In Perspectives

At Legacy Trust, we believe it is possible we will be in a low return environment for some time to come.  This presents an unsettling situation for all investors, but can be especially challenging for a taxable investor whose investment returns are subject to further reduction from taxes.  For the typical investor with both taxable and tax deferred investment accounts (IRA’s and other retirement assets) however, there is usually ample opportunity to structure a portfolio in a way that reduces Uncle Sam’s tax bite.  The options and importance increase substantially when an investor has set up family trusts, is in a high income tax bracket, or finds themselves subject to the 3.8% tax on investment income.  No matter an investor’s situation, a review of the tax return can provide important insight necessary to improve the after-tax return of many portfolios.

I recently reviewed the portfolio and tax return of an investor who had a significant IRA, a large taxable investment account, plus taxable income from a pension and Social Security.  To supplement their cash flow, the client had historically taken an annual distribution from their IRA that was about $70,000 higher than their required minimum distribution each year.  None of the three investment managers had a full understanding of the entire portfolio and they did not have the information necessary to understand the client’s tax situation.  This prevented them from considering tax efficiency and the excess IRA withdrawals appear to have cost the investor at least $15,000 in unnecessary income taxes last year.  This is obviously a big hit in any investment environment, but it is especially difficult to absorb when returns are low.

An advisor must also understand the tax characteristics of each investment utilized within a portfolio and place them within the right accounts, a concept I call “Asset Location”, to realize true tax efficiency.  There are certain rules of thumb when thinking about asset location, but unfortunately, no one strategy will be right for every investor.  An advisor must take the time to become familiar with each client’s circumstances to be successful developing an effective investment plan.  For those clients with a large estate, a review of the estate plan can be just as important as an income tax review given the top marginal estate tax rate of 40%.

Each investor’s circumstances are different and because the nature of a blog post prohibits covering this topic in enough detail to do it justice, I will simply suggest that every investor consider their after-tax investment return in the future.  No matter the investment return environment, doing so will allow you to keep more of what you earn on your investments.  Taking the time to understand your income tax, estate plan and personal circumstances is the only way an advisor can help you achieve true tax efficiency.  At Legacy Trust, this is common practice and we would be happy to help you review your situation to see if we can increase your after-tax return.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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