August 2015

About 10 days ago, before the current market turmoil, we automatically scheduled this month’s newsletter for distribution today. This morning, I felt it would be remiss of us if we did not address the recent market volatility.

Our friends at Northern Trust Company in a recent Economic Update titled Trying to Restore Order addressed the recent market volatility which I will attempt to paraphrase.

  • To say the least, August has been an unsettling month for the financial markets. Most of the volatility has been caused by the uncertainties faced by China. We all know that markets do not like uncertainty.  However, it is important to maintain some perspective.  China’s recent struggles should only have a limited direct impact on the United States because U.S. exports to China are modest, direct financial relationships are limited and declines in energy and commodity prices that are a result of China’s change in growth strategy should result in a positive for American consumers.
  • Emerging economies around the world will feel pressure especially those that sell to China. Profits of large multinational companies that are engaged with emerging economies may be hindered adding to uncertainty.
  • We have all been anticipating for some time the Feds intention to raise interest rates.  There was a high degree of confidence that at this September’s Federal Reserve meeting interest rates would be hiked. Now, with market conditions unsettled, the Fed may be reluctant to implement a rate hike when world markets seem fragile.
  • We have gone a very long time without a 10% equity market decline which on average happens twice a year.  Until the past two weeks market volatility has remained low even with numerous geopolitical challenges, including Iran and Greece.  We are now at a point where market volatility is high and the market is going through a correction.  Shockwaves to the system usually enhance focus, and ultimately pave the way for continued advances.

What’s an investor to do about rising volatility? For many investors, the answer is, not much.  Ideally, you want to be in the market on the up days and out on the down days. In reality, no one can call those days accurately in advance.  Academic studies have shown that most of the gains in the stock market occur on just a few trading days. The risk of being out of the market on good days outweighs the reward of avoiding the losers and the transaction costs of managing the process.

Over the long term, the stock market has balanced the negative and positive abnormal days.  Past performance does not guarantee future results, but, overall, stocks have outperformed all other investment classes.

Diversification helps to moderate the impact of exceptional days. On a day when the stock market overall is down, some stocks are, nevertheless, up. Stock selection matters.  The bond market doesn’t always move in lockstep with the stock market, so an allocation to this asset class also may reduce the impact of daily swings.  Keeping some cash on hand may help investors weather a rough patch, or even take advantage of opportunities that arise.

Remember the key to successful investing is adhering to an asset allocation strategy. It’s time not timing that matters most!  Now, onto our August Newsletter.

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The month of August has been very eventful for Garden State Trust Company with the opening of our third location. On August 3rd, we opened a new office located in The Hunterdon Hills Plaza at 1390 Route 22 West, Suite 101, Lebanon, New Jersey.
Kurt Talke, who joined Garden State almost one year ago, will have responsibility for our new office. Kurt has been in the Trust and Investment industry helping clients reach their goals for more than 24 years. He started his career in 1990 with United Trust located in Bridgewater, NJ where he was a Vice-President and Trust Officer responsible for administering personal and charitable trusts, estates, retirement funds and investment management accounts.

In 1997, Kurt joined Peapack-Gladstone Bank’s Trust Division located in Bedminster, NJ. He was instrumental in helping the division grow its Assets under Administration consistently each and every year as Senior Managing Director heading their Trust and Estate Administration Group. Kurt obtained the designation of Certified Trust and Financial Advisor from the American Bankers Association and is active in many local Estate Planning Associations in and around Hunterdon County.

A lifelong resident of the area, Kurt is a graduate of Rider University and resides in Frenchtown, NJ with his wife Mary and two children.

I mentioned in our recent press release that we are thrilled to have someone with Kurt’s level of experience in the trust and investment management industry, along with his familiarity with Hunterdon County, managing our new office. Like all of us at Garden State Trust Company, he shares our service commitment that emphasizes communication, objectivity and above all – TRUST.

I hope you enjoy the rest of your summer.

With best wishes,

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Whitney Houston and Trust Planning

 News of the tragic death of Whitney Houston’s daughter, Bobbi Kristina Brown, was accompanied by speculation about the family’s estate plans.

Whitney Houston left her entire estate in trust for her daughter.  Trust principal was to be distributed over a period of nine years—10% when Bobbi Kristina reached age 21, 30% at age 25, and the balance upon reaching age 30.  This pattern of sequential trust distributions is a common one.  It avoids overwhelming the heir with too much, too soon.

As Bobbi Kristina was just 22 at her death, she had received only 10% of the trust assets.  The size of the trust is unknown, but press speculation puts it at about $200 million.  In the event Bobbi Kristina does not have a will, the trust assets are to be divided among Whitney Houston’s mother and two brothers.  No word at this writing on whether there is a will, but it would be unusual for a 22-year-old to have done any estate planning.

If there is no will, Bobbi Kristina’s father is her nearest relative, so he would be entitled to whatever is left (after paying final medical expenses) from her trust distributions.

One final wrinkle is that Bobbi Kristina’s boyfriend, Nick Gordon, may try to claim that he is her husband.  As her husband he would be entitled to a share of her estate, but not to a share of Whitney Houston’s estate.  Gordon cannot make a claim of common law marriage, as such marriages are no longer recognized in Georgia.  He would have to provide a marriage certificate.

Planning a child’s inheritance always involves tradeoffs.  Typically, the child wants full and immediate access to assets, while the parent prefers to limit access until financial maturity is reached.  In fact, a good argument can be made for having a trust for a child’s inheritance last for a lifetime, to provide permanent creditor protection.  Phased distributions, as chosen by Whitney Houston, provide a compromise solution.

(August 2015) © 2015 M.A. Co. All rights reserved.

The Trouble with Powers of Attorney

Reportedly the incidence of Alzheimer’s disease among those 85 and older is about 47%.  This population needs help with financial management.  Perhaps the most common tool to permit a family member to assist with handling an elderly person’s assets is the power of attorney.  Unfortunately, the power of attorney can also be an avenue that leads to financial abuse of the elderly.  Attorneys Martin Shenkman and Jonathan Blattmachr outlined steps that may be taken to head off such problems without compromising flexible financial management for the elderly person (“Powers of Attorney for Our Aging Client Base,” published in the July 2015 issue of Trusts & Estates magazine).  Among their recommendations:

Joint agents.  Checks and balances for the power of attorney may be created if more than one person must sign off on the exercise of the power. Although this may limit quick decisions in the event of an emergency, the tradeoff for greater security may be worthwhile.

Care managers.  An independent care manager may be hired to evaluate the elder periodically to report to the elder’s health care agent.  The care manager can determine whether the appropriate care is actually being provided to the elderly person.

No more gifts.  In the usual case, one who holds a power of attorney cannot make gifts of the elderly person’s property.  However, the power of attorney may be drafted to specifically allow for such gifts, if that is desired.  In the days when the federal estate tax kicked in at much lower levels, some estate planners routinely advised that gifting powers be included in a power of attorney, so as to begin putting an estate plan into effect and to control death taxes.  The authors make a persuasive case that, given today high federal estate tax exemption, such gifting powers should no longer be routinely included in powers of attorney.  The income tax benefits of holding property until death are far greater than the potential estate tax savings for all but the largest estates. What’s more, gifting powers have been a specific source of elder abuse.

Living trusts.  It is becoming more and more common for elderly clients to outlive their spouses, siblings and friends. That creates a dilemma if there are no children nearby.  The authors suggest, “The use of a funded revocable trust that names an institutional co-trustee or successor trustee can provide a viable solution for clients fitting this profile.”

We are that “institutional co-trustee or successor trustee.”  It’s always nice to receive recognition of the value of our services from experts in estate planning.  We’d be very pleased to tell you more about how our services may benefit you and your family over the generations.  Please arrange for an appointment with one of our officers at your convenience.

(August 2015) © 2015 M.A. Co. All rights reserved.

The Trouble with Powers of Attorney

Reportedly the incidence of Alzheimer’s disease among those 85 and older is about 47%.  This population needs help with financial management.  Perhaps the most common tool to permit a family member to assist with handling an elderly person’s assets is the power of attorney.  Unfortunately, the power of attorney can also be an avenue that leads to financial abuse of the elderly.  Attorneys Martin Shenkman and Jonathan Blattmachr outlined steps that may be taken to head off such problems without compromising flexible financial management for the elderly person (“Powers of Attorney for Our Aging Client Base,” published in the July 2015 issue of Trusts & Estates magazine).  Among their recommendations:

Joint agents.  Checks and balances for the power of attorney may be created if more than one person must sign off on the exercise of the power. Although this may limit quick decisions in the event of an emergency, the tradeoff for greater security may be worthwhile.

Care managers.  An independent care manager may be hired to evaluate the elder periodically to report to the elder’s health care agent.  The care manager can determine whether the appropriate care is actually being provided to the elderly person.

No more gifts.  In the usual case, one who holds a power of attorney cannot make gifts of the elderly person’s property.  However, the power of attorney may be drafted to specifically allow for such gifts, if that is desired.  In the days when the federal estate tax kicked in at much lower levels, some estate planners routinely advised that gifting powers be included in a power of attorney, so as to begin putting an estate plan into effect and to control death taxes.  The authors make a persuasive case that, given today high federal estate tax exemption, such gifting powers should no longer be routinely included in powers of attorney.  The income tax benefits of holding property until death are far greater than the potential estate tax savings for all but the largest estates. What’s more, gifting powers have been a specific source of elder abuse.

Living trusts.  It is becoming more and more common for elderly clients to outlive their spouses, siblings and friends. That creates a dilemma if there are no children nearby.  The authors suggest, “The use of a funded revocable trust that names an institutional co-trustee or successor trustee can provide a viable solution for clients fitting this profile.”

We are that “institutional co-trustee or successor trustee.”  It’s always nice to receive recognition of the value of our services from experts in estate planning.  We’d be very pleased to tell you more about how our services may benefit you and your family over the generations.  Please arrange for an appointment with one of our officers at your convenience.

(August 2015) © 2015 M.A. Co. All rights reserved.

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