also a major player in global trade. The euro is the second-largest currency today within each of the categories of global reserves, foreign exchange transactions and global debt outstanding. It is easily convertible and is supported by generally sound macroeconomic policies.
However, we highlight a couple of key disadvantages that may impede its rise to the status of the world’s reserve currency.
Fragmentation Risks– While the Eurozone has successfully maintained its currency union for more than 20 years, it still remains fragmented in a couple of key areas. The Eurozone does not have a common sovereign bond market and also lacks fiscal integration within the region. This heterogeneity disadvantages the euro in ways that simply do not affect the dollar; the stability of the dollar is reliant on one single central bank and one single central government.
We illustrate this with a simple example. The divergence in bond yields and national fiscal policies was at the heart of the Eurozone sovereign debt crisis around 2010. Several countries such as Greece, Portugal, Ireland and Spain were unable to repay or refinance their own government debt or help their own troubled banks. The bailout from other Eurozone countries required a level of fiscal austerity in terms of spending limits that proved politically challenging to implement. The euro came under considerable selling pressure at that time, which also saw a decline in its share of global foreign exchange reserves.
Lack of Political Diversification– The Eurozone is politically aligned with the U.S. on many geopolitical topics. Their unity came to the fore again during the imposition of Russian sanctions. If the main impetus to de-dollarize comes from the goal of political diversification in reserve holdings, the euro is not much of a substitute to the dollar in that regard.
Chinese Yuan
China has the second largest economy in the world and is invariably one of the top trading partners for many countries. In light of this, it may seem surprising that the yuan’s share of global trade invoicing is low at around 5%, and its share of global currency reserves is even smaller at around 3%.
While the Chinese yuan may aspire to play a bigger role in world currency markets, there are a number of hurdles that it may be unable or unwilling to overcome.
Lack of Convertibility and Liquidity– The Chinese yuan is not freely traded; it is pegged to the dollar and cannot be easily converted into other currencies or foreign assets.
Capital Controls – China imposes restrictions on the outflow of both capital and currency. It does so to limit the drawdown of its foreign exchange reserves and to keep the value of the yuan stable.
There has been a stark divergence between global and Chinese monetary policies in recent months. Global central banks have tightened aggressively to fight inflation; China has been reluctant to do so to protect its still-fragile, post-Covid recovery. This divergence in rates has exerted downward pressure on the yuan. China does not wish to deplete its foreign currency reserves by buying yuan. It also doesn’t want to see the yuan weaken further. Capital controls are the only way for it to achieve both goals.
Inherent Incompatibility – China enjoys a significant cost and competitive advantage in global markets through a relatively weak currency. The more it exports, the greater its incentive to limit currency appreciation. If the yuan succeeds in becoming the world’s reserve currency, the resulting demand for yuan will cause it to appreciate. In a perverse feedback loop, a stronger yuan will make China less competitive in global markets. This inherent incompatibility creates a strong disincentive for the yuan to overtake the dollar.
Basket of Currencies
It has also been proposed that a basket of currencies be designated to fulfill the role of a reserve currency. Any combination of currencies will have similar fragmentation risks to those listed above for the euro. In addition, hedging costs will be higher for a reserve currency basket because of asset-liability mismatches and liquidity differentials across constituent currencies.
A G-7 basket of currencies with high political solidarity will suffer from the same limitations in terms of lack of political diversification. On the other hand, a BRICS or any other Emerging Markets (EM) reserve currency basket will suffer from familiar issues of misalignment of common interests, lack of market depth, risk of political intervention and inherent incompatibility in balancing export competitiveness with currency strength.
We are, however, intrigued by the growing role of smaller currencies such as the Australian and Canadian dollars, the Swedish krona and the South Korean won within central bank reserves. In fact, these currencies account for more than two-thirds of the shift away from the U.S. dollar in recent years. We expect that their virtues of higher returns, lower volatility and fin-tech innovation will help them further increase their share in global reserves.
We come full circle and close out our discussion by highlighting the numerous advantages of the U.S. dollar in the global currency markets.
Fundamental Dollar Advantages
Even as its hegemony diminishes at the margin, we believe that the dollar will remain the world’s reserve currency for several decades. Our optimism is based on both the limitations of competing alternatives and the significant fundamental advantages of the dollar.
It is actually remarkable that the dollar has remained steady even in the face of lower demand from a declining share of foreign exchange reserves. We see this divergence in Figure 2.
Source: IMF COFER. As of Q1 2023, share is % of allocated reserves, dollar price is for DXY trade-weighted dollar
The green line in Figure 2 represents the price stability of the dollar even as its share of reserves fell from 1999 to 2022.
We turn to basic currency fundamentals to explain this steady historical performance and also to argue in favor of the dollar going forward. In the long term, currency performance is determined by differentials in inflation, economic growth, real income and productivity gains. The U.S. offers significant advantages on these and many other fronts.
Strong economic growth and incomes driven by sound macroeconomic policies
Low inflation from independent and credible monetary policy
Technological innovation that contributes to both productivity growth and disinflation
High domestic consumption which reduces reliance on trade and currency effects
Convertibility, stability and liquidity of the dollar
Deep and liquid bond market
Fundamental attractiveness of U.S. risk assets such as stocks, real estate and private investments
Well-regulated capital markets
Government and institutional adherence to the rule of law
Strong and credible military presence
We do not see a credible threat to the dollar’s status as the world’s reserve currency in the foreseeable future.
Summary
We expect dollar hegemony to be preserved, and only modestly diminished, over the next several years. The following trends summarize our outlook for the composition of central bank reserves and the currency markets overall.
a. The dollar’s share of world reserves will continue to decline gradually but still remain above 50%.
b. The share of the euro, Australian dollar, Canadian dollar, Swedish krona, Swiss franc and South Korean won will inch higher.
c. The share of the Chinese yuan and other BRICS / EM currencies will rise less than what is currently expected.
We chose to focus exclusively on the current dedollarization debate in this quarter’s publication. At the same time, we are well aware of the deeply divided views on inflation, recession and the stock and bond markets. We are also closely watching the progression of any credit crunch from the March banking crisis.
In the brief space here at the end, we will simply observe that we are more constructive on the economy and markets than the worst-case scenarios. Our pro-growth positioning in portfolios has paid off handsomely so far in 2023. We remain careful and vigilant during these uncertain times.
Whittier Trust's Family Office has been named a Top 5 Finalist in the 2023-2024 STEP (Society of Trust and Estate Practitioners) Private Client Awards in the category of Multi-Family Office Team of the Year. This recognition serves as a testament to Whittier Trust's commitment to providing comprehensive wealth management solutions.
The STEP Private Client Awards celebrate the achievements and outstanding performance of firms and professionals worldwide. With a record number of entries, Whittier Trust's nomination as a finalist in the Multi-Family Office Team of the Year category further solidifies its position as a leader in delivering exceptional services to clients and highlights the expertise in serving multi-generational families with complex wealth management needs.
Whittier Trust is dedicated to providing personalized and tailored wealth management services, and is proud to be recognized among the Multi-Family Office Team of the Year category. The nomination serves as a testament to the commitment, expertise, and client-centric approach exhibited by the Whittier Trust team in addressing the unique needs of multi-generational families.
"Our team at Whittier Trust is thrilled to be shortlisted for the STEP Private Client Awards, Multi-Family Office Team of the Year category," said David Dahl, CEO at Whittier Trust. "This recognition reflects our commitment to delivering exceptional service and innovative solutions to our clients."
As the oldest multi-family office headquartered on the West Coast, Whittier Trust continues to demonstrate the ability to provide comprehensive wealth management solutions to multi-generational families. The team of seasoned professionals ensure clients' financial goals are met while preserving the legacies for future generations.
The judging panel will decide upon a winner for each category and the honorees will be announced at the black-tie dinner and awards ceremony, hosted by Gyles Brandreth, on Thursday, Sept. 21 at the London Hilton on Park Lane.
Whittier Trust is pleased to announce the appointment of Nielsen Fields as Vice President and Portfolio Manager at its Newport Beach Office. Nielsen brings a wealth of experience and expertise in fundamental industry and company research, asset allocation, and portfolio management.
As Vice President and Portfolio Manager, Nielsen Fields will play a crucial role in Whittier Trust's commitment to delivering exceptional investment services to its valued clients. He will be responsible for conducting in-depth research across industries, selecting individual securities, and developing appropriate asset allocation ranges for client portfolios. Nielsen will also provide valuable guidance to clients on asset allocation strategies, risk assessment, and the importance of after-tax performance within their portfolios.
Prior to joining Whittier Trust, Nielsen served as a Portfolio Manager at First Foundation Advisors, where he managed a proprietary growth strategy and co-managed a core equity strategy. He was also an integral member of the Investment Committee, contributing to the development of asset allocations for client portfolios. Before his tenure at First Foundation, Nielsen gained valuable experience as an Analyst and Co-Portfolio Manager at Summit Global Management.
Nielsen Fields holds an MBA from Columbia Business School and a BS in Business Administration from Colorado State University. His commitment to professional excellence is evident through his CFA® charterholder status and active membership in the CFA Society of Orange County and the CFA Institute. These achievements reflect his dedication to staying at the forefront of investment management practices and his continuous pursuit of knowledge.
"We’re excited to welcome Nielsen to the Newport Beach office," said Caleb Silsby, Whittier Trust Executive Vice President and Chief Portfolio Manager. "His extensive experience and impressive skill set make him a valuable addition and underscores Whittier Trust's commitment to attracting top talent in the industry. As we aim to serve our clients locally, we’re confident Nielsen will be a great addition to our team."
Starting in 2024, Most corporate entities will be required to file reports on their beneficial owners. On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”), which is a significant expansion of anti-money laundering laws intended to help prevent and combat money laundering, tax fraud and terrorist financing. On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued the final rule (the “Reporting Rule”) that laid out the requirements for Beneficial Ownership Information (“BOI”) reports mandated by the CTA. FinCEN estimates that there will be over 32 million entities required to submit BOI reports in 2024. The first report for existing entities is due January 1, 2025.
According to the legislative findings for the CTA, nearly two million corporations and limited liability companies are formed under the States’ laws each year, and very few states require information about the beneficial owners. In fact, a person forming a corporation or limited liability company within the United States typically provides less information at the time of incorporation than is needed to obtain a bank account or driver’s license and typically does not name a single beneficial owner. Criminals have exploited State formation procedures to conceal their identities. As such, the CTA aims to reduce the vulnerability of the US to wrongdoing by corporate entities with hidden owners.
Who Must Submit BOI Report?
To reduce this vulnerability, “reporting companies” will be required to file a BOI report. Reporting companies include any corporate entity, limited liability company (“LLC”), or any entity created by filing with a Secretary of State or any similar office under the law of a State or Indian tribe is required to comply with the Reporting Rule. In California, for example, this would include limited partnerships (“LP”), limited liability partnerships (“LLPs”), professional corporations (“PC”), and real estate investment trusts (“REITs”). Additionally, any corporation, LLC or other entity formed under the laws of a foreign country and doing business in the United States will also be required to file a BOI report.
The CTA provides 23 exemptions to the definition of reporting companies. These exemptions focus primarily on entities that operate in heavily regulated sectors. One of the more notable exemptions includes “large operating companies”, defined as (i) any company that employs more than 20 full-time employees in the US, (ii) filed a federal tax return in the prior year with more than five million dollars in gross receipts or sales from US sources, and (iii) has an operating presence at a physical office in the US. Other notable exemptions include: publicly traded companies, tax-exempt entities and certain related entities and wholly-owned companies of large operating companies and exempt companies.
Who is a Beneficial Owner?
As the legislative findings for the CTA state, the purpose of the legislation is to eliminate the ability of criminals to hide behind corporations and operate in the shadows. As such, the CTA requires reporting companies to report certain identifying information on both “beneficial owners” as well as the “applicant” that forms the entity. In most instances, identifying beneficial owners and the applicant is straightforward and will include the individual or individuals who operate the reporting company. If a husband and wife create an LLC to operate their small business, they are likely both the beneficial owners and the applicant.
The CTA defines a beneficial owner as “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity; or owns or controls not less than 25% of the ownership interests of the entity.” Substantial control is outlined in the Reporting Rule and consists of three specific indicators, which include: (i) being a senior officer of a reporting company; (ii) having authority over the appointment or removal of any officer or dominant majority of the board of directors of a reporting company; and (iii) having direction, determination or decision of, or substantial influence over, important matters of a reporting company. The Reporting Rule also provides a catch-call for substantial control that includes “any other form of substantial control” over the reporting company. Applicants are outlined in the Reporting Rule and includes “anyone who directs or controls the filing of the document by another.”
Excluded from the definition of beneficial owner are minor children, individuals acting as nominees, employees acting solely as employees and not as senior officers, individuals whose only interest in the reporting company is a future interest through the right of inheritance, and creditors of a reporting company.
What is in the BOI Report?
The reporting company must report for each beneficial owner the following four items in the BOI report: the beneficial owner’s (i) full legal name (ii) date of birth (iii) residential address and (iv) passport number, driver’s license or other acceptable identification, together with a copy of the ID document. It is important to note that when beneficial owners of a reporting company change, the reporting company will have 30 calendar days to file an updated BOI report. Examples of changes would include a reporting company becoming exempt from the reporting requirements, transfers of ownership interests due to the death of a beneficial owner and transfers of ownership when a minor child reaches the age of maturity. In the instance where a BOI report contains an error, the reporting company must correct the error within 30 calendar days after the error is discovered.
The BOI report will also include information about the reporting company, which will include the reporting company’s (i) full legal name, (ii) trade name or “doing business as” name, (iii) current address, (iv) entity’s jurisdiction in which it was formed and (v) federal tax ID number.
Information reported to FinCEN will not be made public and will not be subject to disclosure under the Freedom of Information Act, or FOIA. However, certain federal agencies will be able to access the database, including national security, law enforcement, tax administration and certain inquiries made by foreign governments. Banks and financial institutions can request BOI reports with the consent of the reporting company.
How Do I Prepare for the New Reporting Requirements?
Unlike most reporting requirements that impact large corporations and create exceptions for small businesses, the CTA primarily focuses on smaller businesses. For small business owners, managers, and officers, the determination of whether their business entity classifies a reporting company should be made sooner than later to avoid a last-minute scramble during the holiday season of 2024. Reporting companies should gather the required information and make sure it is current, including ensuring that beneficial owner IDs are not expired when submitted. Reporting companies can also implement an internal tracking system for reported information.
In most instances, the reporting requirements will be straightforward and will involve beneficial owners uploading the relevant information on the FinCEN website. FinCEN is currently creating a new online system where reporting companies will submit their BOI reports. Reporting companies that willfully violate the new reporting requirements will be subject to civil penalties of $500 per day if a violation is not corrected. The CTA reporting requirements also include criminal penalties.
The first BOI reports will be accepted on January 1, 2024, and reporting companies must file their first BOI reports by January 1, 2025. Taxpayers with questions should consult their tax attorney or CPA regarding their specific facts.
From Investments to Family Office to Trustee Services and more, we are your single-source solution.
The Whittier Trust Company of Nevada is excited to announce the hiring of Andrew Hall as a Vice President and Fiduciary Advisor in Whittier Trust’s Reno Office. With a strong background in trust and fiduciary experience, Andrew brings to the team a wealth of knowledge as well as a proven track record in advocating for clients and delivering tailored solutions.
As a Vice President and Fiduciary Advisor, Andrew collaborates closely with clients and their advisors to develop fiduciary and wealth strategies that are customized to meet the unique needs and goals of each individual or family. Andrew has a passion for helping clients achieve their financial objectives and has consistently demonstrated his ability to navigate complex situations and provide well-crafted solutions.
With over eight years of experience in the industry, Andrew's expertise has been honed serving large corporate trustees as a Trust Officer. During this time, he developed a deep understanding of the intricacies of trust and fiduciary services, further fueling his commitment to advocating for his clients and delivering exceptional results.
"We are delighted to welcome Andrew to the Whittier Trust team," said Dean Byrne, Whittier Trust Nevada Regional Manager, Senior Vice President and Senior Portfolio Manager at Whittier Trust. "His extensive experience and dedication to client success make him a valuable addition to our firm. Andrew's ability to tailor fiduciary and wealth strategies to meet the unique needs of our clients will undoubtedly contribute to their long-term financial well-being. We look forward to his contributions and continued growth within our organization."
Andrew holds a BBA in Trust and Wealth Management as well as an MBA from Campbell University. He is also a Certified Financial Planner™ (CFP™) and holds the prestigious Certified Trust and Financial Advisor (CTFA) designation, exemplifying his commitment to maintaining the highest professional standards. Beyond his professional achievements, Andrew is an avid traveler and outdoor enthusiast. When he is not at the office, he can often be found exploring new destinations, enjoying nature, hiking and baking.
A multi-family office offers highly personalized service, efficiency and streamlined staff
When high-net-worth families think about a plan to manage their wealth, they often consider either a single-family office or a combination of firms, including a financial advisory firm that offers off-the-rack products. However, the best option is often a middle ground between the two, a sort of “Goldilocks” scenario that is not too big and not too small. That just right solution is likely a multi-family office that offers a low client-to-advisor ratio, highly customized service and the efficiencies that come with having investments, real estate, alternative investments, philanthropy, administrative services, trust services and more under one roof.
“Often, these considerations come up when an individual or family is faced with a significant liquidity event, such as the sale of a business,” says Whittier Trust Vice President and Portfolio Manager Jay F. Karpen. “Perhaps you’re about to sell the business you built for $30 million dollars, and you’re trying to figure out how to make the sale an asset that supports your family and legacy over the long term.” Here, Karpen shares insights about the advantages of a multi-family office tailored to your needs and how to know if this approach is right for you.
Financial Advisory: Scalable but less personalized than you need and deserve
Most people are familiar with financial advisory firms, which offer an economical solution. “There is a lot of scale because everything is homogeneous,” Karpen explains. “You show up, they give you a portfolio and you get what they have. Nothing is customized, everything is model-driven and fairly basic.” While a bank or financial advisory firm might meet your most simple needs such as buying and selling stocks and overseeing your portfolio, this approach can leave much to be desired. “This one-size-fits-all model approach doesn’t allow them to take into consideration your family dynamics, your estate plan or your values,” Karpen says. “When your portfolio, values and estate plan are not working together there can be a gap in the results and can be a strain on your peace of mind.”
Single-Family Office: All yours but costly, less efficient and stressful
In a single-family office, you get tremendous customization. You’re the boss and only “client” of the staff, so everything is high-touch and at your fingertips. “The challenge with single-family offices is that you're managing people,” Karpen explains. “It's very expensive. Even though you've got what you need at any given time, if you require a professional in any area, you will need to hire them.” For example, if you need a specialized tax attorney or real estate advisor, you’ll hire them either as a consultant or as a member of the staff. You essentially become a people manager, dealing with HR issues, payroll, coaching, leasing office space and more. “There can also be a level of emotional exhaustion that comes from forming and managing a single-family office,” Karpen says. It’s a trade off between the level of control and peace of mind you’ll get by having all of your employees focused on you.
Multi-Family Office: Efficient and highly personalized for peace of mind
If the two sides of the spectrum seem fraught with downsides that outweigh the benefits, never fear. A multi-family office, such as Whittier Trust, offers the best of both worlds: comprehensive wealth management where investments work in concert with the family’s estate plan and values with scalable efficiency that proves economically advantageous over not just one but multiple generations of the family.
“We are both customized and solution-oriented, having grown out of the needs of our clients," Karpen says. A multi-family office gives you control over your portfolio and advisors who are readily available and take the time to understand your goals and family dynamics. It’s essentially like having a single-family office without needing to manage it.
Why Whittier Trust
Whittier Trust was initially established in 1935 as a family office for the Whittier family and has since evolved into a multi-family office serving a wider range of clients. Their primary expertise lies in wealth management, offering a comprehensive array of services such as investment advice, family office management, family trusts, philanthropy and real estate. They distinguish themselves in the industry by ensuring that clients are paired with the right team of advisors who possess the necessary skills to simplify daily decision-making based on their needs and aspirations. Regardless of the specific expertise a client requires or how their needs may change over time, Whittier Trust maintains a remarkable ratio of only 25 clients per advisor. This level of personalized service is unparalleled in the industry.
From Investments to Family Office to Trustee Services and more, we are your single-source solution.
By Brian G. Bissell, Senior Vice President and Client Advisor for Whittier Trust
Wealth preservation is always a critical concern for individuals, families, and businesses, but it is especially a focus during economic downturns. When the economy contracts, businesses are distressed, the broad market declines, jobs are lost and investment portfolios experience reduced valuations. In this environment, it is essential to be strategic, calculated and prepared to protect the family assets and take full advantage of the opportunities available. Here are four smart, practical strategies that have helped families weather economic instability for generations.
Cash Reserves
Recessions don’t last forever. In fact, the average length of a recession is only about 10 months. Maintaining an adequate cash reserve can help you persevere through challenging economic environments that impact your business or investment portfolio. Liquidity can help cover expenses while income levels are temporarily depressed. The biggest consideration is trying to avoid the forced sale of an asset that has substantially decreased in value. We are essentially buying some time for the markets to recover and the economy to rebound. A good rule of thumb is to keep six months of business or household operating expenses in cash or cash equivalents.
We have been reminded with the current banking crisis that cash reserves shouldn’t all be held in deposits at a single bank if they are well above the insured limits. With 3- and 6-month Treasuries yielding around 5% right now, it is probably safest to keep deposits at any single bank near the $250K FDIC insured limits and position the rest in either short-term treasuries or Treasury-backed money market funds.
Having liquidity and dry powder during an economic downturn is a major step toward peace of mind, but it is more than just a security blanket. It provides ammunition to be opportunistic and gives you the ability to buy while others might be forced sellers.
Diversification
Diversification is an essential strategy that has been a difference-maker in wealth preservation for centuries. Oftentimes real wealth is generated by concentrations and leverage, but while concentrated or leveraged investments have the propensity to create wealth, they have the same ability to take it away. Once a family or business has achieved a level of success or generational wealth, one surefire way of limiting the risk of total loss is diversification.
A common storyline with wealthy individuals stems from them or one of their ancestors being an early founder or high-level executive of a successful business, leading to a large concentration in the company stock. They may struggle to overcome the psychological hurdle of the sentimental value they place on those shares. Sometimes this nostalgia spans generations. But all it takes is a technological advancement, shift in consumer behavior or black swan event within an industry to take a blue-chip large-cap stock and make it worthless or severely reduced in value (i.e., Kodak, Gannett, First Republic, Blockbuster, etc.). Diversification is the antidote to putting too much into one investment vehicle. For an individual’s investment portfolio, this means spreading risk across many different industries, businesses, and asset classes. For a family business, this means investing capital in other business lines that may provide exposure to a broader set of potential customers.
Tax Loss Harvesting
While economic downturns can be stressful and unnerving, they also present us with several opportunities to make some great strategic estate and tax planning moves. Tax loss harvesting is the low hanging fruit during challenging economic environments. There could be some low-cost basis stock positions you have been holding onto more so to avoid having to pay capital gains tax than your true belief in the prospects of the company. Harvesting losses allows you to offset other gains and reposition the portfolio with minimal tax ramifications.
Consider Gifting
Many wealthy families and family business owners have estates that will exceed the lifetime exemption. All assets above the lifetime exemption amount for gift/estate taxes will be subject to a 40% tax when transferred to the next generation. If you are planning to give assets to future generations, an economic downturn might be the perfect time to accomplish the transfer. With values down, getting an appraisal done on the family business or any other asset you plan to transfer allows you to pass along more due to the temporary reduction in valuation. While it can be painful to see valuations fall, don’t miss your opportunity to use this time to maximize your planning. When the transfer is complete, and valuations have normalized, the true benefits will be realized.
Economic downturns and recessions can be scary for even the most optimistic among us. However, such seasons don’t have to be anxiety-filled. With the right guidance and plan in place, you can use such economic cycles to your long-term advantage.
From Investments to Family Office to Trustee Services and more, we are your single-source solution.
By Craig Ayers, Senior Vice President and Senior Portfolio Manager for Whittier Trust
At Whittier Trust, we know that clear communication with our clients is a cornerstone of the relationship. A critical aspect of clear communication is the Investment Policy Statement (IPS). An IPS is a document your advisor should provide that outlines investment goals, objectives and strategies. It serves as a roadmap and helps ensure that investments are made in a manner consistent with your overall financial goals and risk tolerance. Here are five reasons why having an IPS is critical for successful investing:
Clarity and Focus
An IPS clarifies investment goals and objectives. It forces you and your advisors to think critically about your goals and the timeline to achieve them. This clarity maintains focus on long-term goals and avoids short-term distractions.
Consistency and Discipline
An IPS establishes a framework for investment decision-making consistent with your goals and risk tolerance. It helps avoid impulsive decisions based on short-term market fluctuations or emotional reactions to market events. With an IPS in place, your advisors stick to the investment strategy over the long term, which can lead to better investment outcomes.
Risk Management
An IPS helps investors manage investment risk by setting guidelines for asset allocation, diversification, and risk tolerance. Ensuring investments are appropriately diversified across asset classes, sectors and geographies helps to mitigate risk. By establishing risk management guidelines, your advisor has clear instructions.
Accountability and Monitoring
An IPS helps investors establish a clear benchmark against which investment performance can be measured. It also sets guidelines for monitoring investments and making adjustments to the investment strategy as needed. This accountability and monitoring keeps your advisor on track with your investment goals. Importantly, it can ensure that investments are selected within your comfort zone and risk tolerance.
Communication and Collaboration
An IPS is a communication tool between you and your advisors. It ensures that everyone is on the same page regarding investment goals, objectives and strategies. By collaborating on the development of the IPS, you and your advisors can work together to create an investment strategy that is tailored to your needs and goals.
In summary, an Investment Policy Statement is a critical tool for successful investing and reaching your goals. It provides clarity and focus, establishes consistency and discipline, helps manage investment risk, promotes accountability and monitoring, and facilitates communication and collaboration.
From Investments to Family Office to Trustee Services and more, we are your single-source solution.
Source: IMF COFER. As of Q1 2023, share is % of allocated reserves, dollar price is for DXY trade-weighted dollar
