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IN THIS ISSUE
TAX NOTES FROM THE
2023 BUDGET PROPOSAL
"FOMO"
THE HISTORY OF FIGHTING
SERIOUS INFLATION
ARTICLES OF INTEREST
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Trusts for Protection
Those who have built wealth during a lifetime of hard work are rightfully concerned about how best to use that wealth for family financial security. Wealthy people want their heirs to have enough to be able to do anything, but not so much that they do not have to do something. Whether or not you consider yourself wealthy, everyone wants the same for their family. Family prosperity is something to be safeguarded from generation to generation.
What is the answer? How can wealth be well-looked-after and distributed on a long-term basis for the benefit of heirs? Trusts may be the answer.
Trust planning comes immediately to mind when planning for a surviving spouse or an heir who is a minor. With a trust one gets professional investment management guided by fiduciary principles. But what about when the children are fully grown, established in their careers and financially mature, in their 30s or even 40s? Even then, trust-based planning can be an excellent idea for many affluent families.
Trust Advantages
Among the key benefits that can be built into a trust-based wealth management plan:
Professional investment management. A significant securities portfolio is a wonderful thing to have, but it requires serious care and attention, especially when economic growth is weak; interest rates are low and rising; and taxes are uncertain. How can adequate income be provided to beneficiaries? What is the best asset allocation?
Creditor protection. One of the most frequent questions that we hear is, "How can I keep my money and property out of the hands of my son-in-law (or, sometimes, my daughter-in-law)?" We answer, employ the use of a trustee to protect and manage the trust assets, and give your heir or heirs the beneficial interest in the trust assets. A carefully designed trust plan can protect assets in divorce proceedings, as well as protect from improvident financial decisions by inexperienced beneficiaries.
Future flexibility. Parents typically have a tough time NOT treating their children "equally." As each child is unique, his or her needs may need financial support that is out of proportion to that of his or her siblings. We try to impress that sometimes you need to make decisions based upon what you know about your children and not to be always guided by your heart. By utilizing a trust for wealth management, one may give a trustee a similar level of discretion, permitting "equal treatment" or not based upon a request from the child. The trust agreement can guide the trustee in making these types of decisions.
Here are other types of trusts for children:
Support Trust
For an adult child who needs a permanent form of financial support, with the trust principal protected from the claims of creditors, a support trust may provide a solution. The beneficiary's interest is limited to just so much of the income as is needed for his or her support, education, and maintenance.
Discretionary Trust
The trustee has sole discretion over what to do with the income and principal, just as the grantor does before the trust is created. The beneficiary has no interest in the trust that can be pledged or transferred. When there are multiple beneficiaries, the trustee may weigh the needs of each in deciding how much trust income to distribute or reinvest, when to make principal distributions, and who should receive them. The trust document often will include guidelines on such matters.
Gift-to-Minors Trust
For young children, contributions in 2022 of up to $16,000 per year to this sort of trust will avoid gift taxes. Assets may be used for any purpose, including education funding, and will be counted as the child's assets for financial aid purposes. The assets of a gifts-to-minors trust must be made fully available to the child when he or she reaches age 21. However, the child may be given the option of leaving the assets in further trust.
We specialize in trusteeship and estate settlement. We are advocates for trust-based wealth management planning. If you have questions about how trusts work and whether a trust might be right for you, please call us.
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CLICK THE NAME TO READ
CLICK THE NAME TO READ
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George Michael Steinbrenner III was the owner and managing partner of the New York Yankees. During his 37-year ownership of the Yankees (from 1937 until his death in 2010), the Yankees won 7 World Series and 11 pennants. |
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Lately, every time you turn on the TV or read news online you are sure to see or read about inflation. Read more about inflation in the Informational Article, The History of Fighting Serious Inflation, a reminder of the extraordinary step Paul Volcker took to conquer 1970s inflation. In keeping with an investment theme, read "FOMO". Fear Of Missing Out is not a sound investment philosophy.
According to the Department of Interior, the goal of the National Park Service is, and has always been, to keep our wild places protected and unimpaired for future generations. To that end, more than 400 areas and 84 million acres spanning all 50 states and several unincorporated territories of the United States, protect America's greatest natural treasures. In the Of Interest Articles read Every U.S. National Park Ranked.
From all of us at Garden State Trust Company we wish everyone an enjoyable and safe summer season.
Sincerely,
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Tax Notes From the 2023 Budget Proposal |
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- restore the top 39.6% tax rate beginning in 2023;
- tax long-term capital gains and dividends as ordinary income for those with taxable income greater than $1 million;
- treat transfers of appreciated property by gift or at death as realization events, triggering capital gains taxes; and
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impose a new minimum tax of 20% for those with wealth of $100 million or more, to be applied to total income and unrealized capital gains. Such gains would only be taxed once.
Proposed changes in the estate and gift tax arena are likely of concern to more families, especially considering that the amount exempt from the federal estate tax will be cut in half in 2026.
GRATs. Grantor Retained Annuity Trusts would be required to have a term of at least ten years, and the minimum value for gift tax purposes would be the greater of 25% of the value of the assets or $500,000 (but not more than the value of the assets transferred). If the grantor acquired a trust asset in an exchange, gain or loss would have to be recognized for income tax purposes.
Grantor trusts. One of the useful tax benefits of a grantor trust is that the payment of the trust's income tax obligations by the grantor is not a taxable gift, even though the trust beneficiaries enjoy an economic benefit (and the grantor's taxable estate is reduced). This rule would be reversed, and such payments of income tax would be taxable gifts unless reimbursed by the trust.
Promissory notes. The administration is concerned that taxpayers may rely upon IRS-provided interest rates on promissory notes for gift tax purposes, but then look to market rates for valuing the same note after a death. A new consistency requirement would head off such strategies.
GST trusts. When the generation-skipping transfer tax was adopted, all the states had rules against perpetuities. That has changed, creating the possibility of a private trust that is shielded from the estate and gift tax for many generations, perhaps permanently in some cases. To combat such forward-looking tax planning, the proposal would limit the availability of the GST exemption to "direct skips and taxable distributions to beneficiaries no more than two generations below the transferor, and to younger generation beneficiaries who were alive at the creation of the trust" and to taxable terminations for such beneficiaries. Significantly, there is no "grandfathering" protection for older trusts. For purposes of this rule, trusts created before enactment of the new rule would be deemed to have been created on the date of enactment.
Whether any of these proposals will make it through Congress this year is uncertain at this time.
(June 2022)
© 2022 M.A. Co. All rights reserved.
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The Securities and Exchange Commission has created Investor.gov, a useful resource for the investing public prepared in ordinary, nonlegal and nontechnical language. The website includes financial tools and calculators, as well as articles of general interest for investors.
The "Director's Take" is a collection of such articles by Lori Schock, Director of the SEC's Office of Investor Education and Advocacy. One recent rumination is "Say No Go to FOMO." FOMO is the Fear of Missing Out, which has been the driver of certain crazes. We've witnessed an increase in investing fads recently. These include cryptocurrencies, meme stocks (propelled by social media), and non-fungible tokens. The SEC isn't about to forbid investing in these sorts of things, but they are warning against getting caught up in the emotions of investing in them, in surrendering to the fear of missing out on the next big thing. "You may see your favorite athlete, entertainer or social media influencer promoting these kinds of investment opportunities. Although it's tempting, never make a decision to invest based solely on their recommendation."
But there are three things that everyone should not miss out on, according to Ms. Schock.
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Paying off credit cards, because the interest rate on credit card debt is typically much higher than the return on most investments.
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Saving as much as possible as early as possible to take full advantage of the miracle of compound interest.
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Grabbing free money by deferring enough in a company retirement plan, such as a 401(k) plan, to qualify for the maximum company match. If the employer has a 50% match, for example, that's a guaranteed 50% return on investment in the first year--no ordinary investment is going to beat that.
(June 2022)
© 2022 M.A. Co. All rights reserved.
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The History of Fighting Serious Inflation |
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A year ago, government officials were saying that the sudden spurt of inflation was "transitory," the result of temporary bottlenecks arising from ending the pandemic-inspired lockdowns. The story changed last fall, as it became obvious that there is nothing transitory about the ongoing surge in prices throughout the economy. On June 2, Federal Reserve Vice Chairwoman Lael Brainard said that is it too early to say that inflation has peaked, and "We've still got a lot of work to do to get inflation down to our 2% target." Interest rate increases of one-half percent are expected in June and July, and perhaps again later in the year.
The last bout of sustained, persistent inflation happened in the 1970s. During that time the Federal Reserve followed a "go-stop" policy, lowering interest rates to fight recession and raising them to combat inflation. The error was leaving the easy money policy in place for too long, leading to still higher inflation, and then tightening for too short a period to do enough good. Because the markets observed the Fed's lack of fortitude, they had no expectations that the Fed would ever conquer inflation.
The turning point was President Carter's appointment of Paul Volcker to be Chairman of the Federal Reserve System in 1979. At his confirmation hearing, with inflation running at 9% annually, Volcker promised to make reducing inflation his top priority. The Fed pushed interest rates up slightly that fall, and unemployment rose to about 6%. Politicians were getting nervous, with some saying that interest rates would have to be cut again if unemployment reached 7%.
On October 6, 1979, the Saturday before the Columbus Day holiday, Volcker called an unusual evening press conference to report the results of an unscheduled meeting of the Federal Open Market Committee held earlier that day. He announced that the FOMC would shift its focus to managing the volume of bank reserves in the system instead of trying to manage the day-to-day level of the federal funds rate. He warned that interest rates would become more volatile as a result of the policy change. This focus on the quantity of money rather than interest rates was consistent with Milton Friedman's theories of the causes of inflation.
Inflation peaked at 11.6% in March 1980. The interest rate on Federal Funds reached a record high of 20% that year. The high interest rates lead to severe economic hardship for many, as small businesses suffered and high mortgage rates put home buying out of reach for many. There were calls for Volcker to resign or be impeached, including from the House Majority Leader. The high interest rates triggered a recession, and unemployment topped out at 10.8% in 1982. Volcker remained steadfast. As a result, inflation fell to 6.1% in early 1982 and then to 3.7% in 1983. This was followed by a long period of price stability, sometimes called the "Great Moderation," which lasted until 2007. By breaking with traditional operating procedures, and persevering despite a recession that was quite large by historical standards, the Fed re-established its credibility for maintaining low inflation.
(June 2022)
© 2022 M.A. Co. All rights reserved.
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Keep in mind it's almost impossible to say that one is better than the next -- there's truly something special about each one of our national parks. Read More
You may be surprised at how easy it is to make an expensive mistake with your beneficiary designations. Read More
Whether you call them diners, cafés, coffee shops, or family restaurants, these classic spots are worth celebrating. Read More
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WALL - MAIN OFFICE
732-255-5000
SOUTH JERSEY REGIONAL OFFICE
856-281-1300
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LEBANON REGIONAL OFFICE
908-287-7188
LINWOOD REGIONAL OFFICE
888-323-5535
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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. |
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