Post Topic: Investments

Apr 12th

Want a Tax-Efficient Portfolio? Focus on These 3 Areas

Deploying tax-efficient strategies within an investment portfolio is one of the most critical roles of a financial advisor, especially because many investment managers focus on pretax investment returns. By emphasizing after-tax returns, advisors may better meet the needs of their high-net-worth clients—particularly in high-tax states.

Here are three key areas to focus on to improve after-tax returns:

Think asset location.

Not to be confused with asset allocation, asset location is one of the most effective tactics in maximizing after-tax gains. This means tax-inefficient assets—corporate bonds, private debt, high-turnover strategies—belong in tax-deferred or tax-exempt accounts, compounding tax-free.

For taxable accounts, prioritize tax-efficient options such as low-turnover stock strategies, direct index solutions, low-dividend growth equities, municipal bonds, or preferreds with qualified dividends. Let compounding work its magic in a tax-efficient way. Growth assets should be allocated to accounts for future generations, while income-oriented assets belong in accounts with shorter time horizons.

Emphasize long-term capital gains.

Sometimes the best strategy is patience. Despite the potential for tax law changes ahead, time-tested tax-efficiency strategies will continue to reward high-net-worth families.

The longer assets are held, the more returns compound with minimal tax drag. Let time be your ally and factor in the long-term capital gains advantage. Over time, the difference between realizing or deferring long-term capital gains and avoiding higher short-term capital-gains tax rates will lead to better after-tax results.

Plan ahead for 2025.

Truly strategic planners are already looking ahead to 2025 and beyond when there may be a crucial shift in the lifetime exemption from estate taxes.

The current $13.61 million per person exemption is slated to be effectively cut in half, aligning itself with pre-2017 Tax Cuts and Jobs Act levels (adjusted for inflation) if Congress doesn’t act. The situation facing advisors and clients is similar to that of 2012 when gift tax exemption provisions were set to expire at the end of that year. Proactive measures, including early collaboration with estate planning attorneys, will ensure well-considered decisions and prevent last-minute decisions made under pressure.

Incorporating tax sensitivity into everyday portfolio management, along with proactive planning for potential tax law changes, strengthens the compounding power of client portfolios.

The ever-growing U.S. budget deficit increases the likelihood of tax changes, potentially including a decrease in the estate tax exemption and a rise in the tax rate. By focusing on these three key areas of tax efficiency, advisors can empower their clients to navigate these changes effectively and achieve superior after-tax returns.

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Written by Caleb Silsby, Executive Vice President, Chief Portfolio Manager at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

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Mar 20th

Six Reasons Why Most UHNWIs Choose a Multi-Family Office

Your family office is a point of pride as well as a smart way to manage your business and personal affairs. But you don’t have to have a gold nameplate and command your own staff to reap all of the family-office benefits. In fact, a multi-family office typically offers greater advantages—and ironically, more control—than a single-family office. Here are six ways that a multi-family office gives you more.

Security & Compliance

Infrastructure, cybersecurity, compliance training . . . it’s tedious, it’s frustrating, and if you’re not out in front of it, you're putting yourself at risk. That’s a lot of pressure for your staff and family. At a multi-family office, we have expert teams on top of changing trends, regulations, and demands.

Flexibility to Evolve

It’s a common misconception that a single-family office will better address your family’s unique needs. But how can it, when it means you have to hire staff for each new development in your life? When your time is spent handling payroll, office space, and interpersonal dynamics, you’re left with less control of your life. The multi-family office infrastructure is designed to give you all the flexibility you need without worrying about reducing, reorganizing, or adding to your team. We hold your business and interests together as you evolve.

Trust & Objectivity

How well do you know your staff and trust their commitment to your goals? Are you certain they won’t be swayed by their own interests? Can they safely suggest different points of view, or do they perhaps feel pressure to agree and conform? How do you gauge their loyalty while allowing dissent? By its very nature, the multi-family office has checks and balances against rogue players or people pursuing their own self-interest. We act as fiduciaries, bound to manage your affairs to your greatest benefit, not ours.

Proactive Leadership

Successful executives are problem-solvers and often visionaries as well, always looking down the road for the next big thing and for solutions to potential issues. But a healthy company doesn’t rely on one leader to see everything. The cross-pollination among executives at a multi-family office creates an acutely proactive environment. Staff at a single-family office, on the other hand, tend to be more reactive to their specific set of circumstances, because focusing on that one family’s needs is the efficient thing to do.

Plus, some multi-family offices, such as Whittier Trust, have robust service offerings spanning various departments. Whether you need help launching a family foundation, acquiring or managing real estate, exploring alternative investments, or working through estate planning options to fit your unique needs, it’s all under one umbrella and at our fingertips.  

Privacy & Continuity

By definition, a single-family office should excel at protecting your privacy. But it can be difficult when multiple branches of a family want to keep their affairs separate. Sometimes you may even end up competing for staff loyalty. Your advisors at a multi-family office act as neutral mediators to help prevent these sorts of conflicts and maintain each family member’s interests and privacy. You can rely on that same team to help facilitate succession planning and generational wealth transfer and provide continuity for decades.

Help with Family Dynamics

No matter which type of office you have, family governance is typically led by a powerful patriarch or matriarch. But with a multi-family office team, there’s a counterbalance to that control dynamic. There are other voices suggesting governance structure and helping organize a family council or regular family meetings, ensuring everyone is heard and respected, and that everything can run smoothly.

How to Transition

So what if you currently have a single-family office and want to transition to a multi-family office? It doesn’t have to be complicated. There are natural points in any business for pausing and reassessing, and given how expensive and stressful a single-family office can be, simplicity and cost-effectiveness are always good reasons for a change. 

Let everyone know it’s time for a fresh analysis and audit of operations. Make it clear that during this transition, you will be analyzing risk and cash flow, prioritizing different investments to accommodate family member’s preferences, digitizing documents, etc. Perhaps you will be adding new services as well, such as philanthropic strategy, trust services, real estate, private equity, or direct investment in alternative assets. Because your team at the multi-family office will be accustomed to working with a wide variety of families, you can maintain relationships with existing staff and integrate key players into your new multi-family office.

Why Whittier Trust

Whittier Trust brings your investments, real estate, philanthropy, administrative services, trust services, and more under one roof—without you having to manage it. You maintain control over your portfolio, while your trusted team of advisors ensures that your investments work in concert with your estate plan. You get holistic, personalized, and responsive service with scalable efficiency. And you and your family get your lives back to enjoy.

For those seeking a seamless transition to a multi-family office, Whittier Trust stands out as an optimal choice. By entrusting your affairs to Whittier Trust, you not only maintain control over your portfolio but also gain access to a dedicated team of advisors committed to aligning your investments with your estate plan. Experience the benefits of holistic, personalized, and responsive service, all while enjoying the freedom to focus on what truly matters—your life and your family. Make the switch today and discover the peace of mind that comes with having Whittier Trust by your side.

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Written by Elizabeth M. Anderson, Vice President of Business Development at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

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Mar 7th

5 Estate Planning Priorities for 2024: An Essential Checklist

2024 is in full swing, and the start of a new year is a good reminder to take stock of our lives and plan for the future. Effective estate planning is a crucial aspect and its importance cannot be overstated. A well-thought-out estate plan ensures that your assets are distributed according to your wishes, minimizes tax liabilities, and provides for your loved ones while building your legacy. This estate planning checklist covers five priorities for 2024 that should be on your radar.

Work with your estate planning attorney to review and update your will and trusts

One of the fundamental elements of estate planning is having a valid and up-to-date will. Life is dynamic, and circumstances change, so it's crucial to review your will regularly, especially after significant life events such as marriages, births, or deaths in the family. Engage your trusted estate planning attorney to revisit and update any trusts you may have established. This ensures that your assets are distributed as you intend and that your loved ones are provided for according to your current wishes.

Don’t overlook digital estate planning

In this digital age, our lives are increasingly intertwined with online platforms and digital assets. Make 2024 the year you address your digital estate planning. It’s smart to create a comprehensive list of your digital accounts, including usernames and passwords, and store this information securely offline. If you have photos, documents, and other valuable information stored online, consider tapping a trusted individual to act as your “digital executor” to share your digital assets with your beneficiaries. 

Long-term care planning

As life expectancy increases, planning for long-term care becomes more critical. Evaluate your options for long-term care insurance and make decisions regarding potential care facilities. If you already have long-term care insurance, review your policy to ensure it aligns with your current needs and circumstances. Planning for long-term care can protect your assets and provide financial security for you and your family in the event of extended healthcare needs.

Estate plan tax strategies

Estate taxes can significantly impact the distribution of your assets. In 2024, consider working with a financial advisor or tax professional to explore tax planning strategies that can minimize the tax burden on your estate. This may include gifting strategies, setting up trusts, or taking advantage of any available tax credits. A proactive approach to tax planning can help preserve more of your wealth for your beneficiaries. Some of the key changes to be aware of in 2024 include that the gift tax exclusion amount has increased (last year it was $17,000 per individual and $34,000 per married couple). The new amount in 2024 is $18,000 per individual and $36,000 per married couple. Another update to consider: The Federal Estate and Gift Tax exemption has increased to $13.61 million per individual (double that, at $27.22 million for a married couple). In 2026, the amount is expected to drop down to $7 million per individual, so it’s important to work with your tax expert to strategize about how best to maximize your wealth via tax and estate planning, and the start of a new year is a great time to begin. 

From IRS Rev Proc 2023-34

Healthcare directives and powers of attorney

It’s important to ensure that your healthcare directives and powers of attorney are up to date. These documents designate someone to make medical decisions on your behalf if you are unable to do so. Now is a great time to review your choices for healthcare agents and make sure they are still willing and able to fulfill this responsibility in accordance with your wishes. It’s vital to discuss your wishes regarding care with your chosen healthcare agent, providing them with clear guidance on your preferences. This step can alleviate the burden on your loved ones during difficult times and ensure that your healthcare decisions align with your values.

The new year presents an excellent opportunity to reassess and update your estate plan. By working through this simple estate planning checklist you can boost your peace of mind that everything is in order and help safeguard your legacy, protect your assets, and strategically provide for your loved ones. Take the time to consult with legal and financial professionals to ensure that your estate plan is comprehensive, up to date, and aligned with your current goals and circumstances. Planning for the future is not just for yourself; it's a gift to those you care about most.

If you have any questions about estate planning or how Whittier Trust’s wealth management services can help you navigate maximizing your legacy for future generations, we’re here to help. Start the conversation with an advisor today by visiting our contact page.

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Feb 21st

Post-Sunset Taxation of Entities: Decoding the Changes

Efficient tax planning demands a forward-thinking approach, strategically organizing financial affairs to minimize tax liability. An essential element of this approach is the anticipation and understanding of changes in tax laws over time.

The last major overhaul of the tax code came in 2017 when many tax code provisions were changed or added by the Tax Cuts and Jobs Act, commonly referred to as the TCJA. Most of the TCJA provisions that impact individuals, estates, and pass-through entities will expire or phase out in 2025, an event being referred to as the Great Tax Sunset. However, the TCJA’s biggest change impacting the taxation of C corporations, reducing the corporate tax rate from 35% to 21%, will not sunset. This means that while the highest individual income tax bracket will increase from 37% to 39.6% after 2025, the C corporation tax rate will not change and will remain at 21%. 

The TCJA also introduced the Qualified Business Income deduction, or QBI deduction. This allowed taxpayers to deduct up to 20% of business income from flow-through entities, such as businesses that appear on Schedule C, as well as S corporations and partnerships. The QBI deduction was originally intended to help businesses that were not C corporations compete with the new 21% tax rate for C corporations. The QBI deduction is currently scheduled to be eliminated after 2025. 

While it is impossible to predict what tax legislation will be implemented by a future Congress and POTUS, the sunsetting of QBI, the increase of the highest marginal tax rate for individuals, and the continuation of C corporation tax rate makes choosing the appropriate entity for a small business owner less straightforward than it was before 2017. 

To illustrate, imagine five taxpayers, each owning an equal share of a C corporation doing business in 2017, before the implementation of the TCJA’s modified tax rates. The C corporation has a net income of $1,000,000 and pays 35% income tax, or $350,000. For the sake of simplicity, all remaining income is distributed to the five taxpayers and none of the distribution is considered compensation. The taxpayers pay tax at the highest long-term capital gains tax rate plus net investment income tax on the dividend, or 23.8%. The tax paid by all taxpayers in this example is $504,700, for an overall effective tax rate of 50.47%. 

Compare this to the taxation of an LLC owned and operated by five partners with equal ownership. The LLC has a net income of $1,000,000, pays no income tax, and passes the income to its five partners. For the sake of simplicity, all remaining income distributed to the five partners is subject to the highest marginal individual tax rate of 39.6%, and none of the income is considered compensation. The five partners pay a total of $396,000 in tax for an overall effective tax rate of 39.6%. The basic illustration demonstrates why C corporations were seldom used as an entity of choice by small business owners since one level of taxation is considerably lower than two levels of taxation for C corporations.  

After the TCJA, C corporation taxation became more appealing as the tax rate was lowered from 35% to 21%. Using the same example above, let’s imagine that the same C corporation doing business in 2018 has a net income of $1,000,000 and pays 21% income tax, or $210,000. The remaining net income is distributed to shareholders who then pay tax at the highest long-term capital gains tax rate plus net investment income tax on the dividend, or 23.8%. The total tax paid by all taxpayers in this example is now $398,020, for an overall effective tax rate of 39.8%. That’s a huge improvement for the two levels of tax for C corporations. 

Pass-through owners also had a new advantage under the TCJA with the QBI deduction. As a comparison, the same LLC with a net income of $1,000,000 passes its income to its five partners. Each of the five partners can fully utilize the 20% QBI deduction, which reduces the taxable income from $1,000,000 to $800,000 for all five partners. The five partners pay $296,000 in tax at the highest marginal tax rate for individuals, now lowered to 37%. While C corporation taxation became more appealing, it was still not as appealing as a pass-through entity where individual taxpayers could take a QBI deduction.

However, this is about to change. That same C corporation doing business in 2026, after the Great Tax Sunset will continue to have its $1,000,000 of net income taxed at 21%. Nothing else changes for C corporations in this example, and the total tax paid by all taxpayers is again $398,020, for an overall effective tax rate of 39.8% 

The five partners of that same LLC can no longer take advantage of the QBI deduction, which was eliminated in the Great Tax Sunset. Furthermore, the highest marginal tax rate for individuals increased from 37% to 39.6%. The five partners now pay $396,000 in tax for an overall effective tax rate of 39.6%. Suddenly, pass-throughs no longer have the dominant tax advantage they had a few years before. 

Lastly, one intriguing side-effect of the corporate tax rate reduction was the renewed interest in the Qualified Small Business Stock exclusion, also referred to as the QSBS exclusion. This tax benefit allows C corporation owners to sell stock without incurring capital gains tax after a statutory period. This additional benefit may tip the balance in favor of C corporations for many small business owners. 

Does this mean small business owners should run out and check the box of their LLCs to be treated as C corporations? It is impossible to know what the future holds for tax law changes. While it is not so difficult from a tax perspective to move an LLC treated as a partnership to an LLC treated as a C corporation, it is far more difficult to go back the other way. Nevertheless, if nothing else changes, the analysis of entity choice for small business owners is far more interesting. The Great Tax Sunset will play a significant role in tax planning for several years to come.

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Feb 7th

Are AI and Wealth Management Compatible?

There’s no denying that artificial intelligence is developing quickly—at warp speed, even. In fact, in March 2023, some of the biggest names in technology—including Elon Musk and other professors, researchers, and business leaders—signed a letter asking for a pause for artificial intelligence labs training AI systems out of concern for the dangers such technology may present. Additionally, the United States and the United Kingdom have held high-level summits about AI safety in 2023. 

Even with such concerns about what a proliferation of AI could mean for society as a whole when it comes to AI and wealth management, there’s a place for using tools based on technology. “When you’re looking for a statistical or high-level outcome or solution, it’s helpful,” says Whittier Trust SVP and Senior Portfolio Manager, Teague Sanders, who notes that quantum computers, such as the one built by Google, are approximately 158 million times more powerful than the supercomputers used today. That means that answers—from researching companies that may present investment opportunities to pulling numbers to analyze industry trends—can be at our fingertips more quickly than ever. Savvy client services advisors can leverage such technologies to inform expedient answers, recommendations, and reporting.

Fact-checking: a vital component for the use of AI in wealth management

Large language models (LLMs) are deep databases pre-trained on mind-boggling amounts of information. That’s why ChatGPT Bard, LLaMA, PaLM2, and many more have become popular tools for asking a question and waiting for an (almost instant) answer. While Sanders says that Whittier Trust has subscriptions to some LLMs because they can be useful for summarizing things and finding links and patterns, Whittier Trust team members always thoroughly double-check the results to verify the veracity of the information. Case in point: “There can be ‘hallucinations’ within a dataset,” Sanders explains. “If you ask an AI-driven LLM such as Bard a question like, ‘What was the revenue generated by X business?” and it gives you an answer you don’t think is right, it will re-generate a different response. You have to make sure that, when an LLM does a calculation, it’s analyzing the right thing and using authentic data.” Again, it comes down to focused human oversight. 

AI and LLMs can also be useful for shaking up the thinking on a particular topic, sparking creativity and brainstorming. “If we have a client situation or an investment we’re considering, we might throw six or seven different prompts about a topic into one of the LLMs and just see what comes out,” Sanders explains. “That can be a catalyst for creative thought.” For example, if the team is thinking about an investment, an AI-driven tool can help. “If we’re looking at Mr. Carwash, we might ask the LLM to show us the entire landscape of car washes in the United States or the last six quarters of earnings of car washes in the American Southwest.” Such queries can help frame issues the team is considering, but it won’t be the deciding factor.

Why wealth management AI won’t replace a human touch

Artificial intelligence (AI) is everywhere, it seems, from predictive text in our Google searches and chatbots in customer service to facial recognition when we check in for a flight at the airport. Even though those things and more have become commonplace, there are some areas of our lives where such technology isn’t compatible: namely, the expansive use of AI in wealth management. “Wealth management, specifically, our style of wealth management simply doesn't lend itself to leaning heavily on AI,” says Sanders. “Even with all the advantages and efficiencies AI can bring, when you look at our clients and what we do for them, it’s really about the integration of our complete service offering; specifically our five pillars of expertise [family office, investments, philanthropy, real estate, trust services]. The comprehensive service these areas of expertise bring allows us to provide the personalized and compassionate approach that makes us successful, unique, and powerful for our clients.” The use of AI in wealth management can be valuable in some instances, while simultaneously complementing human expertise and intelligence for even greater results. 

One of the primary ways Whittier Trust serves clients and sets itself apart from other firms is its highly personalized approach to serving the whole person or family. “An AI-driven solution does not exhibit empathy right now, it does not get to know someone’s hopes for family continuity or heart-felt goals for making a difference in a philanthropic endeavor. A computer doesn’t hold someone’s hand as they’re going through a difficult season,” Sanders says. “Those things require a lot of human touch because there's still a lot of emotional involvement when you're trying to come up with a customized, tailored solution for each very complex family.”

 

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Feb 1st

The Magnificent 7 and the Imperfect Index

Despite domestic and geopolitical uncertainty, equity portfolios performed quite well in 2023 as measured by the S&P 500 Index. The market return was largely driven by the seven largest constituents of the S&P 500, also known as the Magnificent Seven. The Magnificent Seven includes: Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. These companies account for over twenty-eight percent of the S&P 500 Index and collectively more than doubled in 2023.  The spectacular returns concentrated in a few names left the average stock returning less than half of the S&P 500 Index overall.  The Magnificent Seven masked the underlying share price weakness of most stocks in the S&P 500 Index.  The concentration of returns and weightings raises the question of whether the S&P 500 Index should be dissected for opportunities and imperfections.

S&P 500 Index

This leads us to our next point in which we discuss the construction of the S&P 500 Index and lessons to learn from the evolution of the index.  The S&P 500 Index is often referred to as a “passive index,” meaning there is not an active manager changing the constituents of the Index on a regular basis.  It may come as a surprise that in any given year there are several changes to the S&P 500 Index.  As companies are acquired, merged, or face challenging times, they must be replaced in the index so there remain exactly 500 companies.  Over the past decade a shocking 189 companies were added to the S&P 500 Index! 

Before we delve into the implications of the 189 additions to the “passive” S&P 500 Index, we should highlight that over 28% of the S&P 500 Index is now in just seven companies, aka the Magnificent Seven.  These seven companies are the largest because of their extraordinary performance over the past 15 years.  The magnificent seven returns (measured in multiples) since the market peak before the Great Financial Crisis (12/31/2007) through the most recent quarter (12/31/2023) are as follows:

  • Apple 32.1x
  • Google (Alphabet) 8.1x
  • Nvidia 63.4x
  • Amazon 32.8x
  • Tesla 156.3x (since IPO in 2010) (1.1x since S&P 500 Index inclusion in 2020)
  • Microsoft 14.5x
  • Meta 12.0x (since IPO in 2012) (6.5x since S&P 500 Index inclusion in 2013)

Usually, we talk about stocks and bonds in percentage terms reserving double digit multiples on investment for only the best Venture Capital hits.  In this case, writing about Apple stock’s 3,113% return (32.1x multiple) if purchased at one of the worst times in history (right before the financial crisis) through today seems absurd.  Thus, we can simply say that an investment in 2007 would today be worth 32.1x as much including dividends (equally absurd you say!).  This is a great reminder of how favorable investing in high quality companies can be over long periods of time.  (Imagine a game table in Las Vegas that gave you a greater than 50% chance of winning each day, a greater than 65% chance of winning over one year and a nearly 100% chance of winning over multiple decades.  You would want to play that game and only that game for as long as you possibly could.)  While the magnificent seven have all returned multiples of investment since 2007, the S&P 500 Index has also returned a handsome 4.5x (347%) return over that time frame. 

The 189 additions to the S&P 500 Index

Now back to the 189 companies that were added to the S&P 500 Index in the last decade. The 189 additions have been selected by a committee known as the S&P Dow Jones Indices Index Committee (within S&P Global).1  These additions have to be disclosed before they are added to the index.  Thus, the average of those 189 stocks saw a bump immediately before they were added to the S&P 500 Index.  On average, those 189 stocks returned 11% over the three month period prior to the announcement date.  As more and more investors allocate a portion of their portfolio to index funds, the newly added stocks see more and more demand for their shares ahead of being included in the index.  According to the Investment Company Institute, midway through 2023 there were over $6.3 trillion dollars invested in S&P 500 Index funds in the United States.  As a company is added to the S&P 500 Index there is significant buying power behind that addition.  

Magnificent Seven

The Magnificent Seven stock price appreciation in 2023 reflects their strong fundamentals.  These seven companies generally have high margins, low input costs, strong balance sheets, and no unionized labor.  Conveniently avoiding the major pitfalls of 2023.  Perhaps more importantly, the strong performance from the top seven companies and the outsized weightings of those companies, obfuscates the weakness of the other 493 stocks that are on average still down from the beginning of 2022.  After two years of negative returns for the majority of the stocks in the index, perhaps there are some bargains out there for long-term investors.

Conclusion

We can draw a number of conclusions from the above analysis:  

  1. The S&P 500 Index returns over the next few years will be heavily dependent on the Magnificent Seven. Fortunately, the majority of the Magnificent Seven have low debt levels, high profit margins, low labor expense relative to revenue, and are cash generative (higher interest rates may boost earnings).  
  2. The imperfect index will continue to evolve and change despite the passive moniker.  
  3. Being attentive to potential index inclusions will be ever more important as the size of assets invested in the index grows faster than the index itself.
  4. 2023 market returns have been skewed by the Magnificent Seven leaving potential bargains beneath the surface.  
  5. Finally, investing in high quality companies may pose risks in the near term, but continues to look favorable over extended periods of time.

 

Endnotes:

      Source:  S&P Global
      Source:  Bloomberg Intelligence
      Source:  Investment Company Institute

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Jan 11th

How Philanthropy Unites a Family

Giving together can create a lasting bond.

“Philanthropy has the power to bring a family together,” says Pegine Grayson. “It can be life-changing, not just in its impact on a community, but also its impact on the donors.”

Invitation to Share

As Director of Whittier Trust's Philanthropic Services department, Grayson and her team help high-net-worth families meet their charitable goals, but the personal rewards for families are sometimes among the most meaningful outcomes.

Grayson recounts the time she helped plan a family retreat with the goal of getting three young adult children involved in the family foundation. While the two sons were enthusiastic, the daughter had been largely estranged from the family and only reluctantly agreed to attend.

“About an hour into the retreat, we asked the father to talk about why he wanted a foundation—what happened in his life that made him want to use his wealth in this way,” Grayson recalls. “He began talking about his reasons for joining the military decades ago, the experiences he had during his service that left a lasting impression on him, his own experiences as a veteran, and why he cares so deeply about helping fellow vets. As his story unfolded, he broke down and cried. The kids were stunned. They had never heard this story. After so many years, they finally had a key to begin to understand what their father was about.”

The father's vulnerability created a major shift in the room, Grayson says, which transitioned to asking each of them about their own lives and areas where they'd like to have an impact. Although no one's causes were the same, there were no wrong answers, and everyone was truly listening and hearing each other. “By the end, the kids realized that it's not always going to be the dad show; it can be the family show,” Grayson concludes. “And they've all been active in the family foundation since, including the daughter.”

The School of Philanthropy

Because the work of Philanthropy is steeped in personal values, it's an ideal vehicle for a family to talk about what has shaped them as individuals and what it means to them to align their wealth and values. Philanthropic pursuits open the door for a family to work together as a team on projects or initiatives that will benefit others outside of the family unit. Grayson discusses her top five:

1) Values and succession

As a parent, you don't want wealth to undermine your children's initiative and drive for success. You want them to be equipped with the tools and values they need for a good life. Philanthropy provides that foundation, prompting discussions of family members' backgrounds and beliefs and helping everyone embrace family history and carry forward important values.

2) Life skills 

Even once you have settled on a charitable mission, it can be surprisingly challenging to select grantees, develop a decision-making process, decide the type of impact you want to have and how to evaluate it, etc. Making these decisions as a family provides a rich learning environment, as members research the causes they care about and learn how to communicate respectfully, make persuasive arguments, appreciate other perspectives, and compromise. You also have to learn how to represent your family effectively in the community so that every encounter leaves people, grantees, organizations, and other philanthropists with a positive impression. 

3) Financial literacy

By tending to the business of the foundation, family members learn about investments, financial planning, budgeting, market fluctuations, and other financial management practices, including how to calculate the 5% required distribution for private foundations.

4) Resolving ambivalence 

It's not uncommon for family members to have a love-hate relationship with the family's wealth, particularly for those who didn't earn the money themselves. Sometimes, there are expectations of achievement; sometimes, politics and unconscious messages of distrust. But coming together to decide how to use the wealth for good can serve as a pressure relief valve for some of those issues and get family members rowing in the same direction as they focus on the positive impact they can have on issues they care about.

5) Togetherness

With families spread all over the country, or even the world, philanthropy can keep you united around a common purpose and provide an impetus to physically come together, visit grantees, see your work in the community, and then talk about what you've seen.

Strategy for Family Continuity

“One longtime Whittier client had a situation that demonstrated all five of these benefits,” Grayson says. 

The origin of the family's wealth went back many generations, and as the family branched out, they created a variety of foundations. By the fourth generation, everyone had their own separate interests, and they were no longer collaborating. 

“We saw a way to bring everyone back together,” Grayson explains. “For the fifth generation, we had the idea to create a junior board to start talking about seamless succession planning for the family foundations, identifying promising charities, and learning about making grants. So, we formed a group of cousins and started to educate them on the responsibilities of being a board member of a foundation and the legal and tax constraints in which they operate. We focused on fundamental activities such as researching grantees, making site visits, and budgeting. As the training sessions progressed, the cousins wanted to know more. Some of the questions that came up were, While we're talking about philanthropy, can we also talk about why my parents set up a trust, what it means, and what are the differences between stocks and bonds and other investments? They were hungry for knowledge.

“As the group started to learn together, they started respecting each other. That has led to even deeper relationships over time. They're all still very close and doing collaborative grant-making across branches of the family. Every other year, they have a ‘G5’ retreat in person, and they plan it themselves!” Grayson says. “Philanthropy created those relationships. That fifth generation got to know each other in a way that never would have happened without the common bond of using the family's wealth for good. It's the best feeling to be able to help facilitate that.”

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Dec 5th

Federal Tax Updates

On November 9, the IRS released its annual inflation adjustments for tax year 2024 covering updates to more than 63 tax provisions. The 2024 adjustments will affect tax returns filed in 2025.

On December 31, 2025, a significant amount of the individual tax provisions passed under the 2017 Tax Cuts and Jobs Act (“TCJA”) will sunset, including: the TCJA’s lower tax rates, the 60% AGI threshold for cash gifts, the doubling of the Unified Gift and Estate Tax Credit, the elimination of the $10,000 state and local tax cap, the return of the 2% miscellaneous tax deduction, and more. Whittier Trust’s Tax Department can assist with modeling these upcoming changes.

2023 tax year filings are due in 2024; certain tax due dates fall on a weekend or holiday. A list of 2024 federal tax due dates can be found available for download in the attached PDF.

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Nov 20th

Providing for Pets in Your Estate Plan

In 2022, the United Kingdom’s Queen Elizabeth passed away at 96 years old, leaving behind four beloved dogs, Candy, Lissy, Sandy and Muick. The Queen, famous for being a dog lover, worried about the fate of her pets and planned ahead for her children and staff to adopt them after her death. Ultimately, it was a happy outcome for the royal pooches. 

Many of us can relate to pets feeling like full-fledged family members. In fact, according to the American Veterinary Medical Association, in the United States, 85% of dog owners and 76% of cat owners consider their pets to be a member of the family. Those numbers are huge since, according to the American Pet Products Association, as of 2023, 66% of U.S. households have at least one pet. Still, the overwhelming majority of pet owners neglect to plan for their animals in their estate plans (Everplans reports that only 9% of people with wills include provisions for their cats, dogs, or exotic birds). 

More and more Whittier Trust clients have questions about how best to provide for their fur babies and feathered friends. Whittier Trust Senior Vice President and Director of Philanthropic Services Pegine Grayson sat down with Christine Chacon, a partner at Best Best & Krieger LLP. Chacon has extensive estate planning experience in the areas of trusts for individuals and pets, wills, powers of attorney and healthcare directives.

Pegine Grayson: Why do you believe it’s important for people of means to engage in advance planning for their pets?

Christine Chacon: Our pets are like family members. And despite their shorter life expectancy, it’s actually very common for pets to outlive their owners. Most of us can’t imagine a scenario in which our beloved animals are just dropped off at the nearest shelter with no idea how they would fare. Even if you have a family caregiver in mind, pets are expensive and most of us don’t expect others to have to shoulder the costs of caring for our pets into the future.

Pegine Grayson: That makes sense. What can we do to ensure the best outcome for our pets after we’re gone?

Christine Chacon: I usually begin by asking my clients whether or not they have a successor caregiver—a family member, friend or a neighbor—in mind. Their options will be different depending on how they answer.

Pegine Grayson: Then let’s take those one at a time. What are the options for people who do have a specific caregiver in mind for their pets?

Christine Chacon: First, make sure they know of your intention and agree to serve in this capacity. Consider naming a second person in case something happens to the first one or they become unable or unwilling to serve. The next step is to craft a letter with instructions to guide them (the pet’s medical history, medical conditions, vet contact, special dietary restrictions, habits, etc.). In short, these are tips for success. Finally, ensure your chosen caregiver will have enough resources to care for your pet in the way that you would want them to. This can be accomplished as a simple, outright bequest to the caregiver for this purpose or by arranging a pet trust. The best option depends on the pet owner’s assets, other chosen beneficiaries and circumstances.

Pegine Grayson: Let’s discuss the bequest first. That sounds easier than establishing a trust. Why not just opt for this solution?

Christine Chacon:  It’s a simpler option, but it may not provide sufficient protection under some circumstances. For example, what if your chosen caregiver falls ill or passes before your pet does? What if he or she turns out to be less financially responsible than you had assumed and squanders the money you leave them on a new car? I always advise my clients to hope for the best outcome but plan for the worst one.

Pegine Grayson: So it sounds like a trust structure would be safer, but is that possible for pets?

Christine Chacon: Absolutely! Many states have provisions in their Probate Codes for this type of structure. For example, in California, it is found in Section 15212. You’ll want to engage an attorney who is experienced in setting up these special trusts. Typically, people name the same personal or professional trustee that they have in place for their other trusts and specify that distributions can be made for all expenses reasonably necessary for the pet’s care. The trustee would be obligated to invest the funds prudently, so they may grow over time. The trust would stay in place even if the caregiver ends up changing over time.  Finally, you’ll need to decide what happens to any fund balance remaining upon the pet’s death. Most people designate a trusted animal shelter to receive the residue.  

Pegine Grayson: How does one determine the right amount of money to put into the trust?

Christine Chacon: I suggest you make a list of your typical monthly expenses (food, grooming, vet bills, walking, toys, medications, etc.) as well as the annual ones (dental cleanings, boarding for vacations, even plane tickets) and come up with an average annual amount. We can specify varying amounts to be transferred to the trust upon the owner’s death, depending on the age of the animal at the time of the owner’s death.

Pegine Grayson: OK, you’ve been talking about the situations where the pet owner has a specific caregiver in mind. What if they don’t have anyone willing or able to step in and take the pet?

Christine Chacon: In that case, most of my clients still opt to establish a trust with a professional trustee and name a trusted animal shelter or other appropriate nonprofit as the beneficiary. For dogs and cats, a local shelter is typical. For horses, they’ll need to find a ranch or stables willing to board them for the remainder of the animal’s life. It’s important to reach out to the organizational beneficiary in advance and get their consent to the arrangement. It would be tragic to make plans that you thought were iron-clad only to have the organization say that they’re not willing to take the animal in. The trust instrument will provide that if the pet is adopted, the organization may retain the funds as a charitable contribution.

Pegine Grayson: Can you share a story of a pet trust you established and how it worked out?

Christine Chacon: I counseled a Trustee through the administration of a pet trust which just ended a few years ago. The decedent left a large portion of her estate in trust for the benefit of her dog. Her dog was young when she died, so the trust lasted for the dog’s lifetime. A friend cared for the dog, and a professional licensed fiduciary managed the trust account. The dog was very well cared for, from grooming to boarding, supplies, food, equipment and anything else you can imagine. When the dog died of old age, the balance of the trust fund was given to a local pet organization. It was a lovely arrangement, because the dog’s life continued as her owner would have liked, and a charity was benefited as well. 

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Nov 16th

Peace on Earth and Goodwill Toward Family

The holidays are a time to be together: Here’s how to ensure family harmony

For many, the holidays are the only time of year when the entire family gets together. From January to October, family dynamics may be easily avoided, but November and December usher in the season of togetherness as well as expectation. Studies show that roughly half of all Americans have increased stress during the Thanksgiving to New Year’s timeframe as they anticipate the minefield of family interactions around planning, travel, food, and gift-giving, combined with conflicts over the most common topics of politics, religion, and money.  

“The strains of family dynamics can be exacerbated by wealth,” notes Whittier Trust Senior Vice President and Client Advisor Brian G. Bissell. “Shared family assets, vacation homes, gift expectations, sibling rivalry, and family business affairs all add complexity and can lead to lingering issues. Addressing these issues and working toward family harmony throughout the year is imperative if the goal is to have a drama-free holiday gathering.”

Bissell recommends a few top tips for holiday family harmony: 

  • Try to have regular family communication throughout the year, especially if you have shared assets or an operating family business. Allow the holidays to be a time where you just enjoy each other’s company rather than talk business. Create opportunities for all family members to express their opinions, concerns, and aggravations separate from holiday gatherings.
  • Respect each individual’s personal version of success and happiness. Everyone is on their own life path and will achieve different levels of financial success. The banker may obtain a higher salary than the artist, though the artist may live a more creative life. Envy and rivalries can only be resolved if both parties put in the work. Parents can help by making sure everyone’s accomplishments are celebrated. Being fair in the amount of praise given can be just as important as fairness in the distribution of financial gifts.
  • If alcohol is prevalent at your family gatherings, it’s extra important to set boundaries. Stress that family Thanksgiving, Christmas, and other celebrations are a time to enjoy each other, not a time for weighty topics. And prepare for intervention if necessary. Plan ahead for what you might need to say or do to defuse a conversation that is headed to the abyss. 
  • Model good behavior. Even in the trickiest family interactions, you should maintain your own high standards. Practice compassion, open-mindedness, understanding, and active listening.   

One of the advantages of family wealth is the opportunity for outside assistance in managing family dynamics. If financial issues are regularly fueling the discontent, families should consider hiring an experienced third-party wealth manager who specializes in working through family dynamics to help keep the peace and build trust with all stakeholders. 

“By engaging the services of wealth management offices that prioritize objectivity and open communication, families can navigate the complexities of wealth and financial matters, ensuring that the holiday season is truly a time to be together in harmony,” Bissell says. Through his work at Whittier Trust, he has seen firsthand the value of three key steps families can take:  

  1. Form a family office to include a non-family wealth management team of advisors. These independent, impartial advisors can manage family estate planning and wealth transfer and deliver sensitive family communications. An advisor also serves as a mediator or unbiased perspective to help resolve conflicts among family members and foster long-term family unity. 
  2. Build a strong foundation of family identity and shared values. Work together to articulate shared goals, philanthropic objectives, and a family mission statement. An advisor can help you establish guidelines for communication, compassion, and conflict resolution.
  3. Design a family governance plan that ensures everyone understands how decisions are made about family financial, legal, and personal matters. The structure of the plan might include agreed-upon principles, conditions, and methods of communication. The family office team of advisors will guide you in creating, implementing, and monitoring the plan.

“Family Thanksgiving and the holidays in general are an opportunity to express your thanks for all that family means to you and strengthen family bonds,” Bissell says. “Families are the most enduring relationships of your life, and it’s worth the investment of time and energy to create family harmony.” After all, what better holiday gift could you ask for?

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