Category: Uncategorized

Apr 20th

Rolling GRATs: Asset Selection Trumps Current Interest Rates

By: Tom Suchodolski, Assistant Vice President, Client Advisor, Whittier Trust

Financial planning during periods of relatively higher interest rates is certainly not elementary. In a low interest rate environment, the opportunities for wealth transfer seem boundless; one can seemingly draw from a myriad of strategies and have a high likelihood of success. A high interest rate environment, however, all but eliminates the effectiveness of such. In particular, strategies that involve intra-family loans or installment sales are negatively impacted by high interest rates. A Grantor Retained Annuity Trust (GRAT) is one of the few exceptions.

A GRAT does not seek to transfer the trust assets to the beneficiaries, but only the appreciation on those assets. Transferring only the appreciation, unlike other gifting techniques, can[1] allow for a transfer that is entirely gift and estate tax-free. For this reason, GRATs are particularly attractive for those who have already transferred assets equal to (or more than) their lifetime gift tax exemption of $12.92 million per person. GRATs may also be a good fit for those who are undecided on how they would like to use their lifetime gift tax exemption.

A GRAT is an irrevocable trust, yet it contains characteristics that are contrary to the very essence of an irrevocable trust. For example, by definition, in an irrevocable trust, the grantor relinquishes his or her ability to change it. However, for a trust to be considered a grantor trust for income tax purposes (i.e. the grantor pays the taxes incurred by the trust), certain features must exist. This includes, but is not limited to, grantor powers such as adding and changing the trust beneficiaries, or the power to substitute the trust assets with other assets of equal value. The ability to substitute trust assets in a GRAT should not be overlooked.

Functionally, the interest rate at GRAT inception is meaningful. You may be familiar with the Applicable Federal Rate (AFR), which is the minimum interest rate that the Internal Revenue Service allows for private loans and is published monthly based on current interest rates. GRATs utilize another monthly interest rate known as the Section 7520 rate. By definition, this is the AFR rate for determining the present value of an annuity. It is also known as the hurdle rate and can be perceived as the IRS projection for appreciation on the assets contributed to the GRAT.

For a GRAT to be successful, the trust assets must appreciate more than the annuity stream. This is why GRATs are particularly successful in a low interest rate environment when the Section 7520 rate is low. However, GRATs can still be fruitful in a high interest rate environment. The current market conditions could be viewed as favorable for GRAT creation due to the repressed prices of assets—most publicly-traded securities are trading at significant discounts due to lower valuations. As of this writing, the Section 7520 rate is 4.40%. A GRAT created today can successfully transfer wealth to the beneficiaries if the assets contributed appreciate more than 4.40% over the GRAT term.

So how do you go about actually creating a GRAT? First, identify the assets you wish to fund the GRAT with—generally either marketable securities, private company shares or real estate. Then you must engage an estate planning attorney to draft the GRAT agreement. This document will contain key provisions such as the funding amount, the annuity term, the annuity payments back to the grantor and the trust beneficiaries. It would be prudent to consider utilizing a “zeroed-out” [1] GRAT strategy, for which the annuity payments bake in the hurdle rate. These annuity payments will be considered in good standing with the IRS as long as they do not increase by more than 120% of the prior year’s payment. There’s an alternative Section 7520 interest rate applicable for these purposes (this rate is 4.45% as of this writing versus the 4.40% standard Section 7520 interest rate).

It’s important to note that success can be contingent on selecting the best assets to fund the GRAT, but an unsuccessful GRAT shouldn’t necessarily be considered a loss. If the contributed assets do not appreciate more than the hurdle rate, those assets are simply transferred back to the grantor. Keep in mind, however, that you will incur administrative expenses to implement the strategy, including, but not limited to, fees paid to the attorney who drafted the trust agreement and valuation expenses should you choose to contribute private company shares to your GRAT. While it may be tempting to fund a GRAT with family business stock, some experts opine that GRATs funded with marketable securities are more likely to succeed than their counterparts, as valuation expenses can be quite costly. A pre-initial public offering stock would be a notable exception.

Even in a high interest rate environment, there is one GRAT strategy that is highly likely to succeed. This strategy is known as “rolling GRATs”, which can be defined as a series of short-term (read: 2-year) GRATs, for which each subsequent GRAT is funded by the annuity payments from the preceding GRAT. This strategy reduces mortality risk versus implementing one longer-term GRAT, which is one of the key considerations for any GRAT. The grantor of a GRAT must survive the annuity term. Otherwise, the contributed assets and their appreciation are clawed back into the grantor’s estate. Rolling GRATs also spread out interest rate risk, as each subsequent GRAT would have a new hurdle rate.

Functionally, a rolling GRAT strategy would operate as follows:

  • Execute the trust agreement with a 2-year annuity term and a zeroed-out[1] annuity payment schedule. Assume an agreement date of March 15, 2023, a contribution of assets with a fair market value (FMV) of $2,000,000 and the current 120% Section 7520 hurdle rate of 4.45%. For your GRAT to be successful, the GRAT assets therefore must appreciate to $2,089,000 by March 15, 2025.

 

  • The first-year annuity payment, made on March 15, 2024, should be 47.47729% of the initial FMV of the contributed assets. This allows for a second-year annuity payment percentage to be 120% of the first-year annuity payment percentage and for both annuity payments to total the FMV which beats the hurdle rate ($2,089,000). Therefore, the March 15, 2024 payment is calculated to be $949,546.

 

  • If you funded your GRAT with marketable securities, you would calculate the FMV of the GRAT on March 15, 2024, and transfer shares with an FMV of $949,546 to a new GRAT with an agreement date of March 15, 2024, which also has a 2-year annuity term. The hurdle rate would be the Section 7520 interest rate on March 15, 2024. Should you have chosen to fund your GRAT with, for example, real estate family business stock, you would engage an expert to perform a valuation as of March 15, 2024, and transfer an interest with an FMV of $949,546 from the initial GRAT to the new GRAT.

 

  • Given that the first-year annuity payment percentage is 47.47729%, the second-year annuity payment should be 56.97271% of the initial FMV, which is 120% of the first-year annuity payment percentage and calculated to be $1,139,454. When you add both annuity payments together, they total $2,089,000, meeting the hurdle rate.

 

  • Should the FMV of your initial GRAT be greater than $1,139,454 on March 15, 2025, this would make it a successful GRAT. You would then apply the same exercise that was performed at the end of year 1, calculating the FMV of the initial GRAT on March 15, 2025 and transferring shares with a FMV of $1,139,454 to another new GRAT with an agreement date of March 15, 2025. The shares remaining in the initial GRAT after the second-year annuity payment can now be transferred to the GRAT beneficiaries free of gift and estate tax. Again, do keep in mind, should you have chosen to fund your GRAT with harder-to-value assets, you would need to obtain yet another appraisal as of the end of the initial GRAT term.  Avoiding the expense of obtaining three valuations for your initial GRAT (and then annually thereafter for each of the new GRATS) makes for a compelling argument to consider funding your GRAT with marketable securities rather than illiquid assets.

 

[1]: Only a “zeroed-out” GRAT eliminates all possibility of a taxable gift. A Zeroed-out GRAT is one where the present value of the annuity of the grantor’s retained interest is equal to the full value of the property initially transferred to the GRAT. Essentially, the hurdle rate is baked into the annuity payments.

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Apr 13th

A Dependable Way to Increase Returns

In investing, when something sounds too good to be true, it generally is. Plenty of examples over the last three years show that speculating on supposed “risk-free returns” can instead result in “return-free risk.”

By Mat Neben, Vice President and Portfolio Manager, Whittier Trust

Despite these cautionary tales, investors still have a dependable option for increasing returns without adding material portfolio risk: tax planning.

The following examples show how an effective tax plan can improve investment results. Keep in mind that tax laws are complex and constantly changing. We recommend talking with a trusted tax professional before adopting any tax strategy.

Profiting from Your Losses

Stock markets are volatile. No one enjoys buying an asset that declines in price, but tax-conscious investors can turn that pain into an opportunity.

When you sell a stock that has appreciated, you realize gains and create a tax liability. The inverse is also true. Selling a stock that has declined can realize a tax loss and reduce your future taxes. This is commonly called “tax loss harvesting.”

If you actively harvest losses and stay fully invested through market downturns, price volatility can actually add to your overall wealth.

The higher your tax bracket, the more you gain from loss harvesting. On the other end of the spectrum, if a gap year or early retirement shifts you into a lower tax bracket, realizing capital gains might be beneficial. Accelerating the realization of gains into low-income years can reduce your future tax liability.

Location, Location, Location

Investment decisions should focus not only on what asset to buy but also on where to put it. 

Equity mutual funds regularly distribute capital gains to their shareholders. These distributions are taxable to the investor, even if they did not sell any shares (and even if the fund had a negative return).

For employer-sponsored retirement accounts, where the tax inefficiency is irrelevant, equity mutual funds may be perfectly fine investments. But in taxable accounts, the distributed capital gains can turn a great fund into a poor investment.

Taxes and Hedge Funds

Absolute return hedge funds are designed to deliver positive returns regardless of market conditions. They are frequently held by some of the largest institutional investors. For example, at the end of the 2020 fiscal year, the $31 billion Yale Endowment had an allocation of 22% to absolute return strategies.

But what works for a tax-exempt endowment might not work for a taxable investor. Hedge fund returns are often fully taxable at your ordinary income rate. For investors in high tax states, this means that more than half the fund return may go to the government. If you are only keeping half of what Yale does for investing in the same fund, is the investment worth the added cost, complexity and potential illiquidity?

Hedge funds can still make sense for taxable investors. The strong risk-adjusted returns or diversification profile may more than compensate for the tax headwind. But it is important to focus on after-tax results and properly calibrate your expectations.

Don’t Pay the Penalty

If you sell a stock you owned for less than a year, the gain is taxed at your ordinary income rate. As discussed above, that rate can exceed 50% for high income investors in high tax states.

If you hold the stock for longer than a year, the gain is taxed at the long-term capital gains rate, which can be significantly lower.

The difference between your ordinary income rate and the preferential rate for long-term capital gains is the penalty you pay to place short-term trades. At top tax rates, short-term traders need to outperform long-term investors by more than 2% each year just to make up for the tax headwind.

By purchasing quality companies that you will own for at least a year, you align your investing with the tax code and avoid the punitive tax penalties facing short-term traders. Alternatively, high-turnover strategies can be located in a tax-exempt account, so gains compound tax-free.

Gifts and Inheritances

Stocks can be an incredible tool for long-term, tax-efficient wealth compounding. Dividend income is taxed at a preferential rate, and price gains are not taxed until the securities are sold.

One method to avoid realizing capital gains is to donate appreciated securities to a nonprofit. The nonprofit can sell the investment with little-to-no tax liability, and you can get a deduction for the full value of the security. If you are currently giving cash to charity, it is worthwhile to explore gifting appreciated assets instead.

Another method for managing deferred capital gains is to pass the asset on to your heirs. When you inherit an asset, its cost basis may be “stepped up” to match the market value as of the original owner’s death. The basis step up resets any deferred capital gains. While this rule might not be immediately actionable for most investors, it has significant portfolio management implications and can result in multi-generational tax savings.

Moving Forward

The above topics are one small subset of potential tax planning strategies, and tax planning itself is just one aspect of a larger wealth plan. At Whittier Trust, we believe in a holistic approach to wealth management. We work with your existing advisors to develop comprehensive solutions for all aspects of wealth: investments, tax, estate plans, philanthropy and more.

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Apr 7th

The Importance of Coordinating Professional Advisors

By: Steve Beverage, Senior Vice President, Client Advisor in Whittier Trust

As a family's asset base and balance sheet grow, so does the corresponding financial complexity. A number of wealth planning strategies can be employed to accomplish a family's goals, from multi-generational wealth transfer, tax mitigation and liquidity planning for estate taxes to philanthropic and legacy planning. To properly execute these strategies, having the right team in place is critical. A family will need legal counsel to advise upon and draft estate planning documents and a CPA, to ensure an optimized strategy from a taxation standpoint and that filings are done accurately. There is often an investment strategy that needs to be crafted and maintained by a portfolio manager. Sometimes an insurance or philanthropic expert may be needed. It is important to have someone coordinating with a family's team of professionals, effectively serving as the quarterback. When developing and executing a complex strategy, having a trusted advisor at the center of the process can help increase the likelihood of a positive outcome. Here, we highlight a couple of these strategies and the necessary coordination.

A charitable remainder trust (CRT) is an irrevocable trust that provides a payout to a non-charitable beneficiary for a determined term of years (or the life of the grantor), after which the remainder goes to a charitable beneficiary. A philanthropic specialist can help the family choose the desired charitable organizations they would like to benefit and help them decide if a donor advised fund (DAF) is appropriate for their plan. It often makes sense for the donor to fund the trust using highly appreciated assets as the gift because it removes the asset (and its unrealized gain) from the donor's estate, and they receive the extra benefit of a charitable income tax deduction in the year the trust is funded. The portfolio manager can work with the family to identify the most appropriate funding assets. Because the trust is irrevocable, the attorney drafting the trust, the CPA, the portfolio manager and the trusted advisor must be all on the same page as to the funding source, amount, income tax and deductions, as well as the trust's annual payments to the beneficiaries. Without someone coordinating these efforts, there could be unintended—and irreversible—consequences.

Another frequently employed estate planning strategy is an irrevocable life insurance trust (ILIT). The trust typically will own a life insurance policy that is either purchased inside the trust or gifted by a grantor to the trust. At the death of the grantor, the policy pays a death benefit to a named beneficiary. Often, some of the proceeds are used to pay estate taxes that are typically due nine months from the date of death. The primary benefit is that the estate's executor can utilize the life insurance proceeds to pay the estate taxes rather than having to sell assets that may not be as liquid in a short amount of time.

While ILITs can be effective tools for funding estate taxes, they are complex and can contain pitfalls if the proper experts are not in place at the onset of the planning process. The grantor needs to work with an attorney who is very familiar with these vehicles—inexperienced legal counsel and drafting errors can cause serious issues down the road for both the grantors and the beneficiaries. A reputable trustee who is familiar with all the administrative and fiduciary responsibilities that come with ILITs, and who is comfortable with the potential risks and liabilities involved will also need to be selected. The trustee needs to work with an insurance expert to have projected premiums, cash values and death benefits reviewed. It is crucial to analyze existing policies every 2-3 years to determine that the financial health of the insurance company is in good order, whether it is prudent to keep the current policy or obtain a new one, and whether the current amount of premium paid and resulting cash value is sufficient. Without a thorough analysis by an insurance expert, the trustee can run the risk of the policy lapsing. Once again, it can be very beneficial to have a trusted advisor who can quarterback and coordinate the various aspects and experts involved.

The wealth management landscape is constantly evolving, and the tax laws that help inform a family's decisions may also change. Without proper counsel and specific expertise, a family may be led down an unintended path and, sometimes, one that is not reversible. Often an entire team is needed to execute a strategy effectively. It is important to understand that no individual can make a complex wealth planning strategy work by themselves. Having a knowledgeable and trusted advisor at the center of your planning can help a family stay on task, organized and communicative with those critical team members.

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Mar 30th

Whittier Trust Welcomes Dr. Jerrold D. Green to the Board of Directors

Whittier -Jerry Green

Whittier Trust is pleased to announce that Dr. Jerrold D. Green has joined the wealth management company's board of directors. Dr. Green is a renowned scholar and executive with extensive experience in global business and diplomacy.

As President and Chief Executive Officer of the Pacific Council on International Policy in Los Angeles, Dr. Green brings a wealth of knowledge and expertise to the Whittier Trust board. He is also a Research Professor at the University of Southern California’s Annenberg School for Communication and Journalism.

Prior to joining the Pacific Council, Dr. Green was a Partner at Best Associates, a privately held merchant banking firm with global operations, and occupied senior management positions at the RAND Corporation, where he was awarded the RAND Medal for Excellence. He is also a member of the Council on Foreign Relations, the Lincoln Club, the Advisory Board of the Center for Public Diplomacy at the University of Southern California and the Bill Richardson Center for Diplomacy/FBI Hostage Recovery Fusion Cell Influencers Group.

Dr. Green's distinguished career includes serving for eight years as a member of the United States Secretary of the Navy Advisory Panel, where he was awarded the Department of the Navy's Distinguished Civilian Service Award. He has also served on the U.S. Department of State Advisory Committee on International Economic Policy, the Board of Directors of the California Club, and the Board of Falcon Waterfree Technologies. Dr. Green also holds a B.A. (summa cum laude) from the University of Massachusetts/Boston, as well as an M.A. and Ph.D. in Political Science from the University of Chicago.

In addition to his academic and business achievements, Dr. Green has been recognized for his contributions to public service and the international trade community. He is a Reserve Deputy Sheriff with the Los Angeles Sheriff's Department and was accorded the department's Meritorious Service Award. In 2019, he was honored by the Los Angeles Area Chamber of Commerce with its World Trade Week Stanley T. Olafson Bronze Plaque Award, which recognizes “a member of the international trade community whose outstanding dedication, efforts and achievements have advanced trade in the Southern California region.”

"We are thrilled to welcome Dr. Green to the Whittier Trust board of directors," said Whittier Trust President and CEO, David A. Dahl. "His deep expertise in international affairs, public policy and business will be invaluable as we continue to grow and provide the highest level of service to our clients."

Mar 10th

Whittier Trust Announces Retirement of Paul Cantor, Promotion of Nickolaus Momyer

Whittier Trust announces the retirement of Paul Cantor after 13 years of extraordinary service and commitment as Executive Vice President, Client Advisor, and Northwest Regional manager.

Nickolaus Momyer, Senior Vice President and Senior Portfolio Manager with Whittier Trust, will assume the role of Northwest Regional Manager, Senior Vice President, Senior Portfolio Manager.

“Paul’s many years of service have been a gift to us here at Whittier Trust and to our clients. He has been a valuable part of our expansion in the Portland and Seattle markets and a huge reason the Northwest Office was named a Top Five Multifamily Office by the Society of Trust and Estate Practitioners in 2021. We are saddened to see him go and to lose his presence in the office, but we’re also so grateful for what he’s done for our clients.” — David Dahl, Whittier Trust President & CEO

In his new role, Nick Momyer will take over the leadership of Whittier Trust’s Northwest Region. The Seattle and Portland Offices are two of Whittier Trust’s many growing teams and client bases, reflecting a continued effort to connect with individuals and families locally. In his continuing role as a Senior Portfolio Manager, Nick is responsible for helping establish the investment philosophy of the firm. He’s also responsible for the selection of individual securities and appropriate asset allocation ranges for client portfolios.

“Nick Momyer was the clear choice to succeed Paul as Northwest Regional Manager. Nick has a long resume full of great experience behind him, and he’s done exceptional work in focusing on our clients and enhancing the Northwest Team. Nick is deeply embedded in the northwest area through his work as a board member with The Seattle Public Library Foundation and as a member of the Investment Committee at The Mountaineers. His commitment to the local community aligns with Whittier Trust’s vision to make a meaningful and lasting difference in the communities that we do business in,” said Dahl.

 

Mar 9th

Is Becoming a Financial Professional a Good Career Path? Advice From Whittier Trust Wealth Management Advisors

Whittier Trust pros share insights about why a career path in finance can be rewarding—and challenging

Pursuing a career as a finance professional, especially in investment wealth management, can be worthwhile and fulfilling. At Whittier Trust, advisors are the heartbeat of the company, making a career path in finance an opportunity to impact the lives of their clients in a positive way. What are the important skills to cultivate and the steps required for success in this field? Two of Whittier Trust’s client advisors weigh in with some things to consider. 

For a finance professional, even in a high-tech world, human competency still matters. 

Although technology has introduced new methods to manage finances, including online banking, web-based investing platforms and digital wallets, the expertise of a wealth advisor, accountant or financial analyst cannot be substituted by any application. That personal touch and tailored approach is evident at Whittier Trust, where the company maintains a low client to advisor ratio. “The personality traits and skills needed at Whittier include insight and analysis, problem solving, interpersonal skills, confidence, knowledge of digital tools, strategic and analytical skills, adaptability, honesty and strong values, strong leadership skills, industry-specific knowledge and more,” says Whittier Trust SVP and Senior Client Advisor Lauren M. Peterson. She adds that being adaptable and agile to accommodate clients’ varying needs is another lynchpin for success. 

Finding the best careers in finance: a well-rounded skill set primes advisors up for success. 

Cultivating that mix of hard and soft skills is one of the many keys to success for a financial professional. They must be able to evaluate the risks and opportunities of any financial decision and create a detailed plan to accomplish their goals. This includes staying current on industry and economic news, growing relationships with other professionals in the industry and knowing how to execute the agreed upon course of action. 

Finally—and importantly—they must communicate effectively while considering emotional factors that could be in play for a client, Peterson notes. “This career path as a financial professional would not be good for someone who is not numbers savvy, disciplined, able to think strategically and lacks interpersonal skills,” she says.

A client-first approach makes a difference. 

At Whittier Trust, no client request is too big or too small to garner attention from an advisor. “Whittier Trust encourages all employees to exhibit the entrepreneurial spirit that allows us to wear more than one hat within our role for serving clients,” explains Associate Client Advisor Thomas Porter. “That means finding innovative solutions for our clients while carefully considering all factors of a decision in a timely manner. It means being able to clearly communicate to clients or your colleagues, while also being an effective listener who can address and understand what is being communicated.” 

The industry continues to grow, making a career path in finance a bright one. 

Even in an uncertain economy, some industries are on the rise. According to predictions by the U.S. Bureau of Labor Statistics, opportunities in business and finance are expected to increase by 7% from 2021 to 2031, slightly surpassing the average anticipated growth rate for all occupations in the United States. Some of the best careers in finance made the U.S. News and World Report “100 Best Jobs” list in 2023. A financial manager, actuary, accountant and financial analyst all made the list. 

It’s good news, both for the clients who rely on savvy finance professionals and for those strategic thinkers who would choose this career path. “Working in finance becomes rewarding when you realize the impact you can have on others,” Porter says. “Using my background, I can help others make otherwise difficult decisions about their lives to minimize stress allowing for more time doing the things they enjoy with the people they love.”

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Mar 2nd

Investment Management: Steps To Take to Hedge Against A Possible Recession

Concerned about a downturn? Here’s what to do to prepare for a recession 

Internet searches for “2023 recession prediction” are on the rise, indicating people are concerned about the state of the economy and, more specifically, their portfolios. Even with the current volatility—from high inflation to international geopolitical issues leading to a bear market—it’s not all doom and gloom. At Whittier Trust, advisors and financial professionals make it their priority to protect and grow clients’ wealth, through strategic planning and open communication, no matter the economic climate. Here, Whittier Trust Chief Investment Officer Sandip A. Bhagat shares answers to some top-of-mind questions on how to prepare for a possible recession. 

How would you describe the Q1 2023 economic climate? Is there any indication that 2023 recession predictions may be valid?

The calls for a possible recession in 2023 have become almost universal by now. The skeptics point out that growth is already slowing, and the housing market is falling under the weight of higher interest rates. The yield curve has now been inverted for several months where long-term rates are lower than short-term rates, a historic predictor of an impending recession.

Against this gloomy backdrop of economic forecasts, a couple of metrics stand out in sharp contrast. The U.S. job market is strong: more than 500,000 new jobs were added in January 2023, job openings exceed 11 million and the unemployment rate is at a 50-year low at 3.4%. The U.S. consumer has also been resilient on the heels of the strong job market. Consumer spending in 2022, net of inflation, was in line with levels seen in a normal economy. The current strength of the U.S. economy appears to be at odds with a sharp and imminent recession and any 2023 recession prediction. 

What would a possible recession mean for key industries and investment portfolios? 

Recessions generally lead to lower corporate profits. Slowing revenue growth and lower profit margins both exert downward pressure on earnings. Stocks typically decline in the period leading up to and through a portion of the recession. Economically sensitive sectors such as consumer discretionary and financial services typically bear the brunt of the damage.

In the past, bonds have offered welcome relief in terms of diversifying an investment portfolio, as bonds tend to rally as stocks sell off. Unfortunately, bonds have been unable to deliver this benefit in the current cycle for one simple reason: Inflation has been the root cause for a rise in interest rates and any related economic slowdown. Bond portfolios generally perform poorly when inflation and interest rates go higher.

A recession in this backdrop poses even greater challenges to an investment portfolio in the absence of diversification from bonds. Investors discovered few places to hide in 2022 as the prospects of a recession emerged, and 2023 recession predictions gained prominence.

How might advisors recommend clients adjust their portfolios to hedge against a 2023 recession prediction and further economic downturn?

Stock prices generally decline heading into and during the first half of a recession, when investors may be able to buffer portfolio losses through a greater allocation to cash, defensive economic sectors such as consumer staples and healthcare and diversified alternative investments which are less correlated to stocks.

We urge caution in seeking expensive recession hedges at this point. Any possible recession may be short and shallow. The worst damage to the stock market may, therefore, be behind us. There may be meaningful opportunity costs associated with turning ultra-defensive at this point. We instead recommend staying the course with a well-diversified portfolio.

Is it all negative? How can clients capitalize on this sort of economic climate or a possible recession?

We remain more constructive in our economic and market outlook than most industry observers. We point to the massive post-Covid monetary and fiscal stimulus that continues to support the economy and consumer and company balance sheets. The U.S. job market and consumer are remarkably resilient, and corporate earnings have, so far, held up better than in prior slowdowns. Either extreme of taking excessive risk or shunning it entirely may result in a costly mistake. We recommend holding a prudently diversified portfolio of stocks, bonds, cash and alternative investments.

Many are wondering what to do to prepare for a recession. What is your advice in the face of a 2023 recession prediction?  

The inherent strength of the U.S. economy in this cycle may preclude a deep and protracted recession. A lot of the market damage from high inflation and the unfolding economic slowdown may have already taken place in 2022. As a result, we recommend staying the course with a well-diversified portfolio instead of making significant defensive changes.

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Feb 27th

Brian Bissell Inducted into Georgetown Hall of Fame

Wealth management is a crucial aspect of financial planning for high-net-worth families and individuals, and having the right advisor or consultant can make all the difference. Meet Brian Bissell, a top-performing athlete in the sailing world who now provides expert wealth management services as a senior vice president and client advisor for the Whittier Trust Company. Brian Bissell was recently honored by his alma mater, Georgetown University, as an inductee into the Georgetown Athletics Hall of Fame. 

Brian's background in sailing and his success on the national and world stages set the course for his future career in wealth management. He grew up in Newport Beach, California, surrounded by the sailing community, and developed a love for the sport at a young age. He excelled in sailing throughout high school and was heavily recruited by top universities.

Brain ultimately chose Georgetown University for their commitment to the sailing program and the challenge of elevating his performance. In his four years at Georgetown, Brian was a two-time All-America skipper honoree, and named team MVP as a senior. The Georgetown sailing team received its first-ever No. 1 national ranking in the spring of his junior year, and won the team racing national championship in 2001 and placed third in 2002. Brian went on to sail professionally in multiple national competitions in the six years following graduation. 

After graduating from Georgetown's McDonough School of Business with a degree in Marketing, Brian went on to work as a business development manager for the North Sails Group and continued to sail professionally in national and world competitions. He won several national and world championships in J24 and Mumm 30 class races, and was a silver medalist in match racing and team racing national championships.

In 2013, Brian earned an MBA from the University of Southern California and began his career in wealth management with the Whittier Trust Company. As a senior vice president and client advisor, he provides expert private wealth management services to high-net-worth families and individuals. Brian's experience in sailing and his competitive nature have served him well in his new career. He is dedicated to helping his clients achieve their financial goals and providing them with the best possible service.

Outside of work, Brian continues to pursue his passion for sailing and other outdoor activities like surfing, skiing, and mountain biking. He is also a devoted family man and enjoys spending time with his wife and two young children. And of course, he still follows the Hoyas and USC football teams closely.

Brian's dedication to excellence and success as an athlete have translated seamlessly into his career as a wealth management advisor. His expertise and commitment to his clients make him a valuable asset to the Whittier Trust Company and the high-net-worth families and individuals he serves.

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Feb 22nd

How 529 Plans Can Benefit Your Estate Plan

The Gift That Keeps on Giving

A 529 Plan is a savings account for college and, in some cases, K-12 education, depending upon the state plan that is selected. With the cost of college and private schools soaring, creating a 529 Plan for kids to ease that financial burden is a wonderful way to assist family members and friends. 

“For our clients, gifting to 529 Plans serves as a great estate planning tool and offers some unique benefits,” says Alec Gard, client advisor at Whittier Trust. He outlines how below.

The Major Benefits of 529 Plans to Investors

The funds in these savings plans grow tax deferred, similarly to that of IRA’s and 401(k) plans. Yet unlike IRAs and 401Ks, 529 plans have unique funding options, the most advantageous of which is the ‘5-year election’ (often called “superfunding”), which allows you to contribute five years’ worth of the current annual exclusion by prorating the amount contributed over 5 years. The annual exclusion is the amount of money one person may transfer to another as a gift without such gift counting against the lifetime exemption from federal gift and estate tax. The annual exclusion amount for 2023 is $17,000 per individual. 

“For example, in 2023, you could fund a new 529 Plan with $85,000, which is $17,000 times five years of annual exclusion. If you and your spouse both elect to give, then you each can contribute up to $85,000 to that same 529 Plan, thus potentially superfunding it with $170,000 in the first year of being opened,” Gard says.

The funds contributed to the 529 Plan, along with any future growth, will now be out of your estate. If you’re able to superfund vs. gifting one year of annual exclusion, you can put more tax-deferred money to work faster. “You can quickly see the benefits, especially if you have a large family and are inclined to help,” says Gard.

Another option available for individuals is contributing the maximum funding amount allowable for the selected 529 Plan. For example, some state plans allow for a maximum funding amount of $550,000. This means that a husband and wife could elect to give $275,000 each in the first year of funding. This strategy is also very effective; however, it will utilize a portion of each spouse’s lifetime exemption. This is the amount of money each person in the U.S. can exclude from estate and gift taxes. In 2023, the lifetime exemption amount per person is $12.92 million. Each spouse receives the same amount of exemption for a total of $25.84 million. It is important to note that the lifetime exemption amount per individual is scheduled to sunset at the end of 2025. When this happens, the lifetime exemption amount per individual would drop to $5,000,000 (indexed for inflation). There have been no current legislation proposals to keep the current lifetime exemption amounts past 2025, so it appears the plan laid out in the 2017 Tax Cuts and Jobs Act may take effect.

He adds, “Using lifetime exemption is not necessarily a bad thing, especially at these high levels, but if you intend to preserve your exemption for larger future gifts, the ‘5-year election’ may be the better option.” 

How Beneficiaries Benefit from 529 Plans

The first major benefit is that it’s the most flexible savings plan for college, unlike other savings plans that have more restrictions around funding and use. When money is taken out of a 529 Plan to be used for qualified education expenses, such as college tuition, fees, books, equipment and room and board (if enrolled in college at least half-time), the funds are not subject to federal or state taxes. If a 529 Plan allows for K-12 education (not all do), the beneficiary can also withdraw up to $10,000 annually for qualifying expenses.

Each 529 Plan can only have one beneficiary. However, multiple 529 Plans can be opened by different individuals for the same person. For instance, a grandparent and a parent could have opened separate 529 Plans for their grandchild/child over time. It is worth noting that the plans are viewed as combined for funding and use purposes.

“If an individual does not utilize the funds in their 529 Plan, the funds may remain invested and can be used in several other ways,” Gard says. 

As the plan owner, you could elect to change the beneficiary to yourself and use the plan for your own education expenses. Alternatively, the plan owner could name a different beneficiary within his or her family (once the plan is established, it cannot be gifted to anyone outside of the family). 

For instance, if a 529 Plan was opened by a mother to benefit her son, but the son decides not to attend college or goes to college but does not use the full balance of the 529 plan, the mother, as the owner, could name her grandchild as the new beneficiary. There may be generation-skipping tax implications with this change, so it is always best to consult your tax professional for advice.

Common Misconceptions About the Savings Plans

A common misconception is that 529 Plans can only be set up for family members. However, you can contribute funds to a 529 Plan for the benefit of anyone with a valid Social Security Number. 

“This can be another great opportunity if you are feeling generous toward non-family members. You do not have to open the 529 Plan yourself but can coordinate with the person or parents of the person that you would like to benefit and either contribute to the newly established 529 Plan or one that has already been opened,” says Gard.

The Potential Downside to This Financial Investment Strategy

There is a chance that a 529 Plan is created for someone who neither uses it for education (perhaps they don’t go to college) nor has a child who can use it. If funds are withdrawn by the owner and are classified as “non-qualified withdrawals,” the earnings will be assessed state and federal taxes, as well as an additional 10% penalty. 

Disclaimer

It is important to note that rules, maximum contribution limits, investment options as well as fees vary per 529 Plan offered by the state. Most states offer a 529 plan, but to determine the best plan for you and your family, please consult with your financial advisor and tax professional.

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1. Major Benefits to Investors

 

2. How Beneficiaries Benefit

 

3. Common Misconceptions
About the Savings Plans

 

4. The Potential Downside to This Financial Investment
Strategy

 

 

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Feb 14th

Finding the Right Real Estate Investing Partner is Vital

Your family’s real estate portfolio is too important to risk choosing the wrong trustee

Real estate portfolios come in all shapes and sizes. Whether you have a mountain house for family getaways or a variety of income-generating commercial real estate, it’s essential to choose the right trustee to ensure that your real estate investments are effectively managed.

“Real estate is one of the largest asset classes in the world, and high net worth families have been created through the passing down of real estate,” said Timothy McCarthy, managing director of Whittier Trust Company. “It’s too important to leave such a vital part of your family’s portfolio to chance. We always advise our clients to have a business succession plan in place.”

Often, people wait until a life-disrupting event occurs—such as illness or death—to put a plan in place. A rush to choose a course can make it challenging for a trustee to get up to speed or to know the background needed to deftly manage the asset for beneficiaries. That’s why it’s prudent to thoughtfully consider the best plan and to understand the responsibilities a trustee will uphold. Here are five things to keep in mind when appointing a trustee, so you’ll choose the right one for your estate and your goals.

1. Do they have the capacity to navigate tricky interpersonal relationships?

Even in the closest families, having so many personalities in the mix is bound to create some disagreements. Imagine this scenario: the patriarch and matriarch of a tight-knit family buys a vacation home, planning to leave it in their estate for future generations to enjoy. Seems simple enough, right? The once-straightforward arrangement could become more complicated a generation down the line when you may have 10 or 15 people, including grandchildren and children’s spouses, who all have a different vision of how they want to maintain the property. 

“This is just one of the situations that highlights the importance of engaging a professional trustee,” McCarthy explains. “Such a person can act to arbitrate and ensure the property continues to be used in line with your wishes and can mitigate unnecessary strife within the family.”

2. Are they equipped to do what’s best for the future of the property portfolio?

Some people may be reluctant to consider hiring a professional trustee—or a trustee outside the family—because they worry that their family may lose control of the property. Instead, having an impartial, professional trustee helps ensure that decisions surrounding the property will be in the best interest of all beneficiaries. 

“Sometimes one of the beneficiaries may want to pursue a particular course of action, but the other beneficiaries don’t agree. In such instances the trustee will work to understand the business plan to assess how each seemingly small decision will impact the property,”  says McCarthy. The right trustee can add guardrails as heirs consider how each property in a portfolio will evolve over time.

3. Do they have the time and bandwidth to fulfill the trustee duties?

Managing real estate investments is a big responsibility. It requires ongoing maintenance and connections to professionals, including property managers, real estate attorneys and bookkeepers. Does your trustee have the capacity to oversee all such details?

“Some of our clients have spent their whole lives growing their property portfolio. Once they have multiple residential or commercial properties, the process may be instinctual for them. If they know their team and their tenants, it may only take a few hours a week to oversee,” says McCarthy.

But what is turnkey for a long-time owner may not be so simple for a new trustee, even if the trustee is familiar with the business. In these cases, it may be a good idea to consider a professional trustee, who has the expertise and ability to devote the time and attention to your portfolio needs.

4. Does your chosen trustee have a robust network of the necessary professionals readily available?

For those who work in the professional trustee world, it’s not uncommon to see estate property transfers that trigger property tax reassessments. In some high-cost areas, McCarthy and the Whittier Trust team have seen property tax bills balloon from a few thousand dollars to tens of thousands of dollars or higher. “These dramatic property tax increases can have a significant impact on a client’s bottom line,” he says, adding that the right planning and resources can help mitigate such consequences.  

For example, a savvy corporate trustee can guide your beneficiaries through tax law, connect them to relevant real estate and tax attorneys and shape estate planning before an event occurs. A professional trustee is adept at saving your heirs time and money by tapping into the necessary resources to manage and maintain properties. Forethought and planning pay dividends in the long run.

5. Do you have a contingency plan in place if your chosen trustee becomes unable to oversee your real estate holdings?

Choosing a trustee to manage your valuable real estate holdings will impact your estate and your family, likely for generations to come. The magnitude of such a choice illustrates the importance of deciding on the right person or firm and allowing them the time to gain a thorough understanding of your holdings, your family and your wishes long before they are needed. This also offers a chance for your beneficiaries to meet the trustee and understand how they will be overseeing the portfolio.

“We work with all kinds of different families, but there’s a common denominator:  transparency regarding trustee choices and wishes leads to greater unity and harmony down through the generations,” says McCarthy.

When structuring the trustee relationship, it’s smart to engage an estate planning lawyer to ensure that your family retains flexibility over the trustee in some way. For instance, a remove-and-replace clause can allow your heirs to make a change to the trustees if the relationship is no longer working. Regardless, having a professional trustee in place can minimize disruption and lay the groundwork for a smooth transition. 

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1. Choosing the Right Trustee

 

2. Trustee Bandwidth & Connections

 

3. Contingency Plan

 

 

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