Over the past few years there has been more attention in the media regarding the aging baby boomer. We see and hear more and more references to both the Sandwich Generation and Solo Agers, but what do those terms mean?

THE SANDWICH GENERATION
The Merriam-Webster dictionary defines the Sandwich Generation as "a generation of people who are caring for their aging parents while supporting their own children".

Aging relatives requiring help with day-to-day living, financial and emotional support present unique challenges. Complicating matters even further is that many of today's families are separated by distance.

It is estimated that 7 to 10 million adults are caring for aging parents from a long distance. In order to plan effectively for these aging relatives, you must talk with them about their finances and their plans for the future. If they are not comfortable discussing these matters with you, encourage them to seek advice from a professional experienced in providing solutions and services.

If you are one of the millions of caregivers in the Sandwich Generation, it is important to seek balance in your life so that you are adequately prepared to handle such challenges. Finding that balance requires asking for assistance and you may be surprised by what resources are available. Obtaining the guidance of professionals who are qualified to deal with the unique financial situations you face is a step in the right direction. 

The demanding role of the caregiver leads to some difficult questions.

  • How do you give equal time to your family both young and old?
  • When do you find time for yourself?
  • How do I find the resources that I need for myself and my loved ones?

Answering these questions and putting them into action as well as juggling the financial needs of an older relative and your family can be a daunting task. We have many years of experience helping members of the Sandwich Generation meet these challenges. We can be a resource.

THE SOLO AGER
According to the AARP publication, Solo Agers: Attitudes and Experiences February 2021, "As the older population in the United States has grown, so has the number of one-person households. In fact, as recently as 2018, two in ten adults age 50-plus lived alone. These people face potential disadvantages such as not enjoying the potential cost sharing, social support, and/or physical help that can result from co-habitation. But there is a subset of one-person households that face an additional challenge - not having any living children to rely on as they age. This group, called Solo Agers and sometimes referred to as Elder Orphans, are at least 50 years old, live alone, are not married nor partnered in a long-term relationship, and have no living children".

The traditional model of children helping their parents navigate the obstacles of old age cannot work for everyone, because a large fraction of these boomers won't have spouses or children to rely upon. Sara Zeff Gerber, Ph.D., the author of Essential Retirement Planning for Solo Agers: A Retirement and Aging Roadmap for Single and Childless Adults, wrote "Solo Agers need to arrange future legal guardianship for themselves - someone who will take over in a fiduciary capacity if they are unable to make decisions for themselves. The person may be a relative or a friend or even a professional fiduciary".

Just like with those in the Sandwich Generation, we have experience and specialize in stepping in and stepping up to help Solo Agers without a support system of relatives to plan for the future.

I would like to share with you our new advertisements targeted to the Sandwich Generation and Solo Ager in hopes of our being a resource to help these individuals to plan for today and the future.
FAMOUS WILL FOR THE MONTH WARREN BURGER
CLICK THE NAME TO READ
CLICK THE NAME TO READ
It is hard to believe that Warren Burger, the former Chief Justice of the United States Supreme Court left a176-word Will. Yes, a 176 word Will! The Will says nothing about taxes. Neither does it give any specified powers to his executors, nor does it provide for any contingent beneficiaries. There is speculation that his failure to elaborate his wishes cost his estate thousands of dollars in additional fees. 
Insurers have reported a surprising spike in excess deaths among younger populations. Read more about this in the Informational Article, The Pandemic and Life Insurance. In the How Much Compensation is "Reasonable"? Article the IRS is on the lookout for disguised dividends.

Before the interstate opened and air travel became more affordable, the most relaxing (and fashionable) way to travel the United States was by train. In the Of Interest Articles see The Most Scenic Train Trips In The United States.

On a humanitarian note, we at Garden State Trust Company applaud the strength and resolve of the Ukrainian people as they face the brutal onslaught of the Russian forces. We stand in solidarity with them and pray for a peaceful end to the hostilities.

Sincerely,
Ira J. Brower, Founder
The Pandemic and Life Insurance
In 2019, the last pre-pandemic year, deaths in the USA totaled 2.85 million. This jumped to 3.39 million in 2020, with most of the excess deaths attributed to Covid-19. The excess deaths happened primarily among the elderly, who were more vulnerable to the disease and had the most severe cases.

In 2021 the vaccines became available, and it was hoped that because the most vulnerable populations had already experienced the disease, the death rate would go down. It did not. Total deaths in 2021 rose again, to 3.42 million, according to the CDC. The increase was so severe that the CDC lowered life expectancy by 1.8 years.

The most surprising, perhaps alarming aspect of the excess deaths in 2021 is that they occurred in younger populations. Companies that provide group life insurance policies to businesses noticed the trend beginning in the third quarter of 2021. OneAmerica announced that deaths in its group life business were up 40% in the 18-64 age group. That's mild compared to the experience at Prudential. Andrew Sullivan, Executive Vice President, said that in the third quarter "We were expecting 30,000 deaths and we saw 95,000," as reported in Best's Review, AM Best's monthly insurance magazine. That translated into a $135 million loss in the third quarter for Prudential, compared to $22 million in operating income for the year-earlier period for that line of business.

There has been no clear explanation as yet for the increased deaths among the younger population. Among the suggestions are deaths from Covid-19, complications that developed after recovery from the disease, an increase in drug overdose deaths, and a reluctance to get medical attention during the period of high infection, which led to deaths from otherwise treatable diseases.

The increased payouts have not put the insurance industry in jeopardy, as they have been offset by gains in other business lines. The industry is well capitalized at this time. What's more, the group insurance policies typically have lower face amounts. However, Robert Wright, in a column at the American Institute for Economic Research, suggested that "life insurers are starting to think about increasing premiums and that is where matters could get interesting, because then they will have to take a stand on what is causing excess mortality, Covid-19 itself or the public health responses to Covid-19."

(March 2022)
© 2022 M.A. Co. All rights reserved.
How Much Compensation is "Reasonable"?
Clary Hood is an American success story. As a boy, he learned the land grading business from his father. He joined his father's firm when he graduated from high school in 1967, and worked there until 1980. That was the year Mr. Hood struck out on his own, founding Clary Hood Inc. with two employees and $60,000 worth of used equipment. The firm provided land grading and excavation services.

The company grew slowly. From 2000 to 2010, profits were irregular and net income was less that $1 million most years. The firm was hammered by the 2008 "Great Recession," suffering three straight years of operating losses. Clary Hood stayed afloat when other companies were going under because it did not have too much debt, employee pay was temporarily reduced, $800,000 of equipment was sold to offset losses, and Mr. Hood skipped his own salary when needed to meet payroll.

One of Clary Hood's biggest customers was Walmart. Projects for them provided about 20% of the firm's revenue from 1999 to 2011. However, the company had to bid competitively to get each new project, and the profit margin on this work fell to unsatisfactory levels. In the summer of 2011, to the surprise of the firm's executives, Mr. Hood announced that they would no longer accept jobs from Walmart. It was a risky move, but it paid off. New projects were found to replace the lost business, and they had much better profit margins.

The company went from a net loss of $120,530 in 2011 to net income over $7 million from 2013 to 2015, and $14.5 million in 2016. The growth was substantially attributable to Mr. Hood's efforts as CEO.

In 2014 the company consulted with their accountants, and decided to award Mr. Hood a $5 million bonus in 2015. This was to compensate him for the success that year, as well as for the earlier years in which he had taken less compensation than he might have to help keep the company afloat. In 2016, which was even more profitable for the firm, the same $5 million bonus was approved.

This caught the eye of the IRS, which believed that such compensation was unreasonable. Like many closely held companies, Clary Hood, Inc. never paid any dividends. Dividends are not deductible by the corporation, and so a corporate income tax must be paid on them, 35% for the years in issue. Once paid, the dividends are again taxable to the shareholder at rates up to 39.6% for those years. It's much more sensible to pay the owners more in compensation, which has the potential to be taxed only once.

With large compensation payouts, the IRS argues that part of the compensation is a disguised dividend, and therefore not deductible by the corporation. In this case, the IRS said that reasonable compensation for Mr. Hood was $517,964 in 2015 and $700,792 in 2016. For those two years, that meant the company owed over $3.2 million in additional corporate income tax and more than $330,000 in tax penalties for the understatements.

A trial ensued. The company argued for the "independent investor test" to determine reasonableness. That is, what would an independent investor be willing to pay someone to achieve the results that were accomplished? The successes the Mr. Hood achieved in bringing the firm to $70 million in revenue with 150 employees by 2016 easily satisfied this test.

But that is only one factor, the Tax Court ruled, and not a test that has been accepted by all courts. In the battle of the experts that ensued, the testimony from the IRS witness was given the most weight. The deliberations with the accountants for the 2015 bonus were well documented, and it covered past as well as current services. Accordingly, $3.2 million was reasonable for that year, the Court concluded, and there was no penalty for understatement of tax due. But for 2016, when the firm simply paid another $5 million bonus without stating the justification for it, only $1.3 million was reasonable compensation for doubling the firm's net profit from $7 million to $14 million, according to the Tax Court's crystal ball. And the penalty for understatement of taxes was in order.

(March 2022)
© 2022 M.A. Co. All rights reserved.
Q & A: Living Trusts
For centuries, living trusts have been a popular management tool for the preservation and growth of one's assets. Living trusts offer a remarkable degree of flexibility, helping people achieve their needs for today as well as for tomorrow. And for planning for the future, for coping with the unexpected. For maintaining financial security for loved ones and for organizing one's assets in an efficient manner. Not to mention the peace of mind that comes with having a solid plan in place for the management of one's wealth.

We often are asked questions about living trusts. We would like to share a few of the more common ones with you:

1. Is it difficult to set up a trust?
No. You start by discussing your financial concerns and investment goals with a trust officer or other wealth management professional along with your attorney, who will prepare the trust agreement.

2. What does the agreement say?
Generally, the agreement delineates that you, as grantor (creator) of the trust, are transferring assets to a legal entity (the trust) to be administered by a named trustee. A typical trust agreement arranges for income from the trust assets to be paid to a spouse (the income beneficiary) for his or her lifetime and then, after, to children (remainder beneficiaries).

3. Do I give up permanent control of my assets when I set up a living trust?
Absolutely not. The beauty of a living trust is that it's revocable at any time. What's more, you are able to make changes to your trust agreement as family, economic or investment circumstances dictate.

4. Who makes the investment decisions with regard to the assets in the trust?
Many people look for objective, unbiased portfolio supervision because they lack the time or specialized knowledge to do all the necessary investment homework themselves. We would be pleased to act in that capacity. But you may delegate as much or as little investment responsibility as you wish. For instance, you may spell out your goals and requirements in your trust agreement and leave the specific investment decisions to an investment advisor. Or you may ask that proposed investment changes be submitted for your approval. Or you may choose just to ask for recommendations and do your own research as well.

5. How much must I transfer to the trust?
Many people mistakenly believe that trusts are only for the very rich. But the great majority of people who set up trusts don't classify themselves as rich, and they don't have multimillion-dollar trusts. Many of them set up a trust when they sell a business, receive an inheritance or want to safeguard a retirement nest egg.

6. Why should I pick a corporate trustee rather than name an individual? 
Briefly put, a corporate trustee has the financial strength, investment management capabilities, reliability and responsiveness to meet your needs. We would be glad to explain more about the benefits of a corporate trustee, as well as the many benefits that a living trust can offer you and your family. Please feel free to contact us at any time.

© 2019 M.A. Co. All rights reserved.
Any developments occurring after March 1, 2019, are not reflected in this article.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2022. All rights reserved.