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.

April Showers Bring May Flowers

Whether you’re at the stage in your life where you have a work-optional lifestyle, or just have a green thumb and time to garden on the weekend, it’s time to plan and plant.

At Garden State Trust Company, we believe there are many parallels between having a successful garden and successfully managing wealth. “Garden” is right there in our name, after all.

Here are our top three tips for gardening and thoughts on them:

  1. This location vs. that location

What nutrients exist in the soil that can promote your plant’s growth? How will the climate affect your plants? Will they get enough, or too much sunlight?

Just as there are some areas where there is little or no potential for the growth of a particular plant, there are also areas where there is little or no potential for growth of an investment.

Sometimes the potential is in tech stocks, sometimes in utilities, sometimes in energy stocks. Sometimes bonds are the better bet. There are a lot of variables to consider when considering if a particular investment will flourish. Our investment advisors can tell you more about today’s potential.

  1. Cultivating vs. weeding

What forces are preventing the perfect growth of the most beautiful flowers, vegetables, or fruits? What can you do to combat those forces?

Just as there are many dangers that arise in a garden – not enough water, weeds, other flora or fauna that wants to take over, there is also a constantly changing environment for your investment portfolio.

An untended garden will quickly become overrun with weeds and be difficult to fix, but cultivating daily will preserve the garden in a fraction of that time. Cultivating is the process of turning over the soil before aggressive seeds can take root and then steal precious resources from the plants that you are tending.

Similarly, with an investment portfolio, economic forces can take root and quickly change the risk dynamics, but daily supervision and automatic asset allocation adjustments can ensure that the portfolio remains appropriate for the investor.

  1. Annual (plant every year) vs. perennials (come back from their root structure)

What is the life cycle of your plants? Will they need to be planted every year, or will the come back on their own?

There are many beautiful and delicious plants that exist as annuals and need to be planted every year, but also some that will develop roots to grow the following year without planting.

Asparagus is considered a cash crop plant, and it’s not hard to see why. It’s a perennial plant that lasts from year to year without needing to be planted over again, and it can be harvested as often as twice a day and a single 100 foot row could yield 25 pounds (see a crop profile on hobby farms here).

With an investment portfolio, you do want something that will develop a root structure and provide growth every year rather than something that will get used up and needs to be planted again.

At Garden State Trust Company, we tend to our clients’ investment gardens, so they have time to relax and tend to their plant gardens. We’ve shared our gardening tips; feel free to share your gardening tips with us too by clicking here.

P.S. In New Jersey, even though we are small in area, we are the fourth largest grower of asparagus in the nation (see the list of top grown exports here) with 5.6 million pounds grown over 1500 acres.

Spring Cleaning

The winter is finally over, and with spring comes new fragrances and pollens outside. To fully embrace the new season, some decide to clean their homes inside as well, moving everything and doing a full clean and assessment of what should be kept or thrown out.

We collect treasures over our lifetimes that represent memories, and letting go of those treasures can be hard.

A recent article from the Journal of Gerontology: Series B, titled “The Material Convoy after 50” discusses how people divest themselves of possessions as they age. The article can be found here.

David J. Ekerdt and Lindsey A. Baker through analysis of data from a national panel conclude that “After age 50, people are progressively less likely to divest themselves of belongings. After age 70, about 30% of persons say that they have done nothing in the past year to clean out, give away, or donate things, and over 80% have sold nothing.”

Although the authors suggest that with a larger set of possessions, “their continued keeping can be a predicament for oneself and others,” they explore many reasons why less is divested as we age.  The reasons they bring up that we find compelling are:

  1. The longer we live, the more possessions we accumulate that signify our identity and “The ongoing collection of belongings can secure continuity of the self in the face of aging and vulnerability.”
  2. As we age, we feel less up to the task of assessing value and divesting where there isn’t any: “a major reason for less possession management is the rising risk of poor health at older ages that can limit the capacity to carry out the cognitive, physical, social, and emotional tasks of divestment.”
  3. We’ve divested already: “Most obviously, people may have already divested (perhaps by having moved) and so are content with their collection of belongings.”

At Garden State Trust Company, we deal with inter-generational wealth transfer and help people make the transition easier for their beneficiaries. Here are some questions to consider when you’re deciding if something should be kept for a beneficiary:

In regard to pragmatic value: Have I used this possession in the last five years? Would any of my beneficiaries use this possession, or do they have something already that replicates it’s use they prefer?

An Introduction to ABLE Accounts

On December 3, 2014, Congress passed the Achieving a Better Life Experience Act, or as it’s more commonly known as, the ABLE Act. The ABLE Act authorized a new type of tax-favored savings account for blind or disabled individuals with a qualifying disability incurred prior to age 26.  As of January 1, 2018, these individuals may receive up to $15,000 per calendar year in an ABLE account, without having the funds in the account counted against them for Medicaid or SSI eligibility purposes.  The ABLE account beneficiary is able to manage the funds on deposit in the account and may use the account proceeds to pay for “qualified disability expenses (QDEs).” As long as the expenditures of funds from the ABLE account being attributed to the blind or disabled account beneficiary are used for QDEs, the dollars will not be subject to federal income tax, nor will they be deemed as countable resources in determining eligibility for most federal welfare benefit programs.

So why is the ABLE account such an important vehicle?  Simply put, many disabled individuals and their families can’t afford the rising costs of care related to their lives with disabilities. Medicaid and SSI only provide so much, and eligibility requirements force the beneficiary to have no more than $2,000 of countable assets at any time. ABLE accounts can protect additional resources for the disabled beneficiary, whose friends, family members, or the disabled individual himself, may transfer up to $15,000 per calendar year per disabled beneficiary into the ABLE account. Undistributed earnings will not be taxed, and no 10% penalty will apply on distributions.  The funds may accumulate in the account year after year, up to the applicable state 529 cap for Medicaid purposes. For SSI purposes, the limit is $100,000, after which eligibility for SSI is suspended until the account proceeds are spent down below the $100,000 SSI threshold. Therefore, assuming the account owner follows the rules of ABLE accounts (outlined below), he or she can not only receive Medicaid, SSI and/or SNAP (food stamps), but can also use the ABLE funds to supplement those benefits with tax-free dollars.

In order to be eligible to open an ABLE account, you must be deemed a disabled individual by the Social Security Administration, and need to have incurred such disability before turning age 26 (NOTE: This does not prohibit applicants aged 26 or older from applying, only those whose disability began after age 26). Should you meet the eligibility qualifications, the following financial regulations apply:

  • “Qualified disability expenses” or QDE’s are defined as “any expense related to the beneficiary as a result of living a life with disabilities1.” Examples of such expenses can include education, housing, assistive technology, transportation, health care expenses, and other expenses that help improve the individual’s quality of life1
  • As of January 1, 2018 until December 31, 2025, the funds on deposit in a 529 educational savings account may be rolled over into an ABLE account if the beneficiary of the 529 account, or a family member of that individual, is a qualified disabled beneficiary.

Similar to a First-Party Special Needs Trust (more information in future blog), there is a payback provision associated with ABLE accounts. This provision requires that upon the passing of the ABLE account owner, the state Medicaid agency that provided benefits to that individual is allowed to reclaim or recoup all or a portion of that individual’s ABLE account remaining after death, equal to the amount of dollars expended on behalf of the individual, beginning from the time their ABLE account was opened.

Ultimately, the supplemental financial support afforded to the beneficiary during lifetime almost always outweighs the downside of the Medicaid payback after death. Regardless, it’s imperative to speak with your tax, legal, and financial advisors before opening or contributing to an ABLE account

For more information on ABLE accounts and their potential utility for a loved one with disabilities, contact Sean Rice, CTFA, srice@gstrustco.com, (856)-281-1300.

1 http://ablenrc.org/

Elusive Treasures

St. Patrick’s day brings to mind the Irish legend of the pot of gold guarded by a leprechaun at the end of the rainbow. The pot of gold is simply unreachable because its location changes as soon as the treasure hunter’s location changes to investigate. The refracted light on water droplets that creates the rainbow effect is replaced with a different rainbow effect with even a single step towards it.

Perhaps there is some gold at the end of the proverbial rainbow, just waiting to be found. In the style of uncovering and cracking a code in Dan Brown’s novels, here are two interesting treasure hunts that Americans are undertaking to find gold:

  1. The Beale Cipher. There was a pamphlet sold in 1885 containing three ciphers, with one decoded that described the treasure, including gold coins buried in Virginia (estimated value of $43 million). The other two ciphers described the location and heirs for the treasure that was allegedly buried in 1820. Many attempts have been made to break the cipher, but none with recognized success to date. Several books and TV shows have mentioned the topic. Want to try to crack the code? It can be found on Wikipedia here.

Perhaps it’s real, or perhaps a ploy to sell pamphlets to eager treasure hunters.

  1. The Fenn Treasure. Noted millionaire author Forrest Fenn allegedly has hidden a treasure box of gold coins in the Rocky Mountains worth over $1 million, with the clues to find it buried in his book, The Thrill Of The Chase. The mountains can be dangerous, and Fenn has reportedly urged caution upon seekers. He suggested that the treasure is not hidden in a dangerous place, because it must be somewhere an 80-year-old man can access. Nevertheless, four hopefuls have lost their lives since the book was published, as they have been identified by authorities to be seekers of Fenn’s treasure.

Perhaps it’s real, or perhaps a ploy to sell books to eager treasure hunters.

At Garden State Trust Company, we’ll stick with focusing on a reasoned and conservative approach to building and preserving wealth for our clients rather than chasing rainbows or buried treasure.

Happy St. Patrick’s Day!

Think Hard Before Tapping Your 401(k) Balance

One of the features that make 401(k) plans so attractive is that your money is not completely out of reach should an emergency need arise. Most plans allow for loans that are completely tax free if repaid as agreed. (Interest payments will be required, but they will be credited to the account.)  In a major emergency, a hardship withdrawal may be permitted, subject to income tax and, usually, a 10% penalty as well.

Borrow?

At first glance 401(k) loans may look particularly appealing. After all, you make those payments of principal and interest to yourself. However, if the interest that you pay is less than your borrowed dollars would have earned in the plan, you will slow the growth of your retirement nest egg. Moreover, you pay with after-tax dollars—replacing your original tax-deferred contributions.

Loans must be repaid in no more that five years. (Fifteen-year terms are allowed for loans to purchase a home.) If you leave your job before a loan is repaid, you’ll have to pay it off, or the open balance will be considered a premature withdrawal subject to income tax and penalty.

Potentially more serious yet, the burden of loan payments may make it impossible to continue your 401(k) contributions.

Withdraw?

It’s not easy to make a hardship withdrawal from your 401(k) account. You must show an “immediate and heavy financial need” for: medical expenses not covered by insurance; the purchase of a principal residence; postsecondary tuition; or to avoid eviction from or foreclosure on a principal residence. Many plans also include funeral and child support expenses. You also must show that you have no other resources reasonably available to meet these costs. This means that you first must fail to qualify for a plan loan. Once you take a hardship withdrawal, you will be barred from contributing to your plan for at least 12 months.

Pay now or pay later

To examine the effect of these options, let us compare the long-term results for Nancy Needful, a hypothetical 35-year old worker with a $30,000 balance in her 401(k) plan. Nancy contributes $150 monthly to her account. Faced with a sudden emergency need for $10,000, Nancy has three options.  Nancy can:

  1. Take a loan of $10,000 from her plan at an 8% interest rate and cease making contributions until the loan is repaid in five years, making monthly payments of $202.76, and resuming her $150 contribution after five years.
  2. Make a hardship withdrawal of $12,500 to provide the cash that she needs and cover her income tax and penalty, resuming her participation in the plan after one year.
  3. Obtain a $10,000 advance on an inheritance, continuing her participation in the plan.

Here’s how those choices will play out:

The long-range cost of raising $10,000
Reduced plan accumulations

 At age 55At age 60At age 65
Loan$199,384$310,352$470,186
Withdrawal$166,609$259,317$397,437
Advance$236,007$362,709$551,476

As we see, by taking the advance on her inheritance and continuing plan contributions, earning a moderate 8% return (high today, but average in the long term) on her investments, Nancy ends up at age 65 with 17.4% more than if she had taken the loan and fully 38.8% more than with the withdrawal.

The lesson: tapping into your retirement plan assets should be your very last resort.

© 2018 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2018, are not reflected in this article.

Lavish Gifts and Sudden Wealth

Some call Valentine’s Day an excuse to spend money, and with over 15 billion dollars spent each year for the last five years, it’s not very hard to see why.

According to the National Retail Federation, the top five gifts that were planned last year were: candy, greeting cards, an evening out, flowers, and jewelry. While jewelry ranks last on that list of five in percentage of givers (19%), it ranks #1 in terms of dollars spent ($4.4 billion). Click here to see more details from their survey.

What might the affluent or very wealthy be buying? We can’t know for sure, but here’s something in each of the categories that might fit the bill:

Candy: High-priced chocolate. At www.toakchocolate.com, one might be able to have a chocolate experience like no other since they trace the lineage of their cocoa trees back 5300 years to the first that were ever domesticated. Starting at $270 for a 50 gram bar.

Greeting Cards: Sending a card could be sending a piece of art: At www.GildedAgeGreetings.com, you can do just that and order a artisan’s hand-crafted Valentines day card for your loved one. The cards have limited editions, and start at $395.

An Evening out: Elton John announced last month that he’s retiring after his final 2018-19 tour. Unfortunately none of the venues are in NJ, but one could take a sweetheart to hear Sir Elton sing “can you feel the love tonight” at Madison Square Garden in October. Ticket price at this writing was starting at $343 per ticket.

Flowers: How about real roses that will last from one Valentine’s Day to the next? Called the “Eternity DE Venus™ – Square”, these real roses will last a whole year without watering or maintenance. A small square starts at $299, has 16 roses, and can be purchased online here: https://www.venusetfleur.com

Jewelry: Though not a Valentine’s Day gift, Edward McLean and his bride Evalyn bought “The Star of the East” as a wedding present. It is a 94.8-carat diamond, which cost $11.9 million.

Speaking of huge diamonds, last month the fifth largest diamond in the world was discovered in Lesotho. Analysts’ project it could be worth over $40 million.

Not surprisingly, finding a huge diamond isn’t the most common source of sudden or new wealth. Lump sum distribution of retirement benefits, insurance settlements, inheritance, or the sale of a business or investment real estate can create large sums of money for talented people who may not have experience with wealth management.

We can provide that experience and explain whether a trust could be useful.

Special Needs Planning 101: Why you should act NOW

“In 2015, U.S. health care costs were $3.2 trillion. That makes health care one of the country’s largest industries, equaling to 17.8% of gross domestic product (GDP). In comparison, health care costs were $27.2 billion in 1960, just 5% of GDP.” 1

“Advocacy group Autism Speaks reports that the cost of caring for a person with autism can run an estimated $1.4 million over the course of their lifetime.” 2

Unfortunately, caregivers of special needs children and adults know all too well the financial and emotional challenges they face now, and often dread the idea of trying to plan for when they’re no longer around. But taking the time to properly plan ahead for a child’s care in the future will help to alleviate some of the stress being felt currently.

First and foremost, visit with an estate planning attorney with extensive experience in the field of special needs planning. These are experts in a complex and dynamic field, in which the rules are frequently changing. For loved ones who may be eligible for governmental assistance programs such as Medicaid or SSI, that eligibility could be lost if the child receives a lump sum from a lawsuit or inheritance( For example, 2018 Medicaid eligibility requires that an applicant own no more than $2,000 in countable assets). Therefore, if one is planning to leave a relatively large sum of money  to a child who may currently be or may eventually be eligible for these types of “means-tested” benefits, it’s critical that the family speak with an attorney about creating a third party Special Needs Trust (also referred to as a Supplemental Benefits Trust). If anyone is planning on making smaller, periodic lifetime gifts to the disabled child, ask the attorney about the benefits of an ABLE account. Both of these vehicles are designed to receive assets on behalf of the beneficiary, allow those assets to be made available for supplemental needs or qualified disability expenses, and yet still allow the beneficiary to retain eligibility for certain governmental benefits. (More detailed articles to follow on both vehicles)

Next, speak with your financial advisor and/or insurance professional. If you will be creating a third party SNT during your lifetime or under your wills, it’s critical to ensure that beneficiary designations for any qualified plan (401(k), IRA, pension, annuity, insurance policy, etc) are made payable to the third party SNT and not to the disabled child outright. Failure to do so could result in disastrous consequences such as causing the child to become ineligible for valuable governmental benefit programs. For example, in the state of New Jersey, the loss of Medicaid eligibility can simultaneously result in the loss of housing and other services provided through the Division of Developmental Disabilities (DDD).

You will also want to speak to your tax advisor regarding any special needs planning you undertake. They will be able to provide necessary advice regarding the tax laws surrounding the gifting or bequeathing of various assets to a loved one. If you haven’t already done so, introduce all of your trusted advisors to one another to ensure that everyone is up to speed with the latest planning taking place. Failing to inform an advisor of a loved one’s special needs and any plans currently in place/in progress could not only unravel the plan, but cause devastating consequences like the one previously cited.

Lastly, if a third party SNT is created, it’s extremely important to consider the use of a professional trustee to manage the trust on behalf of a loved one. While many individuals’ first thought is to name a family member or friend as trustee, there are almost always significant drawbacks to that decision. SNTs are extremely complex, and the laws governing them are frequently changing. Individual family member/friend trustees almost never have the necessary time, experience, expertise, objectivity or energy to devote to the role of trustee, and they may not be able to serve when their role is called upon (death, disability, too busy, moved away). In nearly all circumstances, the use of a professional trustee is the better choice. (See previous article comparing family member trustees and professional trustees).

In this age of rising health care costs, it becomes even more critical to plan NOW for the care of loved ones with special needs. Assembling a team of professionals ahead of time will ensure peace of mind for the family, as they will know that there is a proper plan in place to care for their loved one when they are no longer able to do so.

For more information regarding Special Needs planning, and the role a professional trustee can serve in that planning, contact Sean Rice, CTFA, srice@gstrustco.com, (856)-281-1300

1 https://www.thebalance.com/causes-of-rising-healthcare-costs-4064878
2 https://blog.mint.com/planning/the-cost-of-raising-a-special-needs-child-0713

Timing Your Passing

It’s never a “good year” to die; however, if you live in New Jersey and made it to 2018 with a sizable estate, it’s possible your estate’s tax exposure just fell considerably.

The amount exempt from the federal estate and gift tax had been scheduled to rise to $5.6 million so as to take into account inflation since 2011. With the tax legislation signed on December 22nd 2017, the exemption doubles, to $11.2 million in 2018. Should both partners of a married couple die in 2018, the exemption potentially could shield $22.4 million. However, the higher exemption expires in 2026.

Additionally, New Jersey finished phasing out its state estate tax completely for deaths after January 1st 2018. We still have an inheritance tax, so that’s something to consider depending on the relationship the beneficiary or transferee has to the decedent.  For the most part, no tax will be due if the beneficiary will be a spouse, parent, grandparent, or child (relationship defined as Class A). However, brothers, sisters, and more distant transferees may face an inheritance tax.

Click here for a chart of what the tax rates will be for 2018.

Click here to see which class someone would belong to.

Consider gifting

A program of tax-free annual gifts (up to $15,000 per beneficiary in 2018, $30,000 per couple) can be an easy and effective method for reducing future estate taxes. For example, grandparents with three children and seven grandchildren can give up to $300,000 to their descendants every year, or $1.5 million in just five years.

If the transferees or beneficiary are not as closely related, so that they would fall into class C, or class D, a gifting strategy could help avoid the New Jersey inheritance tax, but only if the gifts are not “death-bed gifts”. Under New Jersey law, any gift made within three years of death is presumed made “in contemplation of death”, and would have the inheritance tax applied as a death-bed gift. So this strategy should be started early on.

Should you worry?

It’s been estimated that perhaps only 1,000 estates nationwide will pay the federal estate tax in 2018. However, the higher exemption expires in 2026, and some politicians already have announced an intention to reduce the exemption should they come into power.

Estate plans will need to remain flexible as tax laws change.

The greatest reason to have an estate plan is still to decrease hardship for the beneficiaries, reduce arguments and fights, and clarify your preferences for how your property should be distributed.

Our Professionals at Garden State Trust Company

We have experience dealing with the problems and pitfalls of families’ wealth management and transfer. Our staff is sensitive to the types of issues that could arise, and would be glad to speak with you about how to best achieve your goals.

Click here to schedule a meeting.

End of Year Review

As we are nearing year-end it makes a lot of sense to review your current Will, especially if any of the following occurred during 2017 –

  • A named beneficiary died
  • A possible beneficiary was born
  • A named beneficiary divorced
  • A named beneficiary is very sick or has a drug dependency
  • You are moving or moved to a different state
  • The value of your assets changed significantly

These are just a few events that should prompt a review of your Will and your Estate Plan.

The professionals at Garden State Trust Company will be happy to meet to review your Will and Estate Plan at no obligation to you.

http://www.gstrustco.com/boomers—beyond.html