Advanced Wealth Planning and Business Exit Strategies

A Disciplined Approach to Investing

Asset Allocation and Diversification

  The foundation of our investment strategy is based in asset allocation – identifying the appropriate mix of assets that mitigate risk and drive long term performance. Diversification is the key to maximizing the efficiency of our portfolios, spreading risk across asset classes and selecting managers and individual securities that are in alignment with our clients’ wealth objectives. Our clients gain exposure to traditional asset classes, such as domestic equity, international equity and fixed income as well as the ability to employ tightly managed non-traditional asset classes, such as options, private equity, hedge funds, exchange traded funds (ETFs) and other alternative assets.

Security and Manager Selection

The asset managers and security offerings available to our clients are selected through a rigorous due diligence policy, assessing manger performance, tenure and expenses. We believe that managers who specialize in certain asset classes should have a better understanding of how economic trends will present opportunities to be captured and dangers to be avoided in their asset class of choice. Managers with a track record for long term success, strong management teams and consistent investment philosophies top the list of our manager selection process. The construction of our clients’ portfolio requires the proper management of asset classes, diversification and coordination of manager and security selection. Any client who desires additional information on the due diligence process can request a copy of the Park Avenue Securities ADV form.

Liquidity and Asset Location

Beyond Asset Allocation

 

We analyze the structural components of our clients’ asset base, assessing the liquidity and location of their assets on the balance sheet. Vehicle selection will be governed by the impact of legislation, regulations and taxes now and upon distribution. We provide insight to our clients and discuss the selection of vehicles to ensure that retirement contributions, stock compensation and real estate purchases and holdings are in alignment with their financial goals.

Cost Efficiency

Management fees, internal expenses and brokerage charges are a detriment to the long term performance of assets and are an integral part of our investment selection process. We aim to identify and eliminate excessive fees to reduce the cost of investments, recapturing those potential losses and putting them to work for our clients.

Fiduciary Responsibility

A Client First Mentality

 

Our team is dedicated to putting our clients’ interest first. Any member of our team that is advising clients’ to their investments is registered as an Investment Advisor Representative, which carries a fiduciary responsibility to our clients. We are happy to accept the legal responsibility to act in our clients’ best interest. To satisfy the definition of a fiduciary, we are required to act solely in the interest of our client, prudently and transparently disclosing risks and expenses. We are committed to our continuing education and knowledge in our area of expertise and consult with outside experts as needed to provide benefits to our clients’.

Crafting an estate plan and the appropriate planning documents is an essential part of any complete wealth plan. With varying state and federal regulations, it is important to clearly identify your wishes so that they are carried out when you die. While a will is a great start, it is worth understanding and considering other options that are available to you. How assets are transferred, who makes decisions in the event of your incapacity or death, when assets are distributed to children and strategies to reduce costs and taxes should be explored. The intention of this document is to give a broad overview of the purposes and considerations that should be taken into account when considering an estate plan for the distribution of your estate upon death. The topics addressed in this paper should be discussed with a qualified, estate planning attorney and applied to your specific situation. Why Implement Wills and Trusts: Allows an individual to choose the recipients of their estate when they die.

• Law of Intestacy: In each of the 50 U.S. states, there are laws or statutes created to deal with the passing of an estate, which is not directed by a valid, legal document, such as a will. In the case of intestate succession, the state will determine how the estates assets will be inherited. The intentions of the deceased, no matter how well understood, will not be honored without a valid Will.
• There are no exceptions or special circumstances based on needs of the inheriting persons.
• With a basic Will in place, the Executor of the estate can present the valid Will to the court, who will interpret the language and bequests in the Will to distribute the assets of the estate as desired by the deceased.

Permits an individual to nominate Guardians for their minor children

• Without a Guardian nominated through a valid Will, the state will appoint a Guardian to care for minor children. This choice is at the sole discretion of the state and may not align with your wishes or best interests. Consider if this is a choice you are comfortable having strangers make on your behalf.
• Role of a Guardian: A Guardian has a fiduciary* duty to act in the best interests of the person under their guardianship. For minor children, this includes (but is not limited to) overseeing the welfare, safety and financial needs a child may have.
• Considerations when choosing a Guardian:
  • Ensure that each of your children are individually provided in your Will and that desires, such as having the children living in the same household, are well thought out.
  • Consider the age of your chosen Guardian(s).
  • If choosing a couple, consider if you really want the couple to be co-guardians of your child, or if one person in the couple is your choice.
  • Is your Guardian near-by? If not, a short-term Guardian should be selected to care for your children until arrangements can be made by your long-term Guardian.
  • Relatives may not always be the best choice.
  • Consider that circumstances may change. Your chosen Guardian may have children and responsibilities of their own in the future that prevent them from taking Guardianship of your children. Be sure to include successor nominations in the event that your first choice is unable or unwilling to assume responsibility
  • Consider the financial situation of any individual you would select as Guardian.
  • Communicate with your chosen Guardians and successor Guardians prior to naming them in a legal document.

Permits an individual to nominate an Executor for their assets

• Role of an Executor: An Executor is legally responsible for managing the finances of the estate. Similar to a Guardian, they share a fiduciary responsibility to the estate and its beneficiaries as directed by the estate plan documents. Generally speaking, the Executor will pay expenses, debts and taxes of the estate, then distribute the remaining assets to their intended beneficiaries.
• Considerations when choosing an Executor
  • This role may be time consuming and difficult. Consider selecting an individual that is qualified to handle finances.
  • Depending on complexity, family dynamics or estate size, consider utilizing a corporate trust company to handle the responsibilities.
  • The Executor may need to sell assets to satisfy death taxes or probate expenses.

Allows an individual to make specific bequests:

• What is a bequest: A bequest is a gift of personal property made at the time of death as documented in a valid Will. Bequests are typically outright distributions, though can be structured to be honored once certain conditions are met (i.e. marriage, completing college, etc.).
• Without a Will, written and oral bequests will not be honored.

Business continuation planning

• In the case of business ownership, it is important that a continuation plan is in place. Often, an Executor should not be responsible for operating a business asset. Instead, this asset should pass to the appropriate, designated beneficiary so that business operations can continue without significant interruption.

Controlled distributions to minors

• Outright distributions: If assets are to be inherited by a minor, those assets will be held in trust until the age of 18 (or 21). Once the age of majority is attained, the assets in trust will be distributed outright to the beneficiaries.
• These outright distributions, or force-out provisions, may not be the optimal design. Further control of distributions can be included in trust provisions.

Potential tax savings strategies

• Depending on individual goals, objectives and financial situation, significant tax savings can be achieved through the use of trusts. These tax benefits can be realized both while alive and at death.

Financial security and confidence for loved ones:

• The passing of a loved one can be difficult. When finances have not been appropriately communicated or documented in the form of an estate plan, there can be increased pressure and stress on those who will handle the estate of the deceased. When the estate is in order, it can provide clarity and security for those left to manage the distribution of the estate.

    An introduction to types of Wills and Trusts:   There are a variety of legal documents that can be drafted to manage the affairs of an estate. With the proliferation of information online and online “do-it-yourself” services, it is important to discuss the design of an estate plan with a qualified, legal professional. A few different types of documents are described below to provide you with general information that should be discussed in detail with an attorney.  

• Basic Will: A simple will can help to direct a court on the wishes of the deceased’s estate. Generally, these documents will direct all assets to the surviving spouse.
• Will with contingent trust: In the event that the surviving spouse dies, a contingent trust will hold assets for minor beneficiaries until they of the age of majority, with force-out provisions at specified ages (commonly 18 or 21).
• Pour-over will: Usually used when a living trust is in place, a pour-over will capture assets that may not have been titled to the living trust and direct them, or pours them over, into the trust upon death. Though this will not avoid probate and probate costs, it will allow the estate distribution to follow the provisions in the trust documents.
• Living Trust: This type of trust is created while the owners of the estate are alive. When assets and beneficiaries are appropriately titled to the trust, it can avoid the cost and public record of assets associated with probate. During their lifetime, the creators of the trust will also serve as trustees. There is no predator protection using this vehicle, and all assets remain within the estate. Provisions can be added to this trust document that allow for separate trusts to be created at death and should include discretionary language to plan for estate taxes and inheritance by beneficiaries.
• Charitable Remainder Trust: This type of trust is an irrevocable trust that allows the grantor to shift assets out of the taxable estate. A charity must be the beneficiary in this trust design. Depending on multiple factors, establishing this trust will allow for a current, income tax deduction as well as income payments from the trust. Taxable gains are deferred in this vehicle. After income payments are received and the term of the trust ends, the proceeds are distributed to the chosen charitable institution.
• Irrevocable Trust: An irrevocable trust cannot be amended or terminated without permission from the beneficiary. These are used most in cases where the estate is sizable and subject to death taxes. Assets moved into the trust, since no longer controlled by the grantor, are no longer considered a part of the estate. Design and use of these trusts should be considered in detail with a qualified estate planning attorney.
• Qualified Terminable Interest Property (QTIP) Trust: The income earned on assets in this type of trust are typically directed for the use of the surviving spouse during his/her lifetime. Upon death of the surviving spouse, this trust will dictate the ultimate beneficiary of the assets as determined by the first spouse to die. Often, this design is used when there are children from prior marriages, or a desire to protect assets from remarriage and potential disinheritance of children.
• Qualified Domestic Trust (QDOT): As a US Citizen, the estate tax exemption is combined and passed to the surviving spouse, with an unlimited exemption between spouses. In the event that one spouse is not a US Citizen, there are no such protections and the surviving spouse will be subject to the individual estate tax exemptions. The use of a QDOT will allow the non-citizen surviving spouse to qualify for the marital deduction.

  Provisions to be considered:

• Lifetime Trust Provisions for Children: Instead of distributions at stages and ages, consider implementing a lifetime trust provision for children that allows them discretionary access to funds and the ability to serve as co-trustee. This may offer asset protection from creditors, divorcing spouses, lawsuit or other predators.
• Remarriage and Bloodline Protection: Divorce and resulting mixed families are becoming more common and should be considered when designing an estate plan. It may be important that assets are inherited by your children, and not the children from a remarriage. In some cases, a surviving spouse may remarry, then predecease the new spouse. If not managed properly, this could result in the disinheritance of your children through community property laws.

Ancillary documents to be considered:

• Power of Attorney (POA): Allows an individual to act on your behalf
  • Financial: A specific POA for financial matters. Can assist on matters that exist outside of trust.
  • Healthcare: A specific POA for health care decisions. This individual can assist with health care decisions that are not covered by your will, such as temporary unconsciousness.
• Advanced Health Care Directive: Allows an individual to act on your behalf in the event of illness or incapacity. This should be done in conjunction with a healthcare power of attorney to provide comprehensive guidance regarding healthcare.
• Authorization for Release of Medical Information: This will allow your health care providers to communicate and share medical information with your appointed agent.
• Short-term Guardian: A short-term Guardian can assist with child care until your long-term Guardian is available. This is especially helpful in the event your long-term Guardian lives far away or is temporarily unavailable.

  Before Meeting with an Attorney:   Time with an attorney is best served discussing goals and objectives for the estate. To maximize the efficiency of time spent with an attorney, consider the following items and discuss with invested parties their roles and responsibilities.   Identify your Guardians:

• Long-term Guardians for Children
• Short-term Guardians for Children

Identify your Fiduciaries:

• Executor of the estate
• Trustee(s) and successor trustee(s) of the estate
• Using and individual or a corporation as a fiduciary: In certain circumstances, it may make sense to designate a corporate trust company as the Executor of the estate. In determining this, consider the following:
  • Permanent Executor
  • Financially accountable
  • Impartial to children/beneficiaries
  • Financial expertise in a variety of fields
  • Current understanding of the law
  • May charge a fee or require assets to be held with their institution
  • May be too impersonal and lack understanding of family dynamics / business

  Distributions to Beneficiaries

• Outright distributions:
  • Without an estate plan, or with a basic will, assets are typically distributed to beneficiaries in a lump-sum distribution. Because this distribution is mandatory according to the will or the state, the inheritor may be at risk from predators.
• Fixed-age force-out provisions:
  • This is the most common trust distribution design. Commonly referred to as “ages and stages”, these provisions are designed to release principal as specified ages (i.e. 1/3 at age 25, 1/3 at age 30 and the remainder at age 35). Though staggered in distribution, they are still considered outright, mandatory distributions and would be subject to predators. Consider that given current life expectancy, inheriting children may be 50 or 60 years old by the time they inherit assets. In this case, they would have outgrown the “ages and stages” distribution schedule and would receive the entire balance of assets outright, regardless of their personal life situation.
• Lifetime trust provisions:
  • An opportunity in trust design is to maintain assets in trust for the lifetime of the beneficiary. While the beneficiary will be able to receive distributions from trust assets, this should be at the sole discretion of the trustee. This discretionary language may help to protect assets from predators such as creditors, lawsuit and divorcing spouses. As it is likely adult children will be inheriting assets, it may make sense to provide them flexibility as it applies to their inheritance.
• Contingent beneficiaries
  • It would be prudent to identify how you would wish assets to be distributed if a beneficiary were to predecease you and your spouse. Without clarity, this can cause contention among beneficiaries.

  Charitable inclinations

• Consider philanthropic desire you may have. There may be a community organization, religious community or medical institution that you would like to leave assets to. This may especially be relevant if there are significant tax advantages to doing so.

  Understanding Probate:   What is Probate:

• Probate is the legal process of distributing the assets of deceased person’s estate. This is handled by a probate court and will incur expenses. Though regulated at a state level, below is a general overview of the probate process:
  1. An administrator is appointed. If a will is in place, this will generally be the executor. If none, the state will appoint an administrator.
  2. Through a court proceeding, the will is reviewed and proved to be valid. It is important to have an attorney assure that your documents are valid prior to death.
  3. A schedule / inventory of assets is assembled and appraised. Until the probate process is complete, most assets cannot be sold or distributed.
  4. Creditors are notified. Valid creditor claims and debts are paid through the sale of assets if necessary. Opportunity to defend against frivolous claims.
  5. Final income tax return and federal estate tax return are prepared.
  6. Petitions are made to the court to pay attorney fees, executor fees and distribute remaining assets to beneficiaries.
• It is important to note that these steps will vary by state. Owning assets in different states may further complicate matters. Consult with a qualified estate planning for information regarding your specific situation.

    Probate costs may be avoided or significantly reduced using the following strategies:

• Titling accounts appropriately
  • Some accounts have the ability to be owned jointly or transfer on death
• Utilizing life insurance
• Making lifetime gifts
• Transferring ownership to a living trust
• Properly titling account beneficiaries to spouse or trust

  Creating an estate plan can help to ensure that your assets and health are managed and cared for in the manner that you desire. They can potentially minimize the cost and time associate with probate and allow peace of mind for loved ones who may still be alive. It would be prudent to discuss these topics in greater detail and identify an estate planning attorney who can help to draft the appropriate legal documents.