Making Important Family Decisions

Planning for a family’s transfer of their wealth, plans for incapacity, and executing on those plans can be a significant challenge for both clients and their trusted advisor(s). Clients look to their trusted advisors for guidance when it comes to defining and executing their estate plans for future generations. It is critical that a trustee or directed fiduciary understand each of these variables, including family dynamics, and how they align with one another. What’s even more difficult is that there no clear, repeatable rule when developing an estate plan. Trusted advisors must rely on broad, guiding principles to accomplish one’s most important family responsibilities. After all, each family member is unique and has unique life circumstances.

Why is estate planning so important?

While it is hoped that families will work together to make sure one’s wishes are carried out, more often than not families don’t agree with one another. And, what’s intended to happen and what actually happens are rarely the same. There are many horror stories of families being torn apart by fights over money, property, and possessions after the death of a family member. None of us like to believe that our family could behave so badly but when money and emotions collide, hurtful, irreparable comments can tear a family apart. Estate planning can help mitigate you don’t put your family in a position where they are at risk of ruining relationships.

Anyone can write a will, but a skilled estate planner also understands family dynamics. From the parent who enables a financially irresponsible child to the daughter who wants to tell her mother what to say in her will, family members can make estate planning complicated.

And these dynamics may be so ingrained that the client isn’t even aware of them. Take, for example, the client who wants to leave the family business to a pair of siblings that are barely on speaking terms. The client may be so intent on being fair and keeping the business in the family that he doesn’t see that the plan can never work. A good estate planner must be able to spot these sorts of problems and offer the client more appropriate options.

Another common issue is dealing with blended families. A simple estate plan may lack the foresight to provide for children from a previous marriage. For example, if one’s assets are left to his or her spouse, he or she may not want to leave those assets to their deceased spouse’s children from another marriage. This, in essence, leaves these children disinherited. Therefore, individuals who are in this position need to ensure that their wills and trusts clearly provide protection for these children.

Who will administer your estate when you are gone? People often don’t give much critical thought to this decision. That can be a big mistake. It is recommended that you don’t just choose the eldest child or the child that is living closest to you. Using such arbitrary criteria isn’t in anyone’s best interest. Naming multiple family members as executors because you are afraid someone’s feelings will be hurt is also not a good idea.

Estate Planning Issues to Consider…

  • Make realistic plans. In their eagerness to distribute assets equally among their children, some people devise plans that will never work in practice. A couple might, for example, want to leave the family vacation home to their three children without considering whether all of the children want the home or can cooperate in its use and care.
  • When is a Trust Necessary? Many people don’t think through the consequences of leaving money or property to someone outright. But a small inheritance can cause big problems for a person who receives disability payments. Or, someone who isn’t financially responsible may spend their way through their parent’s money in a short amount of time. By asking questions about the client’s heirs, an estate planner can spot situations where a trust may be a good idea.
  • Disinherited children. Many estate planners caution that disinheriting a child is an invitation to contest a will. To spare the remaining children the turmoil and expense, many professionals recommend leaving some money or property to the child, with a stipulation that the child will forfeit that inheritance if she contests the will.
  • Undue Influence and Competency. Most estate planners are aware of these issues and know how to spot red flags. Among them are the child or caregiver who brings an elderly person in for a significant change to a will. Professionals should take care to establish that the testator, and not his or her family, is the client. They should also meet separately with the testator to make sure the person is competent and not under any duress or undue influence.
  • Family meetings. Many people prepare wills and other estate planning documents and never discuss their assets or their estate plan with their children. The children may be shocked to find out their parents were deeply in debt or left the family home to Johnny when Jenny was the one who wanted it. This can lead to bitterness, resentment, and sometimes even litigation. Professionals can encourage a better outcome by urging their clients to discuss their estate plans with their children.
  • Choosing administrators and powers of attorney. Many people think it’s an honor to be named administrator or executor of an estate, but it’s a difficult responsibility. Make sure your clients choose someone mature, responsible, and able to get along with other family members. Don’t let them pick someone as a reward. The same goes for financial and healthcare powers of attorney. Encourage clients to think carefully about who is most honest, reliable, available, and willing to carry out their wishes.

Minor’s Trusts

Another option to transfer money to a child is through a §2503(c) irrevocable minor’s trust. The primary advantage of a minor’s trust is that contributions qualify for the annual gift tax exclusion even though they are gifts of a future interest. Contributions will also be exempt from the generation-skipping transfer tax. Generally, only gifts of a present interest, where the child receives the gift immediately, qualify for the gift tax exclusion. However, contributions to trusts that conform to IRC §2503(c) rules qualify for the

If the grantor serves as trustee, then the trust may be included in the grantor’s estate if the grantor should die before the child reaches 21. Therefore, neither the grantor nor a spouse should serve as sole trustee. However, they can serve as co-trustees. Trust assets will also be used to determine educational financial aid for the child.

Final Thoughts

It all comes back to the fact that you just can’t know how people will behave. If you have two children and make them co-executors, but one of them has financial problems, a strong personality, or a spouse that calls the shots in their family, you may be setting your children up for hurt feelings and arguments, a lifetime of resentments, or even a permanently shattered relationship.

If your family dynamics are complicated, as so many of ours are these days, it is even more important to make your wishes regarding inheritance known. There is a lot to consider. Is this your second marriage? How will your assets be distributed to your spouse’s children from a previous marriage, to your children from multiple marriages? These issues can be difficult to discuss, even with your spouse. Don’t neglect to have the discussion. An experienced estate attorney can help mediate these discussions and ensure that assets are distributed according to your wishes.

Work with trusted professionals to make these important family decisions. They can help you understand the role your executor plays, the skills they need, and any possible conflicts of interest that may impact their decision-making. If you don’t have a family member who is a suitable executor, a corporate trustee with no financial or emotional attachment to your estate may be the best choice.

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.

Our IAP™ is more than diversification

Investors may often hear the term Asset Allocation. So, what does that mean?

In its simplest form this refers to what portion of an investor’s portfolio is allocated to stocks versus bonds. 

A more granular version this could refer to what portion of an investor’s portfolio is allocated to US & Foreign Small Cap Stocks, US & Foreign Large Cap Stocks, US & Foreign Value Stocks, US & Foreign Growth Stocks, US & Foreign High Profitability Stocks, US & Foreign Low Profitability Stocks, US & Foreign Real Estate Investment Trusts (REIT’s), US & Foreign Government Bonds, US & Foreign Investment Grade Bonds and US & Foreign Junk Bonds. 

Other models might also include an Allocation to Commodities, Structured Products, Private Equity or Hedge Funds.  A rational Investment Allocation Process™ is the foundation of building a Purposeful Portfolio. 

At Warburton Capital we’ve thought long and hard about this and have actually received a Trademark for our Investment Allocation Process™ or IAP™.  Want to chat about this important and fascinating topic?  We would love to discuss it with you.

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


A CARES Act Overview

We at Warburton Capital were early adopters of the ‘Shelter In Place’ strategy and have been working from our homes for the past 25 days.

We are sad to report that we haven’t seen any of our buddies face-to-face – We miss the interaction – however, we have enjoyed dozens of Video Meetings along with phone calls, emails and text messages!  Please keep the interaction alive and reach out at any time.

The primary topics of buddy conversations have been “the market decline”“The Novel Coronavirus” and “The Coronavirus Aid, Relief and Economic Security Act – aka The CARES Act”.

With much of the country in self-isolation, perhaps you’ve got time to read the entire H.R. 748 Coronavirus Aid, Relief, and Economic Security Act, or CARES Act?

If you’d prefer, here is a summary of many of the key provisions that may apply to you.

In General:

  • Direct Payments/Recovery Rebates: Most Americans can expect to receive rebates from Uncle Sam. Depending on your household income, expect up to $1,200 per adult and $500 per dependent child. To calculate your payment, the Federal government will look at your 2019 Adjusted Gross Income (AGI) if it’s available, or your 2018 AGI if it’s not. However, you’ll receive an extra 2020 tax credit if your 2020 AGI ends up lower than the figure used to calculate your rebate. This Nerd’s Eye View illustration offers a great overview:

From Michael Kitces at Nerd’s Eye View; reprinted with permission.

  • Various Healthcare-Related Incentives: For example, certain over-the-counter medical expenses previously disallowed under some healthcare plans now qualify for coverage. Also, Medicare restrictions have been relaxed for covering telehealth and other services (such as COVID-19 vaccinations, once they’re available). Other details apply.

For Retirees (and Retirement Account Beneficiaries):

  • RMD Relief: Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you’ve not yet taken your 2020 RMD, you do not have to! If you have, please be in touch with us to explore potential solutions.

For Charitable Donors:

  • “Above-The-Line” Charitable Deductions: Deduct up to $300 in 2020 qualified charitable contributions (excluding Donor Advised Funds), even if you are taking a standard deduction.
  • Donate All Of Your 2020 AGI: You can effectively eliminate 2020 taxes owed, and then some, by donating up to, or beyond your AGI. If you donate more than your AGI, you can carry forward the excess up to 5 years. Donor Advised Fund contributions are excluded.

For Business Owners (and Certain Not-for-Profits):

  • Paycheck Protection Program (PPP) is making loans available for qualified businesses and not-for-profits (typically under 500 employees), sole proprietors, and independent contractors. Loans for up to 2.5x monthly payroll, up to $10 million, 2-year maturity, interest rate 1%. Payments are deferred and, if certain employment retention and other requirements are met, the loan may be forgiven.
  • Economic Injury Disaster Loans (EIDLs) of up to $2 million to qualified small businesses and non-profits, “to help overcome the temporary loss of revenue they are experiencing.” Interest rates are under 4%, with potential repayment terms of up to 30 years. Applicants also are eligible for an advance on the loan of up to $10,000. The advance will not need to be repaid, even if the loan is denied.
  • Payroll Tax Credits And Deferrals: For qualified businesses who are not taking a loan.
  • Employee Retention Credit: An additional employee retention credit (as a payroll tax credit), “equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.” Excludes businesses receiving PPP loans, and may exclude those who have taken the EIDL loans.
  • Net Operating Loss Rules Relaxed: Carry back 2018–2020 losses up to five years, on up to 100% of taxable income from these same years.
  • Immediate Expensing For Qualified Improvements: Section 168 of the Internal Revenue Code of 1986 is amended to allow immediate expensing rather than multi-year depreciation.
  • Dollars Set Aside For Industry-Specific Relief: Please be in touch for a more detailed discussion if your entity may be eligible for industry-specific relief (e.g., airlines, hospitals and state/local governments).

For Employees/Plan Participants:

  • Retirement Plan Loans And Distributions: Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020. Distributions described above in In General.
  • Paid Sick Leave: Paid sick leave benefits for COVID-19 victims are described in the separate, March 18 H.R. 6201 Families First Coronavirus Response Act, and are above and beyond any benefits received through the CARES Act. Whether in your role as an employer or an employee, we’re happy to discuss the details with you upon request.

For Employers/Plan Sponsors:

  • Relief For Funding Defined Benefit Plans: Due date for 2020 funding is extended to Jan. 1, 2021. Also, the funding percentage (AFTAP) can be calculated based on your 2019 status.
  • Relief For Facilitating Pre-Retirement Plan Distributions And Expanded Loans: As described above for Employees/Plan Participants, employers “may rely on an employee’s certification that the employee satisfies the conditions” to be eligible for relief. The participant is required to self-certify in writing that they or a direct dependent have been diagnosed, or they have been financially impacted by the pandemic. No additional evidence (such as a doctor’s release) is required.  
  • Potential Extension For Filing Form 5500: While the Dept. of Labor (DOL) has not yet granted an extension, the CARES Act permits the DOL to postpone this filing deadline.
  • Exclude Student Loan Pay-Down Compensation: Through year-end, employers can help employees pay off current educational expenses and/or student loan balances, and exclude up to $5,250 of either kind of payment from their income.

For Unemployed/Laid Off Americans:

  • Increased Unemployment Compensation: Federal funding increases standard unemployment compensation by $600/week, and coverage is extended 13 weeks.
  • Federal Funding Covers First Week Of Unemployment: The one-week waiting period to start collecting benefits is waived.
  • Pandemic Unemployment Assistance: Unemployment coverage is extended to self-employed individuals for up to 39 weeks. Plus, the Act offers incentives for states to establish “short-time compensation programs” for semi-employed individuals.

For Students:

  • Student Loan Payments Deferred To Sept. 30, 2020:  No interest will accrue either. Important: Voluntary payments will continue unless you explicitly pause them. Plus, the deferral period will still count toward any loan forgiveness program you’re in. So, be sure to pause payments if this applies to you, lest you pay on debt that will ultimately be forgiven.
  • Delinquent Debt Collection Suspended Through Sept. 30, 2020: Including wage, tax refund, and other Federal benefit garnishments.
  • Employer-Paid Student Loan Repayments Excluded From 2020 Income: From the date of the CARES Act enactment through year-end, your employer can pay up to $5,250 toward your student debt or your current education without it counting as taxable income to you.
  • Pell Grant Relief: There are several clauses that ease Pell Grant limits, while not eliminating them. It would be best if we go over these with you in person if they may apply to you.

For Estates/Beneficiaries:

  • A Break For “Non-Designated” Beneficiaries: 2020 can be ignored when applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts. The 5-Year Rule effectively ends up becoming a 6-Year Rule for current non-designated beneficiaries.

There.  You’re now familiar with much of the critical content of the CARES Act!

Whew – that’s a ton of information. 

That said, given the complexities involved and unprecedented current conditions, there will undoubtedly be updates, clarifications, additions, system glitches, and other adjustments to these summary points. The results could leave a wide gap between intention and reality.

I do want to stress that here at Warburton Capital we are neither CPA’s nor do we practice law.

  • your accountant, and/or estate planning attorney on any details specific to you.

In closing, we’ve enjoyed a lot of interaction with our buddies online and would be pleased to meet with you online as well – or – phone, email or text if you prefer.

Trusting this will find you and yours healthy, sheltered in place and doing your best to defeat the coronavirus, I remain

On behalf of the firm,

Tom Warburton

Reference Materials: