Insights Archives

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.”

Dec 22nd

Smart Stocks to Own When Inflation is High

The best investments to make or have right now

The question on everyone’s minds is “what kind of stocks do you want to own when inflation is high?” To ask it a different way: what is the best place to invest money right now?

“The short answer is that you want to own stocks with the pricing power to preserve and grow their profits, but finding these investments is easier said than done,” says Sam Kendrick, portfolio manager and vice president at Whittier Trust, who oversees investment and wealth management solutions for clients.

Here, Kendrick outlines three key types of equity that are the best investments during times of high inflation.

Budget-Friendly Essentials

When inflation hits, everything typically costs more. Therefore, the portion of businesses’ and consumers’ budgets that gets allocated to the essentials, or non-discretionary purchases, such as gas, food and rent, goes up. Both types of entities have less money left over to spend on things they might want rather than need. Non-discretionary businesses often have some degree of pricing power, and they congregate in certain sectors, such as healthcare, utilities and consumer staples.

“Another dynamic that takes place during inflationary periods is trade-down demand. Across all categories—discretionary and non-discretionary—consumers and businesses seek out the cheapest version of a good or service to save money. Low-cost providers also have an easier time raising prices, to a point, given that they are starting at a low base,” says Kendrick. All else being equal, high-end clothes from Nordstrom won’t see as much demand as budget-friendly clothes from an off-price retailer like T.J. Maxx.

Higher-Margin Companies

“High-margin companies are attractive in any environment, but margins take on even greater importance when inflation is elevated,” Kendrick says. Invest in higher-margin companies because the percentage of revenue that goes to covering cost is lower. This means that when inflation hits costs, these companies can maintain their profit levels with fewer price increases, which equates to maintaining their stock prices.

“Your profits are less likely to drop,” Kendrick says. “This is one reason why investors typically like real estate during periods of high inflation. Margins are typically high, so cost inflation has less impact and rent increases fall more directly to the bottom line.”

Asset-Light Business Models

Other companies that are beneficial to invest in during inflation are those with asset-light business models, meaning they have to spend less to grow the business.

“This matters for inflation because the cost of assets goes up. The cost to build a factory, drill an oil well or hire more people is all going to increase, making it more difficult to grow assets and therefore revenue.”

Kendrick notes that software and technology are great asset-light categories. These companies can continue to invest and grow profitably, even as costs rise. “In the end, growth is a great inflation hedge,” Kendrick says.

A Company That Checks All the Boxes

Visa is an example of a company that has all three of the above things going for it. It has 65% operating margins, which means $65 out of every $100 of revenue is profit. Because Visa has an existing global network and people are using credit cards more each year, it does not have to invest heavily to grow its revenues. And when it comes to discretionary vs. non-discretionary spending, it is agnostic—any dollar you spend on a Visa card is essentially the same to Visa. So if you’re spending more during times of inflation (even if you’re getting less), that benefits Visa—and its investors.

“Visa isn’t likely to just maintain its profits during periods of high inflation but grow them in real terms as well,” Kendrick says.

Whittier Trust portfolio managers look at the macro-economic picture and choose the best investments for their clients to own to compound their wealth after taxes. “In this environment, where inflation is having a major impact on markets, we work to guide and position clients well so that they grow their spending power and their assets over the long term,” says Kendrick.

Dec 14th

The Key to Good Estate Planning? Talking About It

Don't let potential discomfort stop you from discussing your wishes

Many people are afraid to talk about what happens when they die. Some think it’s bad luck, and others prefer to put off the discussion because it can be uncomfortable. Still others think sharing this information is personal and not something to discuss with family in the present, but rather something the family can “deal with” after they’ve passed. Some of the biggest in-fighting in the world’s most prominent families can be attributed to assumptions made regarding estate plans and trusts or simple bad communication.

A well-laid-out and well-communicated plan can help assuage any future issues and keep a family’s legacy on the right track. Here are three tips for safeguarding your estate plan to ensure that your wishes for family harmony and legacy continuation are followed.

Pay Attention to the Living Directives in Your Estate Plan

A comprehensive estate plan is designed to cover you in life and in death, explains Whittier Trust Vice President Heidi I. Bitterman, J.D. Documents such as financial and medical powers of attorney are important components of an estate plan. “These documents are only valid during your life and are designed to protect you in instances where you are still alive but unable to make financial or medical decisions,” she says, noting that there are many nuances in these documents that need to be part of the bigger picture. “People often overlook what happens when you are still alive.”

As your wealth and plan get more sophisticated, it’s important to not neglect these living directives. You’ll want your financial power of attorney to work with your beneficiaries and any trustees, for example, to ensure all your assets are properly titled and that any gifting you may be doing as part of a wealth transfer plan is not interrupted. “Medical decisions matter too,” Bitterman says, to ensure your desired level of care and/or end-of-life decisions are properly expressed and carried out if you become incapacitated.

Share Your Wishes with the People You are Nominating

The impact a surprise can have is amplified when applied to estate planning. The people who are nominated to positions of power, whether during your life or after, need to know the decisions they’re expected to make. In some cases, the gravity or complexity of the situation might not be something they’re willing to handle.

For example, someone might not feel emotionally equipped to carry out a medical directive they don’t necessarily agree with, such as a child fulfilling a do-not-resuscitate order for a parent. “Some might have difficulty living with those decisions, even if it’s something they know you want,” Bitterman says. Another example is appointing a family member to handle an estate that holds complicated or closely held family assets. “Administration of an estate is fraught with difficulty and liability for those unfamiliar with it. Not everyone will want to undertake the responsibility but might feel guilty saying no because they were nominated,” she says.

Planning documents are important, but it’s equally important to communicate them to anyone who will be involved in them and to share the reasoning behind your choices. “Your wishes are outlined in a general way in your estate planning documents, but they don’t tell the whole story. There could be nuances around why you feel you needed to structure your plan the way you created it,” she says.

For those who don’t feel comfortable having face-to-face conversations, Bitterman recommends writing out your intentions in full detail, including your reasoning and any context that may prove helpful.

The one thing not to do? Stay quiet. “Silence is usually filled with what people want to believe or what they think is best from their own perspective,” Bitterman says. “There’s a lot of litigation around personal property and estates because of what people thought was going to happen, not the reality, and what they convinced themselves their departed loved one would have wanted to happen.”

While Whittier Trust brings expertise in these delicate situations to the table, trust appointees aren’t necessarily who your loved ones want to be hearing from, especially if there’s a personal story attached. “It’s not the same as hearing it from your relative directly,” she says.

Use a Wealth Management Firm or Trust Management Company to Execute

While it’s always best for families to hear from their loved ones personally, there are advantages to using a wealth management or trust management company such as Whittier Trust. “We work with families long-term,” says Bitterman. “We know our clients very well and have a deep relationship with them.” Once your family knows who is responsible for what and why it’s best to engage the services of a professional because the execution needs to be handled delicately by a team who can see the full picture. “There are fiduciary duties, which can be hard to do if there’s an emotional component,” she says. “Additionally, the more complex your asset makeup, the more potential pitfalls there are and the more difficult the execution will likely be.”

While individuals have every right not to disclose all of their wishes while they’re alive, Bitterman stresses the importance of including those individuals or entities that are nominated to serve in your estate planning documents as soon as possible. “Good communication ensures a seamless transition to the next generation. The nominated parties need to feel ready for their responsibilities,” she says.

Bitterman cites a current example: Her team is working with a client who owns a business and wants the business to continue to thrive after his death in order to take care of his employees. “When asked about how his children were involved with the business currently, it was revealed that all but one participated in running the business, and none of them seemed to have expressed an interest in participating in it after the owner dies one day,” she says. “To the owner, the value of the business was less monetary, but more of moral importance.” Bitterman’s team recommended the family talk honestly about whether the next generation would be able to honor the wishes of the owner in keeping the company running in the future.

Bitterman hates to see a family struggle because estate plans were not communicated properly. “It can take an otherwise functional family and change the dynamics,” she says. “When it comes to estate planning, communication is key,” she says, because clarity can help pave the way to peace of mind for all concerned.

Dec 7th

Wealth Management: How to Discuss Wealth and Values With Your Family

Steps to jumpstart these important discussions about legacy

Wealth and values play a starring role in family philanthropy, whether through a private foundation or a Donor Advised Fund. However, wealth and values conversations can be daunting to undertake for some families. “For fear of being divisive or difficult, many families avoid the conversation completely,” says Ashley Fontanetta, vice president of Philanthropy Services at Whittier Trust. “Even those who are willing to go there often simply don’t know where to begin.”

Communicating is the only way to move forward with furthering the legacy of a private family foundation, though. “The first step is to take a step—any step—to start the conversation,” says Fontanetta. She outlines some helpful steps for families to begin or advance their talks about wealth and values.

1. Select the right place and time.

Important dialogues like these need time and space to develop and aren’t a one-and-done type deal. When the goal is to open up and share heartfelt values and beliefs, talking face-to-face can feel intimidating. Instead, consider opening up the conversation by speaking side-by-side while on a walk or during a car ride, which can dramatically decrease the feeling of being an interviewee on the hot seat.

From there, you might consider holding a distraction-free weekend retreat for legacy planning or simply setting aside an hour or two during a holiday gathering, such as Thanksgiving, to further the discussion. These invaluable moments will add to the depth of family bonding and create a more collaborative forum for defining the tenets of legacy, particularly as it applies to charitable giving.

2. Give everyone the opportunity to be heard.

When setting the stage for communicating about legacy, it’s important for younger generations to feel their voice is valued. This is a time to put aside family hierarchy and give everyone an opportunity to share their viewpoints. Without wholeheartedly inviting all family members to share equally in the conversation, one can’t expect involvement or buy-in from the younger generations.

3. Break the ice with a set of thought-provoking questions.

Arriving at a place of thoughtful reflection will bring out the right mindset and temperament for going deeper into family values. Start out the discussion with open-ended questions that allow each individual to share their own thoughts and feelings, such as:

What’s your greatest accomplishment?
What opportunity would you want others to have?
What was the most significant event of your childhood?
What was the world like when and where you grew up?
What does “wealth” mean to you? What are the challenges, opportunities and responsibilities it brings?

Despite familial closeness, everyone might be surprised at each other’s answers.

4. Work with an expert.

You don’t need to go at it alone. If you’re having difficulty with the steps above, Whittier Trust can help facilitate the conversation about legacy as a neutral third party. Working with a private philanthropy services expert to provide a framework or bring the dialogue to life can move families past the first obstacle of getting started. In the long run, following an organized plan or engaging a facilitator to guide these key discussions around family philanthropy and family foundations can pay off.

Remember that most breakthroughs don’t happen overnight but rather are the culmination of many small steps forward. At a minimum, family members should agree to participate in these discussions and strive for a mutual understanding that considers the perspective of each generation and allows room to adapt to future realities. Whichever way you choose to begin this wealth management journey, breaking the taboo of talking about money and values will enrich the legacy of a family.

Nov 30th

Charitable Giving is Personal & Your Plan Should Be Too

Customizing your charitable giving plan is a game changer

When someone makes the decision to give back, it’s almost always motivated by a desire to make a difference and, hopefully, to make the world a better place. For those stewarding wealth through a family foundation or charitable trust, having a customized plan is vital to achieve your goals and to make planned giving seamless and sustainable for your lifestyle.

Far from a one-size-fits-all approach, Whittier Trust approaches each client relationship individually, tailoring a plan to suit. For some, that might mean working just with the Philanthropic Services team. For others, it could involve engaging all five of the divisions (Family Office, Philanthropy, Investments, Trust Services, and Real Estate and Alternatives) to build an overarching strategy to manage various investments, create tax efficiency within your financial landscape and more. Often, it even involves doing research to chart a new course if that’s what the client needs.

Case in point: A few years ago, a client expressed interest in giving to educational causes, but she wanted to think outside the box of college preparation. She realized that there was a void and opportunity in vocational schools. “It wasn't an area our client had given to in the past, so our team did all the research, vetted organizations and met with potential grantees,” says Whittier Trust Client Advisor for Philanthropic Services Amanda Buntmann. “Our client knew she could trust us to make sure her charitable giving was done properly and with the most impact.”

Whittier Trust designed a boutique service to support families with their critical, often transformational, work for good, exemplified by more than 65 years of serving clients on their philanthropic journeys. Here are some of the key benefits of a customized approach:

Personalized Service

You and your family enjoy a dedicated Philanthropic Advisor and Grants Manager to focus on your needs and interests. “A low client-to-advisor ratio allows us to get to know the families, and the things they care about, as individuals,” Buntmann says. “We make sure we really listen so we can tailor everything we do to their needs.”

Cost-Effective Resources

Whittier Trust’s fees are based on the specific scope of services you require, so you’ll never pay for more than what you need. Outsourcing typically costs less than hiring your own foundation staff or maintaining office space, so more of your valuable foundation resources will go toward making a difference in the philanthropic causes that are important to you.

No-Hassle Foundation Administration

Whittier can handle the less exciting parts of running a foundation, such as compliance, grantee research, grants management, board support and general administration. Taking these burdens off of your to-do list, your family is free to focus on the things you enjoy, like awarding grants and interfacing with grantees. Outsourcing lets you avoid the headache and potential liability of managing staff and handling payroll, hiring and firing, insurance and more.

Advisor Integration

When you engage us to manage your foundation’s administration, your other advisors, such as accountants and lawyers, are free to do the work for which they specialize, saving their time and your money. Plus, as part of Whittier’s wealth management services, giving to philanthropic causes can be financially advantageous to your overall estate plan. Our team can seamlessly liaise with our other departments to help steward your wealth and legacy according to your goals.

Expert Advisory

Philanthropy is what we do, and we make it our business to know the nuances of the issues your foundation faces. We’re experienced in managing a broad array of philanthropic vehicles and, for clients with more than one, we can ensure seamless coordination between them. We are completely comfortable with alternative assets; our unique donor-advised fund platform offers the flexibility of accepting and holding real estate, private equity and closely held stock, provided there is sufficient cash flow to support grants and fees. And our customized approach to portfolio management allows us to design a personalized ESG strategy, if desired, to help you align your philanthropic assets with your values.

Collaboration for Greater Impact

Because each professional foundation administrator manages a varied portfolio of philanthropic entities, Whittier Trust advisors are uniquely positioned to introduce clients to other philanthropists whose missions overlap. Collaborating on grants often enhances their impact.

No matter what your planned charitable giving goals are, having a customized approach is a smart way to get there.

Nov 29th

Portfolio Management: The Best Place to Invest Right Now Might Be Closer Than You Think

Buying U.S. stocks could be a superior way to gain international exposure

Smart investors balance their portfolios between domestic and international financial investments. However, what might not be obvious when selecting stocks is that often investments in domestic companies come with significant international exposure.

“Most investors I speak with unwittingly have way too much international exposure,” says Sam Kendrick, portfolio manager and vice president at Whittier Trust Company.

Due to globalization over the last 50 years, U.S. companies have been investing more and more overseas, and the amount of international exposure in the S&P 500 has gone up over time. “Around 40% of domestic large cap company revenues come from outside of the U.S. so you’re actually getting a really nice amount of international exposure when you buy the S&P 500,” he says.

Here, Kendrick explains why you get a superior form of—and enough—international investments when buying U.S. stocks.

It’s Less Risky

When you invest in a domestic company that has invested abroad, there’s more oversight at a micro level. “You get U.S. accounting standards, U.S. auditors reviewing the financial statements and the SEC monitoring the buying and selling of the stock,” says Kendrick. “If I just buy Chinese stock in a Chinese company and they said they made $100 million dollars last year, I’m less sure that’s true. Whereas in the U.S., you can be more confident here than elsewhere that they made that money.”

On a larger level, by investing domestically, your investment is being domiciled in a large, stable, democratic country with stocks that trades in dollars, which is the reserve currency of the world. “There is less risk because in times of crisis, investors across the world seek dollar denominated exposure. Because our economy is large and resilient, investors want to own companies with the majority of their revenue generated here rather than from countries that are less stable,” Kendrick says.

It's More Diversified and Less Cyclical

The U.S. stock market is extremely well diversified in a few different ways. For starters, the S&P 500 gets 60% of its revenues from the U.S., 14% from Europe, 7.4% from China and 3% from Japan, according to Factset

“Then from a sector perspective, there are very robust allocations within the S&P 500 to healthcare, technology, communications and industrials. All of these sectors have large, high-quality companies with differentiated products,” says Kendrick. More commoditized sectors, such as energy, materials, financials and real estate, have a relatively low exposure in the S&P 500 compared to foreign markets.

On top of that diversification, Kendrick notes that the S&P 500 is less cyclical than foreign indexes, meaning it encompasses more companies that are less dependent on the economic cycle to grow. According to JP Morgan, 34% of the S&P 500’s exposure is to cyclical sectors, whereas emerging markets’ exposure is 49%, Europe’s is 53% and Japan’s is 57%.

“All else being equal, it’s better to invest in companies that have less volatility in their revenue and earnings growth,” Kendrick says.

It Has the Cheapest Cost of Capital

Kendrick often speaks with investors who are hesitant to allocate more money to domestic stocks because they are more expensive than foreign stocks. However, the other side of the coin is that the expensive price tag reflects a cheaper cost of capital for U.S. companies.

“Higher valuations mean that U.S. companies can raise money more cheaply. This means large U.S. companies can raise capital and buy foreign assets rather than selling their assets to foreign firms,” says Kendrick. “When it comes to small companies, entrepreneurs, venture capital firms and private equity firms focus on the U.S. because of the higher valuations businesses receive here versus abroad. In turn, having many of the most successful startups based in the U.S. increases our country’s growth rate.”

He cites Tesla as an example of cheap capital driving U.S. growth. “Despite not being profitable for 17 years, U.S. markets provided the funds it needed to grow. Now it has reached scale and is raising debt and equity in U.S. markets to expand overseas with large factories in Germany and China,” Kendrick says. “It’s hard to imagine the same growth story taking place in another country.”

When thinking about your portfolio and buying domestic vs. international stocks, consider the above three reasons to buy U.S. over international. Also, consider this: giving up some outperformance in a bull market is ok if the downside protection is better. “Everyone focuses on how U.S. markets have outperformed since the global financial crisis, but the truth is, even if U.S. and international were expected to perform the same, we would still buy U.S. because it’s less risky,” Kendrick says.

Nov 3rd

Planned Giving & Choosing Wisely

How to focus your philanthropic activities for maximum impact

If you’re starting your journey toward philanthropic giving, either because you’re launching something new or because you’ve inherited a role in a family foundation, all of the options for charitable contributions can feel overwhelming. From environmental causes to poverty relief—and everything in between—the options are endless. Rather than trying to help every good cause, it makes sense to hone in on specific areas to maximize your impact.

“When our clients come to us wanting to start their philanthropic journeys, we help them focus on creating a mission statement,” explains Whittier Trust Client Advisor for Philanthropic Services Amanda Buntmann. “It helps bring everyone together around the same issue area. It’s a key step to figure out what everyone cares about and what's most important to them.” Sometimes that’s easier said than done, since many causes might pull on your heartstrings. Here are some ways to get started.

Identify Your Highest Values

There are an almost endless array of values most of us aspire to, and the things that we care most about may change and evolve over time. Often, Buntmann and her team will share a deck of cards with more than 75 values—such as innovation, integrity, courage, freedom, dignity and much more—to help clients cultivate their plan.

Take heart: It’s not uncommon that family members disagree on at least some of the specific focus areas but most can find a few core values that define and motivate them. Once these values are identified, choosing focus areas and grantmaking philosophies becomes easier.

What Motivates You?

The National Center for Family Philanthropy put together a helpful Philanthropic Purpose Primer, designed to ask questions that spark ideas for developing a charitable giving focus. Buntmann and her team often talk through some of these questions to help understand what philanthropic causes make clients tick. Some questions are:

What motivates me to be generous? Why do I care?
Who were my role models for generosity when I was young? What did I learn from them?
What life experiences have inspired my philanthropy?
What am I grateful for now?
What is my definition of wealth with responsibility? What is the purpose of our wealth?
Beyond money, are there other resources I have given or could give?
How would I like to be remembered?

Partner Up

Trying to identify an area of focus for your charitable contributions alone can feel overwhelming. That’s why hands-on help from a team of experts can be invaluable. When a new client comes to Whittier Trust, the team spends time getting to know them and asking questions about their lives and interests.

For example, one client, Vanessa, expressed interest in animal welfare. But when Buntmann went to lunch with her and her Whittier client advisor, she asked Vanessa about her favorite pastimes, and her eyes lit up as she talked about her love of reading and her sprawling home library filled with books. Her passion for reading and literacy prompted Buntmann to set up a site visit with a local nonprofit dedicated to building libraries in lower-income communities. “The library wasn't open yet, but local kids were coming to see it. The joy on their faces prompted Vanessa to pursue the goal of funding a library herself,” Buntmann says, which allowed her client to make a meaningful contribution to a community in her home city. While she’s supporting other causes as well, this is the one that pulls on her heartstrings. “Working in private philanthropy services, you have to keep digging and get to know people to understand what they're passionate about,” Buntmann adds.

Once you’ve identified your values and the causes that motivate your philanthropic endeavors, it’s important to establish procedures and guidelines to streamline the process. The philanthropy services team at Whittier Trust can provide the strategy and support to help you get there. That may involve engaging other departments at Whittier Trust to implement tax efficient investing or other wealth management services to maximize your legacy and reach. Regardless of your goals, you’ll always have a team around you that is wholly committed to helping you achieve them.

Nov 2nd

Family Office: Best Practices for Successful Families

Establishing a family office is a holistic family wealth management solution

Traditional models of wealth management focus solely on the portfolio. This model is flawed, however, as it doesn’t take into account the entire family picture. Seventy percent of family wealth doesn’t transition to the next generation due to a lack of both preparing the wealth for the family and preparing the family for the wealth.

“Families often don’t have an orderly way to pass on their wealth, but the odds of failure are too large to ignore,” says Lauren Peterson, Senior Vice President, Client Advisor at Whittier Trust in Family Office services. “It is important to ready heirs for the transition to be good stewards of the wealth that is to come.”

Here, Peterson explains the integrated approach that creates sustainable best practices for successful families.

Establish a Family Office or Engage a Multi-Family Office

Establishing a family office is a holistic approach to wealth management and legacy that guides, supports and educates heirs for a more successful wealth-transfer rate. “A professional family office will engage with a family to support investments, values and the next generation,” says Peterson.

While the older generation can certainly create a single-family office themselves, there is a lot of heavy lifting to do, which might not be appealing at this point in their lives. “Our clients often turn to Whittier Trust for our expertise. We are a multi family office with expert professionals working with similar families who have complex needs who need guidance to meet their goals,” says Peterson, who notes that unlike other firms that might have 100 families per advisor, Whittier has a Client Advisor and support team with unlimited availability for families or less. A team might consist of a Senior Advisor, Junior Advisor, Analyst, Senior Portfolio Advisor and other team members in real estate, philanthropy and more as needed.

Another unique aspect of Whittier’s family office services is that while a Senior Advisor may work with the parents, a Junior Advisor is assigned to younger family members so that everyone can feel comfortable working with someone closer to their age to get support, training and guidance.

Create a Holistic Governance Structure

Once team members have been selected based on the family’s needs, the family office team then does a deep dive to look at all aspects, from financial documents to family dynamics. “We revise any governance structures, work with their CPA and legal team, look at all their documents and discuss it with the family so that they know what their documents say and mean,” Peterson says.

Many of the clients Whittier works with have been CEOs or business owners and are used to creating a strategic plan. The goal of the family office is to help clients put together a structure and family strategic plan that lasts multiple generations. “We help them look at their family as a family business including all aspects, such as the legal structures, financial statements, operating companies, and if necessary, different entities. We often review the different agreements for profits split amongst family members,” says Peterson. “We do this to ensure quality communication and transparency among all stakeholders, as this build family continuity.”

She adds that this process typically involves creating a family constitution that includes the family’s values, who makes the decisions and goals for how the family will interact together now and well into the future. Peterson and her team work to give every family member a voice and family unity, which may include coordinating a family retreat and/or training about the purpose of a family office.

Promote Family Harmony

One of the most important ways to promote family harmony is communication and for everyone to know their roles and responsibilities. “We like to involve the entire family—both bloodline and spouses. The family will tell us how much they want their kids or family members to know, but we make a concerted effort to make unifying decisions,” says Peterson. She notes that this often includes the parents accepting the input of their heirs without giving up their mission and values, as well as spouses being able to weigh in on what they want for their children.

Another popular way families choose to promote harmony is by focusing on philanthropy. “Establishing philanthropic giving goals through a family charitable trust, foundation or donor advised fund can be a way of facilitating good family dynamics and to work together to create a long-term family mission,” Peterson says.

Prioritize Education for Long-term Sustainability

Many heirs have had no direct experience with family finances or in making decisions about their family’s wealth. Therefore, the Whittier team does a lot of work to help prepare children to become good stewards of their family’s wealth. This can go as far as providing a deep dive talent assessment and looking at hard and soft skills to determine the roles that will be a good fit for each individual, in addition to educating them about those roles.

“Education and communication are the two solutions to prepare the next generation,” Peterson says. By establishing a family office and following these best practices, a family can transition wealth successfully and prepare heirs for wealth and maintaining the family legacy.

“When families come to us, they stay for generations. We’re a long-term relationship company,” Peterson says.

Oct 19th

Tax Efficient Investment Management

Navigating deferral of gain on QSBS

When you’re growing a legacy, it’s only natural to want to preserve as much of your hard-earned wealth as possible. From exploring the best investment options to the tax efficient funds that suit your overall goals and much more, prudent financial advisors make it a priority to consider any and all options for their clients. For those who own their own businesses, corporate tax structure is of particular interest.

Case in point: one side-effect of the 2017 Tax Cuts and Jobs Act (TCJA) was the renewed interest in Qualified Small Business Stock (QSBS). “With the corporate tax rate reduced from 35% to 21%, business founders, investors, private equity groups and hedge funds have increasingly turned to QSBS as a way to save millions in taxes,” says Client Advisory and Tax Vice President at Whittier Trust Charles Horn, who looks to maximize wealth retention and growth for his clients.

QSBS is codified in IRC section 1202 and was originally published in 1993 to encourage investment in emerging companies by providing income tax incentives to holders of such stock. QSBS can only be issued by a C-Corporation with a market cap equal to or less than $50M. The tax exclusion for each issuer of QSBS is the greater of $10M or 10 times the adjusted basis. For a corporation with an adjusted basis of $50M at the time of issuance, the tax exclusion could be as high as $500M. This could be a huge win for a small business owner.

One important requirement of IRC section 1202 is that the stock must be held for more than five years from date of issuance. The general rule is that the five-year holding period begins when the stock is issued. “We’ve been asked to assist clients where QSBS stock held by a trust has not yet reached the five-year holding period and the underlying C-Corporation is being dissolved. Clients often wonder what if anything can be done in such an instance,” says Horn. “The answer is yes, so long as the stock has been held for at least six months.” This is where IRC section 1045 steps in.

IRC section 1045 allows a taxpayer to defer recognition of gain on the sale of QSBS if replacement stock is purchased within 60 days beginning on the date of sale. “In other words, so long as a taxpayer can identify a replacement QSBS stock within 60 days of the dissolution of the previous QSBS stock, the exclusion can still apply,” Horn explains.

In fact, IRC section 1045 is more generous than IRC section 1031, which governs like-kind exchanges of real property. Under IRC section 1031, cash received from the sale of real property must be held by a qualified intermediary (“QI”) and cannot touch the hands of the taxpayer for one moment during the transaction. IRC section 1045 has no tracing restriction. “In fact, one could receive the funds from the sale of QSBS, use those funds for some other need, and use replacement funds to purchase new QSBS within 60 days and the rollover remains intact,” says Horn.

The primary restrictions are that the taxpayer must reinvest the entire sales proceeds (not just gain) in replacement QSBS or gain recognition will be required and the replacement QSBS must meet the qualified trade or business requirement for at least 6 months after the taxpayer’s acquisition. Taxpayers must also make an election of deferral on a timely filed tax return for the year of sale.

In fact, even where newly acquired QSBS later fails the requirements of IRC section 1202 resulting in the recognition of capital gains, the deferral mechanism of IRC section 1045 will still apply. In other words, the deferral of tax under the IRC section 1045 remains intact even if a taxpayer is eventually forced to recognize gain. “IRC 1045 is a powerful tool and safety net for investors looking to take advantage of IRC 1202,” says Horn, who notes that taxpayers should consult their tax attorney or CPA with any questions.

Oct 12th

Mission: Philanthropy and Planned Giving

Bringing the philanthropic goals of the past and present generations together

Many Whittier Trust clients have a family foundation that has been in existence for multiple generations. The foundation may have been set up by great-great-great grandparents who determined its mission and values. Fast forward three or four generations and a lot has changed. The Whittier Philanthropy team’s goal is to provide continuity for the original mission and values while engaging the current generation in the family’s overall giving legacy. The following are a few ways to accomplish this.

Facilitating Clear Communication

It’s not unusual for multigenerational families to encounter differences of opinion on philanthropic choices for their family foundation. Unfortunately, a conversation between generations with differing viewpoints may turn argumentative on its own. This is where Whittier brings value as an outside, neutral party.

“We often work with all family members on the common goal of making sure all voices are heard and valued and at the same time perpetuating the mission of the foundation,” says Haley Kirk, CAP®, vice president and client advisor for Whittier Trust’s Philanthropic Services, who explains that her team always starts with educating the whole family on the history of the foundation and its mission.

“We can have one-on-one conversations with each family member so that everyone feels that they are given the opportunity to speak freely,” she adds. “We listen to individual opinions and then work them into conversations with other family members.”

In addition to conversations, the Whittier Trust Philanthropic Services team recommends establishing a family website as a good practice for clear communication. The site can feature the history of the family, how they came into wealth, the mission of the foundation and the causes it is supporting.

Engaging and Aligning Interests with Causes

Parents might be uncertain how to pass their philanthropic interests on to their children and how they can support their kids in finding their own charitable passions that still align with their own. “Because the majority of foundations have the goal of lasting in perpetuity, it is imperative that we involve and prepare the next generation,” Kirk says.

While philanthropic goals may vary from person to person, Whittier works with parents and their adult or adolescent children to find the common root. For instance, one current hot topic is climate change and a hypothetical example is a family where the parents don’t believe in climate change yet their children feel passionately about helping the environment. “Perhaps because of weather changes, animals are suffering and the family can all agree to help animals, so the grant could be to combat that issue and not specifically focused on climate change,” Kirk says.

Developing a Foundation Associate Board

The development of an associate board when family members reach a designated age is a great way to involve the younger generation in a family foundation. The Whittier team encourages boards to create younger advisory boards that are allotted a small amount of money to give away as a group. “It is an opportunity for them to pick a cause they care about and present it to their family, and gain life skills like public speaking and presenting, research and fact-gathering, and financial evaluation, in addition to supporting something they are passionate about,” says Kirk.

Preparing to Hand Over the Baton

At some point, it’s time to get adult kids more involved to ensure the continuation of the foundation. This was the case for a Whittier client where the older generation (mom and dad) were running the foundation without their four grown children’s involvement. A strong-willed person, the mother didn’t have faith in the kids to follow what she wanted to do with the foundation.

“We encouraged the parents to invite their kids to start listening in on board conversations,” Kirk says. Before the first board meeting, however, the parents had a scheduling conflict. “Instead of rescheduling the meeting, we suggested that it move forward and see how the kids would do on their own.”

The result was that the younger generation were very focused on choosing grantees that fit within the foundation’s mission. “It was pretty special. Seeing that the kids hadn’t spun out in an entirely new direction inspired trust; the parents were able to feel more relaxed about the idea of sharing control with them and one day turning over the reins completely.”

Sometimes all it takes for families struggling to bring the philanthropic goals of the past and present generations together is some outside guidance and support to get started on the right foot.