What do you expect when you retire? Will you be traveling around the world because you saved well before retirement or will you be the one fearing living in poverty? We all want the dream of retiring on a beach somewhere, but, that is not happening to many of our seniors. Roughly, 15% of retirees live in poverty once they retire, not enjoying their golden years. Many Americans fear they will outlive their money and not having any Social Security funds to supplement either!

 

There are several reasons that retirees are not saving enough.

-Not enough education about the tools availableOn average, retirees spend over $100,000 during years of retirement but only have $40,000 in retirement savings. If a retiree wants to continue living the lifestyle they had before retirement, they should save roughly eleven times their final working salary to maintain that lifestyle in retirement.

-Having to support their adult children.  Many people find themselves in unforeseen situations and need to return home.  This causes obvious strain on many areas, including finances.

-Increased fraud/scams.  There has been an increased level of fraud, both in number and sophistication.

-Death of a spouse.  The loss of income from the death of a spouse can greatly affect the overall financial health of an individual, as well as leave them susceptible to the fraud mentioned above.

 

So, seniors need to find financial pros that will educate and help them plan for the future, not just look out for their bottom line.  Those seniors that are prepared are those who have a variety of planning tools, not just one 401(k) plan.  Another planning tool is to have a Long-Term Care (LTC) plan in place. Healthcare costs continue to rise, and we don’t see that diminishing in the near future. Most seniors will be in denial that they might even have health issues as they get older, but by having a plan in place, it will take a huge burden off family members, especially an elderly spouse.  According to the Centers for Disease Control and Prevention (CDC), 8 million Americans are receiving LTC each year. This type of care encompasses the daily living needs, such as dressing, bathing, cooking, daily chores, etc. for individuals. With the average retirement age steadily increasing, it is estimated that the average retirement age for millennials will be 73. People are living longer now, well into their 90’s if not to 100.   So, planning for retirement and the needs associated with retirement are more important now than ever!

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. 

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.

Your retirement plan, aka IRA, will become one of the most valuable investments that you will make in your lifetime for your retirement. We work hard, save all our lives, retire to live out our dreams and then watch the government take our hard-earned cash in taxes?  Wait, what?  That’s not how it’s supposed to go.  Well, without the proper planning, that’s what could happen.  But, with a well-executed plan, it doesn’t have to be this way. With an ounce of prevention, there’s no need for a pound of tax!

 

With IRA’s, the problems are the limited options you will have to choose from when planning how to save your money without feeding the taxman.  Since the government was kind enough to let these funds accumulate tax-free all these years, they want their pound of flesh at some point.  So, one must follow some rules to make this happen.  Rules such as making required distributions at a certain age, having a named beneficiary at the owner’s passing, etc.  Ok, these rules aren’t so bad in the grand scheme of things.  What does hurt are the rules that state that when the owner passes, if there is a non-spouse beneficiary, the IRA must pay out an accelerated rate.  Ouch!  And, the owner has no control over what happens to the proceeds at that time.  Again, if this is one of your largest assets, this may not be how you want it to pass to your beneficiaries.  Enter the IRA Trust.  This is an IRA where the owner establishes the IRA as a trust, naming a corporate fiduciary as the Trustee (an individual cannot be named) and the proceeds of the IRA are passed according to the terms of the trust at the death of the IRA owner.  Sound complicated?  It’s really not.  The funds remain invested in the IRA and the trust acts as a conduit to the ultimate beneficiaries.  Each year, the IRA must pay the required minimum distribution (RMD) to the trust, which then pays it to the beneficiaries named in the trust agreement- or not.  This ensures that the rules of the IRA are intact (RMD is met), etc.  The owner is able to continue his/her estate planning that they weren’t able to accomplish through the IRA by naming the beneficiaries and the terms under which they receive distributions.  For example, they can set the terms of the trust to state that the trust is for the health, education, maintenance, and support of the beneficiaries- a typical IRS standard.  If there are family issues, then the Trustee is the one making the distribution decisions and not a family member.  The heirs are not in control of what happens to the proceeds of the IRA.  The owner does not have to worry about second or third marriages, gambling or substance abuse issues or poor money management on the part of their heirs or any other issues that may arise.  Oftentimes, there are no issues, but the owner simply wishes to ensure the ultimate disposition of what they have worked so hard for all their lives.

 

By using an IRA trust, it preserves the “stretch” capabilities of being able to use the owner’s life expectancy (even though the owner is deceased).  This is much more favorable than using that of a beneficiary or the 5-year payout rule.  Even if the preference is to name the surviving spouse as the beneficiary of the IRA, the spouse can establish a trusted IRA with the IRA at their passing.  This is a great planning opportunity and one that should be considered by anyone that wants to maintain the integrity of an asset that they have worked very hard to earn.

 

 

 

 

 

 

 

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.

What qualities are you looking for in an advisor?  What values are you looking for in a partner?  We all want someone that we can trust, someone we expect to be there for us when we need them.  At least that’s what I look for when I’m searching for a provider of some type.  I want to know that I can rely on them to give me the best advice possible and that the advice is unbiased.  We know that’s the way advisors should be and to possess these basic characteristics.  But, shouldn’t I also be able to ask that the person/firm will be there for the long haul?  That they will do what they’ve promised to do?  I don’t need someone to work miracles or move mountains- just do what they say will do.  With all the bad news and uncertainty in the world, it’s nice to be able to say that there are some people you can rely on.  It would be nice to know that some promises are important enough to keep- for instance when an institution says that they are going to take care of me.  I don’t expect services that are beyond their scope or stretching beyond what they can provide.  I think that’s what has gotten some of these larger institutions in trouble.  When you hear about companies opening accounts illegally, having sales contests and not providing support for their employees, you must wonder how these things happen.  I mean, how many times do they have to be hit with multimillion-dollar fines before they learn?  Not just multimillion, but hundreds of millions!  One such company was even fined $5.4 million for firing the employee that blew the whistle on them for unsavory practices.  In addition to the fine, they were made to re-hire the employee.  That same company has laid off close to 6000 employees due to their mismanagement.  Of course, these types of practices aren’t limited to the banking industry.  Just recently, two insurance agents in North Carolina defrauded retirees in fourteen different counties across the state in excess of $11 million.  How can I rely on companies like these to provide me with unbiased information, much less honest communication and to act in my best interest?  How can I be sure that their recommendations are truly beneficial for me and not for them?  When thinking about the beneficiaries of your estate, you will probably want them to be able to get good advice from someone they can trust, who is not trying to sell them some new product every week. You want someone who will listen and make recommendations based on what’s best for you and your beneficiaries, not what’s best for the institution. This is where having a fiduciary comes in handy.  By law, a fiduciary must put their client’s interests ahead of their own.  They must act in an unbiased fashion.  I like to think that I, and Old North State Trust, provide these qualities and services to our clients each day.  In fact, it’s our motto to put our clients and our employees first, to do business above board and honest and let everything else take care of itself.  We even have this mantra printed on plaques in each one of our offices.  It’s something we take very seriously and live by, not just words on a board.

 

 

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.

Statistics show half of all American marriages end in divorce, which means assets that originally belonged to one spouse may well end up in the other’s hands. That’s a big reason why we advise using trust arrangements whenever passing on assets to children or grandchildren.

Otherwise, a gift or inheritance might enrich somebody other than the person the giver had in mind. Would you want a divorced ex-in-law to benefit from assets you intended for the benefit of your immediate family member? Probably not, but it’s an all-too-common occurrence.

Property laws vary from state to state, of course. “Community property” is the rule in some, meaning everything that either spouse owns is considered to belong to both. And if they split up, it’s all divided in half. North Carolina, on the other hand, follows the “equitable distribution” rule, in which the divorce court tries to weigh individual factors in deciding what’s a fair way to divvy up assets.

 

In this state, property will fall under one of three categories.

  • Marital property is everything that a couple acquired while they were married, with an important exception that will be mentioned in a moment.
  • Separate property is whatever each spouse owned before the marriage. That exception is anything that either one inherited or got as a gift from someone other than their spouse. This is where a trust agreement is valuable, by helping to ensure that gifts and inheritances remain “separate” and aren’t considered “marital.”
  • The third category is divisible property, which can include such things as gains or losses in value of the couple’s marital property, or income from that property, that comes after a couple separates. Examples could include market gains, dividends and interest on stocks or mutual funds, or gains in a house’s value. If these occur between the separation and the final divorce, they might be divided by a court. By the same token, market losses may be divisible, too!

 

The equitable property standard can mean a spouse who brought relatively little property to the marriage might end up with the lion’s share of the couple’s assets, depending on such circumstances as current income, earning potential and child custody. While that might not be a bad thing, it makes much better sense for those directly involved to work out the details, rather than leaving it to battling lawyers and a possibly overworked judge.

But the time to address such things isn’t when a marriage is falling apart. Quite the contrary. It should be discussed beforehand, when good will is at its maximum. A prenuptial agreement is how an engaged couple can define what belongs to whom, and what should be considered marital property.

A prenup may seem like the least romantic thing in the world for a starry-eyed couple looking forward to living happily ever after. Nevertheless, not only can it provide important protections to both parties, the process of drafting a prenup can help a couple think about their finances and their future. It still surprises us how many people jump into marriage with hardly a thought about budgets, money management, investments, retirement planning and other essential details for sharing their lives and a household.

The stakes get even higher with second and third marriages. More often than with first marriages, the parties come with significant assets and liabilities, such as the need to provide for children.

Sometimes the status of a couple’s property can change in unexpected ways. One common instance is when investments that individual spouses owned before marriage – separate property – are sold and the proceeds used to buy a house. If both names are on the deed, it becomes marital property.

The other important defense, a trust, is up to the third party who makes a gift or leaves an inheritance. Assets held in a trust are generally not exposed to outside parties, especially in combination with a pre-nuptial agreement. These can be done in either order, by the way. A prenup can address existing trusts, but can also specify how to treat any trusts that might be created in the future.

It’s worth noting that, in a few states – not yet North Carolina – the law is starting to consider trust assets as marital property. Whether that legal trend will spread, nobody knows. But it’s another reason why a prenuptial agreement that explicitly spells out what’s separate property and what’s marital is an important extra defense.

 

 

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. 

There has been a lot of discussions lately about the merits of being a Fiduciary and whether the Fiduciary Rule will be enacted or if it will indeed be struck down by President Trump.  Fiduciaries have been around for hundreds of years.  In fact, the idea of fiduciaries started back in feudal times when knights went off to fight in the Crusades and had to leave their estates for many years.  They needed someone that they could trust their livelihoods with that would treat the property the way that the knight would treat it.  This is the fiduciary standard.  People are often confused and believe that the fiduciary is to treat the assets the way they would treat their own assets, but this is not the case.  A fiduciary must act as the owner would act.  He must place himself in the position of the owner and act as the owner would act.  A fiduciary must be impartial between beneficiaries and his first duty must be to the client, above himself or anyone or anything else.

 

Some may think this is a huge burden, but it’s actually a privilege.  In fact, being a fiduciary allows you a unique perspective into the lives of your clients that you can’t get in any other profession. You become a part the family, a confidante, more than just a financial advisor.  Yes, you manage their investments and help them with their estate and retirement planning, but it is so much more.  We’ve had clients that tell us that we’re the only ones they can share their problems and concerns without judging them.  They have concerns about their children that they don’t want to share with others.  They share their worries about the future, not just financial worries, but concerns about their children, grandchildren, church, and anything else that is on their minds.  We can’t solve all their problems, but we can listen and offer advice on the things we have expertise in and what we’ve seen that works in other situations.  Our clients are grateful for the help we offer and appreciate a sympathetic ear from someone they know cares and understand their situation. We even have a client that calls one of our advisors Mama!  That’s a great feeling and one that you can’t get as just a financial advisor or a transactional business.  It’s a bond formed by trust and respect and by being in the trenches with the client.  Yes, there are challenges, but they are far outweighed by the benefits of knowing you are helping people.

 

 

 

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.

Health care has been on everyone’s mind recently with all the excitement about whether Obamacare would be repealed, replaced, or improved. (Or, for now, left alone.) A large portion of our clients are in the age range that they have made, or soon will make, the shift from private insurance to Medicare, the closest thing we now have to universal health coverage.

For those people, how to maneuver through Medicare’s complex interface of public and private coverage options is a serious issue. For example: even with publicly financed insurance through Medicare, you’ll need a “Medigap” policy, bought on the private market, for the 20 percent or so of expenses that aren’t covered.

We find ourselves answering a lot of questions about such things as when to start drawing benefits, how to choose the best combination of plans, etc. Health coverage is a major component of retirees’ living expenses. Recent statistics show that retirees spend, on average, three times as much for health care than the overall working-age population. So, it’s a very good idea to include health-care planning in your strategy for retirement, and get advice from your financial adviser.

A couple of our clients recently asked us to do some research about when they should start receiving their benefits. Both become eligible this year. Both will need some income to replace an annuity that will cease upon retirement. Both needed advice about how to factor health-care costs and benefits, along with Social Security payments, into their cash-flow projections.

We had another client ask about a letter she received, stating that her part D — prescription-drug coverage — premiums would no longer be deducted from her monthly Social Security benefits. This was one of those odd things that pop up from time to time and can be baffling to try to make sense of for anyone to comprehend. Just for that example alone is why you should have someone you can consult.

The Social Security Administration, which administers Medicare, does have online tools for figuring out these kinds of issues. Unlike trying to get a clear answer from an SSA employee (hard to do, and not always reliable) these tools are helpful, but you should know what you’re looking for on these sites. Another reason why it makes sense to get help from someone who has navigated these perilous waters more than once!

Obviously, we can’t explain all the nuances in one brief article, but these are some essential elements that everybody should be aware of when approaching retirement.

Medicare has four components. The first, Part A, covers hospitalization. For most people, Part A is fully paid from the taxes that have been withheld from our paychecks. Enrollment is automatic when you sign up for Social Security.

It’s not so simple with Part B, which covers doctors’ visits and most routine health care. That requires a premium payment, like private insurance, but with a twist.

It’s very important to sign up for Medicare as soon as you’re eligible. Normally that means within three months of turning 65. Anyone who started drawing Social Security benefits before 65 will be automatically enrolled as of their 65th birthday unless they opt out, but that doesn’t apply to people who wait until age 65. The most important thing to remember is that a stiff penalty applies for late enrollments in Part B. Stiff, and permanent.

The penalty is a whopping 10 percent of the premium for every year past the eligibility date that a recipient fails to enroll. For example: If you think you don’t need Medicare Part B at 65, but by the time you’re 70 deteriorating health has changed your mind, you will pay 50 percent more on your premiums than if you had signed up right away. And that penalty is forever. You’ll pay it until the day you die.

Similar penalties apply for parts C and D. Those are the optional “Medicare Advantage” managed-care plans and prescription drug coverage plans. The idea, of course, is to strongly encourage everyone to sign up as soon as possible rather than play the “wait and see” game.

One other wrinkle can complicate matters further. Say you’re employed and have a good health insurance plan, and don’t intend to retire at 65. That employee health coverage provides a loophole, allowing you to defer Medicare enrollment — but only if you’re not getting Social Security. When to start collecting Social Security benefits, and when to enroll in Medicare, can be tricky decisions that are best discussed with an expert as part of your overall retirement planning.

Then there’s the question of whether to go with traditional Medicare, which typically includes Part B, Part D, and a supplemental Medigap policy. The alternative is a “Medicare Advantage” plan. This can cost less than the traditional option because it includes prescription coverage and plugs the coverage holes that Medigap policies are designed to fill. The downside is that, as managed care plans, Advantage policies limit you to a specific network of providers.

This may not be a problem for retirees in relatively good health. Still, it’s important to be sure your doctors and other providers are part of the insurer’s network before enrolling in an Advantage plan.

It’s possible to switch back to traditional Medicare – parts B and D. An enrollment period from mid-October to early December each year allows recipients to change their coverage. Here’s one more Catch 22, though. If you need a Medigap policy more than six months after turning 65, you may not be able to get it or may be charged higher premiums, because of pre-existing conditions. That’s not true during that initial six-month window when insurers must cover you at the lowest possible rate regardless of health.

The same annual enrollment window also allows for changing Part D prescription plans. It’s a very good idea to review your options, because insurers may change coverage from year to year. This can be complex and is another area where an experienced financial planner can offer useful advice.

A couple of other considerations should be discussed with your adviser. One of those should be part of your tax planning strategy. Just as with certain taxes, Medicare premiums go up for people over a certain income level. That’s $85,000 for individuals and $170,000 for couples.

Then there’s the matter of health savings accounts or HSAs. While these have tax advantages for working people, they aren’t compatible with Medicare. That means you must stop contributing to your HSA when you sign up for Medicare. However, for some people who are still working after 65, it can make sense to defer Medicare and continue to use an HSA. The details can be tricky, and making the wrong decision can be expensive. So, this is definitely an issue to discuss with your financial planner well before you turn 65.

The good news: For half a century now, Medicare has been a vital component of retirees’ financial security. There’s really no bad news, just the reality that Medicare is a machine with many moving parts, and it’s wise to have an expert help ensure you’re managing the controls correctly.

 

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.