401(k) Protection Programs

Dear Garden State Trust Company:

When I retire in about a year, I’m expecting a six-figure distribution from my employer’s 401(k) plan.  The success of my retirement turns on what I do with this money, and I’m more than a little unsettled by the prospect.  What should I do to keep my all my options open?


Dear Looking: 

I have two words for you: IRA Rollover.  With this arrangement, you can continue the tax deferral that your 401(k) account has enjoyed so far.  Be sure that you use a “trustee-to-trustee” transfer of the funds to avoid the 20% tax withholding that otherwise would apply to your distribution.

Will your distribution include shares of stock in your employer?  If so, you should consider not rolling those shares over, but accept them for your taxable portfolio.  Income taxes on “net unrealized appreciation” in those securities may be deferred in this manner.  Your accountant can give you more details.

You’ll also need an investment plan for your retirement money.  When you undertake this, consider your taxable and tax-deferred funds as part of one large portfolio.  The plan that you or your investment advisors come up with needs to take all of your resources into account, as well as your retirement income needs.  You are wise to be looking into these questions a year before you retire.  We can help you with all of these questions if you wish.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

© 2017 M.A. Co.  All rights reserved.


Retirement Tax Trap

Dear Garden State Trust Company: 

My wife and I have been spending our winters in our Florida home for several years.  What steps do I have to take to change my residency to Florida, so I can stop paying income taxes in my home state?  —FLYING THE COOP

Dear Flying: 

This is a complicated problem, with some angles that you may have overlooked.

My friend Jerry and his wife, Liz, successfully became Florida residents.  About five years later, they decided to sell their lifelong home here.  They had paid $30,000 for it 35 years ago and were told that it now was worth $400,000.  They were excited by the prospective windfall.  Then their accountant gave them the bad news.

Because Jerry and Liz were now Florida residents, their northern home was no longer their principal residence.  Accordingly, the sale of that home would not be eligible for the exclusion from taxes on the capital gain for the sale of a principal residence (up to $500,000 for married couples).  The entire $370,000 profit would be taxed, and the bill might easily come to $100,000.

They immediately took the home off the market.

You should see a lawyer before taking the step of formally changing your residency.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

(March 2017)

© 2017 M.A. Co.  All rights reserved.

DJIA 20000

Dear Garden State Trust Company: 

How should the fact that the Dow Jones Industrial Average crossed the 20000 barrier affect my investment strategy? —Numbers Maven

Dear Numbers: 

Passing a stock index milestone is not a signal to buy or sell.  However, it does focus attention on the market, and it may cause some investors to evaluate their portfolio.  There can be a strong temptation to “take some money off the table.”

How close are you to retirement?  How much risk are you willing to assume?  Those answers are better clues to making an investment decision that allows you to sleep well at night.

This could be a time for portfolio rebalancing, if you haven’t made this assessment recently.  If your asset allocation target was 60% stocks, 40% bonds, you may find that the stock portion has now grown to 70%.  That means your portfolio is now riskier than it used to be.  If that makes you uncomfortable, you need to sell some stocks and invest in bonds, to keep your allocation steady.

On the other hand, bonds have risks of their own, as interest rates are likely to rise in the coming years, to return to more normal levels.  That will push down the value of previously issued bonds.  What’s more, if you share in the optimism about the economy this might not be the right time to reduce your exposure to growth.

If you might benefit from a second opinion on your investment strategies or the composition of your portfolio, we would be pleased to meet with you to discuss your situation.  Investment management throughout market cycles is a core element of our daily business. We will be pleased to share our expertise with you.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

(February 2017)

© 2017 M.A. Co.  All rights reserved.

Companion animal planning

Dear Garden State Trust Company: 

Can I provide something for my pets in my will?  —THOUGHTFUL ANIMAL LOVER

Dear Thoughtful:

More and more states are changing their laws to permit pet owners to provide lifetime financial support for their companion animals.  About 40 states provide for simple “statutory pet trusts” as a method for implementing such wishes.

Alternatively, you may want to explore having more specific instructions identifying the caregiver for your pets, the standard of living to be provided, the schedule of vet visits and the plan for financial distributions.

These are matters that you should explore with the attorney who handles your estate planning.  Don’t feel embarrassed to bring up the subject of planning for your pets.  As the Leona Helmsley case from some years ago shows, estate planning for pets is going mainstream.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

Portability extensions

Dear Garden State Trust Company:

My spouse died a year ago, leaving me an estate worth several million dollars. Because the estate was less than the federal exemption amount, no federal estate tax was filed. Is that a problem?—Having second thoughts

Dear Having:

It’s complicated.

Not filing the federal estate tax return for an estate less than the exemption amount ($5.45 million in 2016) is perfectly legal.  If you are confident that at your death you will also fall below the federal taxation threshold, it would be the right thing to do.

But married couples lose something if an estate tax return is not filed for the first spouse to die. What is lost is the right to elect the portability of the unused estate tax exemption.  With the election, the surviving spouse can have a federal estate tax exemption of over $10 million. Without the election the exemption will be $5 million (plus inflation adjustments in the year of death).

Recently there has been a surge in private letter ruling requests to the IRS by persons in your situation, who are asking for an extension of time to file the estate tax return simply to make the portability election.  The IRS has granted the vast majority of such requests.

If you feel that your estate might benefit from an enlarged exemption, consult with your estate planning advisors on whether to pursue such an extension for yourself.

Do you have a question concerning wealth management or trusts?  Send your inquiry to contact@gstrustco.com.

© 2016 M.A. Co.  All rights reserved.

Special needs trusts

Dear Garden State Trust Company:

I have a child with autism, and I’m thinking about the child’s financial future. I’ve heard about special needs trusts, which can provide for financial support without jeopardizing public benefits.  What is the difference between a first-party special needs trust and a third-party special needs trust?—Caring Parent

Dear Caring:

A “first-party” trust is established with the assets of the special needs person.  For example, if someone won substantial damages in a court case for being disabled in an accident, and those funds were placed in a special needs trust for that person, that is a first-party trust.  Assets in a first-party trust may be subject to claims from the government for repayment of, for example, medical expenses incurred by the state for the special needs person.

A “third-party” special needs trust is funded with the assets of someone other than the special needs person.  For example, you might set up such a trust for your autistic child.  Repayment provisions generally are not required for third-party trusts.

Do you have a question concerning wealth management or trusts?  Send your inquiry to  contact@gstrustco.com.

(July 2016)

© 2016 M.A. Co.  All rights reserved.


Low interest rates

Dear Garden State Trust Company:

I am so tired of these low interest rates.  Can we expect an uptick sometime soon?  Earlier this year there was talk of a June increase, as I recall.—Cautious Saver

Dear Cautious:

I am afraid that you may have to get used to disappointment. Your memory is correct. A June interest rate hike was predicted by many early in the year, but new developments have made that very unlikely.

Specifically, there was a very poor jobs report for May. The consensus forecast was for 160,000 new jobs, and the reality missed that by a mile, as only 38,000 jobs were added, the worst report since September 2010. Unpacking the data, one finds even more ominous information:

  • The labor force participation rate bottomed at a 35-year low last October. The low participation rate explains why so many Americans don’t believe that the economy truly has recovered from the last recession. Improvement in the participation rate since October was almost entirely erased with the May jobs report, as 664,000 people dropped out. There are now over 102 million Americans either unemployed or not looking for work.
  • According to the household survey, during April and May 312,000 full-time jobs were lost, offset partially by the creation of 118,000 part-time jobs. The reasons for the increased reliance on part-timers are unclear.

These signs suggest that the economy is not strong enough for an interest rate hike soon. Perhaps the May report was an anomaly and will be offset by much better news in June.  If so, we may hope for higher interest rates in the fall.

Do you have a question concerning wealth management or trusts?  Send your inquiry to  contact@gstrustco.com

(June 2016)

© 2016 M.A. Co.  All rights reserved.