Post Topic: Investments

Jun 13th

Making the Puzzle Fit: Aligning Your Concerns with Your Investment Timeline

Asset allocation is widely regarded as the single most important factor driving portfolio returns. It is grounded in financial theory and historical data but also incorporates the individual circumstances and risk tolerance of each investor. In essence, it is mostly science but does incorporate some art.

Time horizon is one of the most fundamental considerations in determining appropriate asset allocation. Investors with a longer time horizon are better equipped to withstand market downturns and recover from short-term losses. This allows them to invest in asset classes that offer greater long-term returns in exchange for certain risk factors such as interest rates sensitivity, relative illiquidity, and volatility.

Many clients at Whittier, due to their multi-generational level of wealth, inherently have long-term investment horizons. Simultaneously, the Whittier investment team is a proponent of U.S.-listed public equities for their returns, inflation protection, tax efficiency, and liquidity. The combination of our clients’ circumstances and our own investment preferences means that public equities have considerable weight within our growth-oriented investment accounts.

Still, due to their volatility over shorter intervals and their unparalleled price discovery, stocks can inherently invite concern and shift an investor’s attention away from their long-term goals. When it comes to stocks, media outlets, pundits, and even our social networks produce reasons for us to madly switch between euphoria and capitulation. Stock market-driven anxiety becomes particularly acute during bear markets. The more volatile the market is, the more immediate and narrow one’s investment perspective seemingly becomes. 

Daily news and near-term market developments can be fascinating topics, but they are not particularly relevant to someone with a long-term investment horizon. Even the most seasoned investment professionals need to regularly align their concerns with their investment timeline. To do that, there are a series of helpful questions that should be asked on a regular basis:

Over the course of your investment timeline, we’ll ask:  

  • Do you think that GDP will be higher or lower than it is now?
  • Do you think that consumer prices will be higher or lower?
  • Do you think that corporate profits will be higher or lower?
  • Do you think that stocks will be higher or lower?

This list of questions could be longer but the point is obvious. If you are an investor with an intermediate to long-term time horizon then the answer to each of these questions is “higher.” Here are a few facts to prove it:

  • Over the last 100 years, there hasn’t been a single 10-year period where GDP declined.  
  • Over the last 100 years, the U.S. Consumer Price Index has been higher 10 years later 93% of the time.
  • Over the last 100 years, U.S. housing prices increased 97% of the time.
  • In all rolling 10-year periods over the last 100 years, the S&P 500 has delivered positive total returns 95% of the time. It only failed to do so following the Great Depression and the Great Financial Crisis.

Whittier’s investment team goes to great lengths to alleviate the anxiety that stock market volatility can create. We utilize our experience and your input to understand your risk tolerance. We match the duration of your portfolio and your goals. We ensure that our clients’ liquidity needs are comfortably reserved with an appropriate margin of safety. We will be there to answer your questions, address your concerns, and share our best thoughts in any market environment.  

Finally, and perhaps most importantly, we know that asset allocation isn’t static. It evolves through time. As your investment time horizon, liquidity needs, and risk tolerance change, we will adapt accordingly. 

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Written by David R. Ronco, CFA, Senior Vice President, Senior 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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Jun 11th

Why Use a Corporate Trustee?

An expert third party can help create efficiency and avoid conflict.

For many families, it makes sense to consider a corporate trustee, which is a company that acts as the trustee of a trust (rather than a family member or friend). I was a practicing estate planning attorney for 15 years before moving into the family office space. At the time, my bias was not to recommend a corporate trustee. I thought in most cases it was an unnecessary expense for a family. But over the years in practice, I witnessed enough conflict within personal relationships related to trusts to change my tune. In most cases now, I truly believe a corporate trustee is a preferred choice over a family member.

To begin with, a corporate trustee does not age out or lose capacity. I had a situation last year where a family member trustee called me to request a distribution, and of course, I took direction from her and made the distribution. Two days later, the same family trustee called again and asked me to make the same distribution. I scratched my head, thinking maybe our conversation slipped her mind and told her we had already taken care of this. She insisted we had not, and I came to realize she did not remember our call from two days before.

It’s a tough situation when a trustee starts to lose capacity. Most trusts include provisions for the appointment of a successor trustee, but going through the process of determining whether a trustee has reached the threshold for incapacity can be challenging. And who is the right person to initiate and see through this process? This alone can lead to tension between the trustee and the family member who is trying to make the determination. Even with the best of intentions, a matriarch/patriarch trustee can end up feeling hurt and offended.

Another factor to consider is undue influence on a trustee. I am dealing with a situation now where the family matriarch (mom) passed away, so the patriarch (dad) is serving as the sole trustee. Dad’s health is declining, so his children hired round-the-clock help for him in his home. I received a panicked call from one of the children telling me that one of the caregivers had moved in with Dad, changed the locks, and told the kids they were no longer welcome to visit. Soon after, the family patriarch funded an education trust for the caregiver’s grandchildren. Is the caregiver unduly influencing Dad by keeping his children away and isolating him, while he is in declining health and completely reliant on her help for his basic needs? Or is this his choice?

This leads to the main reason for appointing a corporate trustee: to preserve healthy family relationships. Any of the scenarios I just mentioned could put incredible strain on a family. A corporate trustee does not have an emotional attachment that can compromise decision-making. I have a situation now where parents have passed away and left their estate to three adult children. One of the assets of the estate is a strip mall in Los Angeles that was purchased by the grandparents. The property is a disaster with multiple issues. It would require a massive influx of capital to fix the property. It is clearly in the kids’ best interest to sell the property, and a potential buyer has made a good offer. However, one of the kids feels that this property connects her to the grandparents and does not want to sell. She has an emotional connection that her siblings do not share, and she has the power to deny the sale as successor trustee of her parents’ trust. It is creating conflict between her and her siblings at a time when all three are grieving the loss of their parents. If this situation were managed by a corporate trustee, a decision would have been made taking into account all the stakeholders, and any anger about such a decision would not be directed toward a family member.

Probably the main factor that makes a corporate trustee a good choice is that trustees carry liability—and who wants to saddle a family member with that? A trustee is liable to current beneficiaries as well as to all remainder beneficiaries. Even with the best of intentions, most lay people serving as trustees do not know the laws pertaining to a trustee’s obligations, duties to beneficiaries, tax filings, notices, accounting, interpreting discretionary provisions, and other complicated matters. I had a client who was the trustee of a family trust, and his children sued him for making a discretionary principal distribution that they argued prioritized the current beneficiary over the remainder beneficiaries. They ended up settling and appointing a corporate trustee, but the damage to the family was done.

Every situation is different and every family dynamic is different. But having done this work long enough, I know that the financial cost of a corporate trustee is negligent compared to the possible loss of family harmony. 

To learn more about corporate trustees or Whittier Trust's estate planning and trust services, we invite you to speak with one of our wealth management advisors by visiting our contact page.

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Written by Sharon R. Perlin, JD, Senior Vice President, Client Advisor at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

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Jun 6th

Raising Financially Resilient Kids

The Importance of Developing Financial Literacy and Generosity in The Next Generation:

Every family is unique, but virtually all parents hope their children will grow up to be confident, self-sustaining, and happy as contributing members of society. Families of significant means face unique challenges in this arena, however, because the same wealth that affords them educational, vocational, and recreational opportunities has the potential to undermine achievement in their children. 

A study in the Journal of Youth and Adolescence found that, as wealth increases, the pressure for children to succeed amplifies. Some might dismiss these children as entitled or ungrateful, but there is scientific evidence of a link between the adversities these children could face if wealth isn’t framed and addressed properly. They are at a higher risk of anxiety and depression, and they might struggle with their identities and finding purpose in life. 

A good emotional foundation in addition to a financial one can help tremendously. “Ensuring that a family’s wealth has a positive, rather than negative, impact on kids requires intentionality and thoughtful communication,” says Pegine Grayson, Director of Philanthropic Services at Whittier Trust. “Beginning with our roots as a single-family office nearly 90 years ago, we have been working closely with high-net-worth families and we’ve seen that the key here is to focus on fostering children’s individuality, resilience, financial fitness, and philanthropic activities and values.”

Individuality

One of the key ways to help children of wealthy parents overcome potential challenges is to encourage their individuality and help them envision what success looks like on their own terms, rather than their family’s. By promoting a child’s interests and passions, parents and grandparents can guide a child to rely on their inner compass rather than external validation and alleviate the pressure to live up to others’ expectations of them.  

“A child’s creative or intellectual pursuits can be nurtured in tandem with information about the family and its financial position,” says Grayson. “It doesn’t have to be one or the other. By showing an interest in a child’s world, parents and grandparents can build up trust that can lead to deeper, more authentic connections. Many are thrilled when a child’s internal compass points them in the direction of upholding the family’s financial success, but to have it stem from a child’s true intent and wishes is much sweeter than if it comes down as an edict or external pressure to conform to a certain model.” 

Financially fit children learn to embrace from an early age that two things can be true—they can be part of a financial legacy and be successful in their own right. Parents may envision their children succeeding them in the family business, but wise ones realize that long-term outcomes are better for all involved if their children choose that path for themselves. And if they don’t choose it, everyone will be better off with a new succession plan in place.   

Raising Resilient Kids

Parents’ natural tendency is to want to protect their kids from pain, but too much coddling deprives them of the opportunity to discover their own courage as well as limits. The Whittier Trust Philanthropy Services team encourages clients to model patience and tenacity for their children and openly share stories about their failures and how they bounced back from them. Emphasize that the goal is not to avoid mistakes; we’re human and erring is inevitable. 

Grayson knows this firsthand. “My mom used to tell me, ‘I can protect you from many things, but one thing I won’t do is save you from the logical consequences of your own actions,’” says Grayson. “I learned important lessons from that philosophy, and also from watching my parents conduct themselves in the community as I grew up.” 

The goal is to own our mistakes, apologize when necessary, and take steps to avoid the same ones in the future. Children who learn to treat mistakes and failures as opportunities for improvement will use those skills for the rest of their lives. They’ll learn how to take calculated risks with the confidence that, if they fail, they have the skills and competence to try something new, without expecting others to bail them out. 

Financial Fitness

Members of the Silent and Baby Boomer generations were often taught that talking about money is unseemly, and that orientation can be magnified when it comes to raising their children and grandchildren. Many clients tell us they don’t want to burden their kids with information they may not be ready to understand. 

However, by the time kids are in middle school, they’re usually aware that their family is wealthy. What they lack is the wisdom and perspective to make sense of generational wealth, which can make life with peers difficult if not handled correctly. “We encourage clients to begin discussing financial matters in age-appropriate ways once children are old enough to notice disparities between their situation and that of other families,” says Grayson. “This doesn’t mean you should share a detailed balance sheet or even include any numbers. But it’s important to talk about where the family wealth came from, how the family uses it wisely to add value to their lives and communities, and how financial decisions about saving, spending and sharing are made.” 

Come up with a strategy to give children age-appropriate ways to practice financial resilience and literacy. For example, rather than giving allowances to reward good behavior or as payment for household chores (which should be done just because it’s what family members do), instead use those funds intentionally as a tool to teach budgeting skills. 

Share an Ethos for Giving Back

“Wealthy parents often focus primarily on passing on their assets to their children, which of course is important,” Grayson observes. “In our experience, though, the most successful intergenerational families pay just as much attention to passing on the values and skills that will equip their children to be good stewards of those assets and thriving adults in their own right.” 

“When clients ask us to help them ‘save their kids from their wealth’,” Grayson notes, “invariably, we recommend establishing a foundation or donor-advised fund to get kids actively involved in the family’s philanthropic endeavors to understand early on how money can be used.” By participating in the family’s philanthropy, kids develop a spirit of generosity and feel proud of their family’s legacy. They also learn important life skills such as investment strategies, budgeting, research, humility, respectful listening, and communication, and they experience the joy that comes from making a positive impact on someone else’s life. This strategy also helps keep the family united in a common purpose, even as kids grow up and move away.

Our advice: Help kids make sense of the family’s wealth and become good stewards of what they stand to inherit by being overt about how the family aligns its wealth and values. Talking about what matters most to you and the positive changes you want to see in the world, encouraging your kids to do the same, and then deploying some of the family wealth to promote those changes through charitable giving is incredibly empowering for kids. 

To learn more about navigating wealth and family dynamics or how Whittier Trust's philanthropic services can help your family with financial literacy to protect and grow your legacy, we invite you to speak with one of our wealth management advisors by visiting our contact page.

 

 

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May 31st

Six Best Practices to Keep Your Business Sale-Ready

How hot is your company? Would you give it a solid 10 out of 10? What rating would others give it? Even if selling your company is the furthest thing from your mind, assessing its attractiveness and saleability should be a regular priority—a way to make sure you’re optimizing your resources and your balance sheet.

As the owner, you may be too close to the business to be fully objective. An outside perspective from a partner like Whittier Trust can help ensure your company is operating at peak performance and is set up to continue doing so, with or without you. Clients who have the most successful sales start thinking about the steps early and create a vision for their ideal transition out of the business. Whittier works with you through the process, in collaboration with trusted consultants. At the same time, we address your personal goals, from day-to-day concerns like cash flow needs to big-picture items, such as what sort of legacy you hope to leave. 

If you want to rest assured that your business is ready for sale or transition at any time, here are six best practices recommended by Whittier Trust’s exit planning team. Working through each of these items will boost your company’s value, giving you the strongest possible position when it comes time to negotiate.

1. Make sure your company can thrive without you.

It’s likely that your particular skills and personality have played a large role in your company’s success. That’s why this is often the hardest step. It’s vital to make sure key associates can ensure continuity across all aspects of the business, including customer and vendor relationships, your brand, and your company culture. And that those staff members will stay with the organization if it is sold or you leave.

2. Get your house in order.

Your business systems, processes, and facilities are a significant part of your value, so it’s time to delve into details you may have trusted others to handle for years. You’ll want to be sure no systems are out of date, no short-term fixes are masking underlying problems, and no areas of risk are making you vulnerable. You may be able to identify underutilized aspects of the business where you could gain some profit or advantages. And you need to be confident staff are trained and productive, with built-in redundancies. Ask yourself: What will a prospective buyer see if they look under the hood?

3. Audit yourself.

Your accountants should be able to assure you that your financials are in auditable shape, but a true due diligence audit goes far beyond income statements and balance sheets. Contracts, licensing, insurance, intellectual property, legal actions, capital structure, and outstanding debt all need to be scrutinized, resolved or finalized, and clearly documented. 

4. Remember that timing is everything.

There’s a lot of lead time required for company transitions, and you want to be ready when the market is strong and conditions are right for a merger, sale, or other major change. So the time to start talking with consultants about improvements is now. Investing in the business today will pay off in a more valuable company tomorrow. 

5. Don’t shy away from the personal.

It’s your family business, so every decision has implications for your personal wealth and well-being. Have you thought through your post-sale goals? Do you know how changes will affect your immediate family as well as extended family involved in the business? Do you have an estate plan, financial plan, and philanthropic and tax objectives? It’s easy to think that personal matters can wait until later, but a holistic approach will decrease stress for you and your family, and a partner like Whittier Trust can tackle both business and personal objectives at the same time. 

6. Mark your calendar to “repeat” automatically.

Unfortunately, this assessment process is not a one-and-done. Neither your business nor your personal life are completely predictable, so you’ll need to re-evaluate next year (assuming you haven’t sold the business by then). Being prepared for the unexpected is always good business.

In addition to helping you realize the highest value from the sale of a business, Whittier Trust is also committed to you and your family for life after the sale. As the oldest multifamily office headquartered in the West, we have guided hundreds of clients through family business transitions and through the tax, investment, and personal implications of significant liquidity events. (Keep in mind that if you’re considering a distribution of wealth among family members, the next year is a critical time period because of the 50% cut in the Lifetime Gift Tax Exemption that goes into effect on January 1, 2026.)

Engaging your own Whittier multifamily office gives you a personal, custom team of advisors to handle the day-to-day demands of wealth management. We get to know your family’s hopes and challenges, and we facilitate communication among family members so everyone understands the decisions being made. Whether you’re navigating succession questions, estate plans, or charitable options, we help manage family dynamics and foster family continuity from one generation to the next. From the moment you begin contemplating selling your business to days spent enjoying grandchildren and hobbies, Whittier’s team of experts is there to ensure you meet your business and personal goals.

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Written by Elizabeth M. Anderson, Vice President, 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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May 28th

Home Means Nevada: 4 Key Reasons Nevada Should Be Home For You—And Your Wealth

Home Means Nevada—those are three words that every Nevadan knows. Aside from being the title of our state anthem, these words are plastered on bumper stickers, t-shirts and souvenirs across the Silver State. Nevada is renowned for its stunning natural landscapes and bustling entertainment scene and it continues to attract new residents drawn by its unique opportunities and lifestyle. Regardless of whether you’re a seasoned local, a recent arrival, or a resident of another state, Nevada assures a wealth of advantages for your financial prosperity. For many affluent Americans, home may not mean Nevada for their families, but Nevada is where their family’s wealth resides. 

This decision to be a welcoming destination for wealth wasn’t an accident. In the early 1990s, leaders in Nevada noticed other like-minded states, including South Dakota and Delaware, adjust their trust laws and regulations to prioritize the needs of high-net-worth families. As a result, they passed legislation to become more trust-friendly to boost the state’s economy and level up Nevada to the top echelons of trust jurisdictions. Ever since some of the nation’s wealthiest family offices and trust companies have flocked to the state. Still, it is Nevada residents that stand to gain the most from Nevada’s favorable tax and trust climate.

What makes Nevada especially attractive to high-net-worth families? Here are four key reasons why. 

1. Taxes

Nevada’s lack of a state income tax makes it an attractive option for individuals seeking to minimize their tax obligations. By establishing a Nevada irrevocable non-grantor trust, residents of states with income taxes can strategically transfer their assets to Nevada, potentially reducing their state tax burden. However, it’s important to be aware of exceptions to this approach, particularly regarding income distributions from the trust. These distributions shift a portion of trust taxes to the recipient of that distribution. The distributed funds may incur state taxation if the beneficiary resides in a state with income taxes. Notably, this issue does not affect beneficiaries who reside in Nevada.

Seventeen states and the District of Columbia currently levy an estate or inheritance tax. These taxes diminish the transfer of wealth from one generation to the next. Nevada, however, does not fall into this category. 

The Generation-Skipping Transfer Tax (GSTT) represents another aspect of taxation often overlooked by those outside the realm of trust and estate management. These federal taxes play a role in limiting the transfer of wealth between generations by imposing taxes when assets skip a generation, such as when grandparents pass assets directly to their grandchildren. One common strategy to mitigate these taxes involves utilizing dynasty trusts, which have the potential to last for up to 365 years in Nevada.

2. Asset Protection

Nevada Asset Protection Trusts offer families a robust safeguard for their assets, particularly against legal claims and creditors. Nevada sets itself apart with its shorter statute of limitations for creditors and more stringent requirements for challenging transfers to the trust. Nevada also allows for self-settled trusts, meaning individuals can protect their own assets, which is not permitted in all states offering asset protection trusts. Nevada’s asset protection trusts provide enhanced protection and flexibility, often making it a preferred choice compared to other states.

3. Flexibility

Nevada stands out in trust decanting and nonjudicial settlement agreements (NJSAs). Trust decanting allows trustees to modify or distribute assets from an existing trust into a new trust, providing the flexibility to adapt to changing circumstances or correct drafting errors. Similarly, NJSAs enable trustees and beneficiaries to resolve trust-related issues without court involvement, ultimately streamlining the process and reducing legal and administrative costs. 

4. Privacy

Silent trusts in Nevada offer a unique advantage compared to other states due to the confidentiality they provide. Most often, individuals establish trust for their children to foster their productivity and independence rather than hinder it with excessive wealth. Through the creation of silent trusts, individuals can limit the information disclosed to beneficiaries and help ensure that their wealth becomes an asset to the family rather than a liability.

While there are plenty of non-financial benefits to living in Nevada—spectacular natural beauty, sunny weather, entertainment opportunities, recreational opportunities, and more—it’s a top destination for high-net-worth individuals to strategically protect their growing assets. 

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Written by Danny J. Schenker, Vice President, Client Advisor at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

 

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May 23rd

What Is a Trust Protector and Do I Need One?

Imagine this: You’re at a cocktail party talking about investing and estate planning and someone mentions naming their closest friend as the “trust protector” for their kids’ trust. What are they talking about? Trust protectors have long been used by jurisdictions outside of the United States as a mechanism to provide oversight of corporate trustees and hence, a measure of family control over trusts in general. Still confused? Here’s what you need to know.

In a typical irrevocable trust arrangement, assets are gifted to family members by transferring legal title to the assets in the name of a trustee who is held to the terms of a written document (the trust agreement). There are many benefits to trusts including professional management of assets, asset protection, and sometimes even gift and estate tax advantages. Families often like the idea of using trusts in wealth transfer planning but struggle with the question of who to name as the trustee.

Naming a family member provides comfort that the beneficiary's needs will be met by someone close to them, but a suitable family member may not always be available. Certain family relationships don’t lend themselves to a trustee/beneficiary relationship. Siblings of the beneficiary are a poor choice because the relationship dynamics may be negatively impacted. More distant relatives don’t always have the same level of contact that someone closer to the beneficiary might. The role of trustee comes along with a tremendous amount of legal liability for investments and recordkeeping which can deter even the most suitable of family members from serving in this capacity.

A professional trustee who is neutral and in the business of serving in a fiduciary capacity is frequently the best choice. Professional trustees come in two general categories—professional private fiduciaries and corporate trustees. Professional private fiduciaries are individuals with experience and training in trust administration. They may be located close to where the beneficiary lives and have the ability to interact frequently. However, they may not have additional skills in asset management and tax compliance. Many professional private fiduciaries are sole practitioners, so it will be incumbent upon the family to decide how successor trustees are to be selected.

Corporate trustees are either trust companies or the trust divisions of large commercial banks and brokerage firms. They have staff trained in trust administration and usually possess investment and tax expertise. Continuity isn’t an issue since the ability of the corporation to serve as trustee is not dependent upon a single individual. The risk often associated with corporate trustees involves possible mergers, impersonal service, and staff turnover.

If a family leans towards selecting a corporate trustee, how do they ensure the best possible service and advice? Enter the role of “trust protector.” A trust protector is an individual apart from the trustee but to whom the grantor gives certain powers. The most common power given to the trust protector is the power to “remove and replace” the trustee. This allows an individual, perhaps even a family member, to watch over the corporate trustee to make sure the grantor’s wishes are properly fulfilled.

The trust protector’s scope of duties may be expanded to include oversight or even direct management of specific assets, for example, a closely held business. Sometimes, a trust protector will be given an advisory role with respect to distributions. In such cases, the trustee may consult with the trust protector when a beneficiary requests extraordinary distributions from the trust. Another common power is the ability to move the governing law of the trust to another state (or “situs”) of the trust administration for income tax or other reasons. The trust protector’s powers may be held in either a fiduciary or non-fiduciary capacity. This is a matter to discuss with a qualified estate planning attorney since there are potential legal and tax ramifications.

When making a gift into an irrevocable trust, the grantor usually intends that the assets are removed from his or her estate for gift and estate tax purposes. For this reason, it is important for a trust protector to be independent of the grantor. Having said that, the role of trust protector is often a better role for a family member or close family friend than being a trustee.

For families seeking to use trusts in generational wealth transfers, it’s worth asking their lawyers about the advisability of naming a trust protector.

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Written by Thomas J. Frank Jr., Executive Vice President, Northern California Regional 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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May 9th

Ensuring a Smooth Generational Transfer

Transferring the ownership of a family business from one generation to the next can be challenging, particularly in today's world, where the financial values and business objectives of multiple generations may differ. As an advisor, I have witnessed the various difficulties families face while navigating the process of transitioning the family business to the next generation.

By prioritizing communication and seeking professional support, families can navigate the complexities of generational transfer with confidence and cohesion, while creating enduring value.

Understanding Current Complexities of a Family Business

There are natural challenges intrinsic to family business ownership succession planning and transfer. An array of hurdles — such as navigating shifts in federal regulations and economic landscapes, or balancing intricate family dynamics and evolving business management paradigms — stands in the path of each generation involved. Understanding and overcoming these obstacles is pivotal for ensuring the successful passage of the family business legacy.

Sunsetting Estate-Tax Exemption

Some of the most persistent issues family businesses face are a result of congressional actions. I recently attended a meeting of the Family Business Caucus in Washington, D.C., where I had the opportunity to hear family businesses speak to Congress about their issues. The most pressing worry among family business owners was the sunsetting estate-tax exemption in 2025. With this change, the current $13.61 million per person exemption will be reduced to $5 million, aligning with pre-2017 Tax Cuts and Jobs Act levels (adjusted for inflation).

If Congress doesn't agree to extend the higher amount, it could mean significant challenges for family businesses and their estate plans. Many family business owners have their wealth tied to shares in the business, which are not necessarily liquid. For example, if a family member passes and there's no liquidity within their estate other than the ownership of the business, their family will have to identify a way to purchase back the shares so the heirs have the liquidity to pay their estate tax bill.

Recently, I spoke to a family who found themselves in this dire situation following the unexpected passing of a shareholding brother. Without proper transition structures in place, the surviving family business owners were faced with a more than $40 million tax burden, requiring them to sell some of the family's assets to satisfy it. This is just one example of what is at stake.

Planning Ahead

I often see family members who are so hyper-focused on the family business and its success that they forget to focus on the long-term, bigger picture. This approach is successful in real time but potentially hampers the future of the family business and the security of the next generation. Family business owners with this mindset often lack urgency in planning for the future and aren't aware of the potential implications this might have on the family's wealth and the future of their business.

To empower the family to manage the business as needed while ensuring long-term planning is not neglected, I recommend engaging the support of a third-party expert to develop a structure and plan for the business not only 10 years out, but also 30 and maybe even 50 years from now. A specialized advisor can help a family business succeed through their detailed and holistic approach to managing the family's finances as well as matters such as payroll, taxes and real estate assets.

Family Dynamics

Across different generations, there's a natural inclination to see their approach to running the family business as the definitive way forward. The founding generation typically holds steadfast to their vision for the business yet may struggle with relinquishing control to the next generation. Conversely, the second generation may prioritize personal pursuits over business operations, which can create tension with the founding generation. Meanwhile, the third (or sometimes second) generation may seek to carve out their own path within the family business or explore avenues beyond it.

These generational shifts can introduce divergent viewpoints on the business' direction, including debates over bringing in a non-family CEO. While these discussions are healthy and reflective of evolving perspectives, it's crucial to foster an environment where all family members feel heard and respected and tensions don't create divisions. Embracing diverse perspectives ensures that everyone's input is valued, ultimately contributing to the longevity and success of the business beyond the founding generation, as well as the family.

Implementing a Smooth Transition to the Next Generation

Now it's time to unravel the secrets of seamlessly passing the torch to the upcoming generation in a family enterprise.

Implementing a smooth family business transition to the next generation requires an orderly, multi-step process. Skipping any steps can lead to disaster, not only financially but also in terms of family harmony.

Step 1: Lay the Foundation

The first step is laying the foundation for the family office and future transitions. Families must start by creating a family mission statement or family charter that articulates family values, goals and objectives. Outlining clear lines of communication, rules of engagement and methods for conflict resolution is imperative to the success of this effort. For the mission statement to be relevant and enduring, members of all generations must be involved in this stage and allowed to share their thoughts and perspectives.

Step 2: Design the Family Office

Once the mission is set and agreed upon, families must develop a family office structure — a platform all family members can rely on for information about the business, estate plans and legacy plans. It's the centralized location of all family documents and becomes the main source of institutional knowledge that stays intact through multiple generations.

Far too often, I have seen issues arise when the founding generation doesn't spend the time on step one and moves directly to step two. When the founding generation creates an elaborate rule book and family charter that all future generations must live by without their input, the effort is usually met with great resistance, especially from the spouses of the next generation. However, when everyone feels like they are heard and have an opportunity to weigh in, there is a much better chance of achieving buy-in and family cohesion.

Step 3: Align Estate Plans with the Master Plan

The third step in this process is ensuring that each family member's estate plans conform to the master plan. The individual estate plans of each member can have an impact on the wealth of the entire family and enterprise. As such, it is important to develop individual estate plans that align with the mission, rules and architecture of the master plan. The master plan should serve as the family's financial North Star, helping to guide and align all financial decision-making to the stated mission and the family's best interest. Again, this step underscores the importance of step one, as family conflict related to individual estate plan choices is likely without buy-in.

Step 4: Consider Third-Party Support

Family office management and estate planning are serious responsibilities. For families that wish to utilize a single-family office, I encourage them to forecast how their business trajectory could unfold and create a framework for how funds and management should be allocated to future generations.

However, if these steps and efforts feel daunting or there is concern about family alignment on the architecture, business-owning families might consider hiring a multifamily office. A multifamily office can guide families in the collective development of a mission statement and manage the financial architecture to ensure the family maintains harmony while managing business endeavors and leadership transitions from one generation to the next.

When it comes to navigating the transition of a family business to the next generation, achieving flawless continuity is challenging. However, with meticulous preparation, a profound understanding of each stakeholder's perspective and values, and collaboration with a reputable advisor, smooth operation becomes not just a possibility, but a steadfast assurance.

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Written by Brian G. Bissell, Senior Vice President, Client Advisor at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.

 

 

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Apr 23rd

Are You Getting the Most out of Your Tax Planning Services?

Are you maximizing your after-tax returns to the fullest extent possible? This question holds immense weight for ultra-wealthy individuals as they navigate the complex landscape of taxation. Despite employing the expertise of traditional financial advisors and tax professionals, many find themselves falling short of truly optimizing their tax planning strategies. The seasoned wealth management advisors who make up the backbone of Whittier Trust’s family office services recognize the intricate challenges our clients face, and we pride ourselves on offering tailored solutions and tax planning services that are always geared to optimize their tax efficiency. Let’s delve into the role family office services can play in navigating the complexities of tax administration for ultra-wealthy individuals and families.

Benefits of Receiving Guidance and Administration from a Family Office

Family office services serve as the cornerstone of comprehensive wealth management for wealthy individuals and families. By entrusting their tax planning and administration to experienced advisors, clients gain access to a host of expertise tailored to their unique financial circumstances. Family offices develop a holistic tax plan considering the family's income, investments, trusts, and estate. This minimizes tax liabilities across estate, gift and income taxes, which includes pass-through, individual, corporate and fiduciary taxation. A family office can also act as your eyes and ears, constantly monitoring tax law changes and identifying opportunities to further optimize the family's tax situation. Our team of professionals possesses an in-depth understanding of tax laws, regulations, and industry trends, enabling us to devise customized tax planning strategies that align with our clients' long-term objectives while ensuring smooth day-to-day tax administration. We handle everything from filing returns and record keeping to expense tracking and payroll taxes. We also collaborate with external tax professionals for seamless compliance and accuracy.

Understanding the Complexity of Personal Taxes for the Ultra-Wealthy

Our clients operate within a landscape of multifaceted tax regulations and obligations. With diverse income sources–including investments, business ventures, and real estate holdings, many of which have been passed down intergenerationally–their tax liabilities extend far beyond the scope of conventional taxpayers. Here's how our advisors approach some of the most important considerations for our clients:

Multiple Jurisdictions:

We understand the complexities of managing assets and income across various locations, including both domestic (state and federal) and international jurisdictions. Each jurisdiction has its own unique tax laws, including income taxes, property taxes, and estate taxes, with varying rates and regulations. We help clients navigate these complexities to minimize tax burden and avoid double taxation. Our advisors can assist with navigating the nuances of multi-state taxation within the U.S. This includes understanding how state and federal income taxes interact, as well as property and estate tax implications across different states. For clients with international assets, it's crucial to remember that U.S. citizens and residents are taxed worldwide. We help navigate the intricacies of tax treaties, foreign tax regimes, and potential inheritance taxes impacting these assets. Our family office can coordinate with experienced tax professionals in both domestic and international jurisdictions. This ensures your assets are managed by experts with in-depth knowledge of the specific tax laws and applicable regulations. By understanding your unique circumstances and goals, our advisors can also provide insights on potential residency or asset location strategies that may enhance tax efficiency.

Non-Traditional Assets:

Investments in private equity, real estate, and alternative assets pose unique tax considerations. We help our clients value these assets for tax purposes and devise strategies to optimize their tax efficiency. When considering unique asset classes, our clients know that access to the best investing professionals and specialized tax advisors is crucial for performance. A multi-family office with a hybrid architecture is uniquely suited to managing such a team of experts. 

Estate Taxes:

We provide comprehensive strategies to minimize estate tax burdens across generations, incorporating careful planning and knowledge of complex tax laws surrounding trusts, gifts, and inheritance. Strategic planners are already eyeing the crucial shift in estate tax exemption for 2025 and beyond, with the amount in 2026 slated to be half of the 2025 amount with an inflation adjustment. Past experiences, such as the panic-inducing sunset of the lifetime gift tax exemption in 2012, highlight the necessity for proactive planning with family offices to navigate impending changes, ensuring access to estate planning attorneys and informed decision-making.

Pass-through Entities:

Many of our clients utilize complex structures like partnerships and LLCs for wealth management. Our advisors are well-versed in the tax implications and filing requirements associated with these entities, ensuring our clients remain compliant while maximizing tax benefits. Currently, our advisors are monitoring the impact of tax changes on pass-through entities, particularly regarding the Qualified Business Income (QBI) deduction under the TCJA. While pass-through entities initially had a tax advantage, the expiration of the QBI deduction and increased individual tax rates post-2026 diminish their appeal compared to C corporations, which are subject to a consistent 21% tax rate.

Charitable Giving:

Optimizing tax benefits from charitable contributions requires a deep understanding of foundation management. Our advisors assist clients in structuring their charitable giving to maximize tax advantages while aligning with their philanthropic goals and family values. Keeping the books for philanthropic efforts can often be a large undertaking. Our family office and philanthropic department ease this burden by handling quarterly and annual financial statements, issuing checks, and organizing necessary files for taxes and audits. We collaborate with the foundation’s CPA to facilitate tax preparation. For California-based private foundations or charitable trusts earning over $2 million annually, an audit is mandated the following year. This number can be challenging to track, so our advisors vigilantly monitor this threshold for our clients.

We understand that maintaining meticulous records and complying with complex reporting requirements can be burdensome for our clients. That's why we provide dedicated support and guidance throughout the process, ensuring effective management of these considerations while alleviating the administrative burden for individuals and families.

The Importance of Access to Tools and Techniques for Effective Tax Planning

Another boon to working with a family office is the access to sophisticated tools and increased exposure to industry-leading tax administrative and strategic techniques, which Whittier Trust advisors consistently update to ensure optimal tax efficiency. Our family office uses cloud-based tax software which facilitates secure and efficient management of tax and other data, enabling real-time collaboration and infallible storage. Advanced data processing and analytics tools help identify tax optimization opportunities and potential risks based on historical tax data and current strategies. Robust cybersecurity measures protect sensitive financial data, ensuring clients' peace of mind.

From income-shifting strategies to charitable giving, we employ diverse tactics to minimize tax liabilities while preserving wealth. We’re also always looking for new ways to optimize your assets with a long-term approach. With potential changes to the estate tax exemption looming, one of the levers we’ve been bullish on over the past few years are Grantor Retained Annuity Trusts (GRATs). GRATs have emerged as a strategic tool in tax planning thanks to their tax efficiency and flexibility, especially during periods characterized by high interest rates 

Unlike conventional gifting methods, a GRAT facilitates the transfer of only the appreciation on trust assets, rendering it potentially gift and estate tax-free. This makes GRATs particularly appealing for individuals who have already maximized their lifetime gift tax exemptions or those uncertain about their utilization. Despite being an irrevocable trust, GRATs possess unique characteristics, such as the ability for the grantor to retain certain powers, including substituting trust assets, which enhance their flexibility. The success of a GRAT hinges on the assets' appreciation outpacing the annuity stream, especially vital in high-interest rate environments. Notably, a "rolling GRAT" strategy, comprising short-term GRATs funded by annuity payments from preceding ones, mitigates mortality and interest rate risks, exemplifying adaptability in tax planning. 

Personalized & Comprehensive Guidance: The Cornerstone of Family Office Services

The complexities of tax administration for ultra-wealthy individuals and families necessitate a comprehensive approach grounded in expertise and personalized guidance. It’s important to engage with a family office committed to empowering you with the tools, strategies, and support you need to consistently adapt to, and proactively navigate, the intricate landscape of tax planning and administration successfully. By leveraging our extensive experience and resources, we enable our clients to achieve their financial objectives while minimizing tax liabilities and preserving wealth for future generations. It’s never the wrong time to ask yourself if your tax planning strategies are working for you.

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If you’re curious about our family office and tax planning services and how they might ease the administrative burden on you and your family, we invite you to speak with one of our wealth management advisors by visiting our contact page.

 

From Investments to Family Office to Trustee Services and more, we are your single-source solution.

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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.

 

From Investments to Family Office to Trustee Services and more, we are your single-source solution.

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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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