Carolyn Stewart

The Role of Trustee in Family Governance

One of the most important decisions when you create an estate plan is selecting a trustee to manage your assets.  You have many options when selecting a trustee for a trust.  Some people choose: (1) the beneficiary, (2) another family member, (3) an individual outside of the family, or (4) an entity such as a bank or trust company.  There are pros and cons to any path you choose.  One lens through which you may want to consider this decision is the lens of family governance to ensure that your wishes are carried out after your death. It is always beneficial to make sure that your selected trustee interacts well with your beneficiaries, understands your values, and can manage assets and/or money well.

How will the trustee interact with the beneficiaries?

One role of the trustee is to manage the trust assets on behalf of the beneficiaries, which does not necessarily mean that the trustee will do what the beneficiary wants.  Sometimes the relationship between the trustee and the beneficiary can become contentious, especially if the trustee’s decision(s) conflict with the beneficiary’s wants.  If the trustee has other interactions or relationships with the beneficiary or beneficiary’s family, the conflict may spill over into the rest of the family.

If you choose a family member to serve as trustee, be mindful of the family dynamics.  Will selecting the older sibling to serve as trustee for a younger sibling stir up some underlying tensions?  Will the trustee and beneficiary be able to separate their personal relationship from the relationship of trustee and beneficiary?  Trustees sometimes make difficult decisions, and, if the trustee is family, that person could be setting himself up for some tense family gatherings!

Another factor to consider is that most trusts have more than one beneficiary, and often these beneficiaries have competing interests.  Your trustee will need to be able to navigate these challenges.  For example, the trust may benefit your spouse for his/her life, and then the trust will benefit your children upon your spouse’s death.  Every dollar spent on your spouse reduces the amount your children will inherit. 

Does the trustee share or understand your values?

When you select a trustee, the trustee will be making financial decisions on behalf of your loved ones.  You may want to consider the trustee’s assertiveness, level of caring, financial savvy, and ability to teach and mentor.  The trustee is not you and will undoubtedly make some decisions differently than those you might have. Choose a trustee who will make decisions in line with your value system.  Even if the trustee does not have the same values, ensure the trustee understands your values and will feel comfortable making decisions within that framework. A non-binding letter detailing what is important to you can be helpful. For example, the role of the assets in education, the need to work and save, the ability to live comfortably, the ability to be entrepreneurial, and/or the ability to support a family could be important to you.

How will the trustee manage shared assets?

You may own assets with other people.  Perhaps you own a business with multiple partners, or maybe you own real estate with your siblings.  If you leave these assets in trust, your trustee will need to make ownership decisions with the other owners.  Think of the decisions you currently make with these assets.  With real estate, you may need to renew a lease, make repairs, or consider an offer to sell.  The trustee will have to make these decisions in the best interest of the beneficiaries, which can be challenging. Ensure that your chosen trustee has the necessary skills to successfully negotiate these business decisions.  If the trustee is already a co-owner of the asset, the trustee may face a conflict of interest.  For example, perhaps it is better for the trustee personally to sell the asset to a third party, but the beneficiary would prefer to keep the asset.

Selecting the trustee who will manage assets best for your loved ones may seem like a daunting task as this can be one of your most important life decisions. Putting some thought into family relationships and the person’s abilities to carry out your wishes will help ensure positive outcomes for both the trustee and the beneficiaries.

Jonathan J. Robertson

In goal setting, it’s important to step back and look at where we wish to be and how we spend our time today in the fulfillment of those wishes. 

I was feeling overwhelmed and spread too thin by all the things on my plate: demands at work, volunteer hours in the community, relationships with friends and family, cutting the grass, and keeping up with my Instagram feed. As I whined to her, my confidante and mentor asked,  “Where do you want to be in five years?” I thought she was trying to change the subject.

Explaining further, my mentor encouraged me to envision what I want my life to look like five years from now. She challenged me to think about how each of the items competing for my time and energy was helping me to attain my vision—a new concept for me and a lightbulb moment. I realized that some of the things pulling at me were not things I have to do or even things I like to do. They were things I feel like I should do. The most unfortunate part is that these imagined “necessities” were taking away from better, more efficient ways to achieve my five-year vision. 

As in life, goal setting is foundational to the financial planning process.  When I meet with a new client, one of our early sessions involves visioning exercises to help the client recognize, identify, and clarify his or her goals. Sometimes, these exercises lead a client to admit (perhaps for the first time) a core desire that has remained unmet, which can be incredibly powerful.  One exercise that has proven helpful in untangling competing priorities in life is an exercise that separates obligations from demands. Fill in the following grid (instructions below): 

The “Got to” column is for the things you simply must do for your life to flow. The “Should” column is for things that feel like obligations, and the “Like to” column is your chance to dream. “Have” refers to possessions, “Do” refers to accomplishments and activities, and “Be” refers to states of existence. 

After filling in the grid, analyze the list. Does your “Got to” column far outweigh your other columns? If so, you may be overwhelmed by feeling as if everything you need to do is vital. 

The “Should” column can be highly revealing. Why do we feel such a strong pull from the items in the “Should” column?  From a young age, we internalize messages from family, friends, and culture. Typically, these messages reflect things that are highly valued or represent the notion of success (shoulds), and we begin to process them as truth. (“You need to be making $xxx per year by age 40.”)  Perceived obligations can disconnect us from our true desires. 

When we direct a large portion of our efforts to these perceived obligations, we can miss out on the realization of our hopes and dreams. How do we let go of these feelings of obligation that weigh us down?  UK Psychologist Dr. Sally Hinton notes, “Sometimes it’s hard to know if we want something because we truly want it or because we should want it.” She recommends the following:

Try a simple exercise to figure out the wants from the shoulds. Imagine for a minute that there is no judgement. That whatever you do is equally valued and approved of by society, your parents, your friends or whoever’s approval you most desire. That success hinges only on whether you are personally pleased with your choices, that others’ approval merely reflects your own. How would you want your life to look? Take a few minutes to visualize your ideal day, your lifestyle, how you spend your time and how you contribute to the world.

As you identify the things that suck your time and energy but do not contribute to where you want to be in five years, you can begin to shift away from these priorities. In turn, you will have more freedom to pursue the fun things in life that truly bring you joy, rest, and fulfillment. You can also begin to see how some items in your “Got to” column actually provide the means to pursue things in your “Like to” column. The prospect of saving for a big vacation maybe now gives you a little extra energy for working harder. 

Helping a client come to these realizations brings me joy. In my own life, letting go of an activity in the “Should” column has given me more time to get to the gym, which helps me sleep better at night, which makes me more productive at work, which allows me to leave work on time and get back to the gym. I probably won’t get back into shape like my high school days, but who says I can’t dream and create more goals?

Ann J. Beckwith

With the holiday season fast approaching, many families will be gathering together soon. Now’s a good time to have a family discussion about aging parent care and estate planning.

Mike Switzer interviews Jon Robertson, CFP®, Director of Financial Planning at abacus.

Listen to Jon’s interview on SC Business Review:

Jonathan J. Robertson

Cheryl Holland recently had the opportunity to lead a webinar for Together Women Rise. Cheryl explored how to make the greatest impact with charitable donations and demystified topics such as Donor Advised Funds (DAFs), Qualified Charitable Distributions (QCDs), and Required Minimum Distributions.

Cheryl R. Holland

Are you planning to make a gift to a non-profit organization? Do you frequently sell and realize capital gains on your investments? Does your portfolio need rebalancing to your portfolio targets for growth due to the recent bull market? If so, you may be an ideal candidate to gift shares of appreciated securities directly to a qualified 501(c)(3) non-profit organization. The process is simple:

• You gift the shares to the non-profit organization’s brokerage account.
• The non-profit organization sells your shares and, as a non-profit, does not pay the capital gains tax on the transaction.
• The non-profit organization sends you a charitable verification statement reflecting the value of your gift, which you report on your income tax return as a charitable deduction.

An example might be helpful to understanding the advantages of this strategy for you and your pocketbook. Let’s assume you wish to make a gift of $5,000. You also are planning to sell shares of a stock or mutual fund that have grown substantially, and you want to trim your ownership. You purchased the shares several years ago for $1,000 and the current value is $5,000, which translates to a potential capital gain of $4,000. This chart compares selling the shares in your brokerage account and donating cash to the non-profit organization versus donating the shares to the non-profit organization.

Under both scenarios, you will have a transaction for tax purposes of the fair market value of your shares of $5,000. Assuming your capital gains tax rate is 20%, your state capital gains rate is 3.92%, and you are subject to the 2.9% ACA tax. You would have to pay the following tax:

Tax on Capital Gains
	Sell Shares, Donate Cash	Donate Shares to Charity
Proceeds of Dispositon	$5,000	$5,000
Cost of Shares	(1,000)	(1,000)
Capital Gain	$4,000	$4,000
Taxable Portion of Gain at 26.82%	$1,072	$0

By gifting your shares directly to the non-profit organization rather than selling the shares and donating cash, you save $1,072 in taxes. A gift to the non-profit organization and a tax savings to you. You might also qualify for a charitable deduction on the gift if you have deductions in excess of the standard deduction of $12,550 for single taxpayers and $25,100 for joint filers.

And, finally, if you are gifting an investment that has appreciated but you think has additional long-term appreciation potential, rebuy those shares with the cash you had planned to donate and start the income tax clock back to zero!

Laird W. Green

The Abacus investment team has a conversation on markets, expectations for inflation, investing in a low yield interest rate environment, and an update on congressional tax proposals.

At the end of every month, quarter, and year, the investment world tallies returns and produces reports. Frequently the results are delivered in chart-filled reports with percentages and cryptic words used to explain what is happening in the financial world as well as in your portfolio. Navigating performance reporting data from your financial advisor is an important skill for every investor to learn. You should understand the language in reports, how to evaluate the performance of your portfolio, and how fees affect your return.

The following three questions can go a long way towards comprehending these items.

1. Terminology: please define?

All professions develop their own special language that allows them to communicate efficiently. The financial world is no exception. The problem is many times financial meetings can be filled with financial jargon that impedes a clear understanding of what is really being discussed. As your financial advisor explains an investment strategy or performance numbers and you hear jargon or words that are unfamiliar, ask for explanations of any financial term, chart, or number that you do not understand. After you have received a suitable explanation, follow up by asking: Why is this important, and how does it apply to me? These questions will give you a better, stronger comprehension of the financial world and how it is impacting your performance or goals.

2. What is the stated (or unstated) benchmark that you use to judge performance?

Benchmarks serve an important role because they help frame results. Without a frame, it is hard to know whether or not a 7% return is terrible, average, or outstanding. Investment managers are motivated to have returns in line with benchmarks or other groups of advisors. Knowing which benchmark the manager is using to evaluate results will help you to understand the motivation behind the advisors’ investment philosophy and implementation.

On the other side of the coin, if you want your advisor to beat the benchmark, you must allow the advisor to be different from the benchmark. Being different means that at times the advisor will underperform the benchmark. Placing a higher weight on long-term performance and having the advisor talk you about why they are underperforming will help you develop a better picture of the advisor’s skill and tolerance for making active investment decisions.

3. How did I do after paying everyone who is involved with my investments?

Fees are important, popular topic. As you inquire about the financial advisor’s fees, the most important factors to know are:

• How much is the fee?
• How is the fee calculated?
• What services are being provided?

Do not assume that low fees guarantee high returns. We all like lower prices, but fees are just one part of returns.

For the financial services profession, the two main categories of fee structures are assets under management and commissions. There has also been a growing trend of combining a flat fee along with one of the major categories.

In the assets under management fee structure, financial service providers charge a small percent on every dollar that they manage on your behalf. In this fee structure, the advisor makes more money by increasing the amount of dollars under management.

Under the sales commission fee structure, financial service providers make money by selling you something. In this fee structure, the advisor makes more money by increasing the number of sales and/or selling investments with a higher commission.

Both fee systems have the potential to generate good returns. The key is to know what fee system the service provider uses, what your total fee is expressed in dollars, and what the potential conflicts are.

To make sure that your service providers are working for you and your goals, an investor needs to understand how advisors are paid, how they view and can explain their view of the world, and how they benchmark themselves. Addressing these three topics during your meetings will help ensure that you are receiving the information you need to move your investment goals forward.

Charles B. Flowers

Mom left the stove on again. I’m not sure it’s safe for Dad to be driving any longer. What’s the next best step for care after Mom’s fall? How do we communicate with Dad with his failing memory?

These worrisome questions may be your first time to experience this challenge, and, even if it’s not, this time could be different. How do you find the right answers? How do you help your loved ones live with dignity in the coming years? If you have siblings, how do you navigate these challenges together?

You need a care plan for the whole person and the family. Of course, the plan must be dynamic since we live in a world with ever-changing circumstances.

Have a Family Conversation

The first step is having a proactive, planned family conversation. The goal is to discuss the care needs and wishes with your parents while they can still guide you on future decision-making for their care.

Arrange a time when all family members can join the discussion. Chat with parents and siblings in advance so everyone is prepared for the conversation. If you are anxious about high emotions, consider inviting a trusted family friend or advisor to facilitate the conversation.

• Where would you like to live if you can no longer live at home alone?
• If you plan to live at home, do we need to make any physical changes to your home to make that possible?
• How will we manage your financial needs?
• Who would you like to be responsible for day to day management of your needs?
• Do you have a health care power of attorney and may we have a copy?

Bring in the Experts

The next step is an assessment. While this may be your first time, there are others who have made a business out of being your guide in this situation. These life-care professionals have experience and credentials to work with all ages. The Aging Life Care Professional conducts a comprehensive assessment and helps the family plan for the current and future needs of your family member.

The family conversation may highlight the need to gather all of your parents’ important documents in one place to include everything from marriage certificates, financial data, military records, life insurance policies, burial arrangements and estate planning documents. Now may also be the time to consult with an attorney to review or update wills, health care power of attorneys, and durable power of attorneys. The National Academy of Elder Law Attorneys is an organization of lawyers with unique expertise in assisting with these challenges.

Supporting your Parent’s Needs

A strong care plan will include an assessment of senior housing options from in-home care to assisted living to memory care. Focus on your parent’s needs across their lifespan including their cultural and community connections, financial resources, and personal preferences. Working together as a team to proactively create a plan helps parents retain a sense of independence, identity and belonging all of which correlate with longer life-spans.

Caring for the Caregiver

Do not underestimate the toll caretaking can take on a family member. The physical and mental decline of caretakers is well-documented. Talk with your caretaking parent or sibling. Ask whether or not the time devoted to caregiving is becoming overwhelming with increasing needs of the parent. Or, it could be that the caregiver feels conflicted making complex decisions. Maybe it has become too time consuming, too exhausting. If any of these are true, now may be time to bring in a professional caregiver. Look for the following signs that a caregiver needs extra help:

• is either “burned out” or confused about care solutions
• has limited time and/or expertise in dealing with the individual’s chronic care needs
• is at odds regarding care decisions
• needs education, support, or direction in dealing with behaviors associated with dementia

Change is Hard

This new phase of life is often scary—feelings of loss, uncertainty, grief, guilt, and anxiety are common. Parents may express these feelings through anger, stubbornness or even depression. A core value at Abacus is to listen, to be fully present, and to actively seek to understand. To be able to listen, with patience and care, may be the best way to share our lifelong gratitude for our parents.

Resources

• Aging and Life Care Professionals
• National Elder Law Foundation
• Aging with Dignity
• Caregiver’s Path to Compassionate Decision Making by Viki Kind
• Family Caregiver Alliance
• Navigating Your Later Years for Dummies by Carol Levine
• Edge of Aging podcast
• Better Health While Aging podcast

Anne Marie E. Ashworth

Many people dream of a second home—a place to go for some rest and relaxation, a place to call your own, a place for family and friends—or an investment property for you and renters. Once that dream comes true, and you have found your new home, how to best insure your property will be of utmost importance. Knowing the ins and outs of insuring a second home can help as you make your dreams a reality.

How is a second home’s insurance different?

There is no such thing as one-size-fits all homeowners insurance. You may find that insurance for your second home is a little more difficult to acquire. This insurance policy, like your primary homeowners policy, will offer coverage for the home known as dwelling coverage for the physical structure of your home, personal property coverage for your personal belongings, liability protection coverage to protect you in case of an injured party, and other necessary coverage exposures. The type of insurance policy should reflect the type of structure you purchase: Do you need a policy that covers a condo/townhouse, or do you want a guaranteed replacement dwelling homeowners policy?

Insurance carriers view second homes as riskier to insure than primary homes. The risks that determine your insurance rates are slightly different for second homes. Second homes are often vacant, making them more susceptible to break-ins and increased damages from leaks and fires. Moreover, second homes are often located in an area where the home may be more prone to risks such as floods, named storms, wind and hail, earthquakes, mudslides, fires, and the like. Location also increases insurance risks, which increase premiums.

Beside the homeowners policy, you may need to purchase additional coverage in the form of riders or additional policies for flood risk, wind and hail, named storm risk, or earthquake. These risks are not typically covered under a homeowners policy and will require a separate policy, which carries its own limits and a separate deductible for each policy.

Rental: What are the risks?

Renting your second home can bring additional income as an investment property. Renting can help offset costs of maintaining a second home, but know that renting your home makes the property subject to more “wear and tear” and increased liability exposure. If you are going to rent out the home, you may need a more comprehensive insurance policy that will cover the full cost of replacing the home, and the insurance carrier will likely increase your rates. You will most likely need additional coverage, like landlord insurance and increased liability protection. We have all heard horror stories about how abusive renters can be of other’s property, or the tragic story of a renter falling off a balcony when sitting on a weakened balcony railing or falling down the stairs! A higher liability limit will protect you and your assets if you are found responsible for an injury to someone on your property who doesn’t live in either of your homes. This coverage will also cover medical costs and court costs.

If you decide to rent your second home, talk with your insurance agent to be sure that you are fully protected. Many policies offer $500,000 liability protection limits, and some go as high as $1,000,000. If you need higher limits than offered by the homeowners policy, ask whether you can add your second home to your existing personal umbrella policy, add a personal umbrella policy, or an excess liability policy. If your second home is owned within an LLC (Limited Liability Corporation), a commercial excess liability policy may be required. When a property is personally owned, a personal liability umbrella will offer this additional coverage.

To make the most of insuring a second home:

• Insure your home with a trusted and knowledgeable insurance agent.
• Insure your home with a financially strong insurance carrier.
• Insure your second home with your current homeowners insurance carrier. Bundling your policies under one agency offers discounts and ease at claim time.
• Do not make numerous or small claims. Your insurance premiums will increase, and your insurance carrier may cancel your policies.
• If you can afford it, go with the higher deductibles.
• Install an alarm system to detect both fire and break-ins to lower insurance costs.
• Place the second home in an LLC. This will add a layer of liability protection. (The LLC will be the named insured on the homeowners policy and may require a commercial rather than a personal policy.)
• Have high enough liability protection limits to cover your exposed risk or net worth.

Owning a second home has been a lifetime goal and can be a dream come true. Proper insurance and management of a second home is paramount to having your dream come true and not turn into a financial nightmare! The Benjamin Franklin axiom that “an ounce of prevention is worth a pound of cure” is as true today as it was in Franklin’s time.

Karlyn M. Jones