Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

Silver Linings

By Bill Beynon | April 09, 2020

I have always viewed myself as a positive person.  In my life, I have chosen to see opportunities in times of struggle.  

Years ago, I participated in an executive coaching program.  In one of our sessions we focused on our understanding of "strategic byproducts".  The exercise was to think of something in our business that didn’t go as planned.  Secondly, we were tasked to identify the positive byproducts that resulted in our failure.  

I found the exercise to be a mind shifting event.  It trained me to always find the lessons and unexpected benefits of things that didn’t go as planned.  Failures with benefits.  This new thought process has shaped my way of thinking as we have grown our company.  


BuddyAs we adapt to a new way of life as a result of the Covid-19 virus, it can be easy to think of all the negative aspects of being confined to our homes. Certainly, there are challenges. Working from home for some can be stressful and isolating. Challenges can arise from working in close quarters with our children, spouses and pets. In our family, a new puppy came at a perfect time.  Some would see an overly energetic 12-week-old puppy stealing the laundry detergent. However, a positive strategic thinker would consider it the start of training the dog to do laundry.  

All joking aside, our team has adapted well to remote operations. We have been working remotely for over 3 weeks. In the beginning, we certainly had stress around the uncertainty of connectivity. Not only connectivity with our network and systems, but also connectivity to our clients and team members. Change is never easy, but as a group, we have embraced the strategic byproducts that have resulted from this unexpected change.  

Our productivity and collaboration are better than ever. Forced change can cause focus. We have adapted to hosting meetings and seminars virtually. Our meeting scheduling has been extremely efficient. Normally the scheduling could take weeks with the coordination of calendars and travel. This week however, our quarterly reviews were scheduled in less than a day.

The Silver Linings Today

CARES Act  

The CARES Act was designed to provide stimulus to our economy, helping individuals by providing checks to US Taxpayers.  It also created a Small Business Administration loan program in order to help businesses of 500 employees or less maintain their payroll and assist with other expenses.  

Built into the CARES Act was a provision that will have a very positive economic impact for many of our clients.  If you are over the age of 70 1/2 and are subject to a required minimum distribution (RMD) from your IRA, you can waive your RMD for this calendar year.  By waiving your RMD, you will save the income tax on the distribution.  For individuals that are subject to state income tax, it is an even larger tax savings.  

If you have already taken your RMD, you have 60 days from the date of your distribution to replace it and avoid the tax.  We recommend contacting your CPA or tax advisor to discuss the waiver and determine the impact on your taxes.

Rates and Values

With low interest rates and reduced asset values, we believe it is a perfect time to consider a grantor retained annuity trust (GRAT).  GRATs utilize a government stated interest rate called the 7520 rate.  It is published monthly by the IRS. The current 7520 rate as of April 2020 is historically low at 1.2%. *

GRATs are statutory estate planning irrevocable trusts that enable families to transfer assets to the next generation with little to no gift taxes.

GRATs usually have a term of 3-5 years.  The annuity payment from the GRAT, made to the grantor each year, is based on the value of the assets transferred into the trust and the 7520 rate. The lower the 7520 rate, the better.  

GRATs - How It Works

The grantor makes a gift of cash or securities.  Over the term of the GRAT, the grantor must be paid back payments equal to the initial asset transfer plus the 7520 interest rate. Any value appreciation over the term of the GRAT remains in the trust and transfers for the benefit of the beneficiary based on the terms of trust. Gifts of private company S Corp stock may result in a larger tax free transfer.

Example (Assumes 3 year term, 10% growth, 7520 rate of 1.2%)

  1. Transfer $1,000,000 of securities to the GRAT
  2. Over the next 3 years, the value of the security appreciates by 10% per year
  3. The annuity payments, in the form of a transfer back of securities, equals $341,361 annually for 3 years - these payments are made to the Grantor
  4. After the GRAT’s original value and interest factor is paid back, via the annual payments, the net transfer to the trust equals $201,075 estate and gift tax free

Simply put, transferring securities in a low interest rate environment (that have declined in value) gives us the opportunity to move the future growth out of taxable estates. 

 

Insurance Without an Exam

As we self-quarantine and practice social distancing, many will put off finalizing their life insurance.  Typically, when purchasing life insurance a medical exam is required.  Insurance companies are businesses.  Like many industries, the virus pandemic has caused a major disruption in new business.  One of the ways the industry is combating this is offering life insurance policies without the requirement of a medical exam.  There are limits to age and death benefit value, but for many this is a wonderful opportunity.  Now is a great time to acquire insurance if it is needed in your plan.  

My Silver Lining

As a part of my normal schedule advising families across the country, I travel most weeks of the year.  It became my routine.  However, with the virus, I have been grounded for the past month. Thus, my silver lining has been the ability to spend more time at home in Naples with my wife, daughter, and our puppy too.  

I hope that you and your families are enjoying time together.  My wish is for each of you to stay healthy.  The pandemic will ultimately end, and we hope to be back to normal shortly.  While we wait, look for the silver linings in your life, you may just be surprised at what you find.  

 


*Source: IRS.Gov, https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates

 
CWA Asset Management Group, LLC is an SEC-registered investment adviser, doing business as Capital Wealth Advisors and as blueharbor wealth advisors.  Fundamental Global Investors, LLC is a SEC-registered investment adviser that is affiliated with CWA Asset Management Group, LLC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed. Nothing herein should be interpreted as investment advice. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Specific companies or securities described in this report are meant to be illustrative of investment style. Such case studies are not meant to be, and may not be, representative of any portfolio or holdings of CWA Asset Management Group, LLC, or Fundamental Global Investors, LLC.

Please note that past performance is not indicative of future results.
 
This material is solely for informational purposes and is intended only for the named recipient. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.
William Beynon
President & CEO

Author of Wisdom in Wealth.

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