Falling into Foliage

New Jersey may not be part of New England, but its reputation for the beautiful changing leaves could be extended to our trees and changing colors too.

New Jersey’s peak fall colors are usually between October 19th and the 29th, so it’s the perfect time to plan a trip.  Many factors contribute to the exact timing of the leaves changing, from temperature to rainfall and elevation. In the category of “I didn’t realize they tracked that information”, you can now get a better sense of exactly what’s going on by looking at up-to-date reports from:

http://www.foliagenetwork.com

Where to go for the best views depends on your capabilities and time investment. If you’re healthy and ready for hike, you may want to consider going to the highest elevation in New Jersey on the Appalachian Trail. You can see NJ, PA, and NY from the top of the obelisk there.

There are many parks that may be hiked, and a wonderful list of them has been compiled here:

https://www.njhiking.com/best-fall-foliage-hikes-in-new-jersey/

While it may not have made their list for the best foliage hikes, Double Trouble State park is close to where we are in Toms River, and has some easy trails that can be walked too.

Hiking can be strenuous for all ages, so be careful out there! Don’t push yourself too hard or think that you have to hike to experience the foliage.

New Jersey has also has three scenic byways that are particularly good for experiencing the fall foliage, so you can enjoy the views from the comfort of your vehicle:

  • Delaware River Scenic Byway (32.8 miles)
  • Millstone Valley Scenic Byway (27.5 miles)
  • Palisades Scenic Byway (13 miles)

Here’s a link to New Jersey Department of Transportation’s website for more information about the byways:

https://www.state.nj.us/transportation/community/scenic/

Enjoy the fall, while it lasts!

Stock Markets

Dear Garden State Trust:

How about that stock market? Can it last?

—Happy Investor

Dear Happy:

Higher stock prices are driven by two factors: increasing earnings, and increasing investor speculation. The good news for investors is that the stock market records set in August were grounded upon increased earnings and a strongly growing economy. We do not seem to be in a bubble.

Second-quarter GDP growth was revised upward, to a strong 4.2%, by the Commerce Department. The third quarter growth looks likely to be over 4% as well. Second-quarter after-tax profits rose 16.1%, the largest year-over-year gain in six years.

Sales of the S&P 500 companies grew by 9.5% in the second quarter, leading to a 24.8% increase in earnings. A strong economy translates to increasing consumer confidence. The Conference Board reported in August that its consumer confidence index reached 133.4, the highest reading since October 2000.

Interestingly, as a result of the booming economy federal tax revenue has gone up, not down, following enactment of the Tax Cuts and Jobs Act last year. The Congressional Budget Office reports that income and payroll tax collections rose 5% through the first nine months of this fiscal year, a whopping $105 billion. This more than offset the decline in corporate tax collections of $66 billion. Overall tax receipts are up 1%.

However, this torrid rate of growth is expected to slow. The current bull market is a long one by historical standards. Eternal vigilance is the price of owning a stock portfolio.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(September 2018)
© 2018 M.A. Co. All rights reserved.

The Queen of Soul: Aretha Franklin

The queen of soul, Aretha Franklin, has passed away from advanced pancreatic cancer at the age of 76 a month ago, and we mourn the passing of a bright star.

Aretha was a prodigy from the very beginning. She learned to play the piano by ear as a child, and by age 12 was already performing and earning money for the family in various churches. Her first album, “Songs of Faith,” was released when she was only fourteen.

From spiritual music, to blues, to R&B, to rock and roll, Aretha connected with her audience.  She was recognized for it. She was the first female performer to be inducted into the rock and roll hall of fame in 1987. She was awarded the presidential Medal of Freedom, and was ranked in 2008 to be the greatest singer of all time by the Rolling Stone magazine. She won 18 Grammy awards, and has sold more than 75 million records worldwide.

Remarkable achievements from an extraordinary woman.

How did Aretha Franklin handle the finances from such success? What will happen to her estate now? Since she was diagnosed with an illness in 2010, did she make arrangements?

Here’s an interesting story from Billboard that answers some of those questions:

https://www.billboard.com/articles/news/8471888/aretha-franklin-business-estate

Some of the highlights:

  • Aretha Franklin demanded to be paid in cash, to make sure everything stayed honest.
  • She never made Forbes highest-paid celebrities list, but they estimated that her annual income was in the low seven figures.
  • She was very strict in creating an environment to work in.
  • One estate planning firm suggests her legacy could be worth as much a $1 billion when the recordings, the publishing, the goodwill, the name and likeness are added into the picture (Other sources have suggested ~$80 million).

Even though Aretha likely knew the end was nigh, reports indicate that she died without utilizing a will or trust services for the disposition of her estate.

Perhaps she felt that the laws of intestate succession were sufficient, and she didn’t need to keep the family financial affairs private. Perhaps she felt she would keep on going, so there was no need. We cannot know.

We do know that there are some benefits she missed out on by not utilizing trust services. Benefits such as: an easier way of transferring the assets, retaining a greater degree of privacy, or preventing possible family disputes.

Longevity

Dear Garden State Trust:

I’m turning 65 this year and thinking about retirement. How long should I plan for?

—Anxious Pre-Retiree

Dear Anxious:

According to the latest data from the National Vital Statistics Reports (August 2017, reporting on 2014 experience), a male age 65 should expect to live 18 more years (to age 83) and a female 20.6 years (to age 85.6). Half of 65-year-olds will die sooner, half later.

That tells us nothing about you, of course. How’s your health? Your family history? You’ll want to take these into account, and you probably should plan for longer than you expect to live.

Here’s another way to look at the numbers from that report. For every 100,000 men, how many reach age 85? 35,518 men do. For every 100,000 women, 49,225 reach age 65. Mortality increases precipitously after that, as shown in the table below.

At AgeMenWomen
7564,06675,495
8051,40764,616
8535,51849,225
9018,649
30,228
956,21412,697
1001,0772,974

Source: National Vital Statistics Report, Volume 66 Number 4, August 14, 2017

Does that help answer your question?

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(July 2018)
© 2018 M.A. Co. All rights reserved.

Here’s to Five More Decades!

Fifty years ago a goal of inclusion for those with special needs was set through the establishment of the Special Olympics, and this year we celebrate getting closer and closer to that goal each year. The community supporting those with special needs grows larger each year ,as well as the community of Special Olympics athletes themselves.

At this point, there are 4.9 million Special Olympics athletes from 172 countries!

Why sports? Their website says it well:

“Through sports, our athletes are seeing themselves for their abilities, not disabilities. Their world is opened with acceptance and understanding. They become confident and empowered by their accomplishments. They are also making new friends, as part of the most inclusive community on the planet — a global community that is growing every day.”

To celebrate, last month the organization put a festival on Soldier Field with celebrities and live entertainment among other events, such as a historical and cultural walk and the first ever Special Olympics Unified Cup.

To see videos that show some of the milestone moments from their history, click here.

Supporting those with special needs.

This has been a real goal in the trust industry, far beyond when “Special Needs Trusts” or “Supplemental Needs Trusts” have been around.

One of the fundamental motivations for creating a trust often can be to create a professionally managed lifetime income stream, for a spouse or child who does not have a way to earn an income stream themselves. When you add into the scenario a case where the person’s needs are greater than average due to disabilities, creating a trust seems like it would be the natural choice.

So… why the distinction of “Special Needs Trust”?

It’s because the usual ways of providing for your loved ones with special needs such as gifting or inheritance may place governmental assistance programs in jeopardy. Many government programs have strict need-based requirements, and if the assets were transferred directly they may end up paying for basic services instead of the quality of life improvements that could be otherwise created by an outside provider.

There are other benefits too, such as the trust being able to be customized to provide the disabled beneficiary’s specific needs, and avoiding family conflict regarding who the caretaker would be.

Special Needs Trusts are complex, so a qualified attorney should be consulted to ensure that they are properly drafted.

Garden State’s trust professionals have years of experience working with special needs trusts. We’re glad that the community that supports those with special needs is growing, that we get to be part of it, and look forward to many more years of increasing inclusion.

Marital Trusts

Dear Garden State Trust:

Now that the federal estate tax exemption is over $10 million, do I still need a marital deduction trust in my will for my wife?

—Concerned Husband

Dear Concerned:

Most likely, yes. If your current will includes a trust for a surviving spouse, you probably will want to keep it.

A trust for a surviving spouse provides important asset management benefits that can be vitally important to a person who is entering widowhood. For most affluent families, a marital trust is the way to go.

Blended families are a special case for which provision may be made for a spouse and children from an earlier marriage. The tool is called the Qualified Terminable Interest Property Trust, or QTIP trust. Even if the marital deduction allowed for the QTIP trust is not needed, securing the inheritance for all beneficiaries may be an important enough consideration to employ the trust in wealth management.

If you live in one of the states that still imposes an estate or inheritance tax, you may want a marital deduction trust even if the estate isn’t large enough to incur a federal estate tax.

Finally, keep in mind that the larger exemption expires after 2025.

If you are married and don’t yet have a will, make an appointment to see an estate planning attorney soon. Your spouse will thank you for it.

Do you have a question concerning wealth management or trusts?  Send your inquiry to contact@gstrustco.com

(July 2018)
© 2018 M.A. Co.  All rights reserved.

An Exception for an Exceptional Case

When Paul Newman died in 2008, he left his ownership of Newman’s Own food company to Newman’s Own Foundation. The food company is a for-profit venture, but it gives all of its after-tax profits to charity.

The Foundation acquired all “Publicity and Intellectual Property Rights” of the Newman estate. He urged vigilance upon his executors in protecting his image after his death, hoping that his likeness would never be used in ways that he did not approve of during his life, nor to sell food products inferior to the current Newman’s Own line.

The problem is that the tax code prohibits private foundations from owning more than 20% of a for-profit company (35% in some circumstances). This law is meant to prevent individuals from using private foundations as a tax shelter for their active businesses. The Foundation had until November 2018 to divest 80% of its ownership of the food company, or it would face crippling excise taxes.

It has lobbied for years to be able to continue on its current path, and a legislative change to the tax law this year added into the Bipartisan Budget Act of 2018, called the Philanthropic Enterprise Act of 2017, allows it to do just that.

This case is exceptional, because there is no individual who could be benefiting from a potential tax shelter. Nevertheless, a legislative exception can’t be made for a single business, and generalities could cause potential misuse.

Thus, the legislation has been very carefully constructed to restrict the usage of this exception – so much so that it’s unlikely that it will ever apply to any other entity. On the other hand, perhaps Paul Newman’s estate planning could become a model for future charitable estate planning of those in a similar situation to his.

The primary restrictions for this exemption include:

  • The private foundation has exclusive full ownership of the for-profit business, which was acquired under the terms of a will or trust.
  • The for-profit business gives 100% of its profits to the private foundation.
  • The private foundation can’t be controlled by its original creator, or family members.
  • The for-profit business cannot have outstanding loans to substantial contributors to the private foundation or family members.

Basically – It would have to follow Newman’s Own story.

The full text of the exception can be found here.

Paul Newman’s estate planning beyond the foundation

The cornerstone of Paul Newman’s estate plan, mentioned in his will, is the “Amended and Restated Living Trust Number One,” executed before the will. The terms of that trust were not published, nor what assets it held. We do know that the living trust was the residuary beneficiary of Newman’s estate; that is, any property not identified and transferred specifically by the will passed to the trust. We know from a provision in the will that the living trust provided for Newman’s descendants, and that for descendants less than 35 years old when Newman died, separate trusts were to be created. Finally, we can tell from the will that a marital deduction trust was carved out of the living trust for the benefit of Newman’s surviving spouse, Joanne Woodward. The will provided that the marital trust would be funded with Newman’s interests in production companies and the royalties and residuals due Newman from his acting career. Newman’s will also mentions that he may provide a memorandum to his executors.

The memorandum would suggest various gifts, but it would not be binding on the executors, nor would it be published, securing an additional zone of privacy. Somewhat more detail was provided regarding the legacy to Newman’s Own Foundation, which has continued his philanthropic work.

Key takeaways: An estate plan can support philanthropy as well as private beneficiaries. A living trust is a great mechanism for managing wealth that will stay in the family.

Interested in how trust services might help your family? Contact a Garden State Professional to learn more.

Photo By TriviaKing at English Wikipedia, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4939146

Are the Tax Cuts Working?

Dear Garden State Trust:

Are the tax cuts enacted last December having the hoped-for impact? How is the economy doing?

—Eternal Optimist

Dear Eternal:

Too soon to say, but we have a number of good portents. Gross Domestic Product was up 2.2% in the first quarter. In the last four years, the first quarter of the year has tended to be disappointing, with an average growth of just 1%, so 2.2% is quite strong by comparison.

Even better, the profits of the companies in the S&P 500 were up a remarkable 26.3% in the same period. The strong global economy, a decline in the value of the dollar, and the cut in the corporate tax rate all contributed to this good performance. However, another contributor was the record buyback of $178 billion in shares. Because profits are reported on a per-share basis, the buybacks create an artificial lift in the percentages.

A broader measure of corporate profits is created by the Commerce Department. This figure excludes foreign operations, and it includes all U.S. companies, privately as well as publicly held firms. The Commerce Department also includes any one-time charges to earnings that are usually excluded from the S&P 500 numbers. The government measured profit growth at just 0.1% in the first quarter. What’s more, were it not for the reduction in the corporate tax rate, profits would have fallen by 6% instead of growing.

That shows that the benefits of the tax cuts are flowing to businesses as intended. Whether that will translate into sustained above-average economic growth is still an open question.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(June 2018)
© 2018 M.A. Co. All rights reserved.

Who Really Made It?

The Museé Terrus in Elne, France, recently cut its collection by more than half when it was revealed that 82 of the museum’s 142 works were fakes or forgeries.

The museum relied on its founder to acquire works by Terrus, and the museum spent over $190,000 on these fakes and forgeries over two decades.

In this case a guest curator, Eric Forcada, discovered discrepencies and started investing further. He noticed many details the untrained eye might not, such as featured landmarks, like castles, that were built after Terrus had passed away.

Some of the painting were misidentified and instead painted by Terrus’ contemporaries like Pierre Brune, Balbino Giner, and Augustin Hanicotte.

Read the full story here.

Sometimes the opposite happens, when a piece of “unexceptional” art is discovered to be done by a notable artist and can be authenticated. Last year in Madison, NJ, a sculpture that had been boxed up and stored for years, and then positioned in a corner of the Hartley Dodge Foundation (it doubles as the town hall) was investigated further by a temporary archivist.

At the time of the discovery, they had no idea how the piece even came into the possession of the Foundation. Scholars were able to uncover the statue’s history and verify that this sculpture was not only done by the legendary Auguste Rodin, but that it was also the only known political or military figure sculpted by Rodin. It now has an estimated value of $4 million.

Read the full story here.

Where there is wealth transfer, there is the IRS, and they need a representation of value so that they can impose taxes.  If one needs to be certain of the value of a piece of art, they can request a direct IRS statement of value of art appraised on $50,000 or more (plus a $2,500 filing fee).

If the taxpayer has his or her own appraisal done, there may be an audit on the items worth $20,000 or more by the Commissioner’s Art Advisory Panel. This panel is made up of 25 non-compensated art experts who do not know the tax consequences of the valuation (higher is better for charitable contributions, and lower is better for estates keeping the art in the family).

The IRS panel may not agree with the appraisal for a number of reasons. The marketplace may have shifted and the value of all sales of that style of art may have increase/decreased. The authenticity of the art could was not determined well enough by scholars, museum curators, dealers, auction houses, or others. The provenance and title isn’t well enough documented.

There is a standard for professional art appraisals: Uniform Standards of Professional Appraisal Practice (USPAP), which the IRS requires to be used.

“Impact” Investing

Dear Garden State Trust:

What is this “impact” investing I’ve been hearing about? Can trust assets be invested for social impact?

—Seeking Social Justice

Dear Seeking:

There is no simple definition of “impact” investing. One writer called it “a movement that aims to force social change by minimizing or eliminating investors’ exposure to companies that harm the world” while still achieving a solid return. Putting a more positive spin on the idea, another writer suggested “a movement that aims to maximize investors’ exposure to companies that improve the world.”

This approach can include negative screens—avoiding tobacco and liquor companies, say—or positive screens—looking for companies that have women in leadership positions, or strong environmental records, for example.

Trust assets are invested according to guidelines provided in the trust instrument. The grantor of the trust is free to impose any desired restrictions on the buying and selling of holdings for the trust. However, in most cases the grantor plans to rely on the investment expertise of the trustee, rather than put handcuffs on the decision.

If the trust does not provide specific guidance for investment decisions, might the trustee take the initiative? When this question came up in the 1990s, when the concept of “socially responsible investing” was popularized, the initial answer was no. A trustee who invests for any purpose other than risk-appropriate return on assets would, it was thought, be violating a fiduciary duty to the trust beneficiaries. In part this observation may have been influenced by the fact that some socially responsible strategies were seen as significantly underperforming the market.

Proponents of “impact” investing have argued that their more sophisticated approach may prove less risky than the market as a whole, without sacrificing returns. Time will tell.

Do you have a question concerning wealth management or trusts?  Send your inquiry to contact@gstrustco.com

(May 2018)
© 2018 M.A. Co.  All rights reserved.