Retirement readiness

Dear Garden State Trust Company:

How much money must I have in order to be able to retire?  Is $1 million enough?—Peak Earning Years

Dear Peak:

The better question is: How much income will you need during your retirement?  If you will have a pension and Social Security checks coming in, $1 million might easily be enough money to make you financially independent.  If not, you might be surprised at how quickly you can run through your nest egg. The adequacy of your retirement fund will depend upon your expenses, your health and your longevity, as much as upon your investment returns.

Instead of focusing on the size of your portfolio, consider how much income that it generates, ignoring the volatility of asset values.  These are particularly difficult economic times in which to generate reliable income, given our unprecedented period of low interest rates.  Bonds are important for providing steady returns, but the interest payments that they generate just aren’t as generous as most retirees expected them to be. Some investors are looking to dividends instead of interest to meet their income goals. Because some dividends may be increased over time, they may also add an element of inflation protection to the portfolio.

The only rule of thumb that seems to work for everyone is that “you just can’t have too much money for retirement.”

Do you have a question concerning wealth management or trusts?  Send your inquiry to

© 2016 M.A. Co.  All rights reserved.

The “new” fiduciary rule

Ever since the meltdown of the financial services industry in 2008, there has been concern about the standards to which investment advisors should be held. The longstanding rule has been one of suitability; that is, the recommended investment must be suitable for the customer. That sounds perfectly reasonable.

However, one element of the new legislation for increasing the regulatory requirements on financial institutions after 2008 called upon the SEC to investigate whether a higher standard might not be appropriate, a “fiduciary” standard, the highest possible standard. That would require the advisor to put customers’ interests ahead of his or her own interest, and it would bar conflicts of interest. The brokerage industry pushed back hard against any changes to the standards, and the SEC has not yet issued new rules under that mandate.

But five years ago, the Department of Labor began a parallel regulatory project on fiduciary standards. On April 8, 2016, the final regulations were issued, applying a fiduciary rule in the context of retirement plans and IRAs. The new rule takes effect over a period of 12 to 18 months. Under the rule investment advisors to retirement plans and IRAs may have to disclose the sources of their compensation to those whom they advise, and they must always put the customer’s interest first.

Some advisors are worried about the change, because of the uncertainty created and the possible increase in lawsuits should an investment turn sour. But to be clear, the fiduciary rule is not a guarantee of investment success.

Banks and trust departments have generally been supportive of the new DOL rule, or at least have not resisted it. The reason is easy to understand. Trust departments already are subject to fiduciary standards, and always have been.  For them the fiduciary rule is not new at all. Banks that have brokerage departments expect to be able to adapt without difficulty for those operations.

Still, regulatory compliance is not cost free. The impact of the change on smaller brokers and financial institutions, coming on top of all the other recent changes in financial services regulation, could be severe. Therefore, there has been a move in Congress to head off the DOL rule, substituting a legislative approach. The outcome of that effort remains uncertain.


(May 2016)

© 2016 M.A. Co. All rights reserved.

The eternal optimist

The annual meeting for the shareholders of Berkshire Hathaway has achieved something akin to cult status. In 2014 some 44,000 shareholders descended upon Omaha to hear the wisdom of Warren Buffett and Charlie Munger, the firm’s leaders. An estimated 40,000 were on hand on April 30, 2016, to get the latest information and browse the convention center for products sold by the businesses that Berkshire Hathaway owns.

The meeting has become so popular that this year, for the first time, an arrangement was made with Yahoo Finance to livestream the proceedings. A video archive of the meeting is available at this writing at for those who are interested, but it may not be hosted there indefinitely. The entire video is seven hours long.

At the meeting Buffett was asked about the possible risks to the firm in the event that Donald Trump becomes President. Buffett already has endorsed Hillary Clinton, but he expressed no concern about the consequences of a Trump administration. Nor was he upset about the economic slowdown of the first quarter, when GDP growth came in at an anemic 0.5%, down from 1.4% in the final quarter of 2015. He does not believe that a recession is imminent.

In his annual letter to shareholders, published with Berkshire Hathaway’s 2015 Annual Report, Buffett acknowledged that the long period of very low growth has been weighing on people, so much so that many Americans now believe that their children will not enjoy a life as successful as their own. It appears that President Obama will be the only President not to have a single year of at least 3% economic growth during his term of office. But even 2% growth is good enough. Buffett, always the optimist, explained:

“America’s population is growing about .8% per year (.5% from births minus deaths and .3% from net migration). Thus 2% of overall growth produces about 1.2% of per capita growth. That may not sound impressive. But in a single generation of, say, 25 years, that rate of growth leads to a gain of 34.4% in real GDP per capita. (Compounding’s effects produce the excess over the percentage that would result by simply multiplying 25 x 1.2%.) In turn, that 34.4% gain will produce a staggering $19,000 increase in real GDP per capita for the next generation. Were that to be distributed equally, the gain would be $76,000 annually for a family of four. Today’s politicians need not shed tears for tomorrow’s children.

“Indeed, most of today’s children are doing well. All families in my upper middle-class neighborhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name just a few – transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do.”

Still, this long period of low interest rates has had an effect on Berkshire Hathaway. Buffett revealed that the firm has exited the reinsurance business in Europe. A significant element of the profit from reinsurance business comes from investing the float, so interest rates that are near zero or even negative impair that profit element. Buffett said during the meeting that he doesn’t expect the reinsurance business to return to its former levels of profitability for a decade or more.

(May 2016)

© 2016 M.A. Co. All rights reserved.

Another celebrity may have died without a will

According to early reports, music superstar Prince died without a will. Just days after his funeral, his sister Tyka Nelson petitioned the probate court to appoint a special administrator for the estate, stating that she believed that there was no will or other testamentary document. If there is, in fact, no will, the heirs will be Prince’s siblings and half-siblings in equal shares.

Local newspapers reported that some $31 million in Minnesota real estate was owned by Prince or business entities that he controlled. The larger estate asset is likely to be his body of work, for which he owned the copyrights. Early estimates of their value have ranged from $100 million to $300 million.

How could someone with an estate so vast not have a will? Oddly enough, most people procrastinate on planning their estates. We don’t know the full story yet. Prince was a very private person in life. Perhaps he employed trusts so as to preserve financial privacy after his death? If so, his sister might very well not be aware of it. It is known that there was friction among the siblings when Prince was in charge of settling his father’s estate in 2001.

Here’s an interesting footnote. Ms. Nelson asked the court to appoint Bremer Trust in St. Cloud, Minnesota, as the special administrator. She stated that they already were familiar with Prince’s financial affairs. They have been given that assignment for a preliminary six-month term.

The trickiest part of estate planning for the celebrity estate concerns the right to publicity. In some cases, as with Elvis Presley or Michael Jackson, this may prove to be the estate’s most valuable asset. Yet the value of that asset on the date of death is highly uncertain, almost unknowable.

When he died, Michael Jackson’s career was at a low point, so low that his executors valued his right to publicity at a few thousand dollars. The IRS disagreed, believing it was worth hundreds of millions. That difference has triggered litigation that is expected to go to the Tax Court next year.

Having a will won’t resolve serious issues such as these, nor is it likely to have a material effect on death tax obligations. But having a will does make life somewhat easier for the survivors. It will guide the disposition of one’s property, as well as nominate a person or firm to oversee the process of estate settlement.

If you don’t yet have a will, or if you haven’t reviewed your will since the last major tax reforms in 2012, you should make an early appointment with our estate planning advisors.

(May 2016)

© 2016 M.A. Co. All rights reserved.


Siobhan Connolly represents GSTC at 1st Annual Brain Health Fair

Siobhan M. Connolly trust officer

Vice President and Trust Officer, Siobhan Connolly represented Garden State Trust Company as a sponsor of the 1st Annual Brain Health Fair. Social Community Activities Network (SCAN) and Meals on Wheels hosted the event to promote brain health through fun interactive activities.