In Perspectives

We missed meeting with many of you in person, whether as clients or advisors of families we serve during this pandemic.  When the weather was warmer, we were able to hold some outdoor in person meetings but alas, the Michigan winter has limited those opportunities.  For those of you with whom we were able to meet in person, we had to take precautions to keep everyone safe.  We look forward to future meetings without any pandemic fear and of course, not depending upon video conference meetings.

As we start 2021 from a wealth planning perspective, we think it is important to keep the following in mind:

1. How will the federal tax policy change this year?  Tax changes are coming and will need to be closely monitored.  The federal deficit has ballooned due to the steps initiated to help bolster the economy in the face of the pandemic.  At some point, the government will have to raise revenue to pay down this debt.  In addition, with Georgia Senate elections complete, the Democrats have control by narrow margins of the House and Senate.  This gives a single party control of the legislative process.  The tax changes may not, however, be enacted immediately as the new administration focuses on the economy and the pandemic.

The consensus is that for high-net-worth taxpayers, tax policy will not improve from the 2017-2020 tax rates.  The tax proposals discussed on the campaign trail came in many varieties.  Significant ones included possible repeal of the Trump tax cuts for families with taxable income above $400,000, increases to capital gain rates, decreases in the amounts that can be left to heirs tax free at death, no step-up in basis at death for heirs, and additional requirements limiting the effectiveness of certain estate planning wealth transfer techniques.

Changes may occur immediately, later this year, or at best in 2026 as Trump tax changes expire.  For example, if you have an asset that you know you need to sell in the near future, selling earlier this year may lock in the lower tax rate. The estate tax exemption could also be lowered from its $11 million plus per person to as low as $3 million.  To avoid the adverse consequences in that scenario, significant gifts using those exclusion amounts would need be completed before any tax changes are introduced.  Tax law changes are often effective the date a tax bill is introduced rather than when passed.

2. Interest rates.  The interest rate on the 10-year treasury bond is starting the year around 1%.  What any of us would give for a CD with rates from the 1970s or even a nice 5% one from the late nineties.  Interest rates are likely to remain low.  Experts had predicted interest rates staying lower for longer, even prior to the pandemic.  The returns on money markets will be minimal.  While other developed countries have negative interest rates, the United States does too if factoring inflation of 1.5%.  Going forward, finding yields will be more difficult for fixed income investments such as bonds.  We expect that many will be chasing higher yields which increases the risk in investment accounts.  That risk should be closely monitored.

3. Roth IRAs and Roth 401Ks.  If tax rates are expected to increase, this year will be the better year to do conversions or contributions to Roth accounts.  Many individuals are limited in their Roth planning because of their gross income contribution limits to Roth IRAs.  The income limitation does not apply, however, in two circumstances.  First, employees can make their retirement plan contributions to the Roth component of their 401K if their retirement plan has added that flexibility.  Second, contributions can be made to non-deductible IRAs and then at an appropriate later time, converting such IRAs to Roth accounts.  It is helpful to model these planning scenarios and Legacy can help.

4. Reassess emergency and near-term cash needs.  We have worked with our clients to make sure that cash that would be needed in the near term was set aside, whether for living expenses, significant planned expenditures, or gifts.  We are proud at Legacy that our clients did not have to pull the money out of the market when the markets tumbled in March and April.   Our clients had adequate cash reserves set aside as a result of our planning discussions and did not have funds out of the market when the rapid recovery occurred.  Now is the time to make sure that the cash planning is done for the next 18 months to 2 years.

New administrations often bring new paradigms.  Change will continue to happen in 2021.  As change occurs, please reach out to us to help you understand the planning and investment options that may be best for you.  More importantly, we encourage you to do planning now if future tax changes will adversely affect you.

Mark Periard, JD
Director of Wealth Management

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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