The Boogeyman has arrived!  And it’s not even Halloween!  When you hear about identity theft, you think that it won’t happen to you.  Especially when we write articles and teach others how to protect themselves against such occurrences.  With the recent Equifax breach, this nightmare has hit home to millions of Americans- 143 estimated million, in fact.  When it happens to one of the big guys that is supposed to help protect us from these thieves, then it really gets scary.  So, what to do now?  Well, there are a few steps you can take to determine if you have been subject to this breach and then, what to do about it.

 

First, go to the Equifax website- www.equifaxsecurity2017.com/potential-impact.  It will ask for information to determine whether or not they think you have been compromised.  If so, they will provide you with one year of free credit monitoring and identity theft protection services.  Once you enroll, you will be sent an e-mail to confirm your enrollment.  However, there is a very high enrollment rate, so the e-mail may take some time to arrive.

 

What should you do in the meantime?  The same things that we have suggested that you do in another article- which are steps that you should always take to protect your identity.  We will list a few here.

 

  • Obtain a copy of your credit report! That’s an obvious one.  Check it for errors, unauthorized information, etc.
  • Lock your credit report so that new creditors can’t access it unless you unlock it. Then, monitor the file on a regular basis.
  • Consider using a credit monitoring company. You may even have a service available to you from your bank or other financial company.  There are other companies available that offer a variety of fee-based services.
  • If necessary, freeze your credit report. You will have to contact each agency to do so, but if the breach is serious enough, it will be worth the effort.
  • Everyday efforts should include never having your Social Security card in your wallet or purse, maintaining strict controls over passwords and using ones that are not easy to figure out, utilizing a single credit card with a low limit for online purchases and shredding sensitive documents on a regular basis.

 

We live in a brave new world and we must take steps to protect ourselves.  It’s not fun and certainly entails taking additional precautions, but as the old saying goes, “an ounce of prevention is worth a pound of cure”!

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely. 

The most carefully thought-out estate plans can go badly awry if one simple detail isn’t attended to carefully. That detail is designating the beneficiaries for everything from trusts and wills to insurance policies and bank accounts.

It’s easy to overlook these important details, but as circumstances change, outdated beneficiary designations can completely derail your intentions. This is a matter that can require fairly frequent attention. Ideally – and your financial advisor can help with this – you’ll review all of these on a consistent schedule.

In estate planning, we’ll often do a lot of work creating a plan to make sure our clients’ assets — the accumulation of a lifetime’s wealth — are disposed of exactly as they wish. And yet it’s entirely too common for the client to go and mess up the whole thing by inadvertently changing – or neglecting to change — a beneficiary designation. This can easily defeat the estate plan’s whole purpose!

All that time, effort, money, etc. can go down the drain due to one simple oversight.

For example, just the other day we were talking with a client who has changed her will several times for various reasons. But through it all, she has been entirely consistent about one thing: she is crystal clear about what she wants her family to get. Or, in one case, not to get.

However, recently she has made some changes to bank accounts because she believes she is starting to experience dementia. That realization is a positive thing; sadly, too many people in the same situation are in denial and refuse to seek help. Fortunately, this client recognized that she does need help in managing her money. When we heard this, we asked her if she had added a certain family member’s name to her bank account. No, she said, not yet. But she was planning to do so.

That set off alarm bells. We told her that, if she did put this relative’s name on her bank account, all the money in that account would pass directly to that person at her death. We thought she was going to keel over right then and there! She has six figures in that account and absolutely does NOT want that money going to that particular relative.

She was under the very common misperception that putting someone else’s name on an account would just give them access needed to help pay bills and balance the checkbook. What she didn’t realize was that this change would remove that account from her estate. So instead of being distributed in accordance with her will, that money would just become the property of the relative whose name was on the account.

Whether it’s a bank account, an investment account or an insurance policy, people all too often designate beneficiaries at the beginning and then forget all about it. And unfortunately, a too common example is a divorced person who has neglected to remove the ex-spouse as a beneficiary.

Even if you don’t think a change is needed, it’s a very good idea to double-check these designations every so often, just to be sure everything is up to date.

We had a client who needed to change the designation on a life insurance policy. She found out that it listed an incorrect address and Social Security number for the previous beneficiary! Like so many people, she had not contacted the insurance company since she first bought the policy, so no one realized the information was incorrect.

Any important life event, such as a birth, marriage, divorce, etc., should trigger a review of all beneficiary designations. The objective is simple: to ensure that they are still what the owner intends. This is crucial for a very important legal reason. No matter what intent is written into a will or trust, it will be superseded by whatever beneficiary designations are on file.

The best-laid plans of mice and men! If the designations are out of sync with the will or trust, all that planning will be for naught.

Some types of assets or accounts will get special treatment if the spouse is named the beneficiary. Those include such retirement accounts as IRAs and 401(k)s. So, assuming the marriage is harmonious and there’s no other reason not to do so, it’s a good idea to name the spouse as beneficiary.

If in doubt about whether beneficiary designations are in sync or at odds with the rest of your estate plan, you should review everything with your estate planner or investment advisor. It would be a shame for all your planning to end in a stalemate.

One other very important consideration is naming contingent beneficiaries. Just in case the person or persons you name don’t survive you, specifying who would be next in line eliminates any guesswork or uncertainty. Yes, we all think we’re invincible, and we can predict who will go in what order. And yet I have seen 80-year-old clients who have outlived heirs in their 30s. It can and does happen. Consider the rare but real possibility, for example, that both estate owner and beneficiary might die together in a car wreck or plane crash.

A somewhat related matter is that if any of your beneficiaries are minors, you should be sure to specify who will be handling the money for them.

The bottom line: any well-designed investment portfolio or estate plan requires periodic checkups. It’s always a good idea to review your beneficiary designations as part of that process.

 

 

 

 

 

 

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely. 

As we continue our steadfast dedication to our clients and our community, we are excited to share the news of the repositioning of our corporate headquarters to the eastern corridor of the historic Revolution Mill.  Ours is a company with an extensive history, upheld by humble concepts that have been passed down for generations: a dedication to taking care of clients and employees and staying above board and honest in all business transactions.  The underpinning of such efforts is a history of proven customer satisfaction – a product of our having remained an independent company, providing the most personalized service available.

The origins and philosophy of the Old North State can be traced back to the early 1900’s, shortly after the Sternbergers and Cone Brothers broke ground on what would later become the world’s largest exclusive textile producing mill, and later dubbed Revolution Mill.  Denis de St. Aubin, founder and CEO of Old North State Trust, formed our company over two decades ago in an effort to manage family assets tied to the sale of a family clothing and hosiery business that was first established in 1916.  In 1992 he started a Registered Investment Company, which soon-after evolved into a full-service provider with expertise in Financial and Estate Planning, Portfolio Management, Retirement Plans, and Trust Services.  Having received its charter from the Commissioner of Banks in 2004 to officially operate as a trust company, Old North State Trust remains the only Greensboro-based financial firm whose entire team of experts work in unanimity and under the same roof, bolstering the synergy among different departments that results in higher efficiency and superior results for our clients.

The new year will help to commemorate where it all began for Old North State Trust, as we look forward to relocating our Greensboro headquarters to the recently restored Revolution Mill.  This measure will weave together the antiquity of the historic North Carolina landmark and our dyed-in-the-wool culture of family success realized strictly through that of our clients and the families we serve.

We thank you all for joining us in support of our history – and our future.

 

 

 

Note – we plan to celebrate our new office transition appropriately, and we hope you will be able to join us in that celebration.  Please expect further details in the very near future!

 

One of the toughest problems we face in designing trusts for our clients is an estate that can’t be easily liquidated without incurring sizable losses. One excellent solution is what’s called an irrevocable life insurance trust. It’s an important way that we help deal with estates made up largely or entirely of illiquid assets.

By that, of course, I mean anything that can’t readily be converted to cash, as stocks, bonds or mutual funds can. Common examples of illiquid assets are real estate and privately-held businesses, including S corporations and LLCs. We include real estate in this category because, unfortunately, market cycles can make some parcels or buildings difficult if not impossible to sell when cash is most needed. Or, if they can be sold, they may not command what they would be worth in a better market, or when conditions are right to develop the property.  There are also times, especially here in our great state, when there are parcels of land that are held for many years by one generation as farmland that may be difficult to market as something else.

Life insurance policies are a good way to ensure that heirs can get cash, but they have their drawbacks. A lump-sum insurance settlement may not be appropriate for certain beneficiaries. A life insurance trust is a means to avoid these drawbacks.

These are important considerations for some clients. We once had to work with an estate whose assets were mostly illiquid, without the benefit of a life insurance trust, and it turned into an eight-year-old nightmare.

If you’re considering setting up a life insurance trust, you should be aware of a couple of very important details. One is that this is something to plan well in advance. The way the federal law works, until an insurance policy has been in the trust for three years, its proceeds are taxable just as if there were no trust- due to gift tax laws. So, this may not be worthwhile for someone in poor health who doesn’t expect to survive three years. The other consideration is that this kind of trust is irrevocable. Not only can’t it be reversed, it also can’t be amended once it’s set up. So, it’s important to think through very carefully how you want the insurance proceeds to be used.

Here, in simplified terms, is how a life insurance trust works.

The trust becomes both the owner and the beneficiary of one or more life insurance policies. You, as “grantor,” transfer ownership of your policies to the trust. Because you don’t own them anymore, they won’t be considered part of your estate after your death.

The trust itself is set up to benefit the grantor’s heirs, such as spouse, children, or grandchildren. When the grantor dies, the insurance proceeds go into the trust. The trust then can invest that money and administer it for the benefit of the survivors, or distribute it according to pre-specified instructions.

And, again, because the trust owns the policies, the proceeds aren’t subject to estate tax. That’s true even if the estate’s other assets might put it over the taxation threshold.

Setting up the trust can get complicated. One tricky issue is to decide whether the trust is “funded” or “unfunded.” A funded trust has other assets, besides the insurance policies. Income from those assets pays the policy premiums. An unfunded trust requires its grantor to make regular contributions so premiums get paid. This has its own complex tax implications. Of course, the funding issue is moot if the insurance consists entirely of paid-up whole life policies. All these questions get deep into the weeds of tax law, which is why setting up such a trust is a job for experts.

We sometimes get asked: “I already have good life insurance and my estate isn’t likely to be taxable, so why bother setting up one of these trusts?” One very good reason is to shield your beneficiaries from the temptations that can come with getting a big chunk of cash all at once, as insurance policies typically pay out. The person getting the money might be a child or otherwise unsophisticated in money management, and unlikely to invest it well — or at all. You may well believe your beneficiaries’ interests are best served by having someone else, such as a trust, handling their funds.

A life insurance trust is also a better idea than just putting your life insurance policies in somebody else’s name. Yes, that might avoid estate taxes – unless the policies’ owner dies first! Then the value of the policy is part of that other person’s estate and may be taxable after all. The other problem is a loss of control. Remember, the trust is irrevocable! Not so with an insurance policy that somebody else owns. They could easily change the beneficiary or cancel the policy, or if it’s whole life, cash it in for themselves. That can’t happen with a trust.

So, for anyone whose assets are mostly tied up in real estate or in a business, a life insurance trust is a safe and reliable way to get liquid assets to your heirs without a big tax bite.

 

 

 

 

 

 

 

 

 

 

 

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely. 

When most of us think about writing a will, it’s our assets we have in mind, and which of our survivors will get what. But sometimes an estate must address the balance sheet’s negative side, too. That’s why we urge all our clients to think about their debts when drafting a will.

Sometimes this isn’t a big deal. That’s true of most of our clients. If you owe only small amounts of money, these minor debts can easily be paid off from your estate’s liquid assets. Likewise, if you are leaving all or most of your estate to your spouse or dividing it evenly among just a few people, the will’s executor can decide how to retire those debts.

Even so, it’s always a good idea to avoid any misunderstandings or hurt feelings among your beneficiaries by spelling out your intentions. That includes not just how each debt will be addressed, but who will be responsible for it and what assets should be used.

One important fact is that, except for secured loans, debt can’t be inherited. (We’ll get to those secured debts in a moment.) So even in the worst cases, your heirs won’t end up in the hole. But they might end up getting little or nothing if the estate’s assets must be used to repay the obligations you leave behind.

One of our Trust Officers recently heard about an interesting historical example of this. An associate who has been researching his family’s history discovered a will that a wealthy ancestor wrote almost 200 years ago. Although he made elaborate provisions for how his vast estates and other property would be divided among his widow and children, one paragraph stood out painfully.

“As to my debts, the magnitude of which fills me with apprehension,” he directed his executors to sell specified lands to retire those obligations, and “at least to assist and advise my wife in the arduous undertaking of rescuing my family from ruin.” As it turned out, the debts proved so overwhelming that the executors could not save the family “from ruin.” They had to sell off nearly all the man’s estate to satisfy his creditors. Thus, the children got nothing from their father’s fortune and had to start from scratch to get their educations and earn their own livings.

Some things just don’t change very much!

About those secured debts: these are the ones backed by a lien on a property, anything from a mortgage to a car loan. In those instances, the collateral can be distributed to the heirs without having to pay off the loan. But the new owner then owes the balance on the mortgage or other note. So, if the owner leaves a house worth $500,000 to a child, and the mortgage still has a $250,000 balance, that child would have a choice. Either continue to pay on the existing mortgage, or use other assets (maybe the cash portion of an inheritance) to pay it off, or sell the house and retire the debt.

If you think an heir might have trouble managing the debt on this sort of inherited property, your will could also leave specific assets to be used to pay off that debt. This is a prime example of how thinking ahead can help you accomplish what you wish. In other words, leave your heirs with a benefit and not a burden.

All other debts—meaning those not backed by collateral—must be paid first from the estate’s assets. Examples would include credit card balances, personal lines of credit, margin accounts with brokers, and certain types of business loans. Outstanding medical bills fall into this category, too.

Instead of leaving it to the executor to figure out what’s owed, and which assets to use in paying off the debts, we’re constantly preaching the importance of spelling out the details. For instance, you might have something special, say a collection of valuable gold coins, that you want a particular heir to get, as well as a money market account. By instructing the executor to use that boring but valuable source of cash to retire your outstanding loans, you help ensure the collectibles don’t get sold before the heir ever sees them.

By law, an estate’s assets have to be used in a specific order. In general terms, it’s like this: first, the costs of probate, the funeral and burial; next, any estate tax and other back taxes; then all the unsecured debts; and finally, all bequests to heirs and other beneficiaries. It’s a good idea to give those beneficiaries a realistic idea of what they stand to receive. In other words, subtract what’s owed before writing specific promises into the will.

For example, if your estate is worth $4 million and you have four heirs, you might write the will to say each gets a quarter. But instead of collecting $1 million each, those beneficiaries might actually inherit significantly less. If outstanding debts and tax obligations take $1 million from the estate, then those four heirs will divide up just $3 million, or $750,000 each. Now that’s still a very nice inheritance, but it’s best not to raise unrealistic expectations, only to force the poor executor to dash them.

 

 

 

 

 

 

 

 

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.

Estate planning challenges include mastering financial markets, tax laws, and other arcane technicalities. But often what’s the very trickiest, when deciding how to leave your assets, are the psychological issues.

These can range from an aversion to thinking about death to complicated feelings about children, in-laws, and other relations.

We have had several clients who have struggled with deciding how to allocate their assets after they were gone. One all-too-common issue is an emotional or moral paralysis. As an example, a married couple we work with know they need estate planning and have done most of the necessary work, but they just won’t sign the documents. They have paid to have their lawyer draft the documents, but even when these trust papers are complete and ready for their signatures, they can’t get to the dotted line.

We know they have been estranged from their children, and we have been working on this long enough that they have managed to reconcile with some of them. But they just won’t sign.

We have been working with a third party who brought us into this situation, so, unfortunately, we’re not close enough to the couple to figure out precisely what the problem is in signing the paperwork. Even though we have been working on this for almost five years, it’s at a stand-still. Rational considerations tell them that their high net worth and their business put far more at stake than just family matters.

But the less rational issues often overshadow the nuts-and-bolts, dollars-and-cents calculations. This is one reason we’re convinced that financial advisers can best serve our clients when we know them, not just as a portfolio of assets, but as people with families, histories, hopes, dreams, and worries.

Another of our clients had four children, but only two grandchildren. She couldn’t choose who she should leave her assets to, beyond the children. We finally left it at letting those four children make those decisions individually in their own wills. This wasn’t ideal, but the client couldn’t bring herself to decide. After, many, many discussions, letting the problem flow downstream to the next generation was the best we could come up with at the time.

This client didn’t want to give to charity or to name either of the grandchildren. Being in her 80s, she figured she had a slim likelihood of seeing anything happen. Well, guess what? Her grandson and a son both died, within months of each other. The trust she had set up for the son ended up going to the granddaughter, which she wasn’t happy about. All the conversations we’d had about that very possibility had been totally forgotten. Despite our best efforts up front, it took us a while to get back into her good graces.

A third client that had never married and had no children struggled with who he should leave his significant wealth to after he was gone. He did want to make specific bequests to a few friends, and to give the lion’s share to charities, but had a hard time deciding how much each should get. After many conversations, we finally found the underlying cause of it. His deep-seated fear was that, somehow, if he made a will, he would die. He never did get over the magical thinking that, by not making a will, he could live indefinitely. For many years, we managed his funds but he never did make a will. Finally, after he became ill, some distant relatives turned up and “helped” him make a will contrary to everything he had ever told me. Within weeks, he was dead.

Despite his uncertainty about what to do, he was always clear about what he didn’t want to happen. And yet his irrational fears meant he not only allowed but enabled all those things he didn’t want to happen.

Few issues are more challenging than when clients feel they are favoring one child over others. Maybe one can manage money better than another, or a child is married to someone the parents don’t like or trust. Perhaps the child has problems like addiction. Because the emotional challenges make it hard to think straight about such things, the best approach can be to work with an independent trustee or executor like Old North State Trust.

We don’t mean to scare people with horror stories. But these examples show that we have the experience to deal dispassionately, yet still empathetically, with these types of challenges. As disinterested third parties, we can deal with the heirs without drama when it’s time to distribute the funds.

A final example: one current client is a twenty-something who has never worked, does not work now, and has no intention of working. Yet he wants to live lavishly. His father, who recently died, was a well-respected doctor who worked hard all his life. The son believes he’s entitled to live the same lifestyle that his dad earned. We are now the one to tell him this isn’t going to happen.

No question these conversations have psychological ramifications, especially in a case like this where substance abuse mixes with feelings of entitlement. It’s necessary to approach these discussions in a way that won’t send the heir into a spiral but will let them clearly understand how things are going to work from now on.

 

 

 

 

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.

Most of us who make our livings watching the financial markets are aware of a phenomenon that is strange, but interesting. For reasons that may make sense – or make no sense whatsoever – a mythology has developed about certain trends or cycles that can affect market performance.

Oddly enough, some of these weird myths about the stock market seem to be mostly true! One is the so-called “January Effect.” Others, like the Super Bowl, the Presidential election, etc., are in the same category: weird, but true. Whether they are a sound basis for investment decision, of course, is another question.

And then there are plenty of other supposed cyclical effects that don’t hold up at all on close examination.

So why would investors trust something that seems like so much crystal-ball gazing or tea-leaf reading?

Because so much uncertainty encircles the investment process, investors will often grasp at something that appears to be solid.  The “January Effect” is one example of these “somethings.”  Simply put, the January Effect is the notion that the market usually rises in the month of January and that a good market performance in January bodes well for the entire year.  Over the last 60 years, when January logged a positive performance, the market was higher for the full year about 90% of the time.  When the market fell in January, the full year showed a negative return about 55% of the time.

There may be some basis for this, at least for the rising markets in the year’s first month. An analysis in “The Wall Street Journal” said so-called “tax loss selling” may explain much of the January effect. Investors seeking to minimize their tax burden will sell off securities that have underperformed. This can tend to artificially drive down those stocks’ prices in late December. But come January, the pressure to harvest losses to offset taxable gains disappears. And so, those prices tend to recover.

The January effect is most pronounced among small-cap stocks, the “Journal” article said, as well as with issues that are held more by individuals – motivated by tax considerations – than by institutional investors. Another factor that some analysts have seen is that the January effect is greater in years that tax rates decline. That’s because investors are more inclined to take advantage of offsetting losses under the prior year’s higher tax rates.

A similar phenomenon, but one without any actual connection to market activity, is the “Super Bowl Effect.”  More often than not, the stock market rises in the years when a team from the old National Football League (now the NFC) wins the Super Bowl. Hence, equity investors may have had another reason to cheer for the Atlanta Falcons this year. Sadly for those who believe in this notion, of course, the New England Patriots won this year, which should portend an off year for stocks.

According to an article in MarketWatch, this indicator has been right 40 of the 50 years the Super Bowl has been played. That 80% success rate is pretty astonishing in the world of market predictions, though it has not been quite so impressive in the last several years. The ratio of “correct” results since 2000 has been only 70%. MarketWatch editor Mike Murphy noted, “After being correct seven years in a row, 2016 defied the prognostication — the AFC’s Denver Broncos won the Super Bowl, but the stock market posted a yearly gain.”

Other “somethings” out there include the “Presidential Year Effect,” the “Halloween Indicator,” the “Mark Twain” effect, and so forth. All these observations are simple attempts to bring more certainty to the stock market.  And all these things are also totally absurd. Fun, perhaps, but absurd.

They are classic examples of “correlation without causation.” Just because two unrelated factors occur at the same time, one does not necessarily cause the other. The rooster’s crowing may be highly correlated with the rising sun, but the bird’s cry does not cause the sun to rise. Every year ice cream sales and accidental drownings show a remarkable correlation. Does eating ice cream cause drowning? Clearly not, but both tend to rise during the summer months.

The point is this: While these supposed effects are entertaining and sometimes mystifying, they aren’t a good basis for making decisions with your investments to buy, sell, or hold. There is no real substitute for keeping a careful eye on broader trends involving the market, the national and world economies, and what’s happening in specific industries or individual companies.

All that is hard work and time-consuming, of course. Which is why most investors do well working with experienced advisors who make it their business to understand actual economic trends. The mystical mumbo-jumbo is fun to talk about at parties, but not a good basis for making decisions about your nest egg.

 

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.