1

When Creating a Trust Avoid This Mistake

Planning for a family’s transfer of wealth and ensuring successful execution is a complex process. Clients look to their trusted advisors for guidance when it comes to defining and executing their estate plans for future generations. Too often, individuals and families go through an arduous financial and estate planning process and then fail to finish implementing some of the most important steps: proper titling of assets and accurate beneficiary designations.

As part of a comprehensive estate plan, the trusted advisor must ensure that the trustee or the directed fiduciary understands how assets are intended to be titled and how they align with one another. More importantly, trusted advisors should work with their clients to ensure that all beneficiary designations are up-to-date and that assets are titled correctly.

Failure to title assets appropriately can cause assets to pass in a way the family did not intend. Lack of account titling and beneficiary designations can also lead to increased taxes, frustration, fractured families, and even lawsuits. A good, comprehensive estate plan, coupled with assistance implementing the desired estate plan, can help families avoid these issues.

Why is titling of assets so important?

Titling is a legal term that identifies how and who owns assets. In estate planning, the titling or ownership structure will impact how assets are distributed, whether probate is necessary, and the amount of estate taxes owed.

Probate is the name for the formal court process through which an estate is passed on to heirs after death. Depending on where one lives, it could be a relatively quick process, or it could be long and drawn out — up to 18 months in some states, and perhaps longer. Effective titling of assets helps to ensure that the probate process is skipped entirely. Issues with the probate system include additional costs, delays, and publicity.

Which assets pass through one’s will is often misunderstood. Certain types of ownership allow you to pass control of your assets to a joint owner, such as a spouse, without having to go through probate. These include:

  • Joint tenancy with rights of survivorship (JTWROS)
  • Joint tenancy by the entirety

It is important to note that only individually-owned assets pass through probate – and it can be surprising for surviving spouses how few individually-held assets are owned. A Revocable Trust can be used to avoid the probate system; however, assets must be titled to the Revocable Living Trust to accomplish this.

A revocable trust can also help facilitate the distribution of assets according to one’s wishes. Also known as a “living trust” because it is made in one’s lifetime, a revocable trust can help ensure the continuity of asset management. A revocable trust also allows individuals to maintain financial control of their assets by naming themselves as the trustee. This provides individuals freedom to move assets in and out of the trust by simply retitling them.

Though a revocable trust offers many benefits, it is not a replacement for a will. A will is still required to direct the distribution of personal assets of value which have not been included in the revocable trust, such as vehicles, boats, collections, and other personal property.

Beneficiary Designations

Beneficiary designation allows assets at death to pass through a contract. Examples are life insurance, annuities, IRAs and your 401(k)s. In each case, the owner of the asset has designated a primary beneficiary who receives the asset at death.

An individual can write in a will that they want all assets to go to one’s spouse at death, but if the beneficiary designation on any of these assets names someone other than the spouse, then those assets will not go to the spouse. It is extremely important to remember to update beneficiary designations when getting married or going through a divorce.

Another example: Enrollment in a 401(k) retirement plan requests that a beneficiary is named. At death, the retirement plan assets would automatically be distributed to the named beneficiary, even if the will directs that another party receive the funds. Because there is a designated beneficiary, the retirement assets would not be part of a probated estate, and therefore would not be under the control of a will.

That’s why it is essential to periodically review all the beneficiary designations to ensure they are aligned with the intentions of one’s will. Reviewing beneficiary designations is a key step when crafting a quality estate plan for a family.

Benefits of proper asset titling…

  • Avoids probate
  • Assists with the management of property
  • Gives family members immediate access to assets at death. 

Other types of asset titling to consider…

  • Tenants-in-Common
  • Transfer-on-Death (TOD)
  • Payable-on-Death (POD)

Final Thoughts

While wills are designed to control how and when assets are distributed upon death, they do not control all assets. Only assets that fall within the probated estate are under the direction of a will. This would include property that is titled under an individual name, such as real estate, vehicles, jewelry, or other personal property. Assets with named beneficiaries, such as life insurance, annuities, retirement accounts, bank accounts, and brokerage accounts will be distributed directly to beneficiaries upon death, despite the wishes outlined in a will.

A well-thought-out asset titling strategy allows families to control what happens to assets, minimizes exposure to taxes, and ensures that all wishes are carried out in the simplest and most efficient way possible. How assets should be titled depends on the nature of the asset in question and the desired goal, both while you are living and when it comes time to transfer the asset after death.

Asset titling, beneficiary designation, avoiding probate, and the role of trusts in this process can be tricky and complex. Trusted professionals can help to ensure that titling of assets and beneficiary designations are aligned with estate plans so that all desired wishes are achieved. Bottom line … finish implementing estate plans by ensuring assets are titled properly before death.

This publication contains general information only, and National Advisors Trust Company is not, by this publication, rendering accounting, financial, investment, legal, tax or other professional advice or services.




Speculating About Presidential Elections is Not Fruitful

So, I’m chatting with a buddy.  We are doing our best to maintain Social Distancing, wearing masks and sincere in our determination to avoid spraying potentially contagious droplets on one another.

My buddy opened up with “I am very worried about the stock market if Joe Biden gets elected”.  (“Market Worry” is not what we want our clients to experience.) Of course, just the day before, a conversation with someone else opened with the same worry about Donald Trump’s potential re-election.

To assist our buddy with calming the ‘Market Worry’ surrounding the upcoming Presidential Election I produced a slide titled ‘Markets Have Rewarded Long-Term Investors Under a Variety of Presidents’.  Upon even cursory examination it is revealed that­­, in spite of whether our President is a Republican or a Democrat, markets have trended up!

For further information – you might enjoy clicking through to this link:

Click Here to read more.

OUR VIEW:  Any prediction that the market will Decline (Or Advance) if a Democrat or Republican is elected is a Speculation with no basis in historical evidence.

My hope is that I was able reduce my buddy’s ‘Market Worry,’ which she cannot control, by pointing out that she has planned for market volatility by controlling what she can control. For retired investors, that could look like setting aside several years of expected ‘Cash Withdrawal Need’ in Short-Term, Investment-Grade, Globally-Diversified Fixed Income.

Think about it: If an investor were to set aside 15 years of spending in Fixed Income at age 65, and let the rest of her portfolio ride in equities, she would not have to worry much about short term stock market volatility. As the enclosed chart indicates, investors have historically had a good shot at positive returns over long periods of time.

My buddy then commented “I Feel Better About Not Outliving My Money”!  Hooray – Mission Accomplished!

Trusting you are living your life well, maintaining Social Distance and, finding comfort in a Purposefully Derived portfolio, I remain

On Behalf of the Firm,

Tom Warburton




Begin with the End in Mind

So, a buddy comes in…actually…our buddy was visiting with us online via GoToMeeting as we at Warburton Capital continue to work remotely and shelter in place to defeat the Coronavirus!

Our buddy had been watching Financial Pornography and heard an “Expert” utter the alarming words “It’s Different This Time”!  Man, oh Man…I really think this “Expert” was dropped on his head before he was a year old.

Personally, I throw up when I hear alarmist statements like “It’s Different This Time”.  The Legendary Investor, Sir John Templeton, once commented that “The Four Most Dangerous Words In Investing Are – It’s Different This Time”!

The crisis du jour may change, but it’s never really different in the marketplace is it?

Investors around the globe meet in the marketplace to exchange securities in pursuit of a profit.  They make their bid/ask offers based on their individual views of all available information, market prices and speculations – Investors Do This Today Just Like Investors Have Done This In The Past!

The varied opinions of investors/traders are very healthy and lead to “Price Discovery”.  When a trade is made – everybody in the entire world knows Just What A Security Is Worth – At That Instant.  Of course, the Efficient Markets Hypothesis has taught us that that Unexpected News in the near (or far distant) future will lead to Securities Having A Different Price On Some Unknowable Date In The Unknowable Future.

Our advice to our buddy went down the road of “Let’s Forget About Forecasting, Let’s Derive A Rational Goal Achieving Plan and Let’s Begin With The End In Mind”!

Thereafter we laid out a 12 Step Program for our buddy – and any of you who would like – to pursue “A Rational Wealth Management Experience”:

  1. Make Your Goal(s) the Centerpiece.
  2. Avoid “Investment Generalists” and engage in Top Down Planning with an Objective Professional who thinks about your wealth beyond, simply, “Your Portfolio”.
  3. Maintain a Long-Term Perspective and Long-Term Discipline.
  4. Globally Diversify Stock and Bond Holdings.
  5. Forget about What Percentage Of Your Investments Should Be In Stocks Or Bonds, rather, Allocate A Purposeful And Necessary Dollar Amount To Fixed Income For Emergencies and/or Lifestyle Funding.
  6. Having funded your Known Spending Needs with Fixed Income, Allocate Surplus Liquidity to Global Equities.
  7. Invest your Fixed Income conservatively (we each take plenty of risk with our Equities – don’t bear a similar risk with Fixed Income) favoring short-term investment grade Bonds.
  8. Over-Weight Equities to Sub-Asset Classes which have exhibited statistically significant broad market out-performance on a risk-adjusted basis.
  9. Invest ONLY in Securities with minimal expenses (Give yourself a “Fair Shake”) and minimal tax ramifications (Why pay unnecessary taxes?).
  10. View short-term markets news as “interesting” but not “useful”.
  11. Ignore the forecasts of the financial media and other speculators.
  12. Sit back and Enjoy Your Life!

Having considered our logic, our buddy sat quietly, appeared to be reflecting, scratched his head a few times, nodded affirmatively and blurted out – “I Get It – Let’s Do It”!

Our buddy is now on the road to deriving, with our collaboration, A Rational Wealth Management Plan designed to achieve his uniquely personal goals with minimal risk.

Our buddy is, also, starting to view the financial market talking heads as Entertainers – which they certainly are!

In closing, I trust you are watching CNBC much like you watch the Weather Channel.  It’s a terrific source of Current Events which we find to be “Interesting”, however, “Not Useful” for Long-Term Goal-Achieving Planning!

I further trust you are not making investment decisions based on the many – and often conflicting – predictions coming out of the mouths of the “so-called” speculating experts.  These folks on Television are experts alright, experts at entertaining us!

Always wishing you well, I remain

On Behalf of the Firm,

Tom Warburton




Coronavirus and the Market

What is the impact of Coronavirus on my investments?

The term “novel coronavirus” is so new, some people have apparently wondered whether it is related to Corona beer. (It is not; it’s named after its crown-shaped particles.) And yet, how quickly it has grabbed global headlines. As the viral news has spread, so too has financial uncertainty. What’s going to happen next? Will it further infect our domestic or global economies? In case it does, should you try to shift your investments to remain one step ahead?

Our advice is simple: Do try to avoid this or
any other health risk through good hygiene. Wash your hands. Cover your mouth
when you cough. Eat well, exercise, and get plenty of sleep.

But do not let the
breaking news directly impact your investment strategy.

The keys to following an evidence-based investment strategy
are …

  • Having a globally diversified investment
    portfolio.
  • Structuring your portfolio to capture a measure
    of the market’s expected long-term returns.
  • Tolerating a measure of this sort of risk to
    earn those expected long-term returns.
  • Identifying how much market risk you must expect
    to endure to achieve your personal financial goals and allocating your
    investments accordingly.

In other words, it may feel counterintuitive, but if you
have done the above you have planned for this type of contingency already. In
investing, there are things that you can control, and there are things that you
cannot. The impact of coronavirus to the market is something that we can’t
control; sticking to your plan is.

Admittedly, that’s often easier said than done. Here are a
few reminders on why sticking with an evidence-based investment plan remains
your best financial “treatment.”

“I’m assuming there will be no
apocalypse. And that’s almost always, if not quite always, a good assumption.” —
John
C. Bogle

If you’re not invested, your investments can’t recover. Few
of us make it through our days without enduring the occasional moderate to
severe ailment. Once we recover, it feels so good to be “normal” again, we
often experience a surge of energy. Similarly, markets are going to take a hit
now and then. But with historical evidence as our guide, they’ll also often
recover dramatically and without warning. If you exit the market to avoid the
pain, you’re also quite likely to miss out on portions of the expected gain.

Markets endure. We by no means wish to downplay the
socioeconomic suffering coronavirus has created. But even in relatively recent
memory, we’ve endured similar events – from SARS, to Zika, to Ebola. Each is
terrible, tragic, and frightening as it plays out. But each time, markets have
moved on. Whether coronavirus spreads further or we can quickly tamp it down, overwhelming
historical evidence
suggests capital markets will once again endure.

The risk is already priced in. The latest news on
coronavirus is unfolding far too fast for any one investor to react to it … but
not nearly fast enough to keep up with highly efficient markets. As each new
piece of news is released, markets nearly instantly reflect it in new prices. So,
if you decide to sell your holdings in response to bad news, you’ll do so at a
price already discounted to reflect it. In short, you’ll lock in a loss,
rather than ride out the storm.

Bottom line, market risks come in all shapes and sizes. This
includes the financial and economic repercussions of a widespread virus, be it
real or virtual. While it’s never fun to hunker down and tolerate risks as they
play out, it likely remains your best course of action. Please let us know if
we can help you maintain your investment plan at this time, or judiciously
adjust your plan if you feel it no longer reflects your greater financial
goals.




ABS – Always Be Saving

So, a buddy comes in. This buddy is an outrageously frugal 36-year-old single woman who, amazingly, Manages to Save 30% Of Her Gross Compensation! I asked her how she did this and she said she had a motto – ABS – Always Be Saving!  (Kinda reminds me of the ABC motto – Always Be Closing – from the movie Glengary Glen Ross…but…that’s a whole different story.)

We embarked on a discussion about Saving/Investing in the current market environment and discovered common ground as regards our perspective on Market Forecasters.

As a market observer for over 45 years I’ve observed that every January the same thing happens. Lots of folks – many are so-called ‘experts’– look back at last year’s performance to draw comparisons and conclusions they can use to predict what markets will do in the year to come.

At Warburton Capital we don’t make predictions, however, let’s answer this question:

  • ‘What lesson from 2019 can we apply to 2020?’

Wind back the clock to twelve months ago. The words running across CNBC’s home page were, “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018.” The Wall Street Journal summarized the
state of market affairs with this headline: “U.S. Indexes Close with Worst Yearly Losses Since 2008.” Depression and Gloomy Predictions proliferated.

Some folks decided to ‘time the market’, sell to cash and wait for prices to go down. They thought that after 11 years, the bull market was finally on its way out.  So how did those gloomy predictions and rainy-day forecasts work out:

  • Global equity markets finished 2019 up more than 25% – MSCI World Index
  • Fixed income gained more than 8% – Bloomberg Barclays Global Agg Bond Index

Let’s now answer the question about ‘What lesson from 2019 can we apply to 2020’?

  • It’s blindingly obvious: Don’t Bet on Forecasts and Predictions.

We need to remember that missing out on growth does as much damage to a portfolio as losing that amount. How long does it take to make any loss back? How does someone who got out know when to get back in? Market
Timing is seductive, however, to be effective one is required to be right twice– at the top and at the bottom – over and over again.  In the words of Warren Buffett, “I’ve never observed a Market Timer to be right more than once in a row!”

Forget the Forecasters. Don’t time the market in 2020 or ever. Don’t gamble on getting in and getting out. Rather, figure out how much of your portfolio you need allocated to Safe Assets and allocate the remainder to Risky Assets so you can capture the ups and ride out the downs.

At Warburton Capital we work with our clients to achieve the foregoing by engaging in Top Down Planning to derive a Purposeful Strategy for current holdings, incremental saving or even withdrawals. Not enough “experts” subscribe to our point of view. They’re still trying to time the markets by predicting short-term market movements…risk on…risk off…blah blah.

You’ve heard the conventional wisdom, “The definition of insanity is doing the same thing over and over again and expecting a different result.” I see Jim Cramer and his brethren speculators demonstrating this market timing insanity daily as part of the Financial Pornography on CNBC – which I so love simply for the entertainment value!

It seems impossible to know when the best time to get into the market is because we can’t predict the future. And if you think about it, that makes sense. If the market’s doing its job, prices ought to be set at a level where you experience anxiety. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.

So, what should you do in 2020?  Keep in mind 2019’s most important lesson (which is the same lesson from every year before): Don’t bet on Forecasts or Predictions. Be a long-term investor in a well-reasoned broadly diversified Purposeful portfolio. Reduce your anxiety by having a Purposeful amount of ‘Safe Assets,’ Make sure the people advising you align with your perspective. Never attempt to time the markets. You’ll have more time to enjoy life!

Closing by returning to the beginning of this missive – in case you worried that our ‘Always Saving’ buddy is so frugal that she is a miser, not to worry.  She travels the world routinely and recently paid cash for a brand-new Tesla. I observe and applaud substantial life/ work balance!

Trusting this will find you well, enjoying the New Year and practicing the ‘Always Be Saving’ habit of our ultra-frugal buddy, we remain

Yours Truly,

Warburton Capital Management