Post Type: Insights

Mar 2nd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Feb 27th

Brian Bissell Inducted into Georgetown Hall of Fame

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

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

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

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

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

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

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

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Feb 22nd

How 529 Plans Can Benefit Your Estate Plan

The Gift That Keeps on Giving

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

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

The Major Benefits of 529 Plans to Investors

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

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

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

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

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

How Beneficiaries Benefit from 529 Plans

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

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

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

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

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

Common Misconceptions About the Savings Plans

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

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

The Potential Downside to This Financial Investment Strategy

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

Disclaimer

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

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1. Major Benefits to Investors

 

2. How Beneficiaries Benefit

 

3. Common Misconceptions
About the Savings Plans

 

4. The Potential Downside to This Financial Investment
Strategy

 

 

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Feb 14th

Finding the Right Real Estate Investing Partner is Vital

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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1. Choosing the Right Trustee

 

2. Trustee Bandwidth & Connections

 

3. Contingency Plan

 

 

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Feb 9th

Wealth Management: 2023 Financial Outlook

It May Be Better Than You Think

By Tom Frank, Executive Vice President, Northern California Regional Manager, Whittier Trust

It’s early 2023 and we’ve just come out of one of the toughest markets for financial assets in recent years. The broad U.S. stock market as measured by the S&P 500 Index was down about 18%, while the bond market as measured by the Bloomberg US Aggregate Index down over 12% (a historic record). It’s likely that even a balanced portfolio of stocks and bonds ended the year 15% to 20% lower than it started! But it might not be all bad news for strategic investors.

There was a focus by the mainstream press at year-end concerning “tax loss harvesting” or selling assets at a loss to lock in an income tax advantage. Specifically, when an asset is sold for less than the investor paid, a capital loss is incurred. Under most circumstances, these losses can be used in future years to offset capital gains. It is a great technique to use in taxable accounts. Investors should be mindful of the wash sale rules which prohibit booking the loss if the identical security is purchased within 30 days of the sale. For investors wishing to maintain market exposure during the 30-day period, it is possible to buy an exchange traded fund (ETF) or index fund that mimics the stock market. Keep in mind that IRAs and other retirement accounts do not benefit from this strategy since investments inside the account are tax-deferred.

For individuals and families with significant wealth, there is another benefit to lower valuations across asset classes. It may be a good time to transfer assets to younger generations, particularly if you think the assets will increase in value again once economic fortunes shift. Tax loss harvesting focuses solely on income taxes, but what about the gift, estate and generation-skipping transfer taxes? With the lifetime gift and estate tax exclusion amount set at $12.92 million per person, admittedly this is not an issue that all families will face. However, for those who find themselves always looking for ways to lessen the tax burden of estate taxes upon death, a lousy year in the market may be an excellent opportunity. The current large lifetime exemption amount is scheduled to sunset at the end of 2025 back to something in the $6 to $7 million range. The IRS has announced that there will not be a “clawback” of gifts made in excess of that amount during this period when the amount is higher.

Let’s take the example of an asset that is worth 20% less today than it was in January 2021, yet it is expected to grow again when conditions improve. By gifting that asset to a younger generation family member today, less of the donor’s lifetime exemption is used and any appreciation on the gift escapes gift tax. If the younger family member is too young to handle a gift right now (say it’s a grandchild), the gift may be made to an irrevocable trust. That way it can be preserved for future use. One caveat to lifetime gifting is that the donee inherits the donor’s income tax basis in the asset. So, if grandpa gives shares of Amazon and his basis is $60 per share, little Johnny (or his trust) will hold the stock with a cost basis of $60 per share. Contrast this to a gift upon death which results in a “step up” in basis to the date-of-death value. Since the top income tax bracket for individuals in high income tax states is often above the transfer tax rate of 40%, an analysis of the two types of taxes should be conducted prior to making a substantial gift. A lot will depend on the prospects for the asset’s appreciation.

Of course, stocks and bonds aren’t the only asset classes that suffered in 2022; real estate and private business entities may also have taken a hit. A critical component of gifting a non-marketable asset is obtaining a qualified appraisal and attaching it to the gift tax return. The IRS has specific rules about what goes into and who may perform a qualified appraisal. Many gift and estate tax audits are essentially battles over valuation, so it is a good idea to be prudent. Specialty assets like fine art involve an additional layer of complexity and must be handled by experienced appraisers of similar objects.

A good estate planning attorney and an accountant can advise donors on the best way to structure a gift of depreciated property. There are many techniques, each with its own pluses and minuses. The right choice will involve an analysis of the donor’s tax situation and family situation as well as knowledge of prior gifts. This is not a DIY exercise—seeking expert advice is critical to success.

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By gifting that asset to a younger generation family member today, less of the donor’s lifetime exemption is used and any appreciation on the gift escapes gift tax.

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Jan 31st

Sweeten the Sale: A Business Selling Checklist

Smart entrepreneurs look beyond the financials to enhance the impact of an impending business sale

Any business owner is familiar with looking at all sides of a particular transaction. It’s no different with the ultimate transaction—the sale of the business itself. It is vital to consider not only the financial and tax consequences of a sale, but also the impact on one’s family situation, next generation planning, other business holdings and charitable giving pursuits. When all is said and done, you’ll want to know you maximized opportunities, minimized regrets and positioned yourself for a rewarding next chapter. This doesn’t happen without thoughtful and timely planning.

Whittier Trust Vice President and Certified Exit Planning Advisor Elizabeth Anderson helps clients successfully navigate selling their businesses. Achieving the highest valuation multiple is always a top priority, but the team takes a holistic approach that prioritizes investments, family relationships, and tax, estate, and philanthropic planning. “We spend time getting to know our clients’ needs and goals so that we can help avoid any obstacles and optimize their results,” she says. “Often, by thinking ahead, we’re able to achieve even better outcomes than they hoped.” 

One way the Whittier Trust team helps business owners navigate a potential sale is by doing a deep-dive to understand the impact the sale of the business may have on the owner’s business goals and the owner’s personal life. In addition to fact-finding about the business itself and how it’s structured, the team will work to understand the motivations behind why you built the business, why you’re prepared to sell and how to best achieve your goals for the future. Here are some questions to help get you started: 

  • What prompted you to start the business in the first place? 
  • Why are you thinking about leaving the business?
  • Do you have a timeline in mind for your exit? 
  • What’s your vision of the ideal transition?
  • What personal or business objectives would you like to see accomplished in the transition?
  • How do you expect exiting the company to impact your life? 
  • Do you want to stay involved in the business after the sale? 
  • Do you expect any family members to remain active in the business? 
  • Are you concerned about any family issues? 
  • How do you expect your key employees to be impacted? 
  • Are you concerned about any employee issues? 
  • Do you anticipate any partner or shareholder issues? 
  • How important is preserving the legacy of the business? 
  • Have you identified a successor(s)? 
  • Have you taken steps to formalize a transfer arrangement?
  • What are you most concerned about relative to the transition?
  • Have you had the business appraised in the last 12 months? 
  • Have you worked with anyone to evaluate the health of the business?
  • How will exiting the business impact your personal financial situation? 
  • Does anyone else depend on the business for income or financial support?
  • Do you currently have a wealth management consultant? 
  • Do you have an estate plan? 
  • Do you have a plan for optimizing tax efficiency and savings related to the transaction? 
  • Have you estimated your cash flow needs after the transaction
  • To what extent do you expect to rely on proceeds of the sale to meet your post-transaction cash flow needs?
  • What are your post-sale goals? 
  • Are there any family dynamics that might be a cause for concern when the sale happens? 

This list of questions isn’t exhaustive, but it’s designed to help you uncover risks and planning opportunities that are best addressed months, or even years, before the sale. Understanding your priorities is a great first step toward opening a broader and more lasting potential for your wealth, family, and legacy. 

Keep in mind that to increase your chances for a big win, it is essential that you coordinate with your professionals to tailor the results to your needs. Whittier Trust has experience working with legal and accounting teams to ensure that the specifics of your deal will focus on the outcomes you seek from a holistic perspective. “No two businesses are alike, just like no two families are the same,” Anderson says. “We take pride in being the partner business owners can count on to pave the way for the result they want.”

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Jan 26th

Sell Strong: Whittier Trust Advisors Offer Things to Consider Before Selling a Business

Thinking of selling your business? Things to consider before a sale

Your business is important to you. That’s why, when you plan for its future, there’s more to consider than optimizing the balance sheet and achieving a high valuation multiple. “Of course, we’re focused on helping our clients get the most value from the sale of a business, but we’re also committed to keeping them positioned. What I mean by ‘positioned’ is producing positive investment, family, tax and philanthropic results,” says Whittier Trust Vice President and Certified Exit Planning Advisor Elizabeth Anderson. “Clients who have the most successful sales start thinking about the process early and focus on the personal results they want to achieve as well as the financial payout.” 

Helping families navigate the various facets of business decisions is in Whittier Trust’s DNA. The company began in 1935 as a family office for the Whittier family, the patriarch of which was an entrepreneur who earned significant wealth that continues to support his descendants into the sixth generation. In 1979, the office managed a partial liquidation of business holdings that yielded $500 million to the family, helping pre-plan for the sale and successfully navigating the transaction. The company, formed as Whittier Trust in 1989, now serves more than 500 families with the same customized service model.  

If you’re thinking of selling your business, here are some top considerations from Whittier Trust. 

Find the right partner.

You should be careful about who you trust to assist with personal planning around the sale of your business. Look for someone who has years of experience in the entire business sale process, including post-sale positioning to address the unique needs of the owner’s family, trust, foundation and other enterprises.  

“Many of our clients are multi-generational families, like the Whittiers, who made their fortunes in a family business,” Anderson explains. “We take pride in helping business owners navigate the complexity of planning for a tax-efficient exit, preparing their families for the wealth they are about to receive and avoiding common pitfalls encountered when owners transition from a business without adequately including their personal finances, estate plans, philanthropic objectives or life goals in the exit calculation.” That proven track record is invaluable. 

Think about the why and the how.

When Whittier Trust is tasked with helping a client with selling a business, the earliest conversations focus on understanding their goals for their wealth, family, legacy and your history as a business owner. You’ll be asked things like: 

  • What’s most important to you right now? 
  • What milestones are most crucial that you accomplish? 
  • Do you have any concerns about transitioning out of the business? 
  • What goals do you have for your wealth? 
  • Have you considered how a business sale/exit might affect your financial situation? 
  • Have you done any personal tax planning to prepare for the sale? 
  • What family dynamics could affect a successful outcome? 
  • Is your estate plan up to date?
  • Are there problems you are trying to solve by a sale?

“Our partnership works to fulfill your family’s vision, values and goals as we sustain and grow your wealth,” Anderson says. “Once we understand your vision for the exit and how you want your family to carry forward after the transaction, we’ll help you develop a plan and assist with executing it.”

The real work begins.

Once your Whittier Trust advisor understands your needs and goals, that person builds an internal team to make it happen. That group of dedicated professionals will work on a consolidated personal balance sheet and begin to focus on the post-transaction personal financial objectives for the client and their family. 

In doing that due diligence, Whittier Trust evaluates every possible outcome to consider whether or not the net-net return from the transaction aligns with the owner’s post-transaction goals. If it doesn't for any reason, the team will adjust the plan as necessary. 

“We focus on minimizing risk, implementing tax-saving strategies and preparing the business owner and their family for life after the sale,” Anderson says. “We believe each client is unique and requires a tailored solution. This flexible approach empowers us to help you achieve your most important objectives.”

Transitioning to the after-sale reality.

“Part of Whittier Trust’s ‘magic’ is in helping clients keep wealth from becoming a stumbling block. Instead, we help to increase clear communication within our families to maximize their understanding of how the different tools being deployed (such as investment, tax, trust and charitable vehicles) help foster family continuity from one generation to the next,” Anderson explains. 

Depending on a client’s needs, that could mean helping prepare heirs to be good stewards of the family legacy through philanthropy, entrepreneurial investment opportunities or creating a family office to handle the day-to-day demands of wealth management. No two families are alike, so no two transition plans will be identical, but the common thread is that Whittier Trust will be there every step of the way. 

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Jan 18th

Star Performers: Whittier Trust’s Real Estate Expertise

How Whittier Trust’s real estate expertise can ensure your real estate investment performs at its peak potential

Three siblings inherited a multi-tenant commercial industrial property that was located in an upscale area a few blocks from the ocean in Northern California. The asset was considered a prime piece of real estate, which produced more than $100,000 in passive income per month. Sounds great, right? 

When the Whittier Trust real estate team began working with the siblings, they discovered that, while the balance sheet looked healthy, rent collections from the fully occupied building were nearly 20% below the market rate for the area. It may seem counterintuitive, but a fully occupied real estate investment with below-market rents can ultimately hurt your bottom line. 

“We knew we had to create a strategy that would usher in market-rate rents, while preserving the consistent income our clients relied on and expected,” explains Jorge Ramos, Real Estate Vice President at Whittier Trust. Here are a few of the smart strategies and factors a savvy real estate portfolio manager will evaluate to ensure clients obtain the best return on their investment. 

Know the Market

“As a real estate fiduciary, we see this often: our clients inherit income-producing assets, but the beneficiaries may not be well-versed with the nuances of overseeing real estate,” Ramos says. “The portfolio may be located in a highly sought-after market, but the beneficiaries may not be familiar with the location, market rents or even local city ordinances that may impact future development.” That can mean that the new owners don’t have an evidence-based sense of what the property is worth, how much rent should be (particularly if tenants have long-term leases) and what improvements need to be made to keep the property competitive. 

“We start to understand our clients’ real estate holdings by evaluating the market in order to maximize profitability,” Ramos explains. The Whittier Trust team also spends time with clients to address their concerns and financial needs before recommending any changes to the overall management plan. 

Make Incremental Adjustments

When tenants have long-term leases, it’s impossible to change lease terms mid-stream. It’s also difficult to bring significantly below-market rents up to the market level all at once—in our California example, 20% more in rent per month. Such a large increase will likely induce serious sticker shock on the part of the tenant. Instead, it can be a smart strategy to make smaller incremental increases over time—which are easier for many tenants to swallow but can still induce some to look elsewhere. 

Whittier chose this approach in the example of the Northern California siblings. Approximately one-fifth of tenants chose to vacate the property when the rents were raised by 3 to 5% during the renewal period. While this did cause a dip in the monthly income generated by the property, it also created an opportunity to freshen the vacant spaces and raise rents by a larger percentage to bring them more in line with the market as new tenants signed on. “In a strong market, owners can maximize revenue as units turn and you experience a significant increase in rent collections from new tenants and leases,” Ramos says. Those new tenants with higher rents proved more profitable in the long run. 

Manage Wisely

In some instances, a property may be underperforming as a result of lax oversight on the part of the hired property management group or because of an owner who has too much else on their plate to be vigilant. Perhaps they’re not being as diligent as they should be about day-to-day maintenance, or are less-than-responsive on tenant-related issues. These seemingly small infractions can have an impact on the overall satisfaction of existing tenants and a future impact on the building’s reputation in the community when it’s time to fill a vacancy. “When our team of real estate professionals conduct a due diligence review, we’re looking at every detail to make sure the investments are well-preserved and their value is appreciating,” says Ramos, whose team at Whittier Trust handles the portfolio and advisory side of things, rather than tasks on-site. If the existing management is a risk rather than an asset, it might be time to upgrade or search for a different company to handle the day-to-day administration of the property. 

Know When to Make a Change

While it’s rare that a well performing property turns into a liability—particularly when maintained commercial real estate tends to appreciate and residential occupancy rates in urban areas remain high—sometimes divesting of a property can be a smart strategy. “In those uncommon instances, we look at all options for our clients,” Ramos explains. 

If a client wanted to divest themselves of a poorly performing asset, an advisor might recommend a 1031 exchange—particularly if the client wants to retain regular cash flow from real estate investments. A 1031 is essentially a swap of one real estate investment property for another, deferring costly capital gains taxes. 

Regardless of the nuances of each client’s portfolio, the real estate asset management team at Whittier Trust is ready to explore any and all options to obtain the best outcome. “We look at every possible opportunity to maximize their investment returns, analyze their portfolio, minimize stress and achieve their overall goals,” Ramos says.

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Jan 10th

Professional Help: Real Estate Portfolio Management

The benefits of engaging in professional real estate portfolio management

Real estate investments can be a powerful tool to grow and maintain a thriving portfolio. Whether real estate holdings—from commercial properties to residential ones—are acquired through strategic purchases or inherited, it’s important that they’re managed well to maximize their returns.

To that end, Whittier Trust’s Real Estate division’s work is twofold: they find and vet real estate investment opportunities on behalf of their clients and they oversee the assets clients already own. Whittier Trust Senior Vice President of Real Estate Juliana Ricks takes a holistic approach to all of her client relationships and notes that engaging a real estate portfolio manager can provide significant peace of mind. “Whether they’ve purchased the holdings or inherited them, their portfolio is a legacy they want to be able to pass to the next generation,” she says, noting that her goal is to make that happen through strategic planning and oversight. 

Some investors start small, with turn-key properties that practically run themselves. For example, a savvy investor might buy a shopping center in a thriving area where all of the storefronts have long-term leases. In a case like that, Ricks says, many clients think, “Why would I pay someone to manage my holdings?” However, as the demographics of an area change, it might be prudent to consider selling to maximize profits or when all of the leases roll over, what once required almost no day-to-day management could become a time-consuming headache. Aside from this dramatic situation, there are myriad reasons and benefits for engaging a professional real estate asset management team to maximize your investments and minimize the challenges. Here are just a few. 

Management Efficiencies

While most commercial properties engage a property manager or management firm to handle the day-to-day management and maintenance of any given property, third party asset managers for real estate are focused on strategy. Instead of having to build out a full staff or managers, strategists and executives, Whittier Trust’s team acts as your real estate holding company’s C-suite. It’s almost like an agency dedicated to maximizing profits—all without you having to handle any hiring for those roles.

“We focus on thinking and acting strategically for the good of the assets,” Ricks says. “If the property management firm isn’t performing, we can help make a change. If a lease proposal needs to be improved, we help with that. If the debt is coming due on the property, we can either refinance or find a replacement lender. We focus on the bigger picture items.” 

Dedicated Expertise

Whittier Trust’s real estate investment management clients have wholly owned properties spread across the country, including shopping centers, office buildings, development projects, hotels, apartment buildings, industrial properties and more. The Whittier Trust Real Estate team of seven seasoned professionals has worked in markets around the country and makes it their business to stay current on all of the factors (including interest rate fluctuations, individual market conditions and more) that could impact the performance of a property. “We bring a knowledge base that no individual would have on their own,” Ricks says.  

Family Harmony

Sometimes, within a family, the division of labor and effort can become unbalanced when it comes to managing real estate holdings. Perhaps one family member was appointed the trustee or another has a natural aptitude for the tasks at hand and spends a significant amount of time working on the project. Such a scenario can cause unintended strife in family relationships. “Having a third party corporate trustee can be helpful for family dynamics because it lifts the burden off of a particular family member,” Ricks says. “We’re always looking to minimize tension by taking that burden away.” 

Better Performance 

While no third-party investment advisor should guarantee a higher return from working with them, properties and portfolios managed by an expert often see higher returns over time. “We have a system that improves the performance of the property and accountability of the onsite managers, as well as the information flow to the client,” Ricks says. “We’re able to present information to our clients in a clear manner and that can help streamline their decision-making process.” 

Peace of Mind

Perhaps the best reason to work with an expert real estate portfolio manager is the peace of mind that comes from knowing that there’s a team wholly dedicated to helping your portfolio achieve peak performance. “Our team is committed to maximizing the performance of the properties and we have more access to real-time market conditions, so we can best advise our clients,” Ricks says. “Our services as professional third party asset managers really gives clients peace of mind that someone is watching over those properties.” 

Jan 4th

Investment Management Tips: Three Things to Consider When Buying International Assets

Expert advice for making sure your global financial investments are secure

The recent passing of international celebrity Olivia Newton-John was devastating to her fans, but estate and trust lawyers probably had an added reaction of wondering whether or not she had her estate set up properly. Newton-John most likely owned property in her native Australia and in the United States, if not other homes around the world, and owning any foreign assets can make things complicated at the best of times.  

Here are three things to know about estate planning and international holdings. 

Share Information with Your Team Immediately 

It’s important to inform your team of any foreign real estate investments, properties, stocks or other investments as soon as you purchase them so they can help you come up with a strategy to incorporate them into your estate plan, says Heidi I. Bitterman, J.D., a Whittier Trust vice president. 

“Your United States-based estate planner needs to liaise with experts based in the countries where the assets are,” she says. “Every country has its own system of probate and its own planning requirements. You’ll need to secure an estate planning attorney in the country you’re purchasing in to make sure the asset passes the way you’d like it to.” Most countries will have a clear probate system to honor your plan, but some don’t, so make sure you understand how that asset gets transferred. This helps ensure that the transfer happens the way you intended when the time comes.  

Bitterman cites a cautionary tale involving a foreign-born client who had become a U.S. citizen. The client retained real estate and assets in her home country, and when she passed, it was discovered she had stocks in her name outside the U.S. “We had no way of knowing they existed and discovered the assets late into the estate administration,” says Bitterman. “They were still sending statements to her address in her home country.”

The client’s team couldn’t file for probate in the foreign country because they were only serving as trustees of her trust, not executors of her will. The client’s beneficiaries were requesting things that couldn’t be done because there was no jurisdiction. “It took us three years to figure it out,” says Bitterman, who adds that the team had a hard time finding attorneys in the home country who specialized in the help that was needed, and they had to solve complex problems like whether the U.S. will could be admitted for probate in a foreign country, and who had the burden of paying for counsel. “We couldn’t give the trust beneficiaries the answers as quickly as they had hoped,” she says.  

The moral of the story: if you have foreign entities or ownership, share the information with everyone on your financial team to ensure they’re equipped to act in your best interests. 

Consider Tax Implications

Prepare yourself for more complicated taxes when including international property or other holdings in your estate plan. “As a general rule, U.S. citizens are taxed on all their assets, worldwide,” says Bitterman. “If you buy a house in Scotland, the value of that house will have to be included on your U.S. estate tax return.” It’s an important thing to consider if tax efficient investing is a priority. 

The tax treaties with other countries and/or estate or inheritance tax regimes in those countries could further complicate things. “Make sure that, in addition to an estate planning attorney in that country, you have a tax lawyer who understands the ramifications of ownership from a tax perspective. You may be subject to different tax regimes,” she says. Additionally, consider an overlay of estate or inheritance taxes on the holdings when you pass. 

Make Sure the Right Hand Knows What the Left is Doing 

It’s important to have someone connecting the complex dots associated with international holdings. Bitterman advises checking with your U.S.-based counsel for referrals in other countries to ensure that your bases are covered with respect to taxation, as well as wealth and asset transfer. If you have engaged the services of an investment and wealth management firm such as Whittier Trust, they can connect the full picture so nothing gets overlooked or stuck in the transfer process. “We can help facilitate clients getting those boxes checked so it’s one less thing to worry about,” says Bitterman. “That way our clients can just focus on enjoying the property.”

International estate planning doesn’t have to present insurmountable challenges if you share information as soon and as widely as possible with your financial services team, which could include counsel, tax attorneys, trust lawyers, account managers and others. “Talk to your team,” says Bitterman. “The more you disclose, the easier it is for us to find things to follow up on so that your wishes are carried out and your estate planning goals are met.” 

 

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