Today in this world we are currently living in, we as parents worry about the Fall and if our kids are going back to school and what kind of education they will be receiving. Since that is still up in the air as to how, when, and where they will be learning, we as parents will be partnering with the teachers and how to educate our children. While some of us don’t have a teaching degree, we can teach them an invaluable lesson on life, budgeting, saving, and investing.

Parents worry about kids from the time they’re born whether they will be safe, will they be liked by peers, what college they’ll be accepted in to, and the list can go on and on.  Do we worry about their value of money and how they will handle their finances as they get older?   What about preparing them for the eventual transfer of wealth if we are all so lucky enough to leave a legacy to give to our children? It’s difficult to get children to spend time learning about money at a young age, but it’s important.  The better money management skills they have by the time they graduate from high school, the better off they will probably handle it in college and down the road. 

First, it is never too young to begin wealth education with your children. The first-time children learn to manage money is usually through an allowance. Once the amount is established for an allowance, talk about the goals that have been discussed and practice these skills with their allowance. They will learn how to save their money, budget it for things they may want, or give a portion to charity. In terms of saving and investing, a very important concept for them to understand is the power of compounding and how that makes such a difference over time!  The time value of money is an invaluable lesson.  Just like trying to “catch up on sleep.”  You can’t.  The sleep you’ve lost is gone.  No one can gain time back – for sleep or investing!   And surprisingly, items usually cost a lot more than children realize.  A good practice may be to have your child guess what the bill is next time you visit a restaurant.  Perhaps they will think harder about going out when they start becoming responsible for paying the bill! As the younger children become tweens and teenagers, have a discussion on taxes– items really cost about 30% more than what you pay for them because you are paying for them in after-tax dollars. When a child enters the work force and receives his or her first paycheck, it’s usually a rude awakening! 

The next step in the process of educating your children is to have a family meeting where all participants would be invited. This would be the opportunity to be completely open and honest and to discuss your family values about money, saving, and investing in the future. After defining your family values, develop a Family Mission Statement with input from all the family members that would be affected by the family wealth.  (The suggested age for the youngest child to become involved in the family discussions would be between the ages of ten to twelve.)

There are three important goals to consider when discussing financial education with your children.

1. To help your children to lead a purposeful and fulfilling life

2. To give them the tools and skills to be knowledgeable

3. To help them practice and become involved in the family’s 100+ year plan

All parents want their children to be set for life once they are no longer able to financially care for them. However, we need to caution them on how to lead a purposeful satisfying life. To tell your children that they will never have to worry about money is setting them up to be uneducated about finances and potentially lazy. We want them to avoid the pitfalls that could come in the future in the way of manipulation from unwanted sources, which could be future spouses, friends that want to help, and business opportunists wanting to gamble with their inheritance.  If your children are educated early, they will be able to weed through and know who is looking out for their best interest. It is always good to surround yourself with trusted advisors. Once the family mission statement has been established, then it is time to develop the financial expectations for your children to realistically uphold, depending on their ages.  These goals could range from how to talk about money, saving and investing money, what a budget is used for (short term and long term), retirement plans, and how to protect your financial investment.  Again, special emphasis should always be placed on your specific family values.

For those that have older children that are working and going to school, you can discuss the importance saving and putting away for retirement. Some of our young clients are still paying off school debt and ask if they should pay off loans before contributing to their company 401-k plan. We share the importance again of the time value of money so it’s important to do both; contribute as much to the 401-k as possible while chipping away at the debt.  Many companies match contributions, and that is free money!  

Many kids are visual and especially when they are young, these concepts are foreign.  David Bianchi, a Miami attorney, created a book “Blue Chip Kids: What Every Child (and Parent) Should Know about Money, Investing, and the Stock Market.”   He and his wife wrote the book when they realized their 13-year-old was not learning anything about money and investing in school.  Unfortunately, that is usually the case for most of us.   So, that’s one resource that is not too textbook-like for a teen.   As parents, we somehow need to stress the importance and satisfaction of building up savings and investments so that they are financially comfortable later in life.  Preparing children for the future should be a continuous endeavor. If you follow these steps, hopefully, they will become financially secure and be able to make good financial decisions.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. 

Amid the current unprecedented crises in public health and the economy, charitable organizations are under strain, asked to meet a multitude of vital needs. Many charities themselves are hurting. So now may be a perfect time to think about how to set up charitable trusts that can do good in the world, but also help your family and provide you with tax benefits.

I’m going to talk about four related types of trusts, all of which share the “split interest gift” feature. That means the income earned by the trust’s assets is directed toward one beneficiary, and the principal toward somebody else – or something else.

Now for the ugly acronyms. The four chief types of split-interest trust are called CRUT, CRAT, CLUT and CLAT. Before looking more closely at them, let’s define some terms. The initial “C” stands for “charitable.” Simple enough so far.

The second letter is either “R” for “remainder” or “L” for “lead.” Under a CRUT or CRAT, the charity of your choice gets the remainder: what’s left after the trust’s income is distributed to the other beneficiaries. Typically, that would be to members of the trust creator’s family. To approach this in reverse, with the charity taking the lead and getting the income, and the family beneficiaries eventually collecting the principle, you would want a CLUT or a CLAT. Income in this case, by the way, means primarily the interest and/or dividends from investments held in the trust. But any other form of income, such as rent on real estate, might also be included.

The next important initial will be either “U” for “unitrust” or “A” for “annuity.” A CRUT or CLUT, as a unitrust, pays a percentage of the trust’s assets each year. A CRAT or CLAT, as you would expect from the word “annuity,” pays a fixed amount every year. In both cases, how long those payments continue is dictated by the trust’s terms. It might be set up for a fixed number of years. Or it could be pegged to a specific event, or to some combination of years and events.

For example, a trust might provide income for its creator’s widowed spouse. But that spouse’s death would end the trust, triggering the distribution of the principle to the designated charity.

The final “T” is easy again: “trust.” There is one additional important option: whether to create the trust during your lifetime, or have it set up through your will. If you create it so it begins during your lifetime, you have the option of naming yourself as a beneficiary, instead of or in addition to your heirs.

So besides determining how you want to divide your assets between family and charity, you have several other decisions to make. First of those may be whether any of these trust types makes sense for you. They are complex and can be expensive to set up. So, unless your estate is in the neighborhood of $1 million or more, the administrative costs may not be worth the benefits. But million-dollar estates are quite common these days, and so this may well be worth considering.

The next choice is how to manage the split. In simple terms, who gets money first? If you want the charity to get funded for, say, twenty years after your death, but your grandchildren to collect whatever is left in the trust, then a CLAT or a CLUT is your best choice.

If, instead, you want to provide for a spouse or children first, and then let a charity collect the remainder later, then CRAT or CRUT make better sense.

Finally, consider whether to specify a fixed annual payout or a percentage. That is, choose between the “annuity” or “unitrust” approaches. A useful guideline about which to pick: If the trust’s assets are mostly safe investments, highly likely to perform well, then a unitrust approach may be best. The annual payments may vary somewhat but will still remain largely consistent or even grow. Riskier investments may dictate the annuity approach, ensuring that annual payouts don’t change even if the value of the trust’s assets fluctuate wildly.

One reason to choose a lead trust is that it can be better for the heirs during times of low interest rates. The lower return on investment will diminish the charity’s share, not the beneficiaries. Conversely, at times of high interest rates, a remainder trust will shift that greater income to the beneficiaries and leave the charity to collect whatever is left later on.

So, what about the benefits for the creator? Well, as in so much of estate planning, taxes are a major consideration. Setting up a charitable trust reduces the value of your estate, which may well spare your heirs from estate taxes, or at least reduce them. There are also large potential savings in capital gains and income taxes.

The complexities of how these trusts affect taxes gets back to my earlier point: this is a complex business, and any attempt to generalize too much is likely to be confusing. That is why expert help, focused on your unique circumstances and objectives, is absolutely necessary.

So, what can you do if your estate isn’t big enough to justify a CLUT or a CLAT, a CRUT or a CRAT?

One possibility is a charitable annuity. It’s essentially an insurance contract by which financial assets are used to buy a guaranteed flow of income. The owner directs that money toward the charity of their choice. This can be cost-effective with estates even valued at less than $100,000. It still has benefits for the giver, notably hefty income tax deductions for the charitable donations. And whatever goes into the annuity is no longer part of the estate.

A second option is charitable life insurance. How it works: you make an annual gift to a charity, which uses your money to pay the premium on an insurance policy. On your life! Your gifts are charitable deductions. Then, when you’re gone, the charity of your choice collects on the life insurance policy.

If you are thinking about finding ways to benefit your favorite causes, while not neglecting your family, it’s worth educating yourself about charitable trusts, whether remainder or lead, unitrust or annuity. The investment and estate-planning experts at Old North State Trust are knowledgeable about the pros and cons and tax implications of these useful instruments.

We have heard it so often; it’s become a cliché. Whether it’s a hurricane on the horizon, a global pandemic, or a meltdown in the markets, the experts always assure us: “This is not the time to panic.” But in the genuinely unprecedented emergency that we’re enduring now, it’s helpful to have some good advice on what we should do while we’re not panicking.

Our focus right now is on what to do if the economic crisis that’s followed the coronavirus crisis has left you in a cash-flow bind. For many people, retirement accounts are a tempting source of emergency money, but one that’s normally considered off limits. Now, however, financial reality may dictate a violation of that formerly ironclad rule: do not tap your retirement fund in an emergency.

Fortunately, part of the emergency legislation that Congress has recently passed provides some relief from the normal rules governing retirement account.

So here are some step-by-step suggestions about how to think through your need for short-term cash.

First: ask yourself, “How badly do I truly need this?” Remember that many entities, including banks, mortgage companies and utilities, are offering help to their customers. These may take the form of payment holidays, deferred interest, or the waiver of penalties for those who are temporarily out of work or have had to shut down their businesses. If you can postpone some regularly scheduled payments by a few months, it may be better to catch up later, when things return to normal, than to tap into your IRA or 401(k) now.

Second: if you truly do need cash now, and you have a taxable investment fund, it’s best to draw it from that source first, rather than deplete your retirement assets.

Third: If you do have to draw on retirement funds, don’t do so willy-nilly. It’s better to take money from a Roth IRA than a conventional IRA. And if you have a 401(k) or similar employer-sponsored plan, consider whether borrowing against your balance is a better option than simply selling off assets. (Borrowing is not an option for an IRA.)

So, let’s examine these points one at a time.

Maximum withdrawal: The “CARES Act” relaxes the rules on tapping retirement accounts, but only up to a $100,000 cap. If you take more than that, you will be subject to the old familiar tax and penalty rules.

Roth IRA first: If you have a Roth IRA, you have already paid income tax on that money, so any withdrawal won’t be subject to taxes now. In other words: get “post-tax” money before you tap into any “pre-tax” money.

No early withdrawal penalty: Whether it’s from a Roth or conventional IRA, premature withdrawals—if you are younger than 59 ½ years and are normally subject to a special 10 percent tax. That has been suspended for the time being.

To summarize: if you take less than $100,000, you will not pay any penalty. If it’s from a Roth IRA, you will not pay income tax, either.

Here is one other very welcome provision. While normally any money you put into your Roth IRA counts as a contribution (thus subject to tax), the emergency legislation has opened a three-year tax-free window, starting in 2021, during which you can repay anything you took out of that account—and not have it count as a new contribution. So, if you want to build that Roth IRA back up, replenishing what you have to withdraw this year, it will be as if you’d never taken it out—at least for tax purposes.

Should you decide to pay yourself back, that can be done in whole or in part; it can be done in installments or in a lump sum. And while this might not be the best strategy, it doesn’t have to be done at all.

Now for those whose retirement money is in an employer-sponsored plan, most commonly a 401(k): You may, depending on how the plan is set up, be able to borrow against your plan’s balance. And the CARES Act has raised the maximum loan amount to $100,000. (Sorry, IRA owners: borrowing is not an option for you.)

I won’t try to get into detail about how this all works, because each plan has its own rules for how to borrow against your assets. You’ll need to contact your company’s HR department or your plan’s administrator for details. One important detail that you should factor into your calculations is the interest rate you’ll be paying. Yes, you’re borrowing your own money. But because it’s no longer available to be invested on your behalf, you will have to pay interest on that loan. The good news: you’ll be paying that interest back to yourself.

In something of a parallel to the reinvestment provision for Roth IRA owners, the CARES Act has given 401(k) borrowers a five-year window in which to repay their loans. That begins in 2021.

In a worst-case scenario, your final option for accessing funds in an employer-sponsored plan is to take advantage of the new Hardship Withdrawal rules, mandated in the CARES Act. A “Coronavirus-Related Distribution” is defined by the bill as any distribution from an eligible retirement plan made on or after January 1st, 2020 and before December 31st, 2020 to an individual. A Coronavirus-Related Distribution qualifies for anyone who is diagnosed with the virus SARS-CoV-2 or Coronavirus 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention. Qualifying Hardships also include any spouse or depended who has been diagnosed.

One final note: Everything up to this point has concerned those who aren’t yet taking regular distributions from their retirement accounts. For those who are retired, the good news is that job losses, business shutdowns and similar income shocks are less likely to be a problem. Your retirement income won’t be interrupted.

But there is one concern that’s familiar to anyone who has weathered previous market downturns. Whether IRA or 401(k), almost every retirement account has been hit, and will continue to be hit, by the drops and volatility in stocks and other equity investments. If you are concerned about depleting your investments when their value is depressed, it may be worth considering whether a temporary reduction in your monthly distributions is something you can manage.

The fewer dollars you draw from your assets when their value is depressed, the more will remain to gain value again when, as they always do, the markets rebound.

Managing assets and planning for a comfortable retirement are challenges at any time. Now, more than ever, making wise decisions without panicking is important for everyone. The investment and retirement-planning experts at Old North State Trust understand the ins and outs of the markets and of the regulations that govern retirement accounts. They can offer accurate, trustworthy guidance to help you get through troubled times.

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. 

Among the many demands of managing a trust, some new and daunting problems are posing fresh challenges to trustees. It’s always been true that trustees have to put their beneficiaries’ needs first, but that fundamental duty sometimes conflicts with those people’s wishes and even demands.

That’s now truer than ever, with such factors as addiction and new technologies adding to the challenges. I’d like to touch on some of the challenges that trustees face today and offer some ideas about how to manage them responsibly. The demands are the same, whether the trustee is a professional or just a well-meaning relative.

Beneficiaries may ask for loans. This is an alternative to taking a taxable distribution, and often possible under a trust’s terms. While sometimes it might be a good idea, there are pitfalls to beware of.

One important guideline is that any loan must be made and documented in the same way outright distributions are handled.

That gets to the matter of requiring collateral. Collateral requirements don’t have to be as strict as a commercial lender would require—otherwise, the beneficiary would just borrow from a bank—but do need to be sufficient to back up the loan. That collateral will become one of the trust’s assets, for which the trustee will be responsible. That trustee has to answer for that loan to all the trust’s beneficiaries, and sometimes even a court.

The trustee must have evidence that the beneficiary can actually repay the loan. If not, the IRS may conclude the “loan” was actually a distribution, and that could impose unwelcome tax liability on the beneficiary. One other important technicality a trustee needs to get right is to set an interest rate that’s beneficial to both borrower and trust and complies with tax laws.

Finally comes the matter of how a loan is repaid. If the trust provides for regular distributions, a beneficiary may choose to forego them; the money that should have been payable is applied against the loan balance. That’s one more thing a trustee has to manage.

All of this can be overwhelming, easily beyond a trustee’s expertise. That is why a professional trustee with solid grounding in tax law may be much better positioned to make lending decisions and handle all the necessary procedures. Even an amateur trustee should seek solid professional advice to avoid making serious mistakes.

A beneficiary may have an addiction problem. This raises obvious challenges. If a trust puts money in the hands of somebody who would promptly use it up buying drugs, alcohol, gambling, etc., it defeats the purposes its founder had in mind.

Sometimes a trust is created precisely because the founder doesn’t want to leave money directly to an addicted family member. It may give the trustee broad discretion to provide, or withhold, funds. Depending on the trust’s language, a trustee might be able to use the trust’s assets to pay for rehabilitation or pay third parties to ensure the beneficiary is supplied with such necessities as food and housing. A similar option might be for the trustee directly to buy necessities such as furniture or clothing.

One approach is to require evidence the beneficiary has been “clean,” not abusing drugs or alcohol, for a specified period such as six months after rehab. Only then would the trust begin, or resume, making direct cash distributions. Monitoring this may require expert help. Addicts are notoriously good at fooling or even bullying well-meaning family members, and at evading rules such as drug-screening tests, unless they are carefully managed by savvy experts.

If the trust doesn’t allow the discretion of withholding payments to a self-destructive beneficiary, the trustee faces a difficult choice. It may be necessary to appeal to a court or a trust protector to revise the trust’s provisions. Obviously, something so drastic requires expert legal (and likely medical and/or psychological) advice. It’s not a task for an amateur to take on solo. That doesn’t even address the emotional toll of acting as a trustee for an addicted relative, which may be too great for a family member to handle.

One additional wrinkle: an addicted beneficiary may depend on government or insurance benefits that are tied to income. The trustee needs to be careful that any distributions, even after successful completion of rehab, don’t jeopardize needed benefits.

Prudent investing must be balanced with beneficiaries’ needs. It’s no easy task to put a trust’s assets to work in a way that both provides current income and also preserves principal for the future. As anyone knows who has tried to balance yield against safety in their own investing, this can be a serious challenge.

A trustee must make the same sorts of decisions, such as allocating money between stocks and bonds, foreign and domestic securities, growth, and value investments, etc. There’s also the reality that beneficiaries may have very different needs. For example, a single trust may require current income to support a disabled child, but also call for long-term investments to benefit grandchildren after they come of age. It’s no small thing to design a portfolio that accomplishes both objectives.

This is yet another argument for having experienced, qualified help. That might be getting an investment advisor to work with an amateur trustee or putting everything in the hands of a professional trustee with expertise in structuring a portfolio.

A trust may include digital assets that require management. An estate is likely to include such things as email and social-media accounts and other digital assets. Examples are electronic financial or medical records, digital photos, or anything else stored in “the cloud.” Whether they have monetary value or not, those parts of an estate still require attention, if only to shut them down after their owner’s death. These assets may also contain highly sensitive content that could affect the privacy of living persons.

Fortunately, the law has caught up with this issue. States including North Carolina have enacted model legislation to give executors and trustees the power to take over these assets. Even so, a trustee may still have to cope with “terms of service” contracts with companies like Facebook or Google. Unless the account’s original owner specified who should take them over after death, getting control could still be a hassle.

So, who should be concerned with these challenges? Certainly, anyone who’s been named as a trustee should be aware of the many complexities that require expert advice. But anyone who is setting up a trust should also consider whether it makes best sense to burden a family member with these headaches or designate a professional as trustee. The trust and estate experts at Old North State Trust have expertise in law, finance, government benefit program rules, and even interpersonal relationships, to ensure that a trust reliably accomplishes its creator’s goals.

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. 

Careful estate planning is inextricably linked to family relationships, and marriage comes first among those. That’s why it’s essential to be thinking about your estate plan if you’re involved in a divorce, ideally before, during and after the legal proceedings.

As grueling, stressful and expensive as a divorce can be, it’s a big mistake to ignore the financial planning that has to accompany it. Your investment, retirement and estate-planning expert should be part of your team, right along with your divorce attorney. That’s not just for your own good, but for the long-term benefit of any children or other family members affected.

One obvious task that you don’t dare neglect is to make sure all your financial arrangements comply with the court’s orders enshrined in your divorce decree. Getting this wrong can be costly and painful, so it’s well worth investing in professional help to make sure it’s handled properly.

Here are some important matters to attend to. Some of these can be done during the divorce process; others have to wait until it’s finished. 

As soon as possible, you should remove your soon-to-be-ex-spouse’s name from such crucial documents as your health care power of attorney. The last thing you need in an emergency is to discover that someone you thought was out of your life can still make decisions for you!

Power of attorney designations can affect far more than just medical matters. You might also have granted your spouse the right to make decisions about your bank accounts, investments or insurance policies, too. Be sure you clean these all up!

Equally important, but not as simple, is changing beneficiary designations on life insurance policies and pension plans, including 401(k) and IRA accounts. The tricky part is that you may not be able to change beneficiaries while a divorce is in progress. That’s a legal provision meant to protect both parties; often, remaining a beneficiary of a spouse’s accounts is an important lifeline for the spouse who earns less, or who may have deferred a career to work as a homemaker.

Because the stakes are so high, it’s vital to get competent advice on this subject, both from an investment counselor and from your lawyer, before you agree to relinquish any rights as a beneficiary. Likewise, if you are the owner of these instruments, expect them to be a major point of negotiation—if not contention—while the divorce plays out.

Even after the divorce is final, you may not be able to cut your ex out of any life insurance settlements. The law in general, and your divorce decree in particular, may require you to maintain a policy for your ex’s benefit, especially if you are obligated to pay alimony or child support.

If you do intend to leave your ex as a beneficiary, whether of insurance or investment accounts, it’s a good idea to execute a new beneficiary statement once the divorce is final. That will make it clear that this was your intent, and not simply an oversight.

Your will, of course, will definitely need to be updated. Especially if your spouse is listed as executor. Another important provision of a will is who will become guardian of any minor children if you die. It may well be that their other parent is the best choice, divorce or no divorce. But in the worst cases, if there is evidence of serious misconduct, addiction or financial irresponsibility—a parent’s unfitness for custody is something a court will ultimately have to decide—it may be necessary to name an alternative guardian.

Now comes the matter of what your will leaves to the ex-spouse. The law doesn’t make it easy to disinherit an ex, on the grounds that both parties together contributed to the growth of a family’s assets. State laws can automatically revoke provisions in a will that benefit a former spouse or even the spouse’s relatives, but you should never rely on that. It’s an all-too-common mistake to assume that this means you don’t need to rewrite your will. That passive approach may create a tangle of unintended consequences. Better, by far, to tear up the old will (literally!) and write a new one. That way, there will be no ambiguity or confusion about what you want to happen after your death.

A little different from the will, which of course means nothing until your death, is how property is divided between living ex-spouses. Unlike so-called “community property” states, North Carolina law provides for “equitable distribution” of marital assets. “Equitable” means fair, based on the means and the needs of both parties, not necessarily an equal split.

A divorcing party must request an equitable division as part of the suit for divorce. The court will then identify which property is considered “marital” and subject to distribution. What each party owned before the marriage, or got by inheritance or gift during the marriage, is considered separate property. That’s not subject to a split. Be aware, though, that formerly separate property can become “marital” if it’s not kept distinct. So money from one spouse’s bank account, if rolled over into a joint account, loses its “separate” status. Likewise, if a new mortgage puts both spouses’ names on the deed of trust, a house that originally belonged to just one spouse will become marital property and subject to a court-ordered division.

A very important part of the process is assigning value to marital assets. That can be simple, as with investment accounts; or it can require appraisals, as with real estate.

As to what’s “equitable,” although North Carolina law assumes a 50-50 split is the default, the reality is that few divorces result in an even division. The court will consider factors including each spouse’s earning potential, prior obligations such as child support, age and health, and other needs. If you helped support a spouse who was working toward a degree or during a period of unemployment, don’t neglect to make your attorney aware of your contribution to the other’s career. That can be important in how assets are divided.

Don’t expect, however, for a judge to award additional assets because of any bad behavior by the other party. That may be relevant in some aspects of a divorce, but it’s not considered when property is being divided.

If you made a prenuptial agreement with your spouse, of course that will come into play with a divorce. Whatever changes you make in your estate plan; they must conform with what you’d agreed to in the pre-nup. On the same subject: if you get married again, you should strongly consider a prenuptial agreement with your new spouse. It may help avoid many of the pitfalls you might have encountered when the previous marriage ended.

Along with the will, you’ll have to review any revocable trusts. Does a trust leave money to the ex or members of the ex’s family? You may want to revise that. Very important is who is left in charge of assets the trust designates for your children’s benefit. If a divorce is amicable, it may make sense to leave the ex-spouse with control over the children’s assets and income. But in many cases, it’s best to designate a different trustee.

A good divorce lawyer understands many of these issues, but likely lacks expertise in the fine points of estate planning and trusts. That’s why you should put a competent estate-planning specialist in touch with your attorney when divorce proceedings begin—and again after they are concluded. In consultation with your lawyer, the experts at Old North State Trust can advise you about how to structure property divisions for your benefit and your children’s, as well as avoiding any unforeseen legal entanglements.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. 

Federal Tax Filing and IRA Contribution Deadline Extended

  • On March 20, Treasury Secretary Steven Mnuchin announced the tax-filing deadline for 2019 federal income tax returns has beenextended from April 15 to July 15, 2020 (IRS Notice 2020-18).
  • However, if you have a tax liability in excess of $1M, it must be paid by April 15th regardless.
  • The N.C. Department of Revenue (NCDOR) recently announced that they will extend the April 15 tax filing deadline to July 15 for individual, corporate, and franchise taxes to mirror the announced deadline change from the Internal Revenue Service.
  • Confirmed by IRS, this extension also postpones the deadline for making 2019 prior-year contributions to traditional and Roth IRAs to July 15, 2020.


  • On March 27, 2020, President Trump signed into law themassive Coronavirus Aid, Relief, and Economic Security (CARES) Act.This legislation includes a waiver of required minimum distributions(RMDs) for 2020; it applies to company savings plans and IRAs, including both traditional and Roth inherited IRAs.
  • The CARES Act impacts 2019 RMDs having a required beginning date of April 1, 2020. Any 2019 RMD amount remaining and not withdrawn by January 1, 2020 is waived.
  • Roth Conversions can be done for those IRA Holders taking RMD Distributions without the requirement of taking the RMD first; any amount you desire to convert.
  • New 10% early distribution penalty exceptions now apply.
  • The CARES Act waives the 10% early distribution penalty on up
  • to $100,000 of 2020 distributions from IRAs and plans for affected individuals. The tax would be due but could be spread evenly over 3 years, and the funds could be repaid during those 3 years.
  • You can also contribute to your IRA & Roth until the July 15th date.

Other Information

  • The new law also affects company plan loans taken by affected individuals. First, the law increases the maximum amount of plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance. (The usual limit is the lesser of $50,000, reduced by other outstanding loans, or 50% of the account balance.) This rule applies to loans taken within 180 days from the bill’s date of enactment. Second, any loan repayments normally due between date of enactment and December 31, 2020 could be suspended for one year.
  • Employers filing for Paycheck Protection Program also known as PPP;
  • 75% of your LOAN MUST be put to payroll and you must maintain or rehire all past employees (laid off over the past 2 months) by June 15th OR the loan will not be forgivable.
  • Its best to keep these funds in a separate checking account to pay rent, and payroll expenses or maintain a really tight accounting system for documentation purposes.

What does “Peace of Mind really mean”? During this uncertain time, especially with Coronavirus, this is a question many have been pondering. In the last couple of weeks, two friends of mine lost their husbands suddenly, coupled with the potential impact of this virus, these are scary times for all of us. At Old North State Trust, knowing that your loved ones will be taken care of when you’re sick or gone, and that a good plan will protect your hard-earned funds is our top priority. We believe that being a good fiduciary and partner is having someone you can trust, you can depend on in the good times and bad, (which we are experiencing right now in various forms), and someone that won’t pressure you with dishonest sales tactics or who puts their own interests above your own.  We believe that’s what managing your legacy is all about! And we don’t take that responsibility lightly!

With the current bumps and bruises caused by the decline in account values, people are feeling anxious and want reassurance. While not to belittle the virus, the lifecycle of it is far shorter than the investment time horizon for most of our clients. The construction of our portfolios considers the uncertainties of the market and the global nature of investing.  This is why our Investment Policy Statements we create for our accounts are so important in keeping us on the long-term road to financial success. This long-term approach to investing enables Old North State Trust to work to dampen the financial effects of global issues as they arise.  These issues often do not require a change in strategy and that gives time for the news to settle down and the market to do what we all like it to do… bounce back.

At ONST, we have experienced people that know how to care for our clients, and we make sure that their wishes and needs are executed as they desired as stated above with the construction of all our clients’ accounts. We make sure that there are no incentives to do the “wrong” thing.  Every day is different for our clients, and each with its own set of unique issues. Peace of mind with ONST is having a relationship with a company whose core values are to care for our clients and to meet their needs, whatever those needs may be. While you are reflecting and wondering what to do during this time, ONST has a Memo for Heirs form that will give you and your loved ones a Peace of Mind when unexpected life events are thrown your way.

Though we are not medical professionals, we encourage you to do what is best to prepare yourselves for whatever comes our way, Old North State Trust will be with you through this global issue and for your peace of mind as well as being prepared for the next one just as we are for this one.

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 have had the experience of trying to fix a problem, and discovering that the solution creates its own new set of problems. That’s not a bad summary of what has happened with the federal SECURE Act, which passed at the end of 2019. Its primary purpose was to make it easier for small companies to offer retirement plans to their employees. But one of its consequences has been to create fresh headaches for the beneficiaries of certain retirement plans.

SECURE stands for “Setting Every Community Up for Retirement Enhancement.” The title isn’t the only thing awkward about this legislation. It offers welcome flexibility to people saving for retirement, by easing some of the rules about contributions and required minimum distributions after certain ages. But it also imposes new costs on those people’s heirs.

It does that by abolishing so-called “stretch” provisions that govern how inherited IRA or 401(k) assets are distributed, and how they are taxed. This affects mainly children, grandchildren, and other relatives – heirs other than spouses – who are beneficiaries of a retirement account. The crux of this is the “Required Minimum Distribution.” It used to be that people who inherit these retirement funds could spread out their required distributions over their own expected lifespan.

No more. Effective this year, those beneficiaries will have to take the entire inheritance as income within ten years. Other than spouses, the only exceptions to this are minor children (and their exemption lasts only until they come of age), people with disabilities or chronic illnesses, and those close in age to the retirement plan’s original owner. So, for example, a surviving sister seven years younger than her deceased brother would not be subject to this rule, because there was less than ten years difference in their ages. But an adult nephew 25 years younger would have to take all the proceeds within ten years.

This obviously can make a difference in those beneficiaries’ tax burden. Compressing the payout into just ten years, instead of a lifetime, can add substantially to taxable income in each of those ten years.

The good news about the SECURE Act is for those who set up Individual Retirement Accounts for themselves, and to some extent those covered by employer 401(k) plans. Those advantages are twofold.

It used to be that you couldn’t contribute to your IRA any longer once you were 70 and a half years old. Now, depending on a complex set of qualifying conditions, those older savers can potentially save up to $7,000 a year, or $14,000 for a couple. Those contributions may or may not be deductible, depending on the details. This is valuable for the many people who are continuing to work, at least part-time, into their retirement years.

The other advantage concerns those Required Minimum Distributions, which used to begin at age 70 1/2. Now – for anyone who hadn’t reached that milestone by the end of 2019 – it will not be necessary to start drawing from your IRA or 401(k) until your 72nd birthday.

So if you own one of these accounts, you may be able to take advantage of this new flexibility in how long you put your money in, and when you start to take it out. But you should also review your beneficiary designations. If you don’t, your heirs might end up with tax burdens you didn’t intend to impose on them.

For instance, you might have named your children as beneficiaries to ensure that they would have a lifetime income from whatever is left in your retirement account after your death. But the law now forces that income to be compressed into just ten years. Another strategy, such as creating a charitable remainder trust and/or buying life insurance policies, may now be a better alternative.

Especially important to consider: If you already have a trust designated as your retirement fund’s beneficiary, the new law may create some very unwelcome consequences for your heirs. A trust that was designed under the old rules may say an heir can collect only the required minimum distribution each year. But the new law creates a “gotcha” for those situations, because there is no RMD until after ten years. And then, the RMD equals “everything.” That Catch-22 could mean the trust’s beneficiary couldn’t get any money until a decade after your death – and then be forced to take a big, and substantially taxed, lump sum.

For some, these new rules may make it worthwhile to shift assets from a conventional IRA into a Roth IRA. The reason: while people who inherit Roth IRAs are subject to RMD requirements, their assets aren’t taxable – having been created to begin with from post-tax money. A Roth IRA conversion might help a retiree build more wealth and pay fewer taxes. It can especially help heirs work around the new ten-year RMD rule.

This is not the place to address all the possible complexities. Suffice it to say these changes mean it’s timely to review your estate plan, and especially any trusts, to be sure they can still accomplish what you want under the new law.

Keeping up with the complexities of retirement plans, tax law and trusts is not easy. But it’s a vital part of the job for professional financial advisers. The estate-planning experts at Old North State are savvy about how to make these requirements work to your benefit and can help ensure that you don’t inadvertently leave a problem for your heirs.

A too-common mistake that financial advisers make is to focus solely on those assets that generate monthly statements: the bank accounts and stocks and mutual funds. But those liquid assets typically represent less than half—actually more like 45 percent—of a wealthy person’s portfolio. No good estate plan can afford to ignore the other assets, the ones called “illiquid.”

That category includes anything that can’t readily be converted to cash, in a regulated market with readily determined prices. Common types are real estate, collectables, or ownership interests in privately held businesses. Other examples are livestock, mineral rights and timber, and certain financial instruments that don’t have a ready market. Those can include hedge funds, options, stock in non-public corporations, and certain debt securities.

Failing to take illiquid assets seriously is a mistake for both advisors and their clients.

The most important consequences won’t be felt until after the client’s death. First involves payment of estate taxes, which are levied on the value of inheritable assets transferable to heirs over a certain amount. Those taxes are due within months. But if a sizeable portion of those assets are illiquid, they may well have to be sold to raise the cash needed to pay those taxes or debts of the estate.

Therein lies a dilemma for the heirs.

Many assets can’t be sold—at least not for their real value—within that tight nine-month window or during a reasonable estate administration time frame. For example, real estate in a region with a depressed market can easily take a year or more to sell. Having to sell illiquid assets quickly—such as to settle an estate—may require accepting less than market value.

It’s not just taxes that may require raising ready cash. Many a will divides an estate among heirs in a way that has little relationship to the actual value of various assets. For example, if three children are each left a third of an estate that consists of two-thirds real estate and one-third cash or other liquid assets, that real estate may need to be sold if the heirs are unable or unwilling to own an undivided interest in the real estate property together.

That example is fairly simplistic. Maybe more typical is a situation in which the amount of cash needed to settle the estate is far less than the actual value of the illiquid asset that has to be sold. Maybe it’s a family farm, or a family business. Or a beloved family home or other heirloom.

Yet the only way to get cash from the valuable asset is to sell it.

That can mean something that ought to be passed to the next generation can’t be.

This doesn’t need to happen.

Careful estate planning can ensure such assets are transferred systematically. (In November 2019, I discussed some specifics about succession planning for family businesses.

While it’s inevitable, death isn’t always predictable; taxes usually are. Thoughtful estate planning will anticipate what’s needed to pay estate taxes – significant only on large estates – and make provisions to come up with the necessary cash without having to sell off land, the family home, business or collectibles.

And that doesn’t necessarily require elaborate measures. A very simple option that’s often overlooked is life insurance. A policy of the proper kind will guarantee that a specific sum will be available at the owner’s death, so it’s not necessary to sell off those illiquid assets. Another important benefit of life insurance in situations like this is that the proceeds aren’t taxable for estate death tax purposes if payable to a named beneficiary and the owner of the policy is not the insured. Also, in this scenario, the insurance proceeds are not subject to income tax. This life insurance plan typically hinges on who the named beneficiary is, so pay close attention to that when taking out a policy. 

In many situations, a trust is the most useful approach to minimizing the financial burden on heirs. Those assets, whether land or art or classic cars or a coin collection, can be placed into a trust. Those assets remain in the trust at the owner’s death; they don’t have to be sold. This can give the trust’s beneficiaries and trustees some time to work out, at leisure, a plan to liquidate its assets and redistribute them if that’s necessary or desirable.

Before deciding on the best strategy, of course, it’s necessary to do a bit of homework. A good estate-planning advisor will ask the client to make an inventory. Not just of obvious assets like real estate, vehicles and boats, but also of jewelry, antiques and other fine furnishings, artwork and the like. Perhaps even such intellectual property as copyrights or patents. Whether you intend to have these sold upon your death, or leave them to heirs, it’s important to assign a value to everything. A professional appraisal, by someone with experience in the specific types of property, is the best way to establish value for such hard-to-liquidate assets.

While an inventory has obvious advantages in terms of managing death taxes, it will also minimize the possibility of disputes and ill-will among heirs, some of whom may feel slighted if they perceive others might have been unfairly favored.

Several years ago, a well-known Hollywood personality died in an accident. He had a large collection of classic cars, but had never created a detailed inventory. The result was a huge fight, involving lawsuits, between his heirs and a friend who was accused of taking some of those cars for himself.

In another example, the story had a happier ending. A retired Iowa farmer left a huge collection of antique tractors to his family. Because he had also left a detailed inventory, specifying which of the vintage machines were most important to him, his heirs were able to decide which to keep in an intact family collection, and which could be sold to raise cash. The late owner’s foresight in making his list, and expressing his wishes, made a huge difference in simplifying things for his family, and helping maintain family harmony.

That gets to a related matter. Certain illiquid assets have non-monetary value. You may want specific family heirlooms to go to relatives who either have shown a special interest or appreciation for them, or that you believe will best be able to care for them. Just as the Iowa tractor collector did, part of the inventory process should include documenting your judgments about what you’d prefer to have transferred intact, and what could just as well be sold off so heirs can get the cash.

However the ultimate strategy is determined, however, it’s essential that any estate plan take all assets, both liquid and illiquid, into equal consideration. Experienced professional guidance will help you make the plan that best achieves your objectives and minimizes headaches for your heirs. The experts at Old North State Trust will offer relevant, objective advice on how to ensure those hard-to-sell possessions get passed down to the next generations the you wish.

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.