Special needs trusts

Dear Garden State Trust Company:

I have a child with autism, and I’m thinking about the child’s financial future. I’ve heard about special needs trusts, which can provide for financial support without jeopardizing public benefits.  What is the difference between a first-party special needs trust and a third-party special needs trust?—Caring Parent

Dear Caring:

A “first-party” trust is established with the assets of the special needs person.  For example, if someone won substantial damages in a court case for being disabled in an accident, and those funds were placed in a special needs trust for that person, that is a first-party trust.  Assets in a first-party trust may be subject to claims from the government for repayment of, for example, medical expenses incurred by the state for the special needs person.

A “third-party” special needs trust is funded with the assets of someone other than the special needs person.  For example, you might set up such a trust for your autistic child.  Repayment provisions generally are not required for third-party trusts.

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

(July 2016)

© 2016 M.A. Co.  All rights reserved.


12 reasons to review your will

Creating a will and an estate plan is not a “one and done” event.  Many events can cause a plan that made perfect sense when it was drafted fail to meet expectations and the needs of the family.  Life happens.  As a rule of thumb, a will and estate plan should be reviewed every five years or so.  Here’s a checklist of 12 reasons why a will might need to be amended.

  • An heir has died.
  • A new potential heir has been born.
  • Divorce.
  • Divorce of an heir.
  • Retirement.
  • Move to another state.
  • Sale or gift of assets bequeathed in the will.
  • Material change in wealth, up or down.
  • Change in federal tax laws.
  • Change in state tax laws.
  • An heir has become disabled, or perhaps drug dependent.
  • Estrangement from heirs.

Two changes in the federal estate tax made in 2012 rendered a great many wills obsolete, for example.  First, the amount exempt from federal estate taxes was lifted permanently to $5 million (plus inflation adjustments).  Second, the exemption was made “portable” for married couples.  Strategies employed in an estate plan to reduce estate taxes were made completely unnecessary for smaller estates.

The most common technique for deferring federal estate taxes has long been the marital deduction trust, coupled with a “bypass” trust.  When one combines “portability” with the enlarged federal exemption, a family fortune of up to $10 million (plus inflation) can avoid all federal estate taxes simply by leaving everything to a surviving spouse and filing an estate tax return when the first spouse dies.  The favorable outcome of the “two-trust” plan is now possible with the simplest of wills.

See your professional estate planning advisors to learn more.

(July 2016)

© 2016 M.A. Co. All rights reserved.


Should your investment program be a trust?

Investors with $50,000 portfolios have stockbrokers, it has been said, while those with $5 million have trust officers. That may be true, but it’s also misleading.The fact is, few of our customers are in the truly high-wealth category. A good number of business or professional people, active or retired, count on us to maintain and enhance their hard-won financial independence. Some rely on us to invest significant sums that they have received as a result of a death in the family or the sale of property. All in all, the great majority of trusts in our care are well below the million-dollar level.

What sets us apart is the nature and quality of our work. As we see it, each of our trust customers deserves the first-class service that an investor with $5 million expects to receive.

Is it time for you to move up to a living trust? These insights into our way of doing things will help you arrive at an informed decision.

We’re different

First, you should understand that we don’t claim to be “better” than full-service brokers or financial advisors. We’re just different.

Buying and selling. Some investment advisors make their money from the commissions that they receive for buying and selling securities for their customers and from profits on new issues of securities that they underwrite and make available to the public.

That’s not us. We’re paid a fee based upon account size. Our compensation goes up only if the account grows in value.

Financial management. As a trust institution, our sole concern is to do the best possible job of managing money for our customers. We have no stocks to sell, nor do we look to commissions for compensation.

Because we have nothing to sell but service, our success is tightly linked to the success and satisfaction of our customers. We’re well aware that in order to prosper we must (1) make our customers’ capital grow and (2) serve our existing customers so attentively that they refer new customers to us.

This attentiveness is reflected in our insistence on viewing each trust customer as an individual with a unique set of financial aims and circumstances, not merely as an “account.”

More than investment counseling

In some respects our services resemble those that an investor might receive from a top-flight investment counseling firm. But here, too, there can be significant differences. We provide each of our trust customers with complete custodial care and record-keeping services. Indeed, we take care of virtually every investment detail that you can think of. Sound convenient? It is. More important, all this attention to detail can result in significant savings over the years. If you’ve ever mislaid a dividend check, or failed to notice that a bond was called for redemption and had ceased to earn interest, or overpaid your taxes because adequate investment records were lacking, you’ll understand what we mean.

Unique advantages. By placing their invest-able funds in what we call a revocable living trust, our customers are able to take full advantage of our broad and unique capabilities as a trust institution. They (and you) can instruct us to perform a wide variety of special duties, now or in the future.

For example, some of our trust customers have a fondness for roaming the world. Who makes sure that their estimated income taxes, property taxes and other recurring payments are taken care of while they’re away for extended periods? If they wish, we do.

For older men and women, our ability to accept added responsibilities as trustee can result in enhanced peace of mind. It’s worrisome to hear of aging friends or relatives who have become incapable of managing their own finances, and even more distressing to hear of problems arising from the appointment of a guardian or conservator. With a well-planned trust agreement, an older person can make arrangements now to minimize financial–management problems in the event of future illness or incapacity.

Moving up without “tying up”

When talking with potential customers, we’ve learned to expect a comment that goes something like this: “A trust sounds like just what I’ve been looking for—except, I don’t want to tie up my money.”

Like these men and women, you also will be pleased to hear that the terms of a trust can be just as untied as you want to make them. What’s more, the type of trust that we’re discussing is revocable. That means you’re free to cancel the whole arrangement if ever you find a better source of first-class financial management. You’re also free to amend your instructions to us as your plans or circumstances change.

Ready to move up to a living trust? Call on us!

(July 2016)

© 2016 M.A. Co. All rights reserved.

Brexit fallout

One thing is certain about financial markets—investors hate uncertainty.  They hate being surprised.  And the biggest surprise of the quarter was the decision by a slim majority of Britons to leave the European Union.  The next day Japan’s Nikkei dropped 8%; France’s CAC fell 10% in two days; and the S&P 500 lost 5% in two days.

But the distress was short-lived, as the stock markets came back quickly.  The British pound continued to trade at low levels.

Only time will tell the real economic meaning of Brexit.  Before the vote economists were unified in predicting that leaving the EU could only be bad for the British economy, and perhaps for the EU also.  When the markets recovered quickly after the initial shock, an alternative vision emerged.  Writing on The Wall Street Journal’s op-ed page, the CEO of Nasdaq, Robert Greifeld, suggested that the exit could well enhance Britain’s prosperity. “An independent U.K. will be free of the fiscal and regulatory costs of the EU and could cut or even eliminate tariffs while developing a new, vastly simplified regulatory approach.”  Turning lemons into lemonade, he added: “This is an opportunity for the EU and U.K. to set a new global standard.  While many observers are focused on the isolationist political views of those who voted in favor of exit, the ultimate result could be the opposite.”

On the other hand, Brexit could signal the beginning of the unraveling of the EU itself, which could be very bad for the global economy.  Reportedly, there are already calls for French and Italian referenda. Worldwide trade wars were what put the “great” in the Great Depression.

Interest rates

Another great economic thud during the quarter was the May jobs report. The consensus forecast was for 160,000 new jobs, and the reality missed that by a mile, as only 38,000 jobs were added, the worst report since September 2010.

More ominously, the labor force participation rate bottomed at a 35-year low last October.  The low participation rate explains why so many Americans don’t believe that the economy truly has recovered from the last recession. Improvement in the participation rate since October was almost entirely erased with the May jobs report, as 664,000 people dropped out.  There are now over 102 million Americans either unemployed or not looking for work.

Given the weakness in employment, the Federal Reserve Board did not raise interest rates in June, as had been widely predicted earlier in the year.  After Brexit and the new economic uncertainties, few expect rates to be lifted during the summer, and the Fed rarely touches interest rates during the peak of an election season.  Accordingly, few observers expect another interest rate increase this year.

Oil prices

Although the price of crude fell with the equity markets, based upon fears of a global economic slowdown that would depress demand, it soon bounced back.  Brexit is not likely to push oil prices out of the $40 to $50 per barrel range.  Europe already has been in a low growth mode, accounting for only 15% of worldwide consumption.  Europe’s demand for oil peaked in the last decade.

Because of lower prices, oil production has dropped in the U.S., Canada and Colombia.  Supplies also have been disrupted in Venezuela and Nigeria.  The excess of supply is being worked off.  Both shale production and Canadian tar sands are economically viable at current prices.  Demand for oil is increasing in India and remains strong in China.

The dollar initially strengthened after Brexit, but then pulled back.  Weaker dollars lead to higher oil prices, as demand is stimulated for those who pay in other currencies. The current economic recovery is now seven years old.

(July 2016)

© 2016 M.A. Co. All rights reserved.