Why Cash Is Not a Long-Term Investment

In times of market uncertainty, investors often seek the safety of cash. This has been true over the past several years as markets have swung due to the pandemic, geopolitical events, Fed rate hikes, inflation, gridlock in Washington, technology trends, and more. More recently, the possibility of worse-than-expected inflation and a delay of the first Fed rate cut have led to renewed investor concerns. At the same time, interest rates on cash are at their highest levels in decades, making it appear that there are attractive “risk-free” returns. What role should cash play in investor portfolios today?

Money market funds have experienced significant inflows

Money market funds have experienced significant inflows

After over a decade of historically low interest rates, higher cash yields are a welcome development for many investors. Interest rates are higher across all cash instruments including many savings accounts, certificates of deposit, and money market funds, just to name a few. This is because the Fed raised rates rapidly from early 2022 to mid-2023 and has kept the federal funds rate in a range of 5.25% to 5.50% since last July. After the recent Fed meeting, Fed Chair Jerome Powell noted that it “will take longer than previously expected” to gain greater confidence that inflation is on the right path, implying that policy rates could stay higher for longer.

These dynamics have led many investors to hold more cash than in the past. Money market funds, for instance, have attracted inflows with total assets reaching new all-time highs of $6 trillion. This is more than double the assets held in money market funds prior to the pandemic when interest rates were near zero for the better part of a decade. As the accompanying chart shows, money market fund assets have typically grown in times of economic distress or when interest rates have been high.

Cash is an essential part of any financial and investment plan. From a financial planning perspective, cash provides the liquidity needed to cover expenses and important life events. The down payment on an upcoming home purchase, for instance, should primarily be held in cash-like instruments. Similarly, it’s important to have enough cash to serve as an emergency fund in case of unexpected personal events such as injury or illness or broader events such as an economic downturn. From an investment standpoint, cash can also serve important roles including reducing overall portfolio risk and by allowing investors to take advantage of attractive market prices.

Inflation erodes the value of cash

Inflation erodes the value of cash

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security.

While cash is important, it can become problematic when investors hold too much cash. This is because cash is not truly risk-free for two important reasons. First, inflation quietly erodes the purchasing power of cash over time. So even if yields appear to be high, the real value of your money could decline. As the accompanying chart shows, the inflation-adjusted income on cash has consistently been negative when considering average certificate of deposit rates.

While there are many cash instruments that could generate more yield than these averages, the problem is that these rates are not “locked in.” By definition, short-term rates need to be rolled over often as instruments mature and expire, introducing what is known as “reinvestment risk,” or the idea that future rates may not be as attractive. Even in the best case scenario, investors need to actively manage these instruments to ensure that they are still receiving the level of rates they expect.

The second challenge with holding excess cash is the opportunity cost of not investing in stocks or bonds. Just as interest rates have risen for cash, yields have also jumped across many types of bonds. The average yield on U.S. investment grade corporate bonds, for instance, is now 5.5% – far more attractive than the average of 3.7% since 2009. Unlike cash, these yields are longer-term in nature and these bonds could experience price appreciation if rates do decline.

Similarly, the stock market has performed extremely well despite many investor concerns over the past few years. The S&P 500 is still up 8% with dividends and has gained about 47% since the market bottom in 2022. While the past is no guarantee of the future, these returns have far outpaced inflation and would have helped to offset the erosion of purchasing power across a portfolio.

Stocks and bonds have outpaced inflation over history

Stocks and bonds have outpaced inflation over history

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The prospects for cash will only worsen if the Fed does begin to cut rates later this year. Investors would be forced to reinvest their cash either at lower interest rates or in stocks and bonds whose prices would most likely have already risen. The possibility of falling rates has been an important driver of the overall stock market that will likely continue.

The accompanying chart makes this opportunity cost clear. Due to inflation, what cost one dollar in 1926 now costs $17. However, the stock market has significantly outpaced inflation over long periods of time. A hypothetical one dollar investment in the stock market in 1926 would be worth over $13,000 today. A similar investment in long-term bonds would be worth $106, also outpacing inflation.

Thus, while short-term investments can play important roles in financial plans and portfolios, it’s critical in today’s market environment to avoid holding cash for the wrong reasons. Market fear and high short-term rates have driven significant flows into cash and cash-like instruments. While these may make sense for short periods, history shows that they are not the foundation of long-term financial success.

The bottom line? Investors should review their cash holdings as the stock market continues to rally and the Fed prepares to cut rates. In the long run, holding a proper allocation of stocks and bonds is still the best way to achieve financial goals.


IMPORTANT DISCLAIMER

This publication as indicated has been prepared by Clearnomics; it does not necessarily reflect the opinions and views of MAI.  It is for illustrative and educational purposes only.  Any statistics mentioned have been obtained from sources we believed to be reliable, but the accuracy and completeness of the information cannot be guaranteed. Opinions expressed herein reflect those of Clearnomics and the author’s judgment and are subject to change based on economic, market and other conditions. It should not be assumed that this is a forecast of future events or that any security transactions, holdings, or sector discussed were or will be profitable.  

Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments.

Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

MAI is an investment adviser registered with the U.S. SEC, and registration does not imply a certain level of skill or training. This material should not be considered a recommendation to buy or sell any security or product, nor should it be considered a recommendation of any particular asset allocation. Asset allocation and diversification may not protect against market risk, loss of principal or volatility of returns. Investing in securities involves risk of loss which investors should be prepared to bear. Since each investor’s situation is individual, you should review your specific investment objectives, risk tolerance and liquidity needs with your financial professional to help determine an appropriate investment strategy. Additional information about MAI is available on the SEC’s website at www.adviserinfo.sec.gov.

State of the Union: The Economic Environment and Its Market Impact

How did we get to this state of the economy?

COVID provided an ideal environment for inflation with both stimulus programs increasing the demand for goods while manufacturing and/or shipping delays reduced the supply. This “perfect storm” increased inflation significantly, and the consumer price index, which is the most widely used measure of inflation, ultimately peaked at 9.1% year over year in the summer of 2022. The Federal Reserve (the Fed) has a mandate to stabilize prices and to fight inflation. So, from February 2022 to July 2023, they increased the target rate by over 5% from effectively zero to a 5.25% – 5.5% target range. Along with other factors, this aggressive policy helped to bring inflation down to the 3% range by June 2023. Although inflation fears abated, the aggressive actions of the Fed meant that for much of 2023, market participants worried about a possible recession based on their association with past tightening cycles.

Is recession still a risk for markets?

Macroeconomic data has all but stamped out the recession fears that loomed over 2023, but inflation has become a concern again. The unemployment rate has remained below 4%, job openings are lower but are elevated versus history, and the consumer is still spending. Retail sales beat expectations in March at .7% and the Conference Board’s Leading Economic Indicators no longer signal a recession. The market rally from the fall of 2023 through March 2024 was most likely due to excitement over inflation falling and economic growth remaining strong (or a soft landing). But the market is now coming to grips with the fact that better economic conditions also mean inflation will likely remain higher for longer than predicted and the fed will probably keep target rates elevated for longer than expected.

As the CPI chart demonstrates, the headline rate stalled out around 3% in the middle of 2023. It seems that every time there is another higher-than-expected inflation report, the number of expected Federal Reserve rate cuts in 2024 drop further. As a result, the stock market in April returned some of the rally the year started with.

Source:  Strategas Research Partners, as of February 29, 2024

The stock market may be disappointed that rate cuts have been delayed, but in a scenario where the Fed feels compelled to cut rates, it would likely be associated with reduced economic growth, increased risk in the macroeconomy, and a possible recession.

The Presidential Election: How Does it Impact the Outlook?

Like in the past, there may be volatility around the upcoming election. Historically, the VIX (or the CBOE volatility index) often spikes around elections; however, that volatility usually subsides rather quickly back to average levels once the election season is over and uncertainty is reduced.

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security.   Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested directly.

As is demonstrated in the chart above, over the past 30 years, the S&P 500 has averaged 10.4% per year, continuing its ascent regardless of the party in the White House. For example, the S&P 500 grew 16.3% annualized during the Obama administration and 16% during the Trump administration, which are both higher than the average of the last 30 years.

Investors that were guided by political opinion rather than a long-term investment plan may have missed out on those above-average returns. While government policies may have a strong impact on the macroeconomy and the stock market, the composition of political parties in power alone does not warrant deviation from a long-term investment plan.

Maintaining a Long-Term Investment Plan

Ensuring that our clients’ investment portfolios are aligned with their long-term goals is more important than trying to predict the election or the economy. By working as a team, we can remain patient, sticking to a well thought out plan through the inevitable ups and downs in the economy and markets. If you are interested in learning more about our investment strategy, please contact us today.

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Please send your questions, comments, and feedback to: info@mai.capital. Any statement non-factual in nature constitutes only the current opinion of this author which is subject to change without notice. Certain statements are of future expectations and other forward-looking statements are based on management’s current views and assumptions. Any statistics mentioned have been obtained from sources we believe to be reliable, but the accuracy and completeness of the information cannot be guaranteed. Neither the information nor any views expressed should be considered investment, legal or tax advice, or constitute as a recommendation to buy or sell any security, strategy, or product. It should not be assumed that this is a forecast of future events or that any security transactions, holding, or sector discussed where or will be profitable or that the investment recommendations or decisions we make in the future will be profitable. Past performance is not indicative of future results.

Rolling Grantor Retained Annuity Trusts (GRATs): Perpetual Estate Tax Savings

As part of your estate planning strategy, you may be looking for ways to minimize your estate tax liability and transfer wealth to your beneficiaries. One strategy that has gained popularity in recent years is the use of Grantor Retained Annuity Trusts (GRATs). However, you can take this strategy a step further with Rolling GRATs.

What Are Grantor Retained Annuity Trusts (GRATs)?

A GRAT is an irrevocable trust that allows you to transfer assets to your beneficiaries while minimizing your estate tax liability. With a GRAT, you (as “grantor”) transfer assets into the trust and retain the right to receive an annuity payment for a specified number of years. At the end of the term, any remaining assets in the trust are transferred to your beneficiaries.

The value of the annuity payment is determined by the IRS using an interest rate called the Section 7520 rate. If the assets in the trust appreciate at a rate higher than the Section 7520 rate, the excess appreciation is transferred to your beneficiaries free of gift and estate taxes.

What Are Rolling GRATs?

A Rolling GRAT is a strategy that involves creating a series of GRATs, each with a short term, and “rolling” the assets from one GRAT into the next. This allows you to continue transferring assets to your beneficiaries while minimizing your estate tax liability.

When establishing a Rolling GRAT, you (as “Grantor”) create a short-term GRAT (usually two or three years). The GRAT is “zeroed out” – that is, due to the IRS method for calculating the value of your retained interest in the trust and value of the remainder interest, the taxable gift to the trust is nominal and uses virtually no lifetime gift tax exemption.

At the end of the GRAT term, assuming you survive the term of the GRAT, the balance of the GRAT assets is distributed to the remainder beneficiary, which is often an irrevocable “receptacle” trust for the benefit of your family.

As Grantor, you then “roll” the assets returned in the form of the annuity payments into another GRAT and continues to do this at the end of each GRAT term. This continually removes assets from your estate.

Rolling GRATs

Benefits of Rolling GRATs

Nominal Use of Gift Tax Exemption

The amount gifted to a rolling GRAT uses almost none of your lifetime federal gift tax exemption. As a result, assets are removed from the estate while preserving his or her estate and gift tax exemption.

Flexibility in Asset Selection

With Rolling GRATs, you have the flexibility to choose which assets to transfer into each trust. This allows you to strategically select assets that are likely to appreciate, maximizing the potential tax savings for your beneficiaries.

Retained Use of Assets

As Grantor, you can transfer a significant amount of assets to the GRAT without concern because most of the assets will be returned in the form of annuity payments (see example below).

Protection Against Market Volatility

One of the risks of traditional GRATs is that if the assets in the trust do not appreciate at a rate higher than the Section 7520 rate, there may be no tax savings for your beneficiaries. However, with Rolling GRATs, you can mitigate this risk by continuously rolling assets into new trusts. This allows you to take advantage of market fluctuations and potentially increase the tax savings for your beneficiaries.

Additional Considerations

Initial Cost and Maintenance: Rolling GRATs are a complex estate planning tool, and therefore can be costly to implement and maintain.

Low Risk. If you do not outlive the GRAT term, the value of the GRAT will be included in your estate and subject to estate tax. However, you will have used such a small amount of gift tax exemption, he or she is no worse off than if the GRAT had not been created.

Tax Reduction. So long as the investment performance of the assets contributed to the GRAT exceeds the Section 7520 rate, there will be a remainder passing free of estate tax.

Rolling GRATs offer a powerful strategy for individuals looking to transfer wealth to their beneficiaries while minimizing estate tax liability. Due to the complex nature of rolling GRATS, working with an MAI financial advisor and an estate attorney can help ensure that Rolling GRATs are the right choice for your estate planning needs. Reach out to an MAI advisor to find out if this strategy is right for you.

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Information updated as of March 26, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

Safeguarding Real Estate Through a Qualified Personal Residence Trust (QPRT)

Navigating the world of estate planning can be intricate and demanding, particularly for high net worth individuals looking to create a financial legacy while taking advantage of current gift tax exemptions made available by The Tax Cuts and Jobs Act of 2017. In 2024, the federal estate and gift tax exemption stands at $13.61M per individual – but the Act is set to expire on December 31, 2025, and these exemption amounts may disappear.

One strategic option is to transfer certain real estate into trust by creating a Qualified Personal Residence Trust (QPRT) – which can not only pave the way for significant tax savings but can also provide asset protection.

What is a Qualified Personal Residence Trust (QPRT)?

A Qualified Personal Residence Trust (QPRT) is a specialized type of irrevocable trust designed to decrease the amount of gift and estate taxes typically due when transferring assets to beneficiaries.

In essence, a QPRT allows you (the “grantor”) to transfer ownership of your residence into a trust while retaining the right to live in the home for a specified period of time. The goal is to pass down your high-value real estate assets in a tax-efficient manner.

The property reverts to the remainder beneficiaries after the expiration of the QPRT term. However, the grantor may continue living in the house by leasing the property back from the remainder beneficiaries at fair market rent, which can further reduce the value of the grantor’s taxable estate.

Benefits of a QPRT

  • Probate Avoidance. Real property gifted to a QPRT is not subject to probate on the death of the grantor. A trustee or successor trustee has continuous and immediate access to the QPRT and can immediately transfer the subject property to the designated beneficiaries.
  • Use of Gift Tax Exemption. The amount gifted to beneficiaries in a QPRT falls under the grantor’s lifetime federal gift tax exemption, helping to ensure that the current gift tax exemption amount does not go to waste.
  • Leveraged Gifting. The value of the gift for tax purposes is the fair market value of the property minus the present value of the beneficiaries’ right to receive the property at the end of the term of the QPRT. The “reduced” value of the gift allows the grantor to further leverage the current lifetime federal gift tax exemption by shifting wealth at a discounted valuation for tax purposes.
  • Estate Tax Reduction: The gift tax value is calculated at the time of the transfer, and all future appreciation will escape the grantor’s taxable estate. In addition, a grantor can still claim real estate taxes and other associated deductions on their tax return.
  • Flexibility: A grantor may sell real property that has been gifted to a QPRT without losing all the tax benefits. To accomplish this, proceeds from the sale must be reinvested in a new real property that will now be subject to the original QPRT.
  • Low Risk: If the grantor does not outlive the QPRT term, the value of the QPRT will be included in the grantor’s estate and subject to estate taxes. However, the grantor’s estate will receive credit for the initial gift to the QPRT and is no worse off than if the QPRT had not been created.

Qualifying Assets for a QPRT

You may have up to two QPRTs at any one time. For example, your main home can be placed into a QPRT, allowing you to continue residing there while transitioning it to your heirs. In addition, your secondary or vacation home may also qualify for a QPRT, providing an additional pathway to transfer your high-value assets.

Setting up a QPRT

  • Initial Transfer of the Residence: The residence must be formally transferred into the trust to initiate a QPRT.
  • Determining the Retained Interest Period: You must decide the length of time you will retain the right to live in the home, a term that can significantly affect the trust’s taxation and benefits.

Additional Considerations

You no longer own the house. Once your trust term ends, you legally lose access. However, you can rent the residence from your beneficiary at fair market value, which would help transfer additional assets to your heirs without affecting your annual gift exclusion. You must survive the trust term for it to be legally binding. If not, the property is returned to the taxable estate.

Tax Implications. While a QPRT can offer tax benefits, it’s imperative to consult with a tax advisor to understand the full range of implications. Depending on where you live, transferring your property to a QPRT could nullify any state and local property tax exemptions, and would leave you responsible for potentially higher property taxes during the trust’s term.

Sale of the Residence. Selling the residence during the retained interest period can have complex consequences, and careful planning before any sale is essential. Also to note, If the beneficiary sells the home after the trust term ends, any gains will be calculated using the home’s fair market value at the time of the trust’s creation.

Safeguarding your wealth and ensuring a seamless transition to future generations remains one of the key elements to estate planning, and a QPRT can be an invaluable piece of that complex puzzle. Tailoring your approach to estate planning with the guidance of a MAI financial advisor will help to ensure your assets are protected and your legacy preserved. As with any sophisticated financial maneuver, MAI is here to help. Reach out today.

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Information updated as of March 26, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

25 Investment Terms to Know When Meeting with Your Portfolio Manager

Working with a seasoned investment team to design your customized, long-term financial plan is a great way to set yourself up for success. But, if you are new to investing or depend on your trusted team to make decisions on your behalf, you may find the “lingo” to be confusing. 

Key Investment Terms

Investing can be overwhelming, especially with the complexity of the jargon. We’ve compiled a list of commonly used terms to help you navigate the world of investing and to help you better communicate with your advisor and portfolio manager.

Alternative Investment ​MAI defines alternative investments as anything that falls outside of traditional equities and fixed income.
Appreciation The increase in value of a financial asset.​
Asset AllocationHow investors allocate their portfolios among different assets that might include equities, fixed-income assets, alternative assets, and cash and its equivalents.
Bear Market ​A bear market is a prolonged period of falling asset prices, marked by a decline of 20% or more. A market in which prices decline sharply against a background of widespread pessimism, growing unemployment or business recession. The opposite of a bull market.​
Benchmark A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.​
Beta A measurement of an asset’s volatility relative to the entire market.
BondA bond is a fixed income instrument that represents a loan between the investor and a borrower. The bond includes terms for interest payment. When the bond matures, the investor typically receives the capital invested into the bond back.
Bond Premium ​The amount by which a premium bond sells above its par value.​
Bull Market​Any market in which prices are advancing in an upward trend. In general, someone is bullish if they believe the value of a security or market will rise. The opposite of a bear market. ​
CommoditiesCommodities are often raw materials such as agriculture, energy, or metals.
Dry Powder ​Cash reserves kept on hand to purchase assets.​
Exchange Traded FundAlso known as “ETF,” they are funds that trade on exchanges, generally tracking a specific index.
Growth-Style InvestmentGrowth-style funds or stocks typically hold company stocks in rapidly growing sectors of the economy and invest in companies with above average earnings growth.​
Index FundsA index fund tracks the performance of a specific market benchmark – or index – as closely as possible. Instead of hand-selecting which stocks or bonds a fund will hold, the fund’s manager buy all or a representative sample of the stocks or bonds in the index it tracks.
Idiosyncratic RiskIdiosyncratic risk is a type of investment risk that is endemic to an individual asset (like a particular company’s stock), a group of assets (like a particular sector), or in some cases a very specific asset class (like collateralized mortgage obligations). Idiosyncratic risk is also referred to as a specific risk or unsystematic risk.
Inflation A rise in the prices of goods and services over a given period, often equated with loss of purchasing power.​
Market CapitalizationTotal value of all a company’s shares of stock. It is calculated by multiplying the price of a stock by the number of shares outstanding.​
Market CorrectionA market correction occurs when stock prices drop for a period after reaching a peak, usually indicating that prices rose higher than they should have. During a market correction, the price of a stock may drop to a level more representative of its true value. Under typical circumstances, a market correction tends to last less than two months, and price drops are usually only 10% or less.
Mutual FundsMutual funds allow you to pool your money with other investors to “mutually” buy stocks, bonds, and other investments. Typically, these are run by professional money managers and give investors exposure to all the investments in the fund or income they generate.
Par ValuePar value is the amount originally paid for a bond and the amount that will be repaid at maturity. Bonds are typically sold in multiples of $1,000.​
Recession A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country’s gross domestic product.​
Risk Adjusted ReturnsThe risk-adjusted return measures the profit your investment has made relative to the amount of risk the investment has represented throughout a period. If two or more investments delivered the same return over a given time, the one with the lowest risk will have a better risk-adjusted return.
Standard Deviation​A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. An asset with a high standard deviation often experiences increased volatility with sharp increases and decreases.​
StockA share of stock is a piece of ownership of a public or private company. By owning stock, the investor may be entitled to dividend distributions generated from the net profit of the company
Systemic RiskSystematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as undiversifiable risk, volatility risk, or market risk, affects the overall market, not just a particular stock or industry.
Value-StyleValue-style funds or stocks typically hold company stocks that are undervalued in the market. Fundamentally strong companies whose stocks are inexpensive but trending upward may also be selected for value funds.​

Meeting with Your Investment Team

Once you understand some of these basic terms, you may ask yourself, “What should I ask my wealth advisor and/or portfolio manager when I meet with them?” At MAI, we believe that clients should know the following:

  1. What is your investment philosophy?
  • Is this in line with my overall financial plan?
  • Why is it important for my investment firm to be a fiduciary?

If you are interested in learning more about MAI’s investment philosophy and process, please contact us today.

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Secure Your Legacy: Dynasty Trusts

There are many types of trusts to consider when creating an estate plan and creating a legacy. One that provides the unique ability to pass wealth from one generation to the next while minimizing taxation is called a dynasty trust. While “dynasty” may sound like the domain of ultra wealthy clients, the reality is many families can benefit from dynasty trusts – even those without large estates.

What are Dynasty Trusts?

A dynasty trust is a type of irrevocable trust. Unlike traditional trusts, which typically have a limited lifespan, dynasty trusts can continue for hundreds of years. Additionally, they can be a valuable tool for those who want to minimize their tax burden and ensure that their wealth is passed down to their heirs without incurring gift or estate taxes.

Dynasty Trust Benefits

Trust Administration

One of the key benefits of a dynasty trust is the continuation of trust administration for multiple generations. This means that the assets held in the trust can be managed and distributed by a trustee for the benefit of future beneficiaries. It allows for the preservation and growth of assets over time. This also provides a level of protection for beneficiaries who may not have the financial knowledge or experience to manage a large inheritance on their own.

Tax Benefits

Dynasty trusts also offer significant tax benefits. By placing assets in a dynasty trust, the assets are removed from the grantor’s estate, reducing the potential for estate taxes. Additionally, the assets in the trust can grow and be distributed to beneficiaries without incurring gift or estate taxes. The grantor of the trust may contribute an amount up to the current gift tax limit without having to pay any taxes. Afterwards, the only taxes on the assets of the trust may be income taxes which can be avoided through certain investments, and most importantly, the beneficiaries will not have to pay any taxes.

This can be beneficial to high-net-worth individuals who want to minimize their tax burden and transfer wealth to future generations, while taking advantage of generation skipping tax (GST) strategies.

Creditor Protection

Another benefit of dynasty trusts is that they offer creditor protection for beneficiaries. Assets in dynasty trusts are not owned by the beneficiaries – which means they are shielded from creditors and potential lawsuits and can continue to grow and benefit future generations. This can be particularly important for beneficiaries who may be in high-risk professions or who have a history of financial instability.

How to Set Up a Dynasty Trust

Choosing a Trustee

One of the most important decisions when setting up a dynasty trust is choosing a trustee. The trustee is responsible for managing the assets in the trust and making distributions to beneficiaries according to the terms of the trust document.

It is important to choose a trustee who is trustworthy, financially responsible, and has the necessary knowledge and experience to manage the assets in the trust. Many people choose a professional trustee, such as a bank or trust company, to ensure that the trust is managed properly.

Funding the Trust

Once the trust document is created and a trustee is chosen, assets can be transferred into the trust. This can include cash, stocks, real estate, and other valuable assets. It is important to work with a financial advisor or estate planning attorney to determine the best assets to transfer into the trust and ensure that the transfer is done properly.

Dynasty Trusts in Action

Dynasty Irrevocable Trust Example

Mr. Smith creates a spousal lifetime access trust with dynasty trust provisions for the benefit of his wife and children. Mr. Smith makes a $5,000,000 gift to the trust and allocates his lifetime gift and GST tax credits for this amount on his gift tax return ($13.61 million gift tax exemption limit in 2024). The gift doubles to $10,000,000 in 10 years by yielding a 7% return annually (see Rule of 72 discussed in link above).

Assuming the current exemption amounts, the assets held in this trust are exempt from estate and GST taxation. The appreciation of those assets also escapes estate and GST taxation during his wife’s lifetime, and for so long as those assets are held in trust for his children and future grandchildren for generations to come, while also providing substantial asset protection to the surviving spouse and children for their lifetimes.

Dynasty Revocable Living Trust Example

Mr. Smith creates a revocable living trust with dynasty trust provisions for the benefit of his wife and children. At his death, Mr. Smith’s estate is worth $5,000,000.

Assuming the current estate and GST tax exemptions, the entire amount will be exempt from estate and GST taxation. The appreciation of those assets also escapes estate and GST taxation in the same manner as described above, while also providing substantial asset protection to the surviving spouse and children for their lifetimes.

Takeaways

Dynasty trusts offer unique benefits and advantages that traditional trusts do not. They allow for trust administration to continue for multiple generations, offer significant generation skipping tax (GST) benefits and provide creditor protection for beneficiaries.

Pro Tip: Dynasty trusts are not available in every state due to the rule against perpetuities, a common law principle that restricts the duration of controlled property interests, including those established within trusts. 

If you are considering estate and inheritance planning to preserve and transfer your wealth to future generations, a dynasty trust may be a valuable addition to your strategy. Reach out to an MAI advisor who can work with you and your estate planning attorney to determine if a dynasty trust is right for you.

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Information updated as of March 26, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

How Investors Can Navigate Market Pullbacks, Geopolitical Risk, and More

After a historically strong start to the year, markets have now pulled back to begin the second quarter. Concerns around geopolitical tensions in the Middle East, inflation, corporate earnings, and other issues have led to a market decline, pushing the VIX index of stock market volatility to its highest level in six months. In times of market stress, it’s important for investors to maintain perspective on the critical issues and not overreact to headlines. How can investors understand and weather this period of market volatility?

Rising geopolitical tensions add to market uncertainty

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

First, tensions escalated in the Middle East due to an attack by Iran on Israel, the first time a direct strike has occurred between the two nations. The attack involved hundreds of drones and missiles launched from Iran and appears to have been designed to allow ample time for Israel and its allies to deploy countermeasures, resulting in minimal damage. While it’s uncertain how Israel might respond to this shot across its bow, many hope that both nations will show restraint and avoid an overt conflict.

These latest developments only add to geopolitical concerns around the world. Russia’s invasion of Ukraine and the October 7 attack on Israel by Hamas only a year and a half later have already destabilized Eastern Europe and the Middle East. Without diminishing the tragic loss of life and destruction from these conflicts, investors must weigh how such events might impact the global economy, markets, and their portfolios.

Geopolitical headlines can be alarming to investors since they are unlike the typical flow of business and market news. These events are difficult to analyze and their outcomes are challenging to predict since they depend on the actions of individuals and groups with complex histories and motivations.

However, history shows that while geopolitics can impact markets, the effects are typically short-lived. The accompanying chart highlights market returns following major geopolitical events this century. Some events, such as 9/11, changed the world order and had long-lasting effects, even though it was primarily the dot-com bust that led to poor market performance. Other events, such as the war in Ukraine, resulted in higher oil prices which affected inflation and monetary policy. Most of these events did not have long-lasting effects on markets once the situation stabilized. While today’s conflicts will be closely watched, investors ought to avoid passing judgment with their portfolios. In the long run, markets tend to recover and perform well primarily because business cycles are what matter over years and decades, despite the events that take place over weeks and months.

Stubborn inflation has markets rethinking the number of rate cuts

Second, many measures of inflation have proven to be more stubborn than economists had hoped. The latest Consumer Price Index (CPI) report for March showed that headline inflation remained hotter than anticipated at 3.5% year-over-year, while core inflation, which excludes food and energy prices, rose 3.8%. Rising shelter costs, i.e., the cost of renting and owning a home, are a large reason inflation has not cooled as quickly.

Combined with stronger-than-expected recent job market data, many investors now anticipate that the Fed may cut rates more slowly this year – or not at all. The Fed’s economic projections have suggested all along that it might cut rates three times this year. Market expectations, however, have swung 180 degrees since the start of the year when some believed the Fed could begin cutting rates in March or earlier. Today, markets only expect 2 or 3 rate cuts in 2024.

As always, it’s important for investors to keep these expectations in perspective. What matters for long-term investing is the direction of policy and not the exact timing or magnitude of rate cuts. There are still risks to the Fed’s outlook and the monthly inflation numbers, especially if oil prices rise further due to geopolitical conflicts. However, even if this were to occur, inflation is far more manageable today and no longer requires an emergency monetary response.

Investors should always be prepared for market volatility

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

Finally, investors should keep the level of market volatility in perspective as well. While the recent 2.5% market decline is the largest since the start of the year, this follows a 10.6% total return in the first quarter. Since last October when the market began to rally, the S&P 500 has gained 28% including dividends. Since the bear market bottom in 2022, the market has gained over 50%.

The accompanying chart shows that the average year experiences significant pullbacks and that this year’s has been small by comparison. Despite these short-term challenges, markets tend to recover and often end on positive notes. This is why maintaining a diversified portfolio can help reduce short-term risk and increase the odds of financial success over time, regardless of whether markets are volatile due to the economy, the Fed, geopolitics, or other factors.

The bottom line? Markets have struggled at the start of the second quarter due to changing expectations around the Fed and escalating geopolitical tensions. Staying level-headed and keeping these events in perspective are still the best ways to achieve long-term financial goals.

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Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Irrevocable Life Insurance Trusts (ILITs): Making Your Insurance 100% Tax Free

Life insurance can provide a tremendous financial benefit to the beneficiaries of a policy – with no income tax liability for the payout of life insurance proceeds. However, many people do not realize that the face value of the death benefit is included in the calculation of federal estate tax liability. That is where an Irrevocable Life Insurance Trust (ILIT) can help.

The ILIT is an estate planning tool designed to reduce or even eliminate payment of federal estate tax upon death.

The federal estate tax exemption stands at $13.61M per individual for 2024. However, the legislation that created this large exemption is set to expire on December 31, 2025, with the exemption being cut in half. If your assets are in jeopardy of being subject to estate tax upon death, the use of an ILIT (or multiple ILITs) may be vital to your estate plan.

What is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust (ILIT) is a type of trust that is specifically set up to own a life insurance policy. Once you transfer a life insurance policy into an ILIT, you give up all rights to the policy – the trust becomes the owner and the beneficiary of the policy. As the name implies, this type of trust is irrevocable, meaning that once it is created, it cannot be altered or canceled.

Key Benefits of ILITs

Avoid Estate Tax. Since the ILIT is the owner of the life insurance policy, the death benefits from the policy will not be part of the grantor’s taxable estate and therefore will not be subject to federal estate tax upon the grantor’s death.

Convert Old Policies. Ownership of current life insurance policies can be transferred to an ILIT. This allows a grantor to convert an asset that may be subject to federal estate tax into an asset that will not be subject to federal estate tax.

Avoid Gift Tax. If the ILIT is drafted and administered properly, the money used to pay policy premiums can qualify for the federal gift tax annual exclusion.

Dynasty Planning. ILITs can also leverage a grantor’s generation skipping transfer (GST) tax exemption. As a result, numerous generations may benefit from trust assets free of both federal estate and GST tax.

Asset Protection. With proper drafting, assets left in an irrevocable trust for beneficiaries can be protected from their creditors.

How Does an ILIT Work?

To set up an ILIT, an irrevocable trust agreement must be created and executed, and a trustee appointed who will manage the trust. The ILIT then applies for and owns the life insurance policy on the life of the grantor. The grantor cannot serve as the trustee of the ILIT.

The trust’s terms will dictate how the proceeds of the insurance policy are to be distributed upon the grantor’s death. Grantors can fund the trust with annual gifts, which are used by the trustee to pay the insurance policy premiums. Specific procedures may be required to ensure these gifts qualify for the annual gift tax exclusion.

Considerations When Setting Up an ILIT

  • Permanence: Since the ILIT is irrevocable, grantors need to be certain in their decisions because once established, it cannot be easily changed.
  • 3-Year Rule: If an existing policy owned by a grantor is transferred to an ILIT and the insured dies within three (3) years from the date of the transfer, the life insurance proceeds will be included in the grantor’s taxable estate.
  • Gift Tax Issues: The transfer of a life insurance policy into an ILIT will be considered a gift of the fair market value (approximately the cash surrender value) of the policy, and if that value is more than the annual exclusion, the Grantor’s federal estate tax exemption will be reduced by that amount.

Due to the complexities involved, it’s important to consult with legal and tax professionals before establishing an ILIT. Implementing an Irrevocable Life Insurance Trust as part of your estate plan can be an effective way to minimize taxes, protect assets, and ensure that the proceeds from a life insurance policy are used according to specific wishes. Work with an MAI advisor to find out if an ILIT is right for you.

Information updated as of March 26, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

3 Market Insights for Investors

2024 began with debates over a “soft” versus “hard” landing as the Fed attempted to stabilize the economy as well as over the sustainability of last year’s market rally. Only three months later, those concerns have given way to a calmer environment centered around fading inflation and the Fed’s plans for reducing interest rates. This has resulted in a strong market rally with the S&P 500 index, Dow Jones Industrial Average, and Nasdaq gaining 10.2%, 5.6%, and 9.1% year-to-date, respectively.

The economic environment has surprised many investors as inflation continues to fade. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures index, rose 2.5% on a year-over-year basis for all prices and 2.8% when excluding food and energy, both significant improvements from their peaks only a year and a half ago. While some areas of inflation such as shelter and energy costs remain problematic, inflation is steadily moving back to the Fed’s long-term 2% target.

Meanwhile, unemployment is still under 4% despite layoffs in the tech sector, interest rates have been more stable with the 10-year Treasury yield around 4.2%, and stock market returns have broadened beyond artificial intelligence stocks. Despite these positive trends, some investors are concerned about the upcoming presidential election and the next phase of Fed policy. These worries are only amplified by the fact that the market is hovering near all-time highs. In uncertain market environments, it’s more important than ever for investors to maintain a long-term perspective. Below are three key insights for understanding upcoming events and how they have historically affected investors.

1. Steady economic growth has driven markets to new all-time highs

Steady economic growth has driven markets to new all-time highs

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The S&P 500 has achieved 20 new all-time highs so far this year despite the brief market pullback during the first two weeks of the year. While this is positive for investors, it is easy to worry that continued market growth may not be sustainable. Do new all-time highs mean that the market is due for a pullback?

While price swings are an unavoidable part of investing, and the market does experience pullbacks from time to time, history shows that markets also tend to rise over long periods. During a bull market cycle, major stock market indices will naturally spend a significant amount of time near record levels, as shown in the accompanying chart. For instance, 2021 experienced 70 days with the market closing at new all-time highs, adding to the hundreds that were achieved since 2013. Taking a long-term perspective allows investors to benefit from these market trends without constantly worrying about when a pullback might occur. Holding an appropriately diversified portfolio can help investors to withstand market pullbacks without focusing too much on the exact level of the market.

2. Markets have rallied through both Democratic and Republican presidencies

Markets have rallied through both Democratic and Republican presidencies

Past performance is not indicative of future returns. This should not be considered a recommendation to buy or sell any security. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

Coverage of the presidential election is heating up ahead of the November rematch between Presidents Biden and Trump. While elections are an important way for Americans to help shape the direction of the country as citizens, voters and taxpayers, it’s important to vote at the ballot box and not with investment portfolios.

This is because history shows that markets can perform well under both Democrats and Republicans. As the accompanying chart shows, the economy and stock market have grown over decades regardless of who was in the White House. What mattered more across these periods were the ups and downs of the business cycle. The Clinton years, for instance, benefited greatly from the long expansion of the 1990s. The George W. Bush years, on the other hand, overlapped with both the dot-com crash and the 2008 global financial crisis. Business and market cycles defined their presidencies, and not the other way around.

Of course, politics can impact taxes, trade, industrial activity, regulations, and more. However, not only do these policy changes tend to be incremental, but also the exact timing and effects are often overestimated. Thus, it’s important to focus less on day-to-day election poll results and more on the long-term economic and market trends. Ideally, investors concerned about the impact of specific policies on their financial plans should speak with a trusted financial advisor.

3. The Fed is expected to cut rates as inflation stabilizes

The Fed is expected to cut rates as inflation stabilizes

The market rally broadened beyond mega-cap technology stocks in the first quarter. The equal weight S&P 500, an alternative to the standard market cap-weighted index, hit a new all-time high in early March, a sign that a wider range of stocks is performing well. The positive economic outlook and the possibility of rate cuts have boosted optimism across many parts of the market.

Given this backdrop, the Fed is expected to cut rates later this year although the timing remains uncertain. The accompanying chart shows the possible path of the federal funds rate based on the Fed’s latest projections, including three cuts this year. At its last meeting, the Fed cited strong job gains and low unemployment as indicators of solid economic activity but emphasized that “the Committee does not expect it will be appropriate to reduce [interest rates] until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Regardless of the exact timing and path of Fed rate cuts, these projections represent a reversal of the emergency monetary policy actions that began in early 2022. For investors, it’s important to adapt to this changing environment and not focus solely on the events of the past few years.

The bottom line? With markets near all-time highs, a presidential election approaching, and Fed rate cuts expected to begin later this year, investors should stick to their financial plans while staying invested in the second quarter of the year. History shows that this is still the best way to achieve long-term financial goals.


Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Beneficiary Designations: Protect Your Nest Egg

Estate planning often focuses solely on wills and trusts to direct the distribution of assets upon death. At MAI, we help clients manage estate planning more completely, including the role of retirement accounts and the proper planning of beneficiary designations to protect your “nest egg” against taxes, creditors, and probate.

The Importance of Beneficiary Designations

Designating a beneficiary (or beneficiaries) for your retirement accounts isn’t just a routine task—it’s a decision with far-reaching consequences. A failure to assign a beneficiary could lead to your retirement assets defaulting to the pre-established rules of your retirement plan or, even worse, ending up entangled in probate. This oversight might result in an unintended recipient gaining access to your assets.

A trust can serve as a designated beneficiary and provide additional asset protection. For example, a well drafted trust can provide access to the retirement account for your current spouse while preserving the inheritance for your children from a previous marriage. A trust can also protect special needs beneficiaries, young beneficiaries, or even spendthrift beneficiaries from themselves.

The Role of Beneficiary Designations in Tax Mitigation

Beneficiary designations are not merely a formal process; they’re a strategic tool in minimizing income and estate taxes. By capitalizing on disclaimer-type designs, you can endow your beneficiary with the flexibility to handle the retirement account efficiently. Disclaimers typically refer to a legal strategy where a potential beneficiary chooses not to accept or disclaims an inheritance, allowing for more flexibility in managing the assets, particularly in response to changing tax laws or estate planning needs.

Additionally, implementing charitable planning within retirement accounts is a method of enhancing wealth transfer by significantly reducing the effects of income or estate taxes.

Understanding Retirement Plans and Beneficiary Designations

When dealing with retirement plans—401(k)s, IRAs, and others—you must comprehend the nuances of their respective rules concerning beneficiaries. For example, for married individuals, spousal rights over retirement assets should be considered, which may necessitate spousal consent if an alternate beneficiary is chosen.

Pitfalls to Avoid: Naming Your “Estate” as Beneficiary

One critical error in planning involves designating your “estate” as your beneficiary. This misstep can drag your assets into probate, potentially exposing them to creditors. Choosing defined beneficiaries ensures a smooth inheritance process, affords asset protection, and promises expedient asset distribution to your heirs.

The Necessity of Regular Updates

Keeping your beneficiary designations current is indispensable. Life-changing events—a marriage, divorce, childbirth, or the loss of a loved one—can impact your beneficiary decisions and require updates that reflect your changing life. If you modify your estate planning documents, such as your will or trust, it should trigger a reassessment of your beneficiary designations.

Navigating the complexities of beneficiary planning can be difficult. Partnering with an estate planning attorney and a financial advisor can help to ensure that your retirement assets are distributed according to your wishes.

MAI financial advisors can guide you through beneficiary planning, ensuring alignment with your financial objectives. Learn how MAI can strengthen your estate plan by integrating retirement account strategies tailored to secure your legacy. Reach out today.


Information updated as of March 26, 2024. This is for educational purposes only.  The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.