March 25, 2020—Tony is joined by Wilmington Trust’s Chief Planning Officer Don DiCarlo, who shares his insights on several wealth planning opportunities that can be particularly beneficial during the current market environment. Together, they discuss strategies to utilize the high federal tax exemption before it’s set to expire in 2026, or potentially sooner; gifting depreciating assets to different trust structures; converting a traditional IRA to a Roth IRA; and tax loss harvesting.
Don DiCarlo, Senior Vice President & Chief Planning Officer and Head of the Emerald Advisory Services
Wilmington WealthWise with Tony Roth
Episode 5: Planning Opportunities During Challenging Times
Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors, Inc.
Don DiCarlo, Senior Vice President and Chief Planning Officer, Wilmington Trust
Tony Roth: Welcome to Wilmington WealthWise, the podcast dedicated to financial literacy, where we take complex ideas from the investment world and make them accessible to everyone. I’m your host, Tony Roth, chief investment officer of Wilmington Trust. Today, we’re going to discuss several planning opportunities that are particularly beneficial today, then where markets stand and given current cash rates and the low interest rate environment as well.
Joining me today is Don DiCarlo, senior vice president and chief planning officer at Wilmington Trust. Don, thanks for taking the time to join me today.
Don DiCarlo: My pleasure, Tony. Thanks very much. Always a great opportunity to see if we can help our clients make some sense out of the current environment and present to them maybe one or two ideas that can help improve their situation.
Tony Roth: Great. So, of course, we’re experiencing a lot of distress in markets as a result of the coronavirus and the impact that all of the mitigation techniques that are being pursued across the country and the world for that matter are having on the economy. And, of course, we’re seeing a lot of individuals and a lot of investors experiencing a certain degree of stress, myself included, when we look at our personal portfolios and we see the significant drawdowns that have occurred.
What’s interesting, though, is that there are a variety of planning opportunities that, if, as we expect, the markets return to their prior levels over some reasonable period of time. If these opportunities are availed of by investors, by families, what we find is that the net economic result after tax and, in some cases, before tax are actually better off, which is to say that clients, investors will have more net assets had this experience in the markets never occurred in the first place. And so, that’s the silver lining that we want to talk about today.
Before we get into these techniques on both the income tax planning side and on the generational planning side, Don, I know that there was some interesting information that hopefully most of us will be pretty happy about that broke over the weekend in terms of tax filing. Do you want to maybe just give us an update on that to start things off today?
Don DiCarlo: Yeah, of course, Tony. Thanks. Yeah. Treasury Secretary Mnuchin late last week had made the announcement that there was going to be an extension of a deadline for filing tax returns, which is certainly good news and there’s been some clarity on what that really means, that came over this weekend. Number one, for all individual taxpayers the extension to file taxes, well, the extension has been granted to file taxes until July 15th. So, both the filing and the payment and that’s a really important point, Tony, that both the filing and the payment of the taxes are extended to July 15th.
Tony Roth: So, Don, when you make the distinction between filing and payment, I think about two things. I think about the fact that we also have to file at the state level and I also think about that some people are paying estimated taxes. And that’s one case in which I think about people worrying about payment at a different time than filing. How do those two situations apply here?
Don DiCarlo: That’s right. That’s right and that’s good news, Tony, and it’s a good point. First of all, the extension of the timeline, the deadline, has been extended to include estimated tax payments for the first quarter. So, anyone who was on a payment plan that pays quarterly payments has that ability to extend their first quarter payment to July 15th as well, which is good news.
It also applies to self-employment tax. So, for many individuals the wage tax applies, and their taxes are automatically taken out. For those individuals who are self-employed or are paying estimated taxes, this benefit’s going to apply to them as well, which is you raised a very good point.
The states are quickly following suit. So, you have to pay attention. Talk to your tax advisor. But many states are starting to come in with their own indications that they’re also going to file suit and extend the filing deadline in particular. I know our state as an example, Tony, Pennsylvania, recently said that the extension to file and the extension to pay have both been extended to July 15th in Pennsylvania as well. And I know California, Maryland, and others. And we expect, frankly, that most states will follow suit and that’s being evaluated right now, so you want to pay attention.
So, it’s generally good news there. And what effect happens, the ability to extend the deadline in effect ends up being a tax-free loan from the government. You get to hold onto your money a little bit longer with no penalty, no interest, and that’s the first wave of kind of a fiscal stimuli that the government can give is allowing people to hold their money a little longer.
I do want to point out if some people are thinking or expecting a refund, you do not have to take advantage of this extension. You don’t have to take advantage of it at all. You certainly should and we would encourage you to apply and get your refund as soon as possible. The IRS offices are still opening and functioning. So, I think it’s a good thing to keep in mind.
Tony Roth: So, that’s a great point. Now, one of the things that I know is tied to the April 15th deadline or date that we’re so familiar with is that you can make a contribution to your IRA up until that time and have it count against your prior tax year’s taxes. Does that change as well here?
Don DiCarlo: We expect that it will and there’s precedent of that, even earlier indications when there’s disaster declarations similar to what happened to the tornados earlier in the year, that the ability to make IRA contributions, which is tied to the filing deadline, will also be extended. So, we fully expect that IRA contributions and self-employed SEP IRAs, things of that nature, any deadline that was tied to April 15th would be extended. So, that gives people additional months to think about planning opportunities, contributing to an IRA or SEP IRA, as an example.
Tony Roth: So, let’s get into our first planning opportunity, and it’s one that I think people think about a lot, not just in a situation today where markets have depreciated as much as they have. Although, the opportunity, like most things that we’re going to talk about today, may be particularly beneficial if in fact we have a rebound in markets as, again, we’re predicting, which is the whole idea of converting a regular IRA to a Roth IRA. Tell us about that one, please.
Don DiCarlo: Sure. And this is really a good planning strategy that can apply to a lot of people. And basically, what we’re talking about is someone who may have taken tax deductions when they contributed to what we’ll call a normal IRA or a traditional IRA. They have the opportunity at a later time to convert that IRA to a Roth. During the conversion process, what a person elects to do is to pay the tax on the IRA and contribute the proceeds into a Roth IRA.
Now, what’s a very good planning opportunity; and again there’s a sense of optimism here. We don’t want to be overly optimistic or be naïve about where the markets may go or may not go. But, if from a general standpoint, if we expect at some point in the future that asset levels will be higher than they are today, then it can make a lot of sense for someone who is otherwise considering a Roth conversion to do so now. And there’s really not a good reason to wait on that, other than the flow of the market.
But anyone who can convert an IRA to a Roth IRA, the theory would be that you could pay less tax than you otherwise would. And once the conversion’s complete, all of the appreciation, in fact all distributions from that Roth IRA going forward will be completely tax-free, not just tax deferred. So, the planning strategy is given the depression in asset values at this time, it may be worthwhile to pay less tax now on a conversion and let the future appreciation, again optimistically assuming that occurs, in order to benefit of you without any future income tax.
Tony Roth: So, Don, I’ve always heard it said that in the case of converting an IRA to a Roth IRA, if you think that you’re tax rates are going to be the same in the future as they are today, and I’m talking about ordinary income tax, right, so that it really doesn’t make any sense to convert. If I’m understanding correctly what you’re describing, the reason that it makes sense to convert now is because we are in advance right now of such a rapid period of appreciation that we hope will occur in financial assets. And so, even though you’re going to have to pay all that ordinary income tax today, because that subsequent appreciation is going to escape tax entirely it really breaks that rule of thumb that we’ve been applying for so long.
Don DiCarlo: That’s right, Tony. That would be the idea. And what we say is anybody who was already contemplating a conversion is certainly this seems to be a better time to do it than let’s say, you know, three or four months ago. And it may be a better time to do it than three or four months from now, depending on the markets.
And as you point out, the analysis for any individual whether to convert or not, notwithstanding the current market volatility, is a comparison and an estimate of where the income tax rates for that individual may be, as well as where the law may be. We can’t predict the law and sometimes it’s difficult to predict where your individual circumstances might be. But, for an individual this might be a year where income tax is going to be lower based on everything that’s happening. There could be losses that could be recognized. There could be other ways to depress income.
But the general rule of thumb, there is a breakeven point and if you feel that the assets as you’ve mentioned may have a chance of more rapidly appreciating than in an otherwise steady market, then we think it’s still a good thing to do. I’ll put one caveat out there and this is something that the law changed recently. There’s no longer any ability to recharacterize. So, under prior law, 2018 and prior to 2018, you could basically get a free do-over. If you converted to a Roth IRA and the market went against you, in other words the assets continued to drop, the government gave you the ability to kind of undo the planning and that was called a recharacterization. That safety net, that redo, is no longer available.
Tony Roth: There have been no indications that the fiscal package that’s coming would include any type of a change back to the old regime in that regard, correct?
Don DiCarlo: We’ve not seen anything yet. But I expect that that would be probably low hanging fruit to do, the ability to allow people to recharacterize. And you can think about just if someone did this a month or two ago before the market volatility, someone converted a Roth IRA, well, that’s certainly going to be in a bad position. So, I would expect that that would be addressed. I don’t know if it’ll pass, but I think it’ll be addressed.
Tony Roth: Before we get into some of the other planning techniques, I do think it’s important just from a fundamental investing and income tax standpoint that all of our listeners are aware of some of the key, what I would call, good investor hygiene that anybody should be thinking about at this stage in a crisis where we’ve seen a big market drawdown, expect to see markets come back. Whether it’s a U or a V, we don’t expect it to take many years. We expect it to be calendar quarters, maybe a year or two at the most based on what we’re thinking now with the virus passing in the next three, six, nine, or 12 months and the development of various therapeutics and vaccines, etcetera.
One is that rebalancing is just such an important step in managing a portfolio and I’m going to give a quick example. So, if we started and imagined a portfolio that was 50% stocks and 50% bonds that was worth $100 and let’s just assume the value of the bonds don’t change at all. But the stocks drop by half of their value. So, they go down by 50%. And let’s say that once you’re down by that 50%, you decide to rebalance.
So now, what you have, a portfolio that consists of 50% more shares of the stocks that you started with and now the market rebounds so that the value of those shares re-attains the level that they were at prior to the crisis. What you would find in a situation like that, as a result of the rebalancing and not even taking into account the tax value of the losses that you’ve been able to generate, you end up with more money by around 12.5% than you started out with.
And so, here’s a situation where even putting taxes aside, for having lived through this perilous moments in the world, but having exercised sound investor hygiene, which is to say just rebalancing the portfolio, once we get back to where we started we’re actually better off than had this event never happened at all purely from an economic standpoint, of course. And then on top of that, you do have the benefit of having realized significant tax losses.
Second thing I would mention is prudently putting cash to work. We have a lot of folks that have been sitting on the sideline over the last number of and they’ve accumulated cash. And here, we have an environment where both on the equity side, where we think there’s significant value for investors that have time horizons of 12 months or more, and on the municipal income side, municipal bond side where we’re seeing significant dislocations. We’re seeing municipal bonds creating values, particularly in the investment grade space that are significantly below what we believe their intrinsic values are given expected default rates.
We see significant opportunity on both the equity and the bond side. And so, putting that cash to work now in a deliberate way probably over the next 30 to 60 to 90 days makes an awful lot of sense.
Now, one of the things that we should mention, is that when tax losses are realized, it does involve changing the economic position that the client has in the portfolio. So, an investor might, for example, be invested in a particular company and they realize those tax losses could be through the rebalancing process. And if we, in fact, want to go back into the market and maintain that economic exposure, we may be prevented from taking losses.
Don, maybe just share with us some of the key ideas that people should be aware of as they engage in some of this activity from an income tax standpoint.
Don DiCarlo: Yeah. Thanks, Tony. You raised a really good point. Well, if you think about tax loss harvesting as a strategy, the economic benefit that you’re trying to achieve is to put some monetary value on a loss. And the way monetary value is given to a loss is that it can be used to offset gain, which is a strategy that you mentioned. As you begin to rebalance assets, that rebalancing could, in effect, cause you to recognize gain. Not every gain is wiped away because of market volatility. Obviously, there’s different asset classes and different stocks are affected differently.
So, the ability just to offset gain has its own economic value. So, you can intentionally recognize gain, and to the extent you do not have any capital gain to offset, you can offset up to $3,000 of ordinary income. That may not be a big deal depending on the individual circumstances, but there’s an opportunity, an economic value in other words, to recognizing that loss.
You can also use that to recognize and/or offset gains that you previously recognized. In other words, a loss you take today, as long as it’s in the same calendar year, can be used to offset gains you previously recognized. So, you can use it proactively or reactively, depending on your situation. So, there’s definitely an economic benefit.
And the tax policy behind losses comes with some limitations and I think, Tony, the primary limitation is what we call the wash-sale rule. The government’s policy, basically the tax policy, is that we will give you the monetary benefit of a loss if you—well, let’s see, how do I say this? If you economically have changed your position.
So, the wash-sale rules are put in place to make sure that someone has, in effect, changed their economic position. And the basic rule is that you cannot recognize a loss if within 30 days before or 30 days after that loss you have purchased stock. In other words, the government looks to say within that 60-day window if you’ve bought stock that you’ve recognized a loss on that you really haven’t changed your economic position.
So, the wash-sale rules are designed to make sure there’s some economic loss. And there’s a variety of planning around that to make sure that you can recognize the loss and, in effect, not lose your position in the market.
Tony Roth: Give me an example of how that would work.
Don DiCarlo: Yeah, sure. So, let’s say that you own Coca-Cola stock and as a result of the market volatility, Coca-Cola stock has dropped by 40%, creating a loss, a potential loss in your portfolio. And basically your strategy, you want to recognize that loss, but you don’t want to lose your position in the soda industry. So, you can buy Pepsi and maintain some exposure to that industry while still recognizing your loss. Pepsi and Coke being different companies would not constitute an identical or a substantially identical stock, which would wash each other.
Tony Roth: Okay. So, let’s pivot to what I think of as the big kahuna of opportunity here, which is people that have what we think of as generational planning needs. And this is really when we’re getting what you’d call, I know Don, the advanced planning arena. This is the really, I think, sophisticated stuff.
But the way it basically works is that you have an asset which you expect to appreciate significantly. And in today’s environment now, where we’ve seen all this depreciation, we think it’s going to be temporary. Now, that’s not to say that all assets are going to come back. Some will come back more than others. But, if we’re right that the coronavirus is going to have a transitory impact on the environment, the equity markets will certainly come back. Private businesses will recover, etcetera.
All that appreciation can be structured in a way so that it happens in the hands of, instead of today’s owner of the asset, in the hand of a lower generation, whether it’s children or grandchildren, etcetera. Can you give us an example of how that might be structured and how that works?
Don DiCarlo: Yeah. Sure, Tony. And what you’re talking about is in fact advanced tax planning and very particularly we’re talking not about income tax planning, but we’re talking about transfer tax planning and that’s mitigating
the state and generation skipping transfer tax. So, as we talk about this strategy, we do want to be sensitive to the fact that during times of market volatility, individuals who might have otherwise thought of transferring wealth or have significant wealth to the extent that they want to begin to mitigate estate taxes and are thinking about implementing gift strategies, we understand completely that in times like this you may feel less secure about doing that. You might want to be more conservative and hold onto the assets a little longer. In other words, the motivation to gift in order to get a tax benefit may not be as strong during times of anxiety and stress. And we recognize that, and we want to be sensitive to that.
So, an example where someone can take advantage of—and again, it’s a cautiously optimistic view that assets at this point we’ll say are artificially depressed in value. I don’t want to, we don’t want to be naïve where we’re sitting here in the middle of a crisis, not the end of it. But basically, the strategy would be if you were otherwise planning to make gifts and those gifts were being made in order to limit or mitigate future estate tax, then it is a very good strategy to give an asset at a low value so that post-gift appreciation can escape taxation.
And a simple example would be if I had a stock worth $100 and my estate plan called for me to gift that stock, if that stock is now $50, I can make a gift of that stock at $50 and if it appreciates back to $100, I’ve only used $50 of my exemption, not $100. The $50 of post-gift appreciation escapes estate taxation or future taxation.
Tony Roth: So that sounds great. I know that for a lot of folks the exemption amounts are pretty attractive because they’ve been very aggressively expanded over the last number of years. But what are the levels now?
Don DiCarlo: Yeah. And it’s a good way to think about it. The current level, as we speak today, again, sitting here in March 2020. The amount of assets that a person can pass in life or death is about $11.5 million per person. But, it’s very important to think about it this way, that the state tax exemption is $5 million, and for a period of time we have a bonus exemption amount of $5 million, all of which is adjusted for inflation.
That bonus amount of exemption, that additional $5 million plus inflation, will expire or sunset on December 31st of 2025. So, there’s a limited window to take advantage of the we’ll call this bonus exemption, which came under the tax job and cut tax law, CCGA. So, at $11.5 million, that’s a lot of money. For individuals who are concerned about that and still may be exposed to estate tax, the ability to use that exemption at lower values, if you’re in that class of situation, it’s going to be a very attractive opportunity to do that. Not only to take advantage of an exemption, which on its face has an expiration date, but also to use assets to fund that exemption at a hopefully temporarily depressed value.
Tony Roth: Now, without getting into the, too much of the technicals, because that’s really what the lawyers come in to do, all the different, the GRATs and the defective trusts, etcetera, I do know that there is a—you can’t just sort of give away all the appreciation. How does it work, Don? There’s a, I know there’s an interest rate. How does that work? And is this a good time to do it? And where do we stand in that regard?
Don DiCarlo: Yeah. Actually, I would say our number one recommendation, because it has the lowest potential economic downside and, in fact, is the economic result in some ways is immaterial if you implement this strategy. And, in fact, to the extent some refer to this strategy as a heads you win, tails you really can’t lose. And what we’re talking about is a GRAT and that’s an acronym, G-R-A-T, a grantor retained annuity trust. And what it—in simple terms here—what a GRAT allows you to do is to transfer assets to a trust and retain the right to receive those assets back over a period of time. That period of time is set forth in the trust instrument.
If, during the period of time that the assets are being paid back to you in the trust, if the appreciation in those assets can exceed the applicable federal rate, which you pointed out at the beginning of this podcast is very low, and for April it’ll be 1.2%.
Tony Roth: Is that an all-time low?
Don DiCarlo: We’re at the all-time low; 1.2 is or very close to the all-time low for applicable federal rates. So, at 1.2%, a GRAT strategy will have gift tax success. It will, in other words, it’ll provide what we’ll call gift tax alpha if the assets during the period they’re held in the trust appreciate only greater than 1.2%. And here’s what’s very attractive about this strategy and why we think it makes a lot of sense and, frankly, is our number one recommendation from an advanced tax planning perspective.
That in the event that you give away those assets, you’re able to take them back. So, for people that are concerned about insecurity, even the very wealthy people, this is a strategy where you can get assets back. You’re not actually gifting the assets. All you’re gifting is a portion of the appreciation; in fact any appreciation over 1.2%. So, many people feel much more comfortable giving away appreciation rather than giving the asset.
Tony Roth: All right. And this is all, this is what you’re referring to when you say heads we win, tails we don’t lose; we get a do-over in fact if we want to.
Don DiCarlo: Correct.
Tony Roth: And, because, if we have a longer time horizon, we know that from an economic standpoint the income is worth more than the principal, and in an environment where the rate is only 1%, that could be a larger amount of value that you’re actually giving away.
Don DiCarlo: Dramatically … You’re exactly right. It’s a tremendous amount of value.
Tony Roth: So, you’re talking about success and failure and the ability to essentially unwind these trades or redo them, etcetera. Does that mean that individuals that have these on the books today where it hasn’t worked because the markets have gone in the wrong direction, they should be thinking about that kind of stuff?
Don DiCarlo: Yeah, yeah. Let me respond to that in two ways. One, let’s assume that you go ahead in the next couple weeks; a client establishes a grantor retained annuity trust. And we were overly optimistic in the market to continue to be depressed and, in other words, we don’t end up getting the appreciation. We don’t even get to 1.2%. Here’s why there’s not really downside.
Well, that’s not a good result. The result is no different. In other words, you would’ve had that same result regardless if you had done the GRAT strategy. Your economic position has not changed. So, there’s no additional downside for doing a GRAT. There’s only potential upside. So, it’s a very favorable strategy.
For those individuals, and you make a good point, Tony, who may have—let’s say there’s an individual who a few months ago set up a grantor retained annuity trust and the assets have fallen so much in value that there’s really no conceivable way in a short amount of time that the assets would recover to the point to make, what we’ll say, the GRAT successful. There are plenty of planning strategies and flexibilities to basically undo that GRAT to declare it a loss; maybe exchange cash for assets and start over.
And so, there’s lots of strategies on how to undo GRATs, using cash swapping in the assets and there’s also a strategy referred to as rolling GRATs, where you do them very short term so that in any one term you may not win, but over a period of time you can have this strategy work when it needs to work. So, it’s a very valuable strategy. And again, given a time period where many people are concerned, and insecure, and even very wealthy people may be nervous about making gifts, I really believe the GRAT strategy is, really what it can be known as, is a no lose scenario.
Tony Roth: So, this all sounds great. It’s very complicated. I can already hear the clocks ticking at the lawyers’ desks. So, it’s clearly a boon for them. How do we help with this? You have a team of folks. What do they do and should the listeners that think there’s an opportunity here reengage with their attorney immediately? Do they talk to us? How does – What do you recommend as a process here? Clients can evaluate their opportunities without necessarily having to rush to the lawyer and get that side of things going again in an environment where money’s getting a little tighter than it was a month or so ago.
Don DiCarlo: Well, we’re certainly, absolutely, encouraging our clients to talk with us about these strategies. The one thing that we can do as part of our overall wealth management platform; our clients through their wealth advisor or their private banker or the relationship manager at Wilmington Trust can avail themselves to some planning analysis. And that planning analysis can run projections and do modeling around these strategies so people can see the potential benefit and can understand in more detail the potential downside and, in other words, Tony, get themselves very well-prepared for the decision so that when we begin to talk to their attorney and the accountants, which they should do and will need to do, that they’ll be very well-educated about this process.
Tony Roth: Business owners in their own right, as a category, have lots of various considerations that are different than those of us that don’t own our own businesses. etcetera. What about the application of these different techniques to the business owner as opposed to people that have lots of public market securities? Do they still apply, or?
Don DiCarlo: Yeah, great point, Tony. And the answer is they do apply. And, of course, we’ve been talking and giving examples about the public markets. It’s easy to identify when the values are put on the screen every minute on CNBC and others where you can see the value falling.
In the area of privately held assets, that value is not something that’s so readily available. Trying to take advantage of this unfortunate time period in our country, the value of private market wealth will also be depressed. And the fundamental theory does not change; that any individual who’s otherwise worried or considering planning for estate taxes, even after the downturn in values, may find themselves exposed to federal or state estate taxes which they were planning to mitigate, or were trying to find a tax efficient way to begin a secession plan to transfer assets to the next generation.
The same fundamental premise applies and that is if the assets or at a portion of time—or at a period of time rather in a value that may be artificially depressed because of the environment and the crisis, it would be a very good time to consider these strategies using privately held assets. The strategy of a GRAT, the idea of making gifts to trusts, especially grantor trusts, that all applies specifically to privately held business interests in the same. And, in fact, for privately held business owners who are so inclined, there are additional tools and techniques around valuing those assets when coupled with artificially depressed values and then coupled again with low interest rates can make for a very, very efficient transfer of assets and a very, very efficient secession plan, especially when family members may be the ultimate recipients.
Tony Roth: If you put it all together, it’s really a lot to digest. It almost strikes me that this is a natural time, despite the distraction that the coronavirus represents, to check in on the overall plan to make sure that the plan continues to be applicable and that some of the, what I would describe as, less core elements of the plan but really critical elements, whether it be health care proxies or those kinds of things are in place. What’s your reaction to that?
Don DiCarlo: Yeah. I think that’s a great point and we’re already seeing that already. Times like this make people do, let’s say, higher level thinking, more strategic thinking about their lives and their personal circumstances, and may be an opportunity to revisit—and I know this is on a lot of folks’ minds—to revisit their fundamental estate plan. Not just the tax opportunities, whether they be income, investment, or transfer tax, but to give consideration to the fundamental estate planning documents.
Obviously, you know, we’re all faced with sickness and health and death and those issues necessarily make people think about their wills, their trusts, their financial powers of attorney, their medical powers of attorney, advanced medical directives. So, it is a really good time, and I agree with you 100% that maybe after some of the initial shock of this wears off, and we’re stabilized, and we have time, that it is a time to rethink the planning in general.
And I would make a note. Obviously, this is a very understandable situation where people give some renewed thought to medical documents and health care powers of attorney. And for anybody who’s worrying about it that I can’t get to my attorney, I can’t get these documents signed, most of the law firms are finding ways to operate remotely and the states are actually responding to allow relief from some signing requirements.
Obviously, executing documents may require witnesses or acknowledgement from a notary. What you want to pay attention to is the states are allowing virtual notarization, virtual witnesses. And in many states, many estate documents can be valid just by being signed and dated at the end and the state governments are recognizing that. So, we don’t want anybody to feel that they might be behind, they don’t have the health care document they need, they may need someone to be appointed as a power of attorney. It’s very likely that you can continue to get those documents done, even in the middle of this crisis, and that’s very important, not just for wealthy clients, but for all clients.
Tony Roth: Well, I know that’s not the most upbeat note to end our conversation on. But I am going to summarize in a more upbeat way, I think, the key takeaways for today, Don, which is, number one, rebalance, rebalance, rebalance. The economic case for rebalancing in an environment like this, again, if we end up where we started and we’ve rebalanced, we will end up with, pretax, more money in our portfolio than had this never happened in the first place. So, the need to rebalance is just so critical.
Number two, make sure that in addition to rebalancing that you’re really engaging with your tax advisors around the tax loss implications of the rebalancing. And even if you’re not rebalancing the entire portfolio for any reason that you’re really evaluating the tax loss opportunity here, because it’s an historic opportunity I think to bring portfolios in with our best thinking, as well as to generate tax losses that could be carried forward if need be for a long time.
And then, lastly, make sure that if you’re somebody that has, from a family standpoint, generational planning needs. that you’re really taking advantage of what could be an historic opportunity if markets recover to transfer the appreciation on your assets that’s about to occur free of any gift state or even in some cases GST tax to the following generations.
So, those are really I think exciting opportunities and volatility creates opportunities, and it’s not just hedge funds that can do great when there’s volatility in markets. It’s also us as more typical individuals that invest every day, day in and day out.
So, Don, I want to thank you for taking your time today and sharing your terrific insights. I want to thank our listeners for being here today and remind everybody that we would love to take any suggestions for future episodes of Wilmington WealthWise at firstname.lastname@example.org. And finally, I encourage everyone to go to wilmingtontrust.com for our continued roundup, blog posts, media coverage, etcetera, all related to coronavirus. Thank you all for listening today.
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For more on planning strategies during volatile times read Top Six Positive Planning Strategies in a Challenging Environment by Alvina Lo, Wilmington Trust’s Chief Wealth Strategist.