Whittier Trust is proud to announce the elevation of Robert W. Renken to the role of Executive Vice President, General Counsel. He is now responsible for all legal affairs of the Whittier Trust Companies and their affiliated entities.
Robert brings to this new role close to ten years of service with Whittier Trust as an Executive Vice President, Deputy General Counsel. He also brings over twenty years of experience in providing legal advice to closely held businesses and high net-worth individuals, focusing on business succession and estate planning, tax strategies, non-profit organizations and trust administration.
Robert was previously a Shareholder of Clark & Trevithick in Los Angeles. Prior to that, he held the position of Senior Vice President, Trust Counsel with Fiduciary Trust International of California. Robert has been recognized as a Southern California Super Lawyer and is a frequent speaker on a variety of tax, trust, business and other related topics to professional groups and trade organizations.
“There’s nobody we’d rather have as our General Counsel than Bob. His reputation as a Super Lawyer is well deserved, and he makes us all better just with his presence here. It’s been a true privilege to work with him for the past decade, and I look forward to many more years to come,” states David Dahl, President and CEO of Whittier Trust.
Robert Renken obtained his Juris Doctor from Loyola Law School, a Masters of Business Taxation from the University of Southern California and his Bachelor of Science degree from the University of the Pacific. He is a member of the California State Bar, a member of the Board of Directors for the Boy Scouts of America Greater Los Angeles Area Council and a member of the Rose Bowl Legacy Foundation.
2023 began on a positive note. Prospects of a resilient economy and moderating inflation raised hopes for a soft landing and propelled stocks higher. Consumer spending was robust and GDP growth seemed to be in line with levels seen in a normal economy.
But much like the experience of the last several months, investor sentiment continued to fluctuate between extremes of optimism and pessimism. An exceptionally strong jobs report for January re-ignited fears that the economy may be running too hot for the Fed to pause. Bond yields rose sharply in February and stocks sold off as investors expected the Fed to continue tightening.
As eventful as the bear market has been so far, one of its momentous milestones took place in early March. It has been long feared that the rapid pace of monetary tightening would eventually lead to a financial accident and a subsequent crisis. Those fears came true as two regional banks, Silicon Valley Bank (SVB) and Signature Bank (SB), collapsed on March 10 and 12, respectively.
Bank failures are rare and they are almost unheard of outside of recessions. SVB and SB became the two largest banks to fail since the Global Financial Crisis. Their demise was swift as they unraveled in just a few business days. Fears of contagion spread across the globe and eventually claimed Credit Suisse a week later on March 19 as it was bought by UBS with assistance from the Swiss government.
We examine the short and long term implications of recent developments in our analysis.
At this stage, the banking crisis appears to be more of a bump in the road rather than a crippling pothole or crater.
Let’s take a look at the macroeconomic backdrop that led to this recent bank crisis.
The massive stimulus put in place to fight off the pandemic led to a significant growth in bank deposits and loans. The large regional banks were at the forefront of this surge in loan growth. While their share of the total U.S. loan book was less than 20% in 2019, they accounted for almost 40% of subsequent loan growth. Deposits also grew more rapidly in comparison to their normal pre-Covid levels.
This rapid increase in bank balance sheets came about in an era of easy money and abundant liquidity. As we all know now, those factors also caused a sharp spike in inflation and abruptly triggered the most rapid monetary tightening cycle ever.
Regional banks are less regulated than the systemically important large banks. Their governance oversight, risk management practices and capital resilience eventually proved inadequate to withstand the dramatic rise in interest rates and the unprecedented speed of a run on deposits.
Here is a look at how this banking crisis may be different from previous ones and some of its short and long term implications.
Comparisons to 2008
How does the current banking crisis compare to the Global Financial Crisis (GFC) in 2008? Will the events of March unleash a tidal wave of losses and bankruptcies and a deep global recession?
At this point, we do not believe that the current banking crisis will be nearly as severe or protracted as the GFC. Our optimism is based largely on the different origin of this crisis and the swift policy response that has limited its contagion so far.
Different Causes and Scope
Virtually all banking crises in the past can be traced to large loan losses stemming from bad credit. These losses typically arise from aggressive lending and poor underwriting. Borrowers turn out to be less creditworthy than believed and become progressively weaker as the crisis unfolds.
The transmission of a banking crisis into the broad economy follows a typical playbook. Loan losses diminish bank capital and inhibit the ability to lend in the future. The decline in loan growth then slows consumer spending and capital investments. The intensity and duration of this contagion eventually drives the depth of the ensuing recession.
However, the trigger for this banking crisis in March was not related to credit. It was instead a duration effect related to the rapid rise in interest rates. We know the basic bank business model is to borrow short and lend long. Bank deposits are short-term liabilities and bank loans are long-term assets. Bank balance sheets have an intrinsic duration mismatch where assets are more sensitive to interest rates than liabilities.
The rapid rise in interest rates triggered this duration risk and created unrealized losses in the long term bonds and loans within bank portfolios. The same rapid rise in rates also made money market funds at non-banks more attractive than bank deposits. Even as bank deposits were declining in a flight to money market funds, regional banks became vulnerable to another unusual risk.
Bank deposits are insured by the FDIC up to $250,000. Regional banks generally work more closely with small businesses. With a corporate clientele that typically maintains large balances, regional banks ended up with a high proportion of uninsured deposits in excess of $250,000.
Silicon Valley Bank catered predominantly to the venture capital community within its geographic reach. Given its client base, SVB ended up with one of the highest proportions of uninsured deposits among all banks at over 90%.
The decline of bank deposits at SVB was initially driven by the liquidity needs of its clientele as venture capital funding dried up. As SVB sold off assets and incurred losses to offset the initial decline in deposits, things quickly snowballed out of control as depositors feared for the safety of their remaining uninsured deposits.
In a brave new world of digital banking and social media, depositors pulled out a record $42 billion in deposits in one single day on March 9.
In an unprecedented bank run in terms of speed, SVB collapsed in two business days.
Unlike prior banking crises, this one was triggered by the unique confluence of a concentrated customer base in one single industry and geography, inadequate liquidity provisions and a lack of proactive regulatory oversight.
While a credit crunch may yet develop in the coming months, this banking crisis so far is different in that it has not seen large credit losses from defaults or bankruptcies. The SVB failure was not credit-driven, but rather a classic run on the bank created by a crisis of confidence and the ease of digital banking.
And finally, a quick word on the likely scope of this crisis in the coming months. This banking crisis is likely to be far less severe and systemic than the GFC because of one key difference – the health of the U.S. consumer.
The consumer, who drives 70% of the U.S. economy, is far more resilient today than was the case in 2008. The consumer balance sheet is healthy with no signs of excessive leverage. In a still-strong jobs market, consumer incomes are robust. While showing welcome signs of slowing down from an inflation point of view, consumer spending is still solid.
Timely Policy Response
The potential contagion from the failures of SVB and SB in one single weekend was controlled when the U.S. government announced that it would backstop all deposits at the two failed banks. In a similar vein, global contagion was contained the following weekend as the Swiss government intervened to prevent a potential chaotic failure of Credit Suisse.
The Fed also stepped up its liquidity provisions in the wake of the SVB and SB failures. The Fed’s Discount Window borrowing shot past $150 billion in the week ending March 15. The Fed also opened up a Bank Term Funding Program to offer loans of up to one year to depository institutions pledging qualified assets as collateral.
The Fed’s actions have caused its balance sheet to expand in recent weeks as shown in Figure 1.
Source: Federal Reserve
The Fed balance sheet grew to almost $9 trillion in 2022 and had fallen to a low of $8.3 trillion on March 8. The liquidity provisions to mitigate the March banking crisis saw its balance sheet grow again by more than $400 billion.
We believe that the Fed will further expand its balance sheet as needed to ward off a larger scale banking crisis. The additional liquidity will be aimed at stabilization as opposed to an intentional and stimulative increase of the money supply. These funds will help banks preserve or replenish bank capital. They are less likely to be deployed into the real economy in the form of new loans and add to the velocity of money through the multiplier effect.
Banks and Commercial Real Estate
One of the biggest concerns about the current banking situation is the refinancing of commercial real estate (CRE) debt in the near term. The fear of defaults and more bank losses is especially acute for the office segment as excess supply overwhelms lower demand in the new era of remote work.
We know that commercial real estate will be hampered by the higher cost of refinancing as rates have gone higher. We focus on the risks for the sector from the lack of availability of capital, not just the higher cost of capital.
Here are some salient details of the commercial real estate debt market.
Total commercial real estate debt is around $4.5 trillion
38% of this debt is held by banks and thrifts
However, all commercial real estate debt makes up only 12% of total bank domestic loans
The commercial real estate debt coming due in the next 3 years is almost $1.5 trillion. The office debt maturing in the next 3 years is 12% of that amount or about $180 billion. We observe that both the low share of office debt as a % of total CRE debt and the low share of total CRE debt as a % of all bank loans may limit the impact of office debt defaults more than investors currently fear.
We also point to a more subtle positive observation in the composition of office loans maturing in 2023 and 2024. This is shown in Figure 2.
Source: RCA, Cushman & Wakefield Research
Each bar in Figure 2 breaks down office loans maturing in any given year by the original term loan.It tells us how many of the loans maturing in any year were originated recently (in the last 3 years) and how many loans are more seasoned (over 5 years old).
Let’s take a closer look at just the shaded box in Figure 2 above which highlights office loans maturing in 2023 and 2024. We can see here that most of these maturing loans are seasoned with an original loan term of 5 years or longer.
We believe the original term of loans maturing in the next two years is relevant for the following reason. From the time that these more seasoned loans were originated, the underlying properties had a greater chance to appreciate in value before the onset of higher interest rates. This accrued value appreciation will make refinancing easier even if bank lending standards tighten and loan-to-value ratios come down.
By the same token, the loans most at risk of default would be those that originated recently in the last 3 years. These properties have likely lost value both from non-performance and higher cap rates. On a positive note, they make up a smaller percentage of all office loans maturing in 2023 and 2024.
The cascading impact of the rise in interest rates so far will play out in the commercial real estate market over several months. A likely pause in the Fed tightening cycle will provide welcome relief for all segments of the real estate market.
At this point, we do not see a dire debt crisis stemming from commercial real estate.
It is inevitable that the end of easy money and the banking crisis of 2023 will leave us with long-term shifts in bank regulations and business models. Here are some quick thoughts on secular changes in regulatory oversight, profitability and valuations.
It is quite likely that we will see greater regulation of regional banks with at least $100 billion in assets. The key lesson from SVB is how to incorporate unrealized losses in banks’ securities portfolios into regulatory capital.
It would also make sense to apply “enhanced prudential standards” to regional banks with assets of more than $100 billion. These standards will subject smaller banks to new stress tests and liquidity rules. We expect bank oversight and scrutiny will become more stringent to assess funding sources and concentration risks. Regulators may also act to deter a run on deposits with additional protection at a greater cost to the banking sector.
The greater burden of regulatory oversight and compliance is likely to bring down profitability and valuations for most financial institutions. The ones who can fundamentally restructure and organize their business models around specific customer needs may be able to avoid this adverse fate.
Let’s take a step back to see how this micro banking crisis fits into the bigger macro picture for the economy and markets. In that context, it is helpful to recap the latest trends in inflation, jobs and overall growth.
Even as headline inflation continues to decline at a meaningful clip, core inflation has remained largely unchanged in recent months. Unlike the skeptics on this front, we expect shelter costs and wages to also decline gradually in the coming months.
Job growth has slowed down in recent months but still remains healthy with more than 200,000 new jobs created in March. Other metrics of economic activity continue to show a gradual deceleration. We see evidence of an orderly economic slowdown, but no signs of a precipitous and chaotic fall into a deep recession.
At the time of this writing, the contagion from the regional bank crisis in March to the broader U.S. economy seems to be contained. The recent bank failures will likely slow credit growth through tighter lending standards in the coming months. At the margin, this will further slow economic growth.
On the other hand, the “tightening” from slower loan growth will help the Fed pause sooner and pivot to rate cuts earlier than expected. We believe these two effects will offset one another and may well rule out significant changes in the economic outlook.
At this early stage, we do not expect the banking crisis to materially add to the depth of any impending recession.
The risks which triggered the recent bank failures were unusual and different than those seen in previous crises. We summarize our key takeaways and insights on the topic as follows.
The current bank crisis arose from duration and liquidity risks which were triggered by a historically rapid run on deposits, not from the more adverse risk of negative credit exposure.
Timely policy responses have so far contained the regional bank crisis without any material side effects.
We believe bank regulators and the Fed also have enough policy flexibility going forward to stave off a major systemic shock to the U.S. economy.
The disinflationary effects of slower loan growth may help the Fed pause and pivot sooner than expected.
We believe that any potential recession will likely remain short and shallow.
As uncertain as the last few years have been, the events from March add a new dimension of risk to the economic and market outlook. We are even more vigilant, careful and prudent in managing portfolios during these volatile times.
Whittier Trust is pleased to announce that Dr. Jerrold D. Green has joined the wealth management company's board of directors. Dr. Green is a renowned scholar and executive with extensive experience in global business and diplomacy.
As President and Chief Executive Officer of the Pacific Council on International Policy in Los Angeles, Dr. Green brings a wealth of knowledge and expertise to the Whittier Trust board. He is also a Research Professor at the University of Southern California’s Annenberg School for Communication and Journalism.
Prior to joining the Pacific Council, Dr. Green was a Partner at Best Associates, a privately held merchant banking firm with global operations, and occupied senior management positions at the RAND Corporation, where he was awarded the RAND Medal for Excellence. He is also a member of the Council on Foreign Relations, the Lincoln Club, the Advisory Board of the Center for Public Diplomacy at the University of Southern California and the Bill Richardson Center for Diplomacy/FBI Hostage Recovery Fusion Cell Influencers Group.
Dr. Green's distinguished career includes serving for eight years as a member of the United States Secretary of the Navy Advisory Panel, where he was awarded the Department of the Navy's Distinguished Civilian Service Award. He has also served on the U.S. Department of State Advisory Committee on International Economic Policy, the Board of Directors of the California Club, and the Board of Falcon Waterfree Technologies. Dr. Green also holds a B.A. (summa cum laude) from the University of Massachusetts/Boston, as well as an M.A. and Ph.D. in Political Science from the University of Chicago.
In addition to his academic and business achievements, Dr. Green has been recognized for his contributions to public service and the international trade community. He is a Reserve Deputy Sheriff with the Los Angeles Sheriff's Department and was accorded the department's Meritorious Service Award. In 2019, he was honored by the Los Angeles Area Chamber of Commerce with its World Trade Week Stanley T. Olafson Bronze Plaque Award, which recognizes “a member of the international trade community whose outstanding dedication, efforts and achievements have advanced trade in the Southern California region.”
"We are thrilled to welcome Dr. Green to the Whittier Trust board of directors," said Whittier Trust President and CEO, David A. Dahl. "His deep expertise in international affairs, public policy and business will be invaluable as we continue to grow and provide the highest level of service to our clients."
Whittier Trust announces the retirement of Paul Cantor after 13 years of extraordinary service and commitment as Executive Vice President, Client Advisor, and Northwest Regional manager.
Nickolaus Momyer, Senior Vice President and Senior Portfolio Manager with Whittier Trust, will assume the role of Northwest Regional Manager, Senior Vice President, Senior Portfolio Manager.
“Paul’s many years of service have been a gift to us here at Whittier Trust and to our clients. He has been a valuable part of our expansion in the Portland and Seattle markets and a huge reason the Northwest Office was named a Top Five Multifamily Office by the Society of Trust and Estate Practitioners in 2021. We are saddened to see him go and to lose his presence in the office, but we’re also so grateful for what he’s done for our clients.” — David Dahl, Whittier Trust President & CEO
In his new role, Nick Momyer will take over the leadership of Whittier Trust’s Northwest Region. The Seattle and Portland Offices are two of Whittier Trust’s many growing teams and client bases, reflecting a continued effort to connect with individuals and families locally. In his continuing role as a Senior Portfolio Manager, Nick is responsible for helping establish the investment philosophy of the firm. He’s also responsible for the selection of individual securities and appropriate asset allocation ranges for client portfolios.
“Nick Momyer was the clear choice to succeed Paul as Northwest Regional Manager. Nick has a long resume full of great experience behind him, and he’s done exceptional work in focusing on our clients and enhancing the Northwest Team. Nick is deeply embedded in the northwest area through his work as a board member with The Seattle Public Library Foundation and as a member of the Investment Committee at The Mountaineers. His commitment to the local community aligns with Whittier Trust’s vision to make a meaningful and lasting difference in the communities that we do business in,” said Dahl.
Whittier Trust pros share insights about why a career path in finance can be rewarding—and challenging
Pursuing a career as a finance professional, especially in investment wealth management, can be worthwhile and fulfilling. At Whittier Trust, advisors are the heartbeat of the company, making a career path in finance an opportunity to impact the lives of their clients in a positive way. What are the important skills to cultivate and the steps required for success in this field? Two of Whittier Trust’s client advisors weigh in with some things to consider.
For a finance professional, even in a high-tech world, human competency still matters.
Although technology has introduced new methods to manage finances, including online banking, web-based investing platforms and digital wallets, the expertise of a wealth advisor, accountant or financial analyst cannot be substituted by any application. That personal touch and tailored approach is evident at Whittier Trust, where the company maintains a low client to advisor ratio. “The personality traits and skills needed at Whittier include insight and analysis, problem solving, interpersonal skills, confidence, knowledge of digital tools, strategic and analytical skills, adaptability, honesty and strong values, strong leadership skills, industry-specific knowledge and more,” says Whittier Trust SVP and Senior Client Advisor Lauren M. Peterson. She adds that being adaptable and agile to accommodate clients’ varying needs is another lynchpin for success.
Finding the best careers in finance: a well-rounded skill set primes advisors up for success.
Cultivating that mix of hard and soft skills is one of the many keys to success for a financial professional. They must be able to evaluate the risks and opportunities of any financial decision and create a detailed plan to accomplish their goals. This includes staying current on industry and economic news, growing relationships with other professionals in the industry and knowing how to execute the agreed upon course of action.
Finally—and importantly—they must communicate effectively while considering emotional factors that could be in play for a client, Peterson notes. “This career path as a financial professional would not be good for someone who is not numbers savvy, disciplined, able to think strategically and lacks interpersonal skills,” she says.
A client-first approach makes a difference.
At Whittier Trust, no client request is too big or too small to garner attention from an advisor. “Whittier Trust encourages all employees to exhibit the entrepreneurial spirit that allows us to wear more than one hat within our role for serving clients,” explains Associate Client Advisor Thomas Porter. “That means finding innovative solutions for our clients while carefully considering all factors of a decision in a timely manner. It means being able to clearly communicate to clients or your colleagues, while also being an effective listener who can address and understand what is being communicated.”
The industry continues to grow, making a career path in finance a bright one.
Even in an uncertain economy, some industries are on the rise. According to predictions by the U.S. Bureau of Labor Statistics, opportunities in business and finance are expected to increase by 7% from 2021 to 2031, slightly surpassing the average anticipated growth rate for all occupations in the United States. Some of the best careers in finance made the U.S. News and World Report “100 Best Jobs” list in 2023. A financial manager, actuary, accountant and financial analyst all made the list.
It’s good news, both for the clients who rely on savvy finance professionals and for those strategic thinkers who would choose this career path. “Working in finance becomes rewarding when you realize the impact you can have on others,” Porter says. “Using my background, I can help others make otherwise difficult decisions about their lives to minimize stress allowing for more time doing the things they enjoy with the people they love.”
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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.
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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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.
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.
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.
Whittier Trust hires Sharon Perlin as Senior Vice President and Client Advisor with their Seattle and Portland offices.
Sharon brings to her new role five years as a Senior Fiduciary Advisor for Wells Fargo Private Bank, and one year as a Trust officer for Bank of America Private Wealth Management. Prior to wealth management, Sharon practiced law as a trust and estate attorney. Before her time in Seattle, Sharon worked for the Foreign Service, training foreign service and military personnel serving in US embassies in the Middle East.
As a client advisor in the Seattle and Portland offices, Sharon will work closely with clients to understand their priorities, goals and philosophies. With an eye on tax mitigation, she will also help individuals and families steward their wealth and navigate their personal circumstances and complex familial relationship dynamics.
“Sharon is a natural fit for Whittier Trust. Her efforts to approach wealth management holistically and nurture the human element align with Whittier Trust’s mission to put the client first. We’re excited to have someone with her background and experience on the team. She’s going to do a stellar job.” – Nick Momyer, Senior Vice President, Senior Portfolio Manager, Northwest Regional Manager.
Sharon earned her degree at the University of Pennsylvania before graduating with a law degree from the University of Washington School of Law. She loves reading good novels as well as camping and hiking with her husband and three children.