CAS News
Understanding the Details and Benefits of the CARES Act
By Paul F Ciccarelli CFP®, CHFC®, CLU®
On Friday, March 27th, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The approximately $2.2 trillion economic stimulus package was introduced in response to the recent COVID-19 epidemic and is an attempt on a federal level to address the issues and economic fallout of the pandemic. This is the largest emergency aid package in US history and includes a series of provisions aimed at assisting individuals, families, businesses, and economic sectors affected by the virus (nearly everyone). Highlights of the act include immediate tax rebates of up to $1,200 per taxpayer; forgivable, subsidized loans to small businesses; direct loans to the hardest-hit industries; the relaxation of income tax rules and deadlines; ongoing financial aid to students, schools, and colleges; and direct stabilization of money market mutual funds.
The Small Business Administration (SBA) and the Department of Treasury have begun releasing details that will guide the programs created through the CARES Act, but with such vast legislation, much of the provisions may be overlooked and therefore underutilized by those who might benefit the most. In an effort to provide you with as much advantageous information as possible, we have assembled some resources that may help guide you and your family as you navigate your future financial decisions.
The basic provisions of the bill provide assistance to individuals and families. These resources detail highlights of the legislation:
Forbes highlights the CARES Act
10 Things You Should Know About the CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. These resources provide details pertaining to these loans and answers questions you may have:
Small Business Association Loan Funding Options
The US Chamber of Commerce Coronavirus Emergency Loans Small Business Guide and Checklist
Live Oak Bank Loan COVID-19 Small Business Loan Options
Paycheck Protection Program FAQs for Small Businesses
Our team will continue to update the above-listed resources as more information is released. If you have questions about how the Stimulus CARE ACT may affect you directly please call your CAS advisor for further information.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
Ciccarelli Advisory Services – Staying in Touch
We understand that uncertain times can be worrisome. As you are aware, we have seen significant changes to the financial markets, the economy, and generally, our everyday lives in a very short period of time.
As a valued member of our CAS family, we want you to know that we are here for you.
We are reaching out to let you know that we are here for you in the event you need to speak with us. Please feel free to contact us via phone or email at ciccarelli@cas-naplesfl.com if you would like to schedule a 15-minute call with us to discuss your portfolio.
We have suspended taking on new referrals, new client relationships, marketing, and all non-essential client work for the time being so that we can focus on client portfolios.
During this time, we are not only considering your financial security and asset protection, but we are also looking at opportunities. The bottom line is we will get through this; it is just a matter of time. Here are some considerations that are top of mind.
1) Primary Concerns:
- Cash Flow – Your cash flow needs are an important factor. We want to avoid selling securities at a lower value, if possible. If you have enough cash to support your cash flow needs for the next 6-12 months, let’s stay the course. If you do not, we need to connect to begin strategically raising cash.
- Market Risk and Volatility – Volatility in the markets tend to play on our emotions. You and I react when our account values drop as they have been over the last several weeks. This is human. The coronavirus is likely to get worse before it gets better. With that said, research and history show us that the prudent thing to do in times like these is to remain invested and focus on your long term objectives.
2) Opportunities:
- For individuals that have been overweight in cash, this may be the time we have been waiting for. By observing current valuations, we feel there will be great companies and industries that are priced for opportunities to buy for long term growth, income, and appreciation. We suggest that excess cash be invested for long term objectives. A dollar-cost averaging strategy has been proven to work well during these times. Please contact us if you would like more information on this strategy.
- Tax Loss Harvesting – Due to the recent pullback we are now seeing an opportunity to realize losses on taxable accounts to offset future gains.
- For some individuals, we can take a loss by selling what may be considered a riskier asset and purchasing into an equity position that has less inherent risk…potentially reducing the overall risk level of your portfolio.
- These losses may be useful to offset gains from the sale of positions that are significantly overweighted in your portfolio. The gains from the sale of the highly appreciated stock can be offset by the realized losses and then the proceeds can be re-invested in a more diversified way. This strategy may serve to reduce single stock risk in your portfolio.
- If you are comfortable with your cash cushion, perhaps consider deferring or minimizing withdrawals from your portfolios.
We will be communicating on a regular basis via email, newsletters, and by telephone. If you have any questions or concerns, please do not hesitate to give us a call or email. We are here to serve you.
Stay safe and healthy!
How Anxiety Changes Our Financial Decision Making
Paul F. Ciccarelli CFP®, CHFC®, CLU® and Steven T. Merkel CFP®, CHFC®
Across the world, a whirlwind of events brought many people’s lives to a halt. The outbreak of the COVID-19 virus has caused a global pandemic and forced massive country-wide quarantines to lessen the spread of the disease. Amid this health crisis, an oil price-war between Saudi Arabia and Russia has triggered a fall in the price of oil. Both of these events have subjected the economy and individuals to a great deal of stress and anxiety.
People may be experiencing and coping with emotions in a variety of ways including modifications to judgment and decision making processes. While this is essential in life-or-death situations, it could be unintentionally problematic regarding long-term decision-making.
Anxiety and stress are the manifestations of thoughts and fears about the ability to manage circumstances. [1]
Anxiety developed from our natural fight or flight response which early humans relied upon to tell when a situation was too dangerous. Humans still need this process to avoid potentially fatal outcomes, but the brain can have a difficult time differentiating between actual life-threatening situations and those which we perceive as being life-threatening due to certain circumstances remaining out of our control. [2]
Most know that long-term exposure to stress is not healthy and can lead to multiple serious conditions.
One of the lesser-known effects of stress is that it changes the way we think. Through attention bias, stress and anxiety alter what we are conscious of, and how we perceive the world around us. Think of it this way, if all you think about are yellow cars, suddenly all you see are yellow cars. In reality, the roads haven’t been overtaken by golden-hued vehicles, that’s just what your mind is focusing on. [3]
Stress and anxiety will change the way your brain functions, and in turn, disrupt your long-term decision making, problem-solving, and risk calculating abilities.
By disrupting the proper functioning of neurons in specific regions of the brain, stress could prevent you from making the types of decisions you would typically make. [4] If not careful, those panicked decisions could have a lasting impact on your long-term goals and full financial picture.
Stress even changes the way men and women think about risk.
A study from the University of Southern California found that under stress, men are often more willing to take risk while women tend to take a more conservative approach, despite previous ideas or plans. [5]
As short-term survival takes over, long-term considerations are either pushed aside or are influenced by widespread panic.
The prevalence of sensationalized news, which often relies upon fear, makes it easier to focus on certain messages and topics. This may not provide all the necessary facts needed to make informed choices. Now, more than ever, you may need to rely upon those who have an outside perspective and experience guiding during times of turmoil.
When we look at the big picture of market performance over the long haul, we find that – in many cases – the most prudent course of action is to (1) stay the course and (2) capitalize on any untapped opportunities that may arise as a result of recent events.
One of the recent updates that may be beneficial to many is the postponement of the due date for filing Federal income tax returns and making Federal income tax payments. Any person (the term “person” includes an individual, a trust, estate, partnership, association, company, or corporation) will be able to hold off on filing and paying without accruing interest or penalties till July 15, 2020. Also, H.R. 6201, the Family First Coronavirus Response Act outlines certain requirements for paid sick leave and expanding the Family and Medical Leave Act. We will continue to keep you informed if there is further COVID-19 financial relief legislation.
Psychologist Henrie Weisinger, the author of “The Genius of Instinct,” writes that people who learn to change the way they think about their problems rather than try to overcome their anxious feelings are more likely to live stress-free lives. [1] As the situation with COVID-19 and the economy continues to evolve, we want you to remember that your CAS advisor is always available to help you look past the fear and anxiety and bring the big picture into focus as we weather the turbulent tides. Today, tomorrow, and for generations to come.
Sources
- https://healthfully.com/193037-what-are-the-causes-of-anxiety-from-a-behavioral-perspective.html
- https://www.healthcentral.com/article/what-is-fight-or-flight-and-how-does-it-relate-to-anxiety
- https://www.bbc.com/future/article/20160928-how-anxiety-warps-your-perception
- https://www.psychologytoday.com/us/blog/the-athletes-way/201603/how-does-anxiety-short-circuit-the-decision-making-process
- https://www.psychologicalscience.org/news/releases/stress-changes-how-people-make-decisions.html
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
Important Update From Ciccarelli Advisory Services
As you are aware, we’ve seen significant changes to the stock market, the economy, and generally our everyday lives, in a very short period. Whether in Rochester, Naples, or other cities; restaurants, bars, beaches, and social venues have closed to limit the impact of the Coronavirus. Workplaces are reconfiguring staff to allow for remote access and reduced exposure.
At present we are moving toward minimum staffing mandates as the situation surrounding the virus escalates. It is our intention, and in keeping with being responsible citizens, to plan for a skeleton crew in both our offices daily. This will begin the week of March 23rd. We think it is important to take this step to both conform to the increasing concerns, and importantly, to manage your needs.
Our company is an essential business as defined by the government, and we will continue to take care of client needs. With the speed at which things are changing, we have put a contingency plan in place to minimize staffing within the offices. Going forward, if we are required to do so, we are prepared to work off-site. We are able to receive your phone calls, place trades, and address any distribution or servicing need that you may have. In effect, we will be able to do everything we do every day in our offices, at our assigned offsite workplace.
We believe that America will rebound from this. Given the recent response of eliminating opportunities for gathering, coupled with testing, we believe a recovery similar to what is being seen in China and South Korea is possible.
During this time we are spending 100% of our effort servicing the needs of our existing clients. As you know, servicing our clients has always been a priority, and at times like this, our number one concern is taking care of you. While we typically welcome referrals, we’d prefer that you defer referring new clients to us at this time. This allows us to stay in touch with you, and follow what’s going on with the markets. We expect to have the capacity to work with new relationships in another month or two. We will let you know when we resume welcoming new referrals, as this is the lifeline of our business. Please know that our number one concern at this time is you, and all our clients.
We believe it has always been to our advantage to plan in advance, and we wanted to take this opportunity to share our plan with you.
You are in our thoughts. For now, please be safe and we will be in touch.
Sincerely,
Kim Ciccarelli Kantor, CFP® CAP® | President
Important Message From Ciccarelli Advisory Services
As a valued member of our CAS family, we want you to know that we’ve been thinking about you. Your health and safety are one of our top priorities and at the heart of the decisions, we are making and will continue to make.
We believe it is critical that we all work together to reduce the transmission of COVID-19. At the same time, we know it is important for us to stay connected during this time of tumultuous markets and global uncertainty.
Our firm’s operations are critical and can’t – and shouldn’t – simply stop. We have looked at our options and at this time feel it is best to ramp up our efforts to protect you from exposure to this virus and any other illness, regardless of its source. Therefore, we’ve made the painful decision to meet with you, for the foreseeable future, by phone or video conference only. There is nothing as satisfying as a face-to-face meeting; however, these uncertain times require that we put our own desires aside and commit to containing risk wherever possible.
For your convenience, we have a dropbox outside of our Naples office for clients wishing to drop off checks or paperwork. It is located near the entrance that faces 96th street and is secured at all times. For both Rochester and Naples clients, we also have an area in our lobby for dropping off paperwork or checks. This area is sanitized for your protection after each use.
As part of our continuity plan, we intend to keep our office locations open and fully-staffed for your planning and service needs. Our intent is to keep our staff and planners healthy as well so that our operations may continue uninterrupted. We are just a phone call or email away for any questions or concerns you may have.
We thank you for your continued trust in us and wish you the very best of health as we move together through these times.
Ciccarelli Advisory Services – Keeping You Informed
We wanted to let you know that we are closely following the financial markets across the globe and the continued volatility that is impacting investor confidence. Global markets have been bracing for uncertainty as the spread of COVID-19 leads to reduced economic activity. In addition, an oil price war between Russia and Saudi Arabia has exacerbated concerns of a global recession, prompting large selloffs across riskier asset classes.
At this moment, it’s impossible to forecast whether a recession will occur as a result of COVID-19 and oil oversupply concerns, and their impact on the global economy. Outbreaks are eventually contained, and recessions are part of market cycles. The most important thing to keep in mind is not to overreact to the headline news which can often create unnecessary panic. Markets have proven resilient over time and it’s important to maintain discipline and focus on your long-term goals.
We are here to support you and navigate these times of uncertainty together. Knowledge is power, and we’re committed to equipping you with the tools and information you need to weather this storm. We are continuing to watch market developments and are here to assist you with evaluating and understanding these economic changes.
As always, if you have any questions do not hesitate to call. We suggest scheduling time for a 15-minute conversation or a more comprehensive review if you have not yet connected recently with us or someone on our team.
Will the Coronavirus Be a Catalyst for a Market Correction?
By Carol L. Girvin, Advisor and Patrick Ryan, CFP®, AWMA®
On February 24th and 25th, U.S. stock markets declined over 6% on fears that the virus known as COVID-19 or Coronavirus, would reach pandemic levels [1]. The news media is adept at catching our attention with sensationalized headlines. Remember, it’s historically the percent, not the points, which count. There are many unanswered questions regarding the long-term effects the spread of the virus will have in the U.S and across the globe, and it may take some time to reveal the overall economic impact. We’ve seen China’s response to include closing schools and factories and cutting off the city of Wuhan, believed to be the epicenter of the outbreak.
Investors in the U.S. are left wondering if we have seen the worst of the downturn. February 26th began with modest gains in the U.S. markets before turning negative for the day as we digested news of case counts outside China’s borders exceeding China’s new cases [2]. Contributing to fears, it was reported that the CDC was developing a plan for when, not if, the virus reaches pandemic levels [3]. This should not contribute to our fears of an unknown virus but rather assure us that the authorities understand the gravity of the situation and will have plans ready to implement should the time come.
Much like financial planners, it is the CDC’s job to plan for all contingencies.
Fear of the unknown can often be the most difficult to overcome. Providing context goes a long way to understanding the potential threat caused by COVID-19. As of February 26th, there have been over 80,000 confirmed cases of COVID-19 in 37 countries, leading to over 2,700 deaths. At least 14 of those cases are in the U.S., 12 of those are directly linked to travel in impacted areas of China [4]. Compare those numbers to the seasonal flu in the U.S. and we begin to see that fear of the unknown is causing more disruption than known threats. In the 2019-2020 flu season, CDC estimates that there have been at least 29 million flu illnesses in the U.S. leading to 16,000 flu deaths, including over 100 children [5]. While the total number of cases is slightly higher than average and dependent on numerous factors such as vaccine effectiveness and self-reporting, the mortality rate is no higher than a typical flu season. Looking at data and having perspective is always important.
So, what are we supposed to do? The media leads us to believe this is an unstoppable force that will disrupt every aspect of our daily lives. Healthcare professionals urge caution against panic and remind us that the best practices that we should follow to protect against the Coronavirus are the ones we (should) follow every day: wash hands thoroughly, cover your mouth when you cough, wear surgical masks to minimize risk of infection, stay home if you feel sick, etc. We, the public, are left to determine where reality will fall between the extremes.
Should we avoid dining at our local restaurant? Probably not. Should we reassess our springtime vacation overseas? Maybe. Fear of the unknown causes irrational behavior. We have seen this time and time again throughout history. We should prepare for the possibility that there will be outbreaks in the U.S. This does not mean that we need to isolate ourselves and stop living our lives.
Humans are extremely adaptable, we are already seeing companies in China finding ways to get people back to work, including businesses and schools using technology to work remotely [6]. Certain sectors, such as technology, were hit particularly hard in this week’s rout.
Other areas will benefit from panic and fear caused by an exotic virus. U.S. biotech firm Novavax (NVAX) said in a press release that it has made progress in its efforts to develop a vaccine to protect against Coronavirus.
Shares of Novavax increased by 20 percent Wednesday [7]. Moderna (MRNA), another U.S. biotech, has already shipped an experimental vaccine for testing. Shares of MRNA are up 30 percent this week [8]. While we still do not know how this will play out, the world will continue to produce, evolve and improve.
With U.S. markets at all-time highs, investors have been waiting for the ‘other’ shoe to drop. Will the Coronavirus be the catalyst for a market correction? Will the disease continue to spread beyond the traditional flu season? These are questions that will be impossible to answer without hindsight. If we take the ‘unknown’ part out of this fear, is this any different than other emotional swings in the market? Only time will tell. Recent history with stocks and viruses is that markets overact leading to significant buying opportunity along the way. Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8 percent. During the Zika virus, which occurred at the end of 2015 and into 2016, the market fell by 12.9 percent. There are other examples, but they all passed, and the market recovered and hit new highs [9].
The extent to which markets are affected will ultimately depend on the length, depth, and breadth of the impact caused by the outbreak to the global economy. Though it’s too early to assess the virus’s full implications, travel restrictions, temporarily shuttered factories, and supply chain disruptions appear to be having a significant effect on the Chinese economy, and to a lesser degree, US corporations with business interests in China, as well as global trade more broadly [10].
It is during these uncertain times that we look to professionals for guidance.
Investors are understandably nervous about what will happen. The prudent thing to do is reassess your financial goals to determine if they have been impacted by the recent turmoil. If your goals are still on track, making changes based on emotion could be detrimental. If the recent news and impact on your retirement, however, are keeping you up at night, this might be a good time to talk to your advisor. We are here to assist you and guide you through the fundamentals of your financial decisions. Never hesitate to call on us.
[1] https://www.cnbc.com/2020/02/26/trump-may-be-angry-about-the-sell-off-but-the-dow-is-up-strong-since-his-election.html?recirc=taboolainternal
[2] https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200226-sitrep-37-covid-19.pdf?sfvrsn=6126c0a4_2
[3] https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/guidance-business-response.html
[4] https://www.cdc.gov/coronavirus/2019-nCoV/summary.html
[5] https://www.cdc.gov/flu/weekly/fluactivitysurv.htm
[6] https://www.weforum.org/agenda/2020/02/coronavirus-chinese-companies-response/
[7] https://www.cnn.com/2020/02/26/investing/novavax-coronavirus-vaccine/index.html
[8] https://markets.businessinsider.com/news/stocks/coronavirus-vaccine-moderna-stock-price-jump-profits-investors-millions-biggest-2020-2-1028942739
[9] https://www.ftportfolios.com/Commentary/EconomicResearch/2020/2/25/time-to-fear-the-coronavirus
Ideas to Engage Your Family in Financial Education and Communication
By Josh Espinosa CFP®, CIMA®
As a parent or grandparent, it can be difficult to ensure your children and grandchildren have the wisdom and knowledge necessary to take on life’s obstacles. It can sometimes feel like a minefield trying to navigate the difficult waters of providing just the right amount of assistance and security while giving them room to build resilience and independence. There is no one-size-fits-all when it comes to parenting, but instilling positive financial habits early in life is beneficial to everyone. There are many different ways to engage your family in financial education. Below are some ideas to involve the next generation in the financial planning process:
- Purchase a piggy bank for new births in the family or a US coin map. Additionally, stock certificates from familiar brands are an interesting and relatable way to start teaching kids about stock ownership and investing. You might have them choose from a selection of companies they enjoy, such as Lego or Disney. Framed certificates could also make a great gift and some are even considered collector’s pieces.
- Open a 529 plan when there is a new birth; you could also gift up to 5 years upfront. Under the Tax Cuts and Jobs Act passed in December 2017, you can use $10,000 to pay for secondary education per year. In addition, under the Secure Act that passed in December of 2019, the federal government allows a one-time payment of up to $10,000 to be used to pay back student loans for any family member. State Education Plans, such as the Florida Prepaid College Plan, is another great way to save for college while locking in today’s tuition rates.
- Give the gift of stock or mutual funds via a UTMA (Uniform Transfer of Minors Act) orUGMA (Uniform Gift of Minors Act) custodial account. These accounts allow minors to receive assets and allows the gift giver or an appointed custodian to manage the minor’s account until they are of age. They often shield the minor from tax consequences on the gifts, up to a specified value. If the family member has earned income, you could also help fund a Roth IRA account. This is often a great way to accumulate after-tax savings. Savings accounts can also be a nice way to start saving for a special milestone.
- Share books at an early age that can make an impact – (i.e. Lemonade in Winter, Pretty Penny Cleans Up, I Will Teach You to Be Rich, The Intelligent Investor, The Greatest Salesman in the World, Richest Man in Babylon, Rich Dad Poor Dad, etc.). As they get older, challenge them with book reports, while providing financial incentives. Expose them to thought leaders via live presentations, podcasts, or TED talks. In Naples, we have the Speaker Series and Imagine Solutions events; in New York State, there is the Chautauqua Institute.
- Involve your family in charitable giving to pass on a legacy of philanthropy. This can be done via a Donor Advised Fund or gifting to an organization of their choosing.
- Introduce your family to your financial advisor and other financial professionals. Having them involved early on in the legacy planning process helps create a connection, which could lead to further communication, preparation, and organization.
- Hold family meetings to discuss responsibilities, goals, and wishes. This can include charitable giving, end of life wishes, transfer of heirlooms, etc.
- You may also want to have meetings with your family and financial advisor, who can act as a facilitator to review your estate documents, financials, and family communication.
- Setup and share important financial and estate documents with your family utilizing online document storage and secure file sharing system. Ciccarelli Advisory Services has a system, cas360, which offers clients their own personal financial website where they can securely access all their financial information and save important documents.
- Most importantly, give the gift of a financial plan to your children and family. Many of our client families have taken advantage of this great benefit. If you would like to learn more, our advisors can provide further details on this thoughtful gift option.
Financial literacy is not something most people learn overnight, but like many assets, its value can potentially increase over time. As your children and grandchildren grow and develop their own financial goals and dreams, a foundation of fiscal knowledge and open communication could help them build upon the legacy you set forth.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
Bring Your Future into Focus
Recap of The Topics Discussed at Our 2020 Wealth Symposium on February 5th
By Jill Ciccarelli Rapps, CFP®
Originally published in the January 2020 edition of eBella Magazine
On February 5th, we had the honor of hosting the “2020 Wealth Symposium: Bringing the Future into Focus” at Grey Oaks Country Club in Naples, FL. At the event, our advisory team presented on a number of financial, estate, tax, and retirement community planning strategies. This article summarizes the main points covered in the presentations.
1. Familiarize
yourself with the SECURE Act
Some have called the SECURE act the most important piece of tax legislation for IRA owners in a generation. If passed, among other changes, it could have a profound impact on non-spouse beneficiaries when it comes to inheriting large IRA assets. The bill would modify the current requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts. Some individuals may need to consider modifying their current retirement plans.
2. Prepare for the inevitable need for the cost of health care.
Healthcare is often one of the largest expenses in retirement, and most individual’s healthcare costs are expected to increase as they age. It could also be the worst time to take on sudden unplanned expenses. Today, even just a minor procedure can end up costing thousands. Some experts expect the industry to go through substantial adjustments in the near future, so it may be a good time to review your healthcare plan. There are also various factors you may want to consider when looking at your long-term future healthcare; will you stay in your home or move into a Continuing Care Retirement Community. Your decisions will make a major impact on your finances.
3. Tax deductions for 2019-2020.
April 15th can creep up on you, and not taking the proper time to compare your itemization options could cost you. In 2018, the standard deduction went up, making it a more advantageous option for many individuals. However, homeowners, those in a higher tax bracket, with significantly high medical bills, and who make large charitable donations, are amongst those who may benefit from an itemized deduction. The start of the New Year could be a good time to assess your expenses and see if there are tax opportunities you could take advantage of.
4. Clearly and effectively communicate the parameters of your estate plan.
How do you clearly and effectively communicate the parameters of a protected, but flexible, inheritance? The intent is often not carried out if not explicitly stated. How do you wish to empower your children? How do state and federal laws put at risk your child’s trust when they serve as their trustee? Letters to children can help describe your wishes and intent as well as Incorporating trustee designation and trust protector language to serve your family’s best interests. Changes in family circumstances including incapacity, state or federal laws, wealth or in circumstances around balancing family happiness and protection all are critical to successful legacies. Titling and beneficiary alignment, as well as handling the risks of aging during a lifetime, are all important areas to align in your estate plan. Your estate plan must live throughout your lifetime and after to be effective.
5. Include your Children in the financial planning process.
Most people don’t know what their first step should be in communicating with their family so the tenancy is to procrastinate until something urgent happens. Your planning begins and ends with bridging together family, whether through life needs such as birth to education to healthcare to a career move to weddings to buying a house and leaving a legacy…all the things parents care about and try to plan for their families. Money integrates with everything we do…unfortunately, many people don’t spend the time educating and preparing their families to carry on their family legacy. If you have not begun the conversation with your children or grandchildren, this may be a great time to discuss with your advisor on how to begin the process of educating and communicating to your children about your finances so they may be better prepared to step up and make future financial decisions.
Start your New Year out with selecting two of these strategies that you feel will make the biggest impact for you and your family, then set up a meeting with your advisor(s) to ask them for their guidance in helping you to set up a successful strategy and timeline for implementation – you will be happy that you did!
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
The SECURE Act: The Good, the Bad, and the Ugly
By Paul F. Ciccarelli CFP®, CHFC®, CLU®
In the final weeks of 2019, Congress passed its second major tax and retirement law in the past 24 months. The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) affects many areas of retirement and income tax planning. The most notable change resulting from the SECURE Act is the elimination of the “stretch” provision for most, but not all, non-spouse beneficiaries of an inherited IRA and other retirement accounts. Under previous law, non-spouse beneficiaries could exercise more control over their taxes by taking distributions from an inherited IRA or retirement account over their life expectancy. This served to preserve wealth by deferring the tax bite for the next generation and managing these portfolios within a non-tax reportable IRA umbrella. The modus operandi for most attorneys, CPAs and financial planners was to position their client’s beneficiary arrangements to provide this “stretch” option to their children and grandchildren, either directly or from within their revocable trusts.
Under the new law, with few exceptions, non-spouse beneficiaries must withdraw all of the retirement accounts inherited within 10 years of the death of the IRA owner. There is no required minimum distribution until the 10th year when all must be distributed. Each year the beneficiary would have to add withdrawals on top of their normal taxable income. In the case of a large retirement account inheritance, this is likely to push them into a higher tax bracket.
It could be even more significant if you have named a trust as beneficiary of your IRAs and retirement accounts. In some cases, perfectly drafted trusts that were designed to inherit IRA and retirement accounts under the old law may create a tax disaster. Under commonly used trust language, the beneficiary may not be able to take a distribution until the 10th year. They would have to take the full value and pay taxes on the entire amount all at once.
If you have significant IRA and retirement assets, you will want to meet with your financial planner, attorney and CPA to review all of your beneficiary arrangements. Trusts can still be used, and in some cases may be the best plan given your and your family’s circumstances. However, you may need to make certain that the language is correct.
Make no mistake, the new law is designed to generate revenue by collecting taxes from the next generation of beneficiaries. This law has very little effect when planning for leaving IRA and retirement assets to your spouse. There are some exceptions, which we will discuss at our Symposium on February 5th at Grey Oaks. In general, however, taxes will no longer be deferrable over the life expectancy of a child or grandchild.
Several “new” planning opportunities rise up to help protect family wealth under the new law. These may include:
Converting to a Roth IRA
A Roth IRA, unlike the traditional IRA, is funded by after-tax dollars and remains tax-free for account holders and their beneficiaries. The inherited Roth IRA must be fully withdrawn by the end of the tenth year after the decedent’s death, but unlike the inherited traditional IRA beneficiaries will not pay income taxes on the withdrawals.
Naming a Charitable Trust as Beneficiary
For individuals and families that are charitably inclined, this planning might make sense and could provide a very similar “stretch” experience for future generations. By naming a Charitable Remainder Unit Trust (CRUT) as the beneficiary of your retirement plans, and naming children and/or grandchildren as income beneficiaries of the trust for a 20 year term or their lifetime, you eliminate the effect of the 10 year rule. At the owner’s death, the Traditional IRA and retirement assets pass to the CRUT income tax free. The CRUT then pays income to the family annually or more frequently.
Purchasing Life Insurance with Required Minimum Distributions
For individuals that have large IRA and retirement assets and are forced to take required minimum distributions (RMDs) each year, whether they need the income or not, this idea may be beneficial. If RMDs are not needed for current cash flow, life insurance may be purchased within an irrevocable life insurance trust. If both husband and wife are alive, a survivorship life policy could be most efficient. At the surviving spouse’s death the insurance policy pays out an income and estate tax free death benefit, replacing what could be a 40% income tax hit on the retirement assets.
Each of these planning ideas have been simplified, but they can be used as a starting point for you and your advisor to discuss in more detail.
To learn more, please plan on joining our February 5th program for a more in-depth look at the good, the bad and the ugly of the SECURE Act and how it may affect you and your family.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
