Post Type: White Papers

Jun 18th

How to Create an Estate Planning Blueprint

When it comes to estate planning, not having a plan is a plan. But not a good one.

That warning, according to Thomas Frank, executive vice president at Whittier Trust, goes for all ages. The wealth management and investment firm has high-net-worth clients in their thirties and forties who have yet to create an estate plan.

“Your assets can go to one of four places: family, friends, charity or the government,” said Frank, noting that’s a reminder that can give people the needed push to sit down and ensure their assets are being allocated how they wish.

Making sure your plan is optimized—so your beneficiaries can avoid probate and make the most of the gifts you plan to leave them—is crucial. Here are some tips on how to make sure your estate is as planned as possible.

Schedule Regular Check-Ins

“Estate planning isn’t a ‘set it and forget it’ task,” said Frank.

Think of your estate as constantly evolving. That means regularly sitting down with your advisor to make sure all your assets, plus circumstances such as the birth of a grandchild, are accounted for in your will. Ideally, these check-ins should be about every two years—but may be more frequent due to occurrences such as a birth or divorce.

Think Toward the Future

Of course, it’s not pleasant to think about what would happen if you were no longer around. But forecasting into the future can give you peace of mind in the present—and make things simpler for your beneficiaries. Not planning now can create problems down the line for your heirs.

“Estate and trust litigation is a booming field for attorneys, mostly because someone didn’t want to spend the time and money on legal fees to get it right and keep the plan up to date,” said Frank.

While a professional trustee typically charges a percentage of the assets of the trust, using a trustee may also mitigate the need for your beneficiaries to use additional professionals—such as investment managers or bookkeepers—regarding your estate.

Consider Your Options

As you set up your trust, know your options and discuss different setups—and their tax implications—with an estate planner. Irrevocable trusts, for example, cannot be altered or amended by a grantor and may offer tax benefits that a revocable trust—one that can be edited—may not. Talking through the pros and cons of options can help you figure out the best option for you.

“An irrevocable trust can be an effective asset protection vehicle, as well as a long-term management tool,” said Frank. On that note, it’s important to understand the laws of your state, since laws differ regarding who can and can’t modify a trust agreement.

You may also wish to assess whether lifetime gifting makes sense. This conversation is especially relevant now that the unified exemption amount is at $23.16 million per couple of lifetime and at-death gifts. For individuals and families with estates valued in excess of that per-couple threshold, strongly consider making lifetime gifts now before the possible drop in the exemption—which was temporarily increased through the Tax Cuts and Jobs Act. The IRS has indicated that such gifts will not be “clawed back” into the estate if the exemption amount does indeed drop in 2026, said Frank.

Appoint a Pro

It’s also important to consider the responsibility your estate will bring to your heirs. Are they competent, capable or willing to act in a trustee capacity? Depending on your assets, they may not be, said Frank. For example, your surgeon sister or attorney brother may not have the bandwidth to take on your real estate investments if you were to die. In a case like this, you may wish to consider a professional trustee to manage your complex portfolio.

A professional trustee has a fiduciary duty to do what’s best for the trust and for future generations. Depending on circumstances, it could make sense to give family members the right to remove and replace a trustee, which still gives your family a degree of flexibility and control in how the trust is handled.

Notify Your Beneficiaries of Your Wishes

When it comes to your estate plan, it’s smart to loop in your beneficiaries so there are no surprises or hurt feelings.

“Surprises tend to give rise to old family resentments,” said Frank. “If you’re leaving money to children, whether outright or in trust, a best practice is to give them a heads-up about the general plan.”

This doesn’t necessarily mean divulging all the financial details, just a broad summary of what you anticipate, as well as details about who will be trustees and executors of your estate.

The bottom line: When it comes to your estate, paying for professional services now can help you avoid headache and heartache later. A professional trustee can be a valuable sounding board as your estate evolves. And adding one now can ensure they get acquainted with your assets, your wishes and your beneficiaries.

Written in partnership with Forbes BrandVoice.

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Jun 2nd

A Family Office Can Give You Back Your Personal Time

A common misconception is that people with significant wealth spend their time as they please. But high-net-worth families rarely have as much free time as people believe. Whether they’re running a business, overseeing an investment portfolio or managing several households, life can be complex and busy. A family office, unlike a traditional financial advisor, can take a holistic approach to their financial and personal life. The result: more time to spend with family or commit to philanthropic interests. In short, they gain more personal time.

“Many people think a family office is like a trust department of a bank, but a family office provides much more than investment management or trust services,” said Lisa Edwards, a senior vice president and client advisor in the South Pasadena, California office of Whittier Trust. “A family office functions like a financial concierge and can do as little or as much as our clients want.”

At Whittier, each advisor has a maximum of 20 client relationships, said Edwards. That allows each family to receive the customized service and attention they prefer. While each has investable assets in excess of $10 million, no two clients are alike.

Creating significant wealth requires a lot of work, said Edwards, but staying wealthy takes lots of work, too. A family office can lighten that workload.

Financial Freedom and Time Management

Each of Edwards’ clients has a different approach to what they want the family office to provide. In one case, a patriarch who generated wealth for his children and grandchildren has a quarterly meeting with Edwards and a team of advisors to review all aspects of his investments and legacy planning.

“He has a strong philosophy about his finances and his legacy,” she said. “We provide him with a comprehensive notebook that he keeps for his own reference, but we take the day-to-day burden off him so he can do what he wants with his time.”

In this case, he is deeply involved with youth programs that he founded and has spent more time with family.

“One client texts us a couple of times a month to bounce investment ideas off of us,” said Edwards. “We’re ready to respond in a holistic way because we know his goals and his other investments, his risk tolerance and his lifestyle.”

How much help clients want often changes as the relationship grows. The family office can handle an array of services, including bill paying, asset management, estate and tax planning and philanthropic activities. As clients grow more comfortable with the firm, they often seek out additional services.

“There’s usually one point of entry, such as someone comes to us and says, ‘We want to start a foundation’–or they have a $20 million investment and they want us to take over just that investment account while they manage the rest,” said Edwards.

Support for Business and Philanthropy

A family office can provide succession planning help or establish a philanthropic foundation.

For example, one of Edwards’ clients with a successful closely-held business decided to avoid potential family conflict by developing a succession plan with the current company’s executive team.

“We serve on the board so we know the company intimately and we can help reinforce the management team, which doesn’t include family members,” said Edwards.

In other cases, family members may be part of the business’s succession plan. Either way, the family office’s intimate knowledge of the business and people involved allows advisors to coach and prepare everyone for the future.

For another client, the matriarch wanted to take the reins of the family foundation. Edwards and her team of advisors established the nuts-and-bolts of the foundation and provided coaching in foundation management and leadership for all the family members on the board of the organization. “We took them from ‘deer in the headlights’ to a cohesive, well-informed team of advisors, one of my proudest accomplishments.”

Manager of Managers

Whittier Trust advisors and their clients have access to an extensive network of experts in investing, real estate, insurance and estate planning. In addition, many of their clients have assets managed or custodied with other companies.

“Our role may be to be the manager of their managers,” said Edwards. “If we put all the information together from a grand scale, we can prevent a family from having too many of your assets allocated in one single industry or even a single stock. We can look at asset diversification across all their managers to ensure it ties to the family’s investment objectives.”

Based on this information, the firm creates holistic reports that blend accounts from different managers. Most people are hesitant at first to turn over their whole financial world to one company, which is why it can take years for the relationship to develop. The neutrality of Whittier helps build trust.

Services For Multiple Generations

Sustaining wealth through multiple generations is a primary goal for high-net-worth families, and one that a family office can support.

“A huge benefit for families is the consistency and seamlessness we provide to preserve wealth for the next generation,” said Edwards.

“Financial literacy is provided individually to prepare heirs to handle their wealth and at family meetings to generate dialogue between older and younger generations, particularly to explain the parents’ philosophy to the next generation,” said Edwards.

“We strive to find a different, perhaps younger client advisor in the firm to work with the younger generation, so they have their own advocate and can establish their own relationship,” she said. “That way, the person has their own identity and confidentiality, but the advisors can work cohesively so there aren’t conflicting messages or something that would be adverse to the portfolio.”

For example, the son of one of Edwards’ clients is interested in real estate.

“He sent us a deal that he’s looking at, and we took it to our real estate department to vet it,” said Edwards. “We were able to tell him what we see that’s good and bad about the deal to talk him through that, as opposed to just handing him a check.” He is also learning about debt financing and structuring the ownership entity for maximum tax-efficiency and liability protection.

The freedom that comes with a family office allows her clients to focus on other pursuits, worry free. “I guess you might say we give them the confidence to have peace of mind,” said Edwards.

Written in partnership with Forbes BrandVoice.

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May 21st

Why High-Net-Worth Families Need More than Just a Bookkeeper: The Benefits of Family Office Investment Management

While most financial institutions provide expertise around money matters, few can provide the completely personal services of a family office—much less help someone with a longing for a llama. Dedicated family wealth management goes beyond just experienced family office investment management, and our wealth management advisors understand that. 

“We ask our clients what they’re passionate about, and one woman told us that since she was 9 years old, she wanted to own a llama,” said Tim McCarthy, managing director of business development for the South Pasadena office of Whittier Trust.

After more than a year of research, McCarthy and other experts at Whittier, a wealth management and investment firm, determined there were a few cities where it would be legal to own a llama, which is identified as an exotic animal.

“I relayed to our client that if she really wanted a llama, she would need to move to a city that permitted them. My client told me she was willing to move, so we helped her buy a house and sell her previous house,” said McCarthy. “The day of the closing, I called to let her know she could get her llama, and she told me three were being delivered that day.”

Whether it helps clients navigate a career change, mitigate family quarrels or negotiate a lease for a new business, a family office does far more than just pay the bills.

“Our work always starts with the money and ends with the family,” said McCarthy.

The Multifunctional Family Office

There’s no universal description of what a family office does, said McCarthy, in part because the services vary by client. Bookkeeping, bill paying and ancillary financial services are commonly thought of as family office services, but McCarthy said his office of wealth management advisors, which serves as a “multifamily office, provides a much more robust and comprehensive function.”

As a family wealth management office, they have experts in all financial matters including trusts, investments, insurance, real estate and philanthropy. If they lack expertise in anything, they will track down the appropriate source of information for their clients.

“We take a holistic approach to your entire life,” said McCarthy. “We look at your financial balance sheet, your assets and your liabilities, but we get more involved with your life balance sheet. We talk about priceless things that matter to you—like your spouse, your kids, your grandkids, educating your kids and grandkids, your reputation and your health.”

A true family office, said McCarthy, is skilled at the nuances of protecting and building on those life balance sheet assets.

Those with $10 million or more in investible assets probably have accounting and investing services in place, but often experience only cookie-cutter solutions. A family office, and family office investment management, meanwhile, “provides you a blank sheet of paper to decide where you want to go,” he added. “We spend our time focused on your plan, the way you want it. Part of that effort is perpetuating your culture and values on to future generations, and part of it is mitigating the unintended consequences of life that all of us experience at one point or another.”

Those goals can include things like legacy planning or teaching your kids to be good stewards of wealth.

Personalized Services

The history of Whittier Trust and its experience with more than 440 high-net-worth families informs the advisors as they deliver customized services.

“We know how to reduce the unintended consequences of wealth,” said McCarthy. “We’ve heard our families say, ‘We don’t want wealth to tear the family apart.'”

Because advisors become very familiar with the families they serve, they can be proactive as well as reactive when a family member needs help with almost anything. For example, Whittier can establish a family governance plan to avoid future potential issues with in-laws as the children become adults. Advisors have helped the adult children of their clients choose a health insurance policy, evaluate real estate and even handle the aftermath of a car accident.

While multigenerational families are among its clients, Whittier also works with individuals and couples to handle the day-to-day minutia of owning real estate or any task they prefer to outsource.

“If something is keeping you up at night, we’re the first call you should make, even if it’s not a financial issue,” said McCarthy. “The majority of our business is not financial. If your kids don’t get along or your grandkids are struggling to reach potential, we have experience with a broad range of client types.”

While most clients start working with Whittier for investment management, most utilize other services within 60 months or less, according to McCarthy.

Wealth management advisors, for instance, can look at the numbers to help someone decide if they should lease or buy a car, give them advice on business succession or discuss family governance.

Preserving Wealth Through A Holistic Approach

The holistic approach that a family office, and family office investment management, takes helps clients not only build wealth—but also identify ways to spend less or generate income that contributes to the family’s success. A family office like Whittier, which doesn’t sell investment products or insurance, can do a comprehensive study of their clients’ policies, portfolios and assets to make recommendations that are in their clients’ best interest.

One family, for example, was able to reduce their spending on insurance while increasing their benefits thanks to our family wealth management, said McCarthy. Others improve their real estate holdings with the help of experts who can renegotiate leases and recommend which properties to sell and buy. The company’s tax experts can help families manage their portfolios to reduce their tax liability.

While building a legacy can be exciting and exhilarating, a family office to manage and preserve that money for family and for philanthropic purposes can be an invaluable source of support that goes way beyond bookkeeping. 

Written in partnership with Forbes BrandVoice.

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Apr 17th

Philanthropic Response Options During the COVID-19 Crisis

Private philanthropy has always played a critical role in disaster relief efforts. While it certainly can’t and shouldn’t take the place of well-funded governmental aid programs, private donors have proven time and again to be more nimble and flexible, and their philanthropy can serve to help meet the immediate needs of those affected as they wait for the government to react. It can also fill in gaps not covered by governmental programs.

That said, it can be challenging for philanthropists and their charitable vehicles to know how best to help, especially when the factual landscape is shifting so quickly. Below are some suggestions you may find helpful as you begin to develop a strategy that works best for you.

1. Augment what you’re already doing for the organizations you already love

From our countless conversations with nonprofits, we can say without reservation that they are all struggling right now. The demand for services by health care, education and social service providers is spiking. At the same time, revenues are down: arts-related nonprofits have lost vital ticket sales revenue, and those that depend on sales from thrift stores or retail sales have seen that income vanish. Regardless of mission, all nonprofits are having to enable their staffs to work remotely and/or implement costly new sanitizing procedures.

Consider these ideas:

  • Relax requirements – excuse your organizations from the burden of submitting reports or full proposals for support.
  • Eliminate restrictions – if your current support is for a restricted program, let the organization know they can use your already-awarded funds for anything they need.
  • Suspend reporting requirements for a period of time.
  • Ask about particular COVID-19-related needs and consider making additional one-time grants to help keep them afloat without having to lay off staff, so they can remain in a position to continue carrying out their mission when the immediate crisis ends.

2. Support coordinated relief efforts by trusted agencies

  • Locally: Perhaps the best way to support response efforts in your own back yard is to contribute to relief funds set up by either your local community foundation or your city or county governments.1
    • The Mayor’s Fund (Los Angeles)
    • The Mayor’s COVID-19 Emergency Response Fund supports a variety of emergency response activities: medical equipment and protective gear, meal delivery for elderly, testing and housing for the homeless, and childcare for health care workers. The Angeleno Fund is providing direct and immediate financial assistance for individuals and families experiencing extreme financial hardship caused by the COVID-19 crisis.
    • California Community Foundation launched the COVID-19 LA County Response Fund to address the immediate and longer-term needs of our region’s most vulnerable residents. This fund will support community needs identified by CCF’s partners in health, housing, education and immigration, and will aid impacted individuals through CCF’s Pass It Along Fund.
    • Philanthropy CA (in partnership with Southern California Grantmakers & Northern California Grantmakers) has curated a comprehensive list of national, statewide and local efforts by category. Once you open the link, click on the “Response Funds” tab, and you can filter by geography, scope and targeted communities.
    • Great Public Schools Now, in partnership with several Los Angeles community organizations, has established a COVID-19 response fund. Donations will go directly to Los Angeles families to meet basic needs such as food, rent, medical care, childcare, gas, and transportation.
    • Many hospitals are setting up relief funds specific to Covid-19: See CDC Foundation Combat Coronavirus.
    • The American Red Cross has posted safety resources on their website as well as trusted guidance from both the County of Los Angeles Public Health Department and the CDC. The ARC-Los Angeles Region has already served over two million meals in partnership with the Los Angeles Unified School District. This operation will likely continue through the end of the school year. The Red Cross has also provided thousands of blankets to the City of Los Angeles for homeless citizens who are being sheltered in City recreation centers during the outbreak.
  • Nationally:
  • Internationally:
    • Via Charities Aid Foundation (CAF) America, donors can make tax-receipted, regulatory-compliant contributions to support the work of hospitals, community-based organizations, and other charities that are mobilizing around the world to provide support to those affected by COVID-19. On their website, you can browse the list of organizations vetted by CAF America that are working to provide relief on the ground.
    • The World Health Organization (WHO) is also leading and coordinating a global effort, supporting countries to prevent, detect, and respond to the pandemic. Donations here support WHO’s work to track and understand the spread of the virus; to ensure patients get the care they need and frontline workers get essential supplies and information; and to accelerate efforts to develop vaccines, tests, and treatments.

3. Peruse other helpful resources

1Please note that the examples included in this list are for the Los Angeles County area. For other regions, the best place to start is likely your local community foundation or the grantmaking association serving your area’s funders.
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Apr 7th

Wealth Planning in Down Markets and Low Interest Rates

The down market and low interest rates present significant estate planning opportunities – making this a very favorable time to consider wealth planning strategies for your family.

In the past decade, we have seen an unprecedented era of low market volatility and positive returns. However, in a matter of just a few weeks, the stock market has plunged from record highs back to levels from 2017. This downturn is coupled with a move to record low interest rates. While in the short-term it is unsettling, current market conditions create opportunities for long-term family enrichment. In 2020, an individual can transfer up to $11.58 million ($23.16 million per married couple) during lifetime or at death, free of federal gift and estate tax to children, grandchildren and future generations. Additional amounts transferred are subject to a federal tax at 40%. After December 31, 2025, exemption amounts are set to return to roughly half of that, meaning that any estate valued at over roughly $5.75 million in current dollars ($11.58 million per married couple) may be subject to that 40% tax in future years. For those seeking to transfer wealth over several generations, there is a similar amount available as an exemption from the generation skipping transfer tax (“GST tax”). (It should be noted that these taxes may be seen as convenient sources of tax revenue, resulting in an acceleration in the timing of the return to lower levels, or in a significant reduction in the exemptions to even lower levels, or an increase in rates if Congress and the President choose to do so. Thus, it is appropriate to consider making current use of these exemptions.)

Here are some planning opportunities to consider:

Make Intra-Family Loans

It is now possible to loan money at a nominal interest rate to a family member without being deemed to have made a gift. The IRS requires that the interest rate on loans between family members not be lower than the Applicable Federal Rate (or “AFR”). This rate changes monthly, but can be fixed for the life of the loan. In fact, the rate has fallen dramatically and may continue to decline. By way of example, for April 2020, the “mid-term” AFR (for loans of 3 to 9 years) is 0.99% – declining from 1.53% in March 2020. The loan can be structured as “interest only” with a balloon payment due at maturity.

Make an Installment Sale to an Intentionally Defective Grantor Trust

An Intentionally Defective Grantor Trust (“IDGT”) is an irrevocable trust that is designed to make the grantor responsible for the trust’s income taxes including capital gain taxes (with this tax payment not being deemed a gift). An installment sale to an IDGT is another way to freeze the value of assets in the grantor’s estate, with appreciation above the IRS required rate of interest going to the trust beneficiaries. This appreciation is further enhanced due to the “defective” feature of these trusts which requires the grantor/lender to pay taxes – thus allowing assets in the trust to grow income-tax free.

Create a Grantor Retained Annuity Trust or Charitable Lead Annuity Trust

A Grantor Retained Annuity Trust (“GRAT”) is an irrevocable trust that pays back to the grantor a percentage of the value of the assets contributed for a period of two or more years, and at the end of the term, the assets remaining either distribute to the remainder beneficiaries (i.e. the beneficiaries other than the grantor) or remain in trust for their benefit. With careful planning, a GRAT strategy can work to shift this future appreciation at little or no gift tax cost. For a GRAT to be successful, the appreciation must exceed the IRS’s assumed rate which is based upon (but is slightly higher than) the AFR rate described above. Creating a GRAT and funding it with stocks that have dropped significantly due to the present downturn can be a great way of increasing the potential for a significant transfer of wealth — again, at little or no gift tax cost.

A Charitable Lead Annuity Trust is similar to a GRAT, with the payments over the initial term of years being made to charity (which can include a donor-advised fund created by the grantor) instead of the grantor. Depending on how the CLT is structured, the grantor may receive a current income tax deduction. And like a GRAT, the value of the trust at the end of the initial term of years passes free of gift tax to the remainder beneficiaries. For individuals with philanthropic inclinations, a CLT in the current environment presents an excellent opportunity to benefit both charity and their family.

Gift Interests in Family Businesses

Giving interests in family businesses, including investment vehicles such as family limited partnerships, is another excellent planning tool during times of market volatility. The business itself may be facing issues which have decreased its overall value significantly. And similarly, the value of the underlying assets owned by the business, whether publicly-traded securities, real estate or an operating business, may have been impacted by market swings or other economic factors. Making a gift when the asset has dipped in value can maximize the assets passed to future generations. And if you transfer a partial interest in the business, discount opportunities (sometimes as much as 30% or more) off the pro rata share of the business’s value remain possible under current IRS rules due to the lack of control and lack of marketability associated with the partial interest. An appraisal will be needed to support the valuation.

Establish a Multigenerational Nevada Irrevocable Trust

Now also may be an excellent time to gift securities or interests in a family business through the use of a multigenerational Nevada irrevocable trust. Gifts for the benefit of your family can be made to long-term trusts using your exemption from GST tax (currently $11.58 million per individual). A Nevada irrevocable trust can exist for 365 years, allowing families to pass wealth into the future through many generations, without incurring federal transfer taxes. In addition, Nevada does not impose income tax on individuals or trusts, so income can accumulate and grow over time, free of state income tax – thus further enhancing overall growth over the life of the trust.

Convert a Traditional IRA to a Roth IRA

An individual with a Traditional IRA should consider converting it to a Roth IRA. A Roth IRA is a retirement account that grows income tax free, allows contributions to be made at any age (subject to limitations), generally provides for tax-free withdrawals after age 59 1/2, and has no required minimum distributions (RMDs) – and importantly, future distributions will be income tax free. The cost of Roth conversions amounts to income tax (which can be paid from non-IRA assets) due on the conversion amount. With IRAs at lower values due to the market downturn, the tax bill on Roth conversions will be significantly less than would have been the case just weeks ago and the appreciation in the account following recovery will be tax free.

Substitute Assets in Existing Trusts

If you have previously created an irrevocable grantor trust, such as an intentionally defective grantor trust which permits a substitution of assets, swapping assets with better potential for growth can optimize the ultimate benefit of the trust. This may be an excellent time to review the tax basis and fair market value of the assets currently in a trust and identify those that have low basis and high value – while also reviewing your balance sheet and identifying assets with high basis and low value that will likely appreciate over time. You can then develop and execute a plan to substitute assets with your trustee and tax advisors.

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Feb 20th

German Deficit Spending

If you get paid to borrow, why not spend?

The world currently has over $13 trillion of negative yielding bonds and the German government is able to borrow for ten years at negative -0.40%. Conceiving of an economy as a business, you would think that a business able to borrow for free, should also be capable of finding a positive net present value project in which to invest its cost-free capital. This seemingly straightforward economic principle is pushed to its logical limit by Germany’s current conundrum: with the economy flirting with the brink of recession, why not engage in deficit spending to reignite growth? After all, the cost of borrowing is negative, suggesting that the bar for what constitutes an economic value-adding project is low.

For mature economies, characterized by increasing age dependency ratios, declining birth rates, persistently low inflation expectations and muted growth prospects, it seems like the time is now to engage in fiscal spending to ignite lacking growth. As the largest manufacturing economy in Europe, Germany has benefited from robust global trade, specifically its exports to China. However, Germany’s heavy reliance on exports has been the result of a confluence of events, namely a high savings rate, low domestic consumption and a robust manufacturing complex that makes a lot of what the world wants. However, the sustainability and desirability of being so reliant on exports and China is being questioned: with China slowing (and looking to shift its consumption inward, thereby being less reliant on importing from countries like Germany going forward), does it not make sense for Germany to take steps to fortify its own domestic economy and reignite German spending spirits? The prudence of relying on China and exports for GDP growth is called all the more into question by the relative strength of countries like the United States, which are spending domestically and benefiting from strong at-home propensity to consume.

Why is Germany so hesitant to engage in fiscal spending to support its economy in light of slowing global trade? A brief glance at history suggests that the hyperinflation of the 1920s, subsequent rise of the Weimar Republic and consequent policymaker fear that any deficit spending will result in uncontrollable inflation and social upheaval, are to blame. However, a more nuanced look at history shows that Germany’s deficit spending history is more complex, with Germany not always having been so tight with its purse strings. For example, after reunification in 1990, Germany ran government deficits for twenty years, expanding its debt to over 80% of GDP by 2010 in order to fund the heavy payments necessary to reconstruct Eastern Germany. This growth in debt led to the 2009 Debt Brake law, which constitutionally mandates a balanced budget – however, the cause for breaching the 60% debt/GDP threshold established by the 1992 Maastricht Treaty was as much the economic difficulties of reunification as it was a reaction to any longer-term historical abhorrence for the use of debt (even if that debt has negative interest rates).

Given the choice of paying lip service to fiscal conservatism via remaining wedded to the zero budget deficit objective or spending money to ignite growth in a world in which the global trade paradigm has shifted to looking out for #1, Germany should seriously consider the latter option. We are in a period of elevated global tensions characterized by countries looking to bolster growth channels at home, with the endgame of becoming less reliant on outside economies (and thus other governments’ policies) for domestic economic well-being. This reality suggests that countries need to develop a domestic economy and not be overly reliant on global growth, lest they find themselves playing alone in the global trade sandbox. Against this backdrop, a few suggestions as to what Germany could spend on at home to generate domestically-driven growth: infrastructure spending, developing 5G technology and overhauling energy-related infrastructure to maintain dominance in the global auto industry (which is of particular importance, given tightening emissions standards).

Will Germany finally make use of negative borrowing rates to boost demand? Economic principles, current attitudes toward globalization and a genuine need to modernize domestic infrastructure all point to yes – it’s time for Germany to part ways with stringent austerity and embrace negative interest rates as a way to boost domestic investment and growth – though this may be a surprise that global markets are not yet anticipating.

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Feb 8th

Why Lifetime Gifting Should Be Central To Your Estate Plan

Right now, the lifetime exemption for gifts and estates is the highest it has ever been—$11.58 million for individuals or a $23.16 million joint exemption for married people. But this number isn’t permanent and could change. That’s why financial advisors are saying it’s a smart idea to put vehicles in place, like trusts, to enable seamless lifetime gifting.

“Some people are waiting to do things based on how things land, politically, but that could leave them scrambling if things were to change,” said Rebecca Duguid, a senior vice president and client advisor at Whittier Trust. “The earlier you get the process started, the better.”

Having vehicles in place now can give you the maximum flexibility in terms of gifting to kids and grandkids — and can also help your children and grandkids learn how to be wise stewards of your wealth. That’s because, while “trust fund kid” has become a cliché, having access to a trust fund can help people in their twenties and thirties manage money effectively, especially when working in tandem with a financial or trust advisor.

Giving yourself time and space to answer these questions now and setting up effective trust vehicles for the future can also allow you the time to watch your children or grandkids enjoy and safeguard your wealth. “We want to pass our wealth down to the next generation, and hope they’ll do the same,” said Duguid. Here are some things to consider when you begin gifting to the next generation.

Ensure Your Heirs Have What They Need

One “easy” way to divide wealth is to create what is called a pot trust. In this scenario, Duguid explained, the money is in one trust, with equal access given to children to request distributions. A trustee will be named, and then, a distribution will be made if the trustee agrees to a request. Distributions can have provisions, such as health, maintenance, support, or education expenses. While this trust may seem “simple,” Duguid said that it could create fractures in families.

“Different children will have different needs, so family dynamics can be much easier to manage when you create separate trusts,” said Duguid.

It’s also smart to consider how you want the trust dispersed—and what makes the most sense for the family’s needs. “Every client does it differently, giving money to children at different ages. You have to consider at what ages your children are going to be able to manage and be good stewards of the wealth you are passing down,” said Duguid.

This type of trust can be a helpful way to guide adult children through milestones such as real estate purchases, marriage, and children’s educations—without running the risk that they will “blow through” the trust. There may also be trust setups that accommodate your legacy wishes, such as establishing a dynasty trust that can be accessed by heirs long after the lifetime of your original beneficiaries.

Consider Your Assets And Share Your Plan

A diverse portfolio of real estate holdings, businesses, and private assets can complicate lifetime gifting. That’s why it can be a good idea to work with an advisor who has deep trust experience to create multiple trusts based on your holdings and your financial wishes. For example, if you have a business or real estate holdings, you may consider establishing an intentionally defective grantor trust to hold assets. This can remove appreciated assets from your estate to pass along to your children while allowing gifts to grow, and the grantor pays the taxes.

“We have many families that own businesses, and they are trying to figure out the best way to gift the business, especially while the lifetime gift exemption is at an all-time high,” shared Duguid. One example of this type of arrangement, “Parents are in their seventies and are still heavily involved in the business and were able to set up an intentionally defective grantor trust.”

In this example, the kids are involved in the planning process, which can be helpful in keeping everyone involved on the same page. If you are planning to pass down a business or real estate holdings, it can be smart to speak with a professional to find out the best way to do so.

Lifetime Gifting Works Best With A Fiduciary

High-net-worth individuals know that wealth is a big responsibility—which is why Duguid said it is a smart idea to make sure your children and grandchildren have a fiduciary to guide them through financial moves.

The amount of interaction you or your heirs want with a wealth advisor is personal—and can change over a lifetime. “We have some relationships where our involvement is less while we have others where we guide them through life decisions such as buying a house and getting a prenup,” said Duguid.

Make Plans To Gift Today

Of course, you may not be ready to seed a lifetime gift into a trust. But the important thing, Duguid said, is to have vehicles in place, have your questions answered and have time and space to consider the psychological and financial implications of gifting during your lifetime. The decisions—who to choose as a trustee, how you want your assets distributed, distribution provisions—can also take time, conversations, and professional consultation. But making these moves now can save your loved ones money later.

“The last outcome you want is to have to pay estate tax because you did not take advantage of the lifetime gift exemption, that is currently at an all-time high and is anticipated to go down substantially” said Duguid.

Written in partnership with Forbes BrandVoice.

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WHY LIFETIME GIFTING SHOULD BE CENTRAL TO YOUR ESTATE PLAN

  1. Ensure Your Heirs Have What They Need
  2. Consider Your Assets and Share Your Plan
  3. Lifetime Gifting Works Best with a Fiduciary
  4. Make Plans to Gift Today
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