The summary below has been created by a professional transcription vendor upon review of the recorded presentation. Please excuse any typos as well as portions noted to be inaudible.

Speaker 1 (00:01:32):

Thank you for joining us this afternoon. It is the top of the hour at four o’clock. So, we are going to get started. Thank you everyone for joining us today. This is our September virtual town hall. The topic of today’s conversation is 2020 countdown. What you need to know before year end. My name is Jennifer Faherty. I’m the head of client experience here at Modera wealth management. And joining me today are Mindy Cleveland, who is a senior financial advisor here at Modera. We have Adam Leone who is a principal and wealth manager at the firm, and we have Robert Sinsheimer, who is a wealth manager at Modera to thank you three for joining us. Um, just a few housekeeping items before we begin. So today’s call the format is really a Q and A, thank you for all of those who submitted questions beforehand. We’ll be sure to address them during the call, but we also want to make this interactive.

Speaker 1 (00:02:29):

So you’ll notice that you have a Q and a box on your screen. If you have a question that you’d like us to address live, please type that in, in the Q and a box for the panelists, and we’ll make sure we address that them in the second half of the call. Also, we are going to be recording this call. So if for any reason you experienced technical technological difficulties, or if you have to drop off for whatever reason, we will be making a recording available to you later on. But of course we do hope that you can stay for the entire call.  So with that ,let’s speak in. Um, so, uh, as I mentioned, the topic of today’s call is 2020, what you need to know before the end of the year. And really, I think we’ll all agree. 2020 cannot end soon enough.

Speaker 1 (00:03:19):

It’s been a very challenging year for all of us. Um, in many respects, we are in a different place than we were in, say March when the pandemic first hit. And of course we saw in terms of the markets we saw the historic market sell off. And since then we have rebounded, um, but a lot of uncertainty still in the air, not only with the pandemic, but there’s a lot of social unrest in the country, as well as the world. And we of course have a national collection coming up in November. So a lot of, uh, challenges before us, a lot of uncertainty and hopefully a lot of planning opportunities, which is why we’re going to talk about today. So let’s start with our first question. I’m going to direct that to Mindy, which is really a question about, I think it’s kind of an elephant in the room. Um, given all this uncertainty that I mentioned with the pandemic election, et cetera, what can we expect to see in the markets? And, um, you know, just the next few months, what do you, what do you see?

Speaker 2 (00:04:25):

Yeah. And the market outlook is certainly a question that many of my clients are bringing up. Um, there’s a lot of headline risk right now, um, with the election with COVID. So before I talk about the outlook that we have saved for the next six months or so, I’m just going to give a brief overview of what we’ve done proactively in these portfolios and, um, you know, really to set the stage for what you could expect us to do going forward, what we’ve always done, really. And if you look back at March, April, may, many of you may see that we traded quite a bit during that time. So essentially we did three things. First, we wanted to maintain high credit quality in the bonds that we hold to increase stability. We moved towards short term government treasury bonds, and what this does, it provides good liquidity in the bond portion of your portfolio.

Speaker 2 (00:05:19):

We want bonds. We want to make sure bonds do what they’re supposed to do. Protect against downside risk. Number two, we purchased mutual funds that that purchase a dividend growth stocks. Blue chips have been hit hard, but there’s a lot of companies out there with good balance sheets who have high quality growth in their dividends. It’s like Coca-Cola Walmart Target’s of the world, um, and valuations or the pricing of those funds looked compelling to our investment committee. So we added that to the portfolio, really with the hope that you can earn dividends and income, get paid while, wait until the market recovers. And then third based on the environment we’re in now, uh, recovery expectations, we did tilt the portfolio more toward us, large cap stocks away from international some and a little bit away from small cap as well. Again, we want to focus on stability.

Speaker 2 (00:06:16):

We want to continue to monitor the valuations of the asset classes we have now, and we’re invested in and we want to participate in the recovery as well. So all of these changes that I just mentioned are within the parameters parameters of our investment philosophy, this is the structural changes that, um, that change our philosophy overall. So another thing that we did, we always do you’ll you probably hear us talk about this a lot is rebalancing, and I think we’ll continue to do this over the next six months or even a year more. Um, we bought, we’ve bought into asset classes that are on sale or have good valuations appealing valuations. And then we’ve sold out of asset classes that have grown or become overvalued. Um, this is the concept of buying low selling high rebalancing, and we’ll continue to do this for the rest of the year and beyond.

Speaker 2 (00:07:07):

So when we think about the future, what our outlook is, you know, keep in mind the stock market tends to be forward-looking. If you remember, the volatility came at the end of February before the virus even arrived in the U S or that we knew of arrive in the U S but the uncertainty and the looming economic impact of that created the volatility of the market that we saw. And then we saw the market start recovering even before the economy recovered. And we’re seeing that now as well. Um, so like that said where the market goes will certainly be affected by all the headline risks that’s out there. Um, the virus potential health solutions, the vaccine, um, and the election. And I know we have a lot of clients asking about the election. Um, traditionally, traditionally, when you look at election years, um, we actually see a positive response in the market and that’s regardless of who comes into office, um, which party it is, it doesn’t matter.

Speaker 2 (00:08:05):

Um, we see that the market does tend to react positively. Um, I know this year tends to be very emotional for many people, um, and it feels like the market might be different and maybe it will be, we don’t know, we don’t have a crystal ball, but when you think back to 2016 and we’re listening to the election results futures were down 800 points. And then we woke up in the morning markets opened and they went up and they went up for the rest of the markets, went up for the rest of 2016. So again, we don’t have a crystal ball, we stick with diversification, we build this portfolio to be all weather, um, and we’ll continue to do that. So I think as we hear more positive news coming out, um, as headlines become more hopeful, um, if it looks like we’re starting to approach a recovery, which I think we’ll see that at some point in the near future, then we’ll see the markets recover

Speaker 1 (00:08:56):

And, um, and we’ll be in a better place overall. Alright, great. So, so given, you know, what we’ve done in the past, as well as kind of the outlook perspective that you had spoken about, can someone speak to what some of the planning opportunities are with regard to the portfolios?

Speaker 3 (00:09:14):

Yeah. Um, you know, planning opportunities, you know, let’s continue with the election for a moment that that certainly is topical. And we haven’t got any question a lot from, you know, should we do something in advance of the election? Um, and as ironically, we get similar question on both sides of the election results. So there’s a people concern on either side, should they make a significant change, their investment strategy, or even, you know, go to cash, raise a significant amount of cash. Um, and our thinking there is, you know, when you’re looking past the election, it’s really hard to making a significant change your longterm strategy to be right twice. Um, it is a little bit easier right now to say we’ve been through a very challenging market cycle this year in a very compressed timeframe. I’m pretty much back to where we were. I’m gonna set a lot of cash aside.

Speaker 3 (00:10:04):

Now, the challenging part, which I think is most difficult is looking forward saying at what point in the future, would somebody be comfortable? Re-investing if we agree that, you know, being invested is necessary for longer term goals, when is it going to feel better to reinvest and chances are it’s going to feel better when the overall environment is less uncertain, less, less, scary, less ominous. It’s also likely that’s going to be when the market’s a little bit higher markets, don’t like uncertainty. So when things are calm, markets tend to do better. So we don’t advocate for making a significant change to an investment strategy or view that as an opportunity in advance of an event that might happen. Uh, we have been, um, talking with clients that where they have known expenses or know needs, whether that’s might be something as unusual coming in the first half of next year, we’re even in the second half of next year, clients, if there’s routine withdrawals from their investment portfolio, uh, we do maintain kind of cash reserves for those results, um, inside the portfolios.

Speaker 3 (00:11:11):

And we also talk to clients about maintaining cash reserves outside of portfolios. But given that we expect a somewhat uncertain and volatile fourth quarter, maybe we’ll it’s, let’s hold a little more cash for those known expenses call it pre-fund those expenses. And I think it’s a very, it’s a very positive, uh, response or an opportunity. Maybe you give up a little bit upside, but maybe you also sleep better knowing that the money I know I’m going to need is not subject to market risk. So that’s something we’ve been actively doing. Um, our opportunity, which isn’t, you know, it’s a directly, um, uh, around year end is a loss harvesting is if markets a little crazy, which

Speaker 4 (00:11:54):

They do with some routine frequency, that is an opportunity to look at the portfolio and say more tactically, are there anything, is there anything I want to sell or buy or exchange, you know, oftentimes that involves a capital loss harvesting, which is selling an investment, which is depreciated in value, um, called harvest that loss and use that either offset other gains or possibly carry carry it forward for future years, maybe there’s a sale of a business in the future. Um, we, we do that all the time. We did a lot of that in the first quarter. Uh, we never could have anticipated the market coming back as quickly as it did. Um, but in some cases it’s seen as a real opportunities, uh, to, uh, manage your bracket. So it’s not a free lunch, it’s not something we do blindly. Uh, when you do harvest losses, you’re actually lowering your cost basis for future gains. Uh, so it’s not automatically a good thing, but in many cases, uh, it’s, it is a good thing in moderation. That’s something we will be looking at in the fourth quarter.

Speaker 1 (00:12:51):

Okay, great. And, you know, speaking of tax laws, harnessing, you know, taxes are certainly the looming concern from for many of us on the call today. Um, so I’m going to direct this to Robert, you know, um, for those of you don’t know, Robert, Robert, as I mentioned, is a wealth manager based out of our Atlanta office, um, prior to joining Modera, Robert also was a partner at Deloitte, um, and he’s also a CPA, so great person to ask about, uh, taxes and, you know, Robert given that, um, there could be a change in administration or, or not. What can we expect with regard to 2021 tax legislation?

Speaker 4 (00:13:35):

Thank you, Jennifer. Um, tax reform, our tax legislation is this is a difficult thing to predict. Um, the stars have to be in alignment, so to speak for there to be tax law changes. Um, so what do we know? The, the Trump tax cuts that took effect January one of 2018, um, sunset, January one of 2026. So nothing changes, no new tax laws, you know, tax rates are going to go up. Um, so, you know, going back to 2017, you had a Republican Congress, you had a, uh, Republican presidency. So it takes there to be a stars alignment, as I said earlier, but, you know, if they ha if the Senate does not go Democrat, I do think the prospects for, uh, uh, significant legislation are greatly reduced. So let’s just assume there is a blue way. You know, when I, when and assuming the house stays Democrat, you know, the question then becomes, will it become a high priority in the next Congress?

Speaker 4 (00:14:39):

So here we are in the September, 2020, we have a pandemic, will it, will it go away? Probably not. We’ll still be dealing with a pandemic, getting the vaccine out. There’ll be basically, uh, the help that, uh, you have massive deficits. You have state governments that are, that are suffering and they need, uh, they need federal funds or have asked for federal funds. And then you have, uh, they have social unrest. And so the question is what would the new Congress, you know, elevate taxes all the way up to the top of the list for something that, you know, that needs to be enacted. So, you know, I would say if there is legislation, uh, it probably will be down towards the end of 2000, if at all, at the end of 2021, I find it very, um, uh, low odds that it would be retroactive to January one and 2021, if, if all of that, you know, falls into place.

Speaker 4 (00:15:37):

So, you know, that’s kind of the landscape, um, you know, the landscape has said there’s massive deficits at the state level. Uh, you, you also see States enacting, uh, taxes on the super wealthy New Jersey is one state and has a 2% millionaire stacks say the California state in New York. Uh, they have been basically pushing back on increasing taxes over the last, uh, few years. But, you know, I think, uh, given this pandemic, you see a lot of folks in need. You see, uh, uh, state governments having to, um, you know, to basically break the bank to keep social services going. And so I think there’s going to be an environment if they’re with a new Congress that will force the question at some point as to, you know, taxing and taxing folks and, and easy place to tax folks would be on the rich. And that’s the question who are the rich, uh, the Biden policy proposals are just that proposals policies and Biden has basically said anybody making under $400,000 a year would not have any increase in taxes.

Speaker 4 (00:16:43):

So that’s the buy in policy proposal. If you’re under 400,000, you know, he’s come out clearly that he would not support anything that would increase tax for those folks. Now, if you do make more than $400,000, the top tax bracket would go back up to where it was of, it was 39.6% before January one of 2018. Those those top tax brackets would, would, would come back. There’d be some reduction in the tax. Uh, the itemized deductions that under the volume policy proposals, a big proposal for folks making over $400,000 of earned income in a year is that they would see significant increases in social security taxes. So one of the policy proposals is to tax all earned income salary, self employment, income, um, you know, just self employment income over 400,000 today. Uh, you don’t pay social security taxes over 138,000 of earned income in a year that would change.

Speaker 4 (00:17:46):

And if it’s, if the policy proposal does get, uh, that would be a 6.2% tax that individuals would incur for earned or self employment income over $400,000. So that’s a big change. It’d be a change for our clients who as well as employers, employers would have to also bear that 6.2% tax. So that’s probably good for social security. Social security trust fund is forecasted to run dry at some point. And then there’s going to have to be ways to build up the fund. This might be a way forward for solving that. Um, also there’s, there’s increased the policy proposal for increased capital gains taxes right now, the maximum capital gains rates 20%. And for folks making over a million dollars, uh, the Biden policy proposal called for a doubling basically converting a capital gain income dividend income to be taxed as ordinary, just regular income at, at a 39.6%.

Speaker 4 (00:18:52):

Right? So that is a big, big change as well for, for the super wealthy. And, you know, I, I think, uh, uh, you’re going to see that and the next around the legislation where those are going to be taxes, targeting certain income levels. And the question is at what form, what, what, what will it look like? So those are the Biden income tax proposals. Um, Binus also proposed, uh, changes for estate taxes today, today, a, an individual can die and, uh, and having a state of 11 and a half million dollars without paying any estate taxes, a married couple that’s $23 million of estate that wouldn’t be subject to estate tax. Those sunset back, you know, the, the, those increased exemptions came about as part of the Trump tax legislation. They sunset in four or five years back down to where they were, which was roughly five and a half million dollars.

Speaker 4 (00:19:48):

Biden is called for a further decrease to back the 2009, uh, levels of estate tax exemption. So that would be around three and a half million dollars, uh, per individuals. That’s a big difference from, you know, a lot and a half million today to three and a half million dollars. If, if the Bible policy proposals ever become law, the, um, the biggest, uh, sleeper perhaps on the estate tax side is that there are considering, um, eliminating the asset basis, step up at death, which would be applicable to all, all individuals. So today, if you die, um, with, with appreciated stock, your heirs don’t pay any income tax. So, you know, here in Atlanta w home Depot is based here in Atlanta. There are a number of folks here in Atlanta who bought the shares at the IPO price, which is basically one or $2 a share today.

Speaker 4 (00:20:40):

I promised lips that today’s day is around 250 $260 a share. So if somebody died with that home Depot stock in their estate, their heirs would restate the basis back to fair market value at date of death, and the heirs could sell it and recognize no capital gains. Well, that would change if the policy proposals have Biden or ever enacted that appreciation would be taxed, it’d be an income tax. And that would be a significant, uh, tax raiser again. Um, uh, it’s been, it’s been out there, we’ve been talking about, uh, maybe the repeal of asset basis, step up at depth, but it’s never made its way into, into law. So that should, in a nutshell, um, you know, I think that the headline show massive increases, uh, under the Biden policy proposal, but really, uh, if you read the policy proposals, you know, nobody’s impacted until you have $400,000 of income, and then the state tax provisions are out there as well.

Speaker 4 (00:21:45):

But you know, that that’s kind of where things stand, uh, the stars have to be in alignment. Um, and, um, you know, we’ll see what happens. It took Trump or the Republican Congress, you know, 11, 12 months and they pass it very quickly. It’s end of the year. Um, you know, who knows maybe a year from now when the backs, you know, if there’s a vaccine and the economy is on better footing, but I just can’t see it with massive deficits, you know, in that in taxes is it’s the first bit of legislation. Um, but you know, who knows, I would say just low, low odds at this point. And as far as I’m concerned, that’s it in a nutshell.

Speaker 1 (00:22:22):

Yeah, no, that was great. That was great. And, and a really good overview because I know they’re, you know, at least for me sometimes I’ll read the headlines, but I don’t have time to actually delve into deeper details of it. So, great summary it’s, you know, Robert given that there are kind of unknowns and, and, you know, you don’t expect something to happen. Like January one, you know, what, what can we do to plan

Speaker 4 (00:22:46):

Jennifer? This is the time of the year where, uh, clients of ours should be meeting with their CPAs, their wealth management team at Madera, that kind of assess where, where they are for 2020. So some folks have income is down. Some folks maybe haven’t missed a beat. Um, you know, I’ve had clients by prom, you know, buy a second home. Uh, what are the tax consequences of that? Um, I had another client who sold a big block of some Amazon stock, just, uh, they, they bought it at the IPO and they wanted to liquidate. And, and so you don’t want to have any surprises on April, 1550, Oh, taxes that April 15th, it would be a lot better to know that today have the cash set aside, make sure you have your estimated taxes paid up. So there are no penalties States won’t be bashful in this environment for assessing or even waiting any penalties that might be due.

Speaker 4 (00:23:40):

So I think the first step is let’s just let’s avoid any, uh, you know, pitfalls, any surprises would be 0.1, that the individual should assess where they are. And then I think then the discussion should go to, well, what opportunities are out there, uh, for, you know, between now and the end of the year. So I think that would be the, the next, uh, the next item of discussion as that here in planning. So many, why don’t you jump in here? People probably have gotten tired of listening to me. Um, maybe you could, uh, give us some thoughts about year end planning and some of the things that we would be discussing with clients.

Speaker 2 (00:24:21):

Yeah. Thanks, Robert. And, um, you know, I would just say that talking to your accountant and your advisor at the end of the year, um, that’s something we want to do every year, um, especially this year though. Um, but just thinking about some, what we might call evergreen tax planning opportunities. Um, if you have a situation where maybe you did have a decrease of income this year, um, you might think about what we would call bracket filling. Um, so taking on more income, um, to fill the brackets, given the looming, you know, question about where taxes are going, and, um, you might think about your required minimum distribution. So when the cares act came out earlier, this year 2020 requirement on distributions were waived. And if you took them out, you could put them back in by the end of August. And I know many of our clients did, but you might want to rethink that if you do want to bracket fail, you might take a portion or all of your required distribution.

Speaker 2 (00:25:20):

Um, and that really takes some planning again with your wealth manager and your accountant. Another reason that you might, um, take more income is to do a Roth conversion. I think there’s actually a question in the chat box on this, um, the question and answer box on this, but you may want to take a, do a Roth conversion this year. Maybe you didn’t have to take your required minimum distribution and you don’t, you don’t want to take it. You don’t need it for income. Um, and you want to bracket fill in another way, um, prepay the taxes and, and do a Roth conversion. That’s going to help you. Um, and your heirs will hit on estate planning a little bit more, but the secure act earlier this year that came into play changed inheritance rules for retirement accounts for non spouse heirs. So you may want to do that this year, and you may also want to recognize longterm capital gains.

Speaker 2 (00:26:12):

Um, maybe there’s a position that you’ve been looking to sell again, you’re in a lower tax bracket this year. So take advantage of that and take some gains off the table. I’m certainly not short term capital gains. You’re going to pay ordinary income tax, but longterm embedded gains that you been meaning to take a, that might be a good option. And then for those of you who, um, did not see a reduction in income, maybe of the same income, or I actually have some clients in industries where, um, they have higher income this year. So you’re looking to your income and you could do that by maximizing your 401k contributions, of course, your retirement plan contribution. So making sure you do that before year end, you could also contribute to your IRA. A spousal IRA might be more prudent this year. If you have one spouse who did continue working one spouse who did it, maybe they couldn’t maximize their 401k, or they can’t contribute.

Speaker 2 (00:27:06):

They can make a spousal IRA contribution and take a deduction there. And then maximizing itemized deductions. I know this one’s a hard one, um, with a lot of the deductions, no longer available being available anymore. Um, but one in particular could be bunching your charitable contributions. So maybe you give a larger donation this year, or you take advantage of a donor advise fund this year to reduce your income. Um, and then you can, uh, take that itemized deduction that might get you over the hump, um, so that you can itemize. So those are a few ways, a few planning strategies that I know we’re all looking at for our clients, if you’re unsure about whether they apply to you or if they apply to you and how that might help, um, please come to us, uh, talk with us and we’ll coordinate with your accountant as well to see what the best strategy might be for you. Great. Thank you. And, um, I know there are also, I’m looking at the QA, there are some questions coming in, um, that we will get to. So thank you for, and, you know, again, we encourage you to continue to submit them, um, before we get to them though, just a few other, um, planning items. Um, what can we expect, um, with regard to state planning, if anything, um, are there strategies there that individuals and families should keep in mind this year?

Speaker 4 (00:28:30):

Well, I’m not sure this counts as a strategy, but, um, um, you know, I used this opportunity to, um, finally get my family together, my kids, um, uh, w we, my wife, and I’ve been talking about sitting down just if, if the worst thing ever happened, we were both hit by a bus, you know, what would happen? And I wanted to tell you a mystery of where documents are, who’s our attorney, and just explaining the documents at a high level. It’s not about, uh, what the documents per se, uh, provide. It’s just, you know, what, what’s a power of attorney, what’s a health directive, uh, where are the documents? How do we get access to, you know, uh, electronic accounts, passwords, that type of thing. And, you know, just this whole year, just a fragility of it all, just recognizing that, um, I had, I hadn’t done that.

Speaker 4 (00:29:24):

We hadn’t done done that. And, uh, so once I had all three of my kids here in town for, um, you know, I used that opportunity, uh, to basically sit down with them and just kinda talk about that. So Tom took that off the table. Uh, that’s not really a strategy, but it’s something certainly, um, uh, I wanted to do, and I would encourage folks who haven’t, um, you know, undertaken that, uh, to not, not delay and, and, um, it, you know, it’s good to get it off my back and, and, uh, I think it put our kids at ease too, that the world’s not gonna, you know, that they’re not going to be left in the dark.

Speaker 3 (00:30:04):

Yeah. Robert, I think it’s a great way to differentiate between, we’ll say estate planning and estate tax planning. Um, yeah, it’s the whole a pandemic this year, I think, cause it, all of us realize we’re not as invincible as maybe we thought we were. Um, and some of the, you know, fear around the election right now is state tax fears or concerns or planning has probably gotten more headlines. But the basic while say estate planning is always a good idea. And it’s always a good time to do that, which is understanding your plan. Uh, how does it work? Does it meet your goals and to the people who were involved in it? Are they aware of what they may need to be aware of? Um, so that’s always a good, that’s always a good plan. I think it has caused some people. One they’ve been home.

Speaker 3 (00:30:49):

We’ve heard from a lot of clients, I’m home, I’m cleaning out my office, I’m cleaning off my shelf and I’m looking at this and I’m going, I’ve got to change this. Person’s not involved anymore. Um, but you know, estate tax planning has also been at a gun in some people’s minds based on some of the political winds and some of the discussions. Um, and again, there’s a lot of it’s speculation. We have proposals to look at, but we don’t know what’s going to happen. Uh, what we do know is that still the estate tax exemption, which is the amount that a person can transfer during their life or at death, that amount of about 11 and a half million dollars is historically high. And we actually know it’s scheduled to decrease in 2026. Uh, so we’ve had a lot of conversations and a lot of clients say, Oh, I’m going to get around to it.

Speaker 3 (00:31:36):

I’ve got five more years. I’m going to do some planning. Um, you know, nevermind the, uh, it’s all becoming more mortal this year, but now some of the political proposals, uh, we are prompted encouraging conversations to say, maybe let’s start those conversations a little bit earlier. You know, don’t be in a rush to go making some irrevocable or significant decisions about, you know, transferring wealth, but let’s have more conversations and discuss the plan and what might or might not work for you. Maybe we even lay some, uh, you know, go through some of the foundational steps and get things ready for maybe in the end of the year and maybe at the beginning of next year. Um, but that’s probably accelerated some of the conversations and planning that was already on the radar. Um, you know, you talked about the step up in basis. That is a very, I’d say that might be one of the most impact, you know, longterm impactful proposals.

Speaker 3 (00:32:28):

Um, there would be, I think, I think there’ll be a lot of still negotiation on that. Um, there’s probably a lot of grassroots opposition depending on how it will be written. Uh, you always hear the horror stories, you know, the family farm or the family home that’s been in generations forever. Is that all of a sudden going to trigger a very large tax or is it just a beneficiary? The heirs are going to receive the old basis is a lot of, a lot of details on that one, but that is real. There’s a lot of strategies that involve, uh, the current rules that step up in basis. Um, it’s also in many touched on something called the secure act, which it seems like it was ages ago, but the beginning of this year, there was a pretty significant piece of legislation called the secure act that had some significant changes to retirement planning.

Speaker 3 (00:33:15):

Um, part of that was under the prior law, uh, a, an IRA, a traditional, a retirement account left to a non spousal beneficiary. It could be distributed over that person’s lifetime. Um, so generally it was very advantageous to spread the taxable withdrawals over a very long time period, managing that income tax under the current law. It’s now, um, for a non spousal beneficiary that a retirement account has to be distributed in a maximum of 10 years. There’s a couple of, uh, almost tests there, which was a large account could mean significant income tax implications for whoever’s receiving that. Um, also involves if a trust was involved possibly for asset protection or special needs planning. Um, it might be, it’s now become harder to get tax deferral plus asset protection. There’s some trade offs. Uh, so that’s something that definitely is a planning opportunity now and going into next year.

Speaker 3 (00:34:11):

And part of that, uh, re routine estate planning, uh, Mindy also mentioned that we got a question about, um, the most tax efficient way to convert to a Roth. A Roth IRA is an affluent after-tax IRA that then it grows currently. Tax-free, um, there’s really no magic bullet there because any transfer from an IRA to a traditional IRA to a Roth IRA is taxable. So I’d say the most tax efficient way to do it is over time. Um, take advantage of a lower, lower tax brackets if possible. Um, so we can follow up with all these questions that we can’t address directly this group. Uh, we will follow up individually with people so that the questions do get answered. Uh, but the best way to do that is just regularly, slowly over time, or take advantage of unique taxable circumstances. If there was a business loss, for example, that’s something we see occasionally there may be opportunities for a Roth conversion there.

Speaker 1 (00:35:06):

All right, good. Thank you, Adam. Um, and I guess before we do get to some of these questions that are coming in, I just want to make sure that we touch on something else that Mindy had briefly touched on, which is, uh, charitable giving. Um, so Mindy, what other planning opportunities do you see there that we haven’t talked about yet with regard to charitable giving? Yeah, that’s a good, that’s a good one because we have a lot of clients who are asking about that and how to give back. I think the silver lining right now with everything going on, seeing people step

Speaker 2 (00:35:38):

Up and help. Um, we just attended a charitable giving presentation by fidelity investments earlier this week. And they said that donations from their charitable giving accounts have skyrocketed. Um, this is an example of a donor advice fund. I mentioned earlier. Um, there’s increased support and human services, um, supporting social justice initiatives and really a nationwide prioritization of food security. Um, even though, um, required minimum distributions have also been waived this year. Many of our clients are still doing qualified charitable distributions from their IRA. Um, so let me just take a step back and I’m going to talk about what is the donor advised fund and how does a qualified charitable distribution work. So to give, to charities, to donate to charities, most people give cash and cash is great. Um, you’ll write a check, you’ll go online to donate. Um, and actually this year part of the cares act, um, one of the changes is that you can give $300 of cash and receive what’s called an above the line deduction.

Speaker 2 (00:36:44):

So you get a dollar for dollar reduction in your income by donating $300 in cash this year. So you may want to do that this year. Um, but in general, there are other ways that you can take advantage of greater tax benefits and possibly even, uh, give more. So for example, if you have an appreciated security, you can give that appreciated security directly to, uh, a five Oh one C three nonprofit organization. You can take an itemized deduction for the market value of that amount and you avoid paying capital gains tax altogether, by the way, as we talk about, you know, the loss of that step up in basis, potentially on estate planning, that might be something that you think about. Um, but you can do, you can do this transfer by either filling out a form. We can help you with the custodian, um, or you can open a donor advised account in your name and you can donate directly to that, that, um, to that account.

Speaker 2 (00:37:42):

So fidelity has one you can open. Schwab has one there’s many out there. And really the benefit of that is anything you move into this donor advised fund, you get an immediate tax deduction for the year you contribute, but you don’t need to direct to direct that donation to anyone charity right away. You can actually grant it over time. And so, for example, in a year where your income is high, like I was talking about earlier, you may want to look at the next five years of donations, which what would you have given? And you might bunch them and put that five year lump sum amount into a donor advised fund, and then take advantage of the itemized deduction this year. And now you have a bucket of money that’s earmarked for donations going forward. So in a situation like a global health crisis, and you want to help you now have this money earmarked, you don’t have to worry about taking from your investments or your cash, especially if you yourself might be concerned about your own cashflow, your income and savings, um, so much uncertainty. So I think that’s why fidelity and other donor advised fund sponsors have seen accelerated generosity this year. Those who already have this account, um, it’s earmarked money. Uh, they can easily go online, give them a call, um, grant it right out to a charity.

Speaker 5 (00:39:02):


Speaker 2 (00:39:03):

And another strategy that I mentioned is a qualified charitable distribution or QCD. Some of you might already be doing this, so you may know it already, but if you’re 70 years of age or older, the IRS allows you to make a direct distribution from your IRA to a qualified five Oh one C3 and you pay no income tax on that amount. Um, so that’s a direct, you know, direct dollar for dollar reduction in your income, um, whereas donating cash or preceded securities, um, there’s limits to the deductions. You need to itemize, et cetera. So for my clients who, um, you know, this year, you know, or in general, typically don’t spend their full RMD and then this year they still want to help. Um, or those who want to give, and they haven’t done this in the past. Um, they’re making these distributions this year and taking advantage of the tax benefit.

Speaker 2 (00:39:54):

So giving to charities, you know, it’s definitely a donation strategies helping out in periods of, um, of time like we’re in now. And it ties into tax planning. It also ties into estate planning. Um, so if you have a donor advised fund account open, you can list, um, charities as the recipients of the leftover money in the fund. When you pass away, um, you can direct a portion of your estate to go directly into the donor advise fund and to the charities. Um, and you can add it as a beneficiary on your account. So the fund allows you to pre-select charities in advance. You can go online, make changes any time, um, rather than, you know, when your will, when you have a charity listed, if you want to make a change, call your attorney pay by the hour, update the document, you can avoid that altogether by opening this, um, so potentially a cheaper way to make those changes.

Speaker 2 (00:40:51):

And by the way, any money that you leave to a charity that’s in an IRA. So we just talked earlier, you know, earlier about the estate log changes when you, uh, give to heirs. So when you give money to a charity, it’s not tax at all, um, then the qualified nonprofit doesn’t pay taxes. You don’t pay taxes, it reduces your estate tax altered or your state amount altogether. Um, so my clients who, uh, include donations in their estate plan may leave IRA money to the charity and then leave taxable, non IRA money, um, to their heirs. It might be a more efficient way to do that. Um, but just like anything, if you think this may be something that applies to you, um, you know, give us a call, talk to your advisor,

Speaker 1 (00:41:34):

Your accountant on, we can help you with a plan here. Great.

Speaker 3 (00:41:39):

I’ll add to that quickly, Jennifer and Mindy talked a lot about different charitable strategies. The first question we got today was about, uh, we called the Medicare. They called it Irma levels, which is the income brackets that affect your Medicare premiums. And I bring it up because the question was, can you address the levels for 2021? And how do you manage that in generally charitable planning can actually play a nice role in that if you found yourself on the cost, when he talks about bunching donations, I mean, managing those Medicare brackets is all about managing what’s called your modified, adjusted, gross income. So if you’re doing, um, if you have a tax projection or you can use last year as a guideline, there may be some strategies, especially this year with the IRA required, minimum distributions waived to set yourself up for potentially lower Medicare premiums into years, you know, 2020 income impacts your 2022 Medicare. So there’s always a lag, but, um, the key to managing those brackets is just understanding where your AGI is.

Speaker 1 (00:42:41):

Great. Yeah, I’m actually glad you mentioned the questions, Adam. So, you know, I invite you Mindy and Robert to take a look at those again and see, um, you know, what questions we’ll be answering in a minute. Um, but we did have some questions that were submitted beforehand. So I want to make sure we get to those as well. Um, so the first one actually was around, um, an interesting question, actually, it was, it was around the Robin hood, um, markets, and it basically says regarding the 3 million new day trading accounts opened by Robin hood as of July 25th and others opened by underemployed people worldwide, what do we see as their impact on the markets? And have they added any significant variable to how markets worked, um, in the prior 15 years?

Speaker 3 (00:43:30):

Yeah, like this one came in yesterday, so we did get to prepare a little bit for this one. Um, as in my best response is that time will tell, I think it’s going to be a great, you know, I’m sure there’s already academic studying, whether it’s graduate students or undergrads. Um, you know, the Robin hood has kind of captured the attention of, I think the public, uh, obviously as a impressive number of users, um, and in the press, you know, I think there’s a couple of factors, you know, it’s almost the right tool, the right time. Uh, people have been home. Um, there, the cost of trading, you know, the headline, uh, trading commissions, the, in many cases, stocks and ETFs have become free. Uh, many of the custodians of financial institutions that are advertising that quite liberally, uh, I would say trading hasn’t become free. Uh, just the cost of trading has become now less transparent. Um, there’s still cost to process orders and to run a market. Um, you know, I think Robin hood and others like that are probably made for more volatility in the, in the short term

Speaker 4 (00:44:32):

Specifically in certain stocks that have become popular, it’s easy to pick on the tech stocks, but could be everything. Um, you know, Kodak was a great story this year of, uh, incredible volatility around events, you know, for investors with an investment strategy. I think it probably has less of an impact, um, makes for maybe a Rocky or ride along the way, but, you know, markets are really good at, um, finding that equilibrium price are clear and trades between a buyer and a seller. Um, so maybe we get more volatility. Um, there’s been some, you know, some unfortunate stories kind of at the micro level of users. Um, you know, it was getting themselves in trouble for trades or with, um, um, with derivatives, but at the macro level, I think it’s probably muted. There has been a huge explosion in just trading volume over the last decade plus, um, and I don’t think that’s necessarily been a bad thing in a lot of cases. You can make an argument that a good thing. Um, so time will tell, I don’t think it has a significant impact for our average client as far as their, the outcome of their, uh, their savings journey and the retirement planning.

Speaker 1 (00:45:41):

Interesting though. Right. I thought it was. Um, yeah. Um, we also have a question about real estate, um, and, you know, just given the, you know, what we hear about increasing evictions and foreclosures during COVID and with job losses, um, just given all of that, uh, specifically around commercial real estate, but perhaps other real estate as well. Um, do we have anything with regard to forecasting that area of the economy?

Speaker 4 (00:46:14):

Well, I’ll jump in here. A w w when you talk about real estate, there’s so many different types of real estate. You know, we have retail space, we have commercial space, we have industrial warehouses, we have housing apartments, etc. So I, you know, I, uh, certainly there’s, there’s going to be dislocation real estate rates have suffered a big hit here, and they haven’t rebounded like, uh, some of the other areas of the market. Uh, that being said, um, you know, you read the papers where Amazon is looking for space and malls, uh, buying a, both serious serious locations, uh, JC penny locations. So, um, uh, you know, I think you’ll see new tenants, uh, clearly in the commercial office space. We now, you know, digitization is here. People can work remotely. Uh, that being said, um, over the last 20 years, offices have become smaller and smaller and smaller if you go into any office, uh, in the office building.

Speaker 4 (00:47:10):

And so I’ve, I’m aware of situations where companies here in Atlanta are looking for bigger space, uh, their, their folks on top of each other and given the pandemic, they need to move people farther apart. So, you know, it, it really remains to be seen. Um, Microsoft here in Atlanta just made a, a commitment towards, uh, office space, uh, in the area. So, you know, clearly there’s dislocation. Uh, some people, you know, you mentioned evictions and yet housing starts, um, you know, the housing market is hot. Uh, there’s not enough supply of homes out there. And so apartments here, uh, are still being developed. And, you know, if you believe in the economy, it’s going to continue to grow. People are going to be employed. Um, you know, there’ll be need for real estate. So, uh, clearly there’s a short term hiccup here. We had it no nine when, when the financial markets and all those, you know, those mortgages that were underwater, uh, it took a while for the system to, uh, uh, to correct itself. So, you know, clearly, uh, there there’s some changes to float in the real estate space. We don’t have all our eggs in the real estate. Uh, you know, uh, most of our portfolios have a small allocation to real estate. It’s used to diversify our overall portfolios. And so, um, you know, real estate spending a great investment over the last 50 years. And, um, this is a great place to defer to diversify. So I’m not as pessimistic as maybe others is, but clearly, uh, we’re, we’re in a little bit of a choppy period here.

Speaker 2 (00:48:44):

Yeah. And I’ll just add to that because, um, you know, there’s certainly pockets of the market that aren’t doing well, and we just mentioned retail, and then there’s other ways that retail can get into it or commercial real estate. Um, but here in New Jersey, we had, you know, last nine months, no one could sell their home. We had, um, multimillion dollar homes that were just sitting and now everyone’s moving out of the city and everything’s selling. I mean, even my co-op, I have a cop in Fort Lee, I think it was on the market for less than two weeks. And we have a buyer we’re going to be closing in the next few weeks. I moved to a new development, new townhome development, new construction in the middle of this pandemic. And I was only delayed, I think, two weeks. Um, we attended, I think many of us, um, at Madera attended a conference where we had, um, discussions and presentations about, um, real estate and in the thick of it, new developers and new construction, they were saying, everything’s on pause.

Speaker 2 (00:49:45):

We’re not canceling the bills. We’re just holding off until we can safely build again. And I don’t even think they stopped building in a town in the community I’m in, I think they kept going and they’re still going. Um, so, you know, there’s definitely areas that will struggle. Um, and we’ll see that, but there’s also areas and pockets that are strong. Um, and you know, it’ll balance out again. That’s why we have a diversified portfolio. And as Robert said, our eggs, aren’t in one basket. I just want to answer, I want to pick one of the questions here in the question and answer box. Um, where’s the best place for pivoting away from real estate. Where’s the best place to keep my financial documents? What my, well, et cetera, should they ideally be in a safe deposit box in my home at Madera? Um, so Madera does request copies of your estate planning documents to keep on file.

Speaker 2 (00:50:38):

It’s nice to have for us to know what your plan is to help your executor. Um, you know, our relationship with you doesn’t end. If, if you pass away or become incapacitated, we want to help your executor or your powers of attorney. Um, there’s actually a website called fit safe F I D S a F E. Um, it’s run by fidelity, but it’s a free online secure cloud where you can actually upload, upload all your documents. So maybe you do have a folder at home or at a safe deposit box, and your heirs know where that is. Your executor knows where it is, but you can also store it online safely. And that on that website, it’s really, I think the only one I’ve seen that’s free, um, but you can direct certain documents, uh, to your, uh, your agents. So whether that’s your power of attorney, your healthcare proxy, your executor, um, you can make those available through the website and it can download an app and the documents are readily available at any time. So that might be somewhere that you check out, um, in addition to keeping maybe a folder set aside as well.

Speaker 2 (00:51:47):

Great. Thank you. And we do have a number of questions coming in. So, um, and I know we’ve been kind of answering them intermittently, but, um, I was going to ask back to the election, um, and you know, you know, if there’s a couple of questions here about anticipating for the exchange of the election, isn’t peaceful, what, what, and there some impact on market volatility, you know, is there anything to think about there? Um, and then I’m going to couple that maybe with another question that talks about possible market volatility, um, should people start looking at annuities? Um, I forced those two questions together. They’re probably unrelated. So I answered them as, as you see fit quite the combination.

Speaker 3 (00:52:42):

Um, yeah, capitalism almost requires a faith in our being an investor requires a faith in capitalism. Let me rephrase that. Um, we have an election it’s a very heated time for a whole number of issues. And it’s getting, you know, now with the, um, Supreme court opening is now even more reason to debate. Um, if somebody believed that the, you know, the, the economy and the world are going to be in permanently worse places in the future, they probably shouldn’t be an investor. Uh, we talked about, you know, our approach is really, if you have a core investment strategy, which stay keeps Capitol exposed to the forces that are on return on capital around the world, and it’s not just in the United States by design. So to the extent even the United States might, um, has been the, the economic engine for the really the last decade.

Speaker 3 (00:53:34):

It wasn’t for the prior decade, that likely will turn at some point. Maybe it’s maybe it’s happening now. Maybe it happens after the election. Um, so we want to keep a core investment strategy in place. Maybe we, um, you know, we adjust the stock, the risk exposure, generally, what stocks and bonds and those, those are very individual conversations. But if, if there is a real concern about, you know, turmoil, whether an election is a winter is unknown, or if it’s for an extended period of time, you know, we’d say probably holding cash for the known expenses is probably the answer there, um, to hold a significant amount of cash with the expectation it’s going to be invested in the future. I think it just consistently almost impossible to get that right. Um, is that the longterm trend line of markets is kind of steadily up, but there’s a lot of volatility and catching the wrong points of that volatility.

Speaker 3 (00:54:29):

You could give up a year or many years of return and possibly never have a chance to get that back. So it’s very, we think it’s impossible to talk to time that kind of volatility consistently, um, annuities is an interesting, I mean, it’s interesting one annuity is generally you’re giving up potential upside for, um, truncating. The downside for increased certainty know it’s a deal with an insurance company. Uh, we, we know we’re in a period of X, we have been in a period of a long interest of sorry, low interest rates for a long period of time. So I knew what has been, can play a role. And I know what he’s probably tend to get a bad rap, uh, that covers a lot of, uh, nobody’s the very broad terms that could factor into a, uh, a retirement plan. Also very, um, dependent on individual goals.

Speaker 3 (00:55:17):

Um, right now interest rates are so low that I’ll say the annuity payout rates are so low. We’re seeing that for most traditional annuities is a very, it’s not all that appealing. Maybe it’s an arrow in the quiver. So to say, but in some cases it might be say, I’m going to buy a bunch of bonds and ladder bonds and wait, maybe looking at annuities in a year or two if interest rates increase. So they are an answer to, um, a natural response to fear of volatility. But right now that the trade off of them isn’t terribly attractive and blame interest rates.

Speaker 2 (00:55:52):

Yeah. Can I just piggyback on that and comment on the annuity side too? Um, you know, interest rates are low in that at certainly, um, Adam’s right. It plays into the income side of it before you think about getting an annuity. Um, cause it might make sense. You’re, you’re guaranteeing yourself a stream of income and even with rates low, depending on your plan, it might make sense to still do that. Um, but before you do, I strongly recommend you talk to your advisor about it. Um, we have a process that we all take assessing

Speaker 1 (00:56:24):

Whether an income annuity makes sense. We really want to look at what your expenses are, what your essential expenses are. Um, what are your, what’s your income sources now? Do you know? Pensions are almost absolutely absolute. I mean, I don’t know if you have one or not, um, to the person who asked this question, but you know, we wanted run a stress test and see if any, if an annuity makes sense. So if you’re thinking about it, it could be an option. Um, I know that a lot of people are out there saying, you know, especially during periods of volatility, screaming, annuity, and saying, Hey, put your money here. It’ll be safe. Um, it may work. It’s not for everyone. We’re not in the camp of saying all annuities are bad. Um, they have a place in a plan and, um, and it might make sense. So again, just talk with your advisor about that and we can take a look and see if it makes sense for you.

Speaker 3 (00:57:19):

Great, Jennifer briefly, if I’ll add it, there was one more about, you know, changing. It basically changes the investment philosophy if there’s a change in administration. Um, if, if Trump is president Trump is reelected. Is the market going up immediately in 2021? Um, yeah, I’d say, I would say probably not. I don’t know. I think, I think it’s unlikely. There’s another tax cut coming, uh, based on deficits. Um, you probably have some certainty for at least the next four years. Um, you know, he has talked about trying to make the, the last round of tax cuts permanent, but you know, permanent really only means her the next administration. Um, so, you know, even if president Biden wins, I mean, I think companies want certainty. So even if they know the corporate income tax is going to go back up again, they’re going to start planning for that immediately. Um, so it’s, it’s hard. It is speculation based on how tax policy plays out that may influence some of our investment decision assets, if the taxation of investment income changes, um, there’s something called asset location of how we, um, where we purchase investments, whether it’s an IRA or a taxable account, um, it says all on the table. So we, uh, we do have some conversations planning around that, but we don’t, we won’t be making any significant changes until we have hard facts to work with.

Speaker 1 (00:58:38):

Okay, great. Thank you. So I’m just looking at the time here. We only have a couple minutes and, um, I just wanted to make sure that, um, you know, everybody knows that you don’t have to memorize everything we’re talking about here today. Um, we will continue to have, um, continual conversations with you and be in communication with you throughout the next couple of months, um, so that you do have the information readily available. And certainly if there’s something that did kind of peak your interest or seem to be specifically relevant to you during the call, please reach out to your wealth manager as well. So with that, just leave, uh, leading with, uh, kind of, uh, you know, a positive on a positive note because we started with kind of the challenges of 2020. Um, if you could just kind of leave us the, some planning, uh, sorry, uh, some silver lining. When you think about these past few months or even a few months to come, or even just some perspectives or reflections of your own, um, before we end the call today,

Speaker 4 (00:59:48):

Well, I’ll jump in here. Um, you know, I think, uh, the silver lining is, uh, became grandparent. Why, why can’t I begin grandparents, uh, in the last couple of months and, um, you know, experiencing that through this pandemic is, uh, been interesting. Uh, uh, life is very fragile. Uh, my, uh, grandson great grandfather was born during the pandemic of 1918 Spanish flu. And so it’s just interesting to, you know, several generations later. There’s another, uh, child being born during another pandemic. And, uh, um, my, uh, my wife’s father was, uh, a great guy and they lived a long life and he was born in that crazy period. Uh, so I think just being grateful for life and for health and, and family is paramount and something that I’ve been thinking about a lot.

Speaker 4 (01:00:44):

Yeah. Similar in, in my, uh, my, uh, nine months now or six months now I’ve got, my kids are younger at home, so it’s, everything’s revolved around the chaos at home of kids finishing the school year at home, starting the new school year, uh, partially at home now. Um, so it’s been hard, it’s hard, the kids, you know, they’re very resilient, but they also, you know, they want some normalcy. Um, but it’s been nice in some ways is that I’ve been home for breakfast and dinner pretty much every day for the last six months. And that’s nice. Um, and it’s been, I think this way, looking back as will be an incredibly formative experience for them. You know, they will remember this and it’s allowed us to have me and my wife have conversations with them, try and remind them of how incredibly fortunate we are. And we’ve all stayed healthy. We, we have, you know, more than enough, more than, and it’s, you know, this last night, they on their own, we’re talking about being so fortunate and helping others. And we’re talking about, you know, donating foods, a local organization, and those conversations are really, really nice in a very challenging time. Um, and I’ve really just tried to emphasize again how fortunate we are as our own own family and as a larger community as well. So

Speaker 1 (01:02:02):

Indiana. Yeah. So, um, I’ll, I’ll talk about kind of how I’ve saved sane during this. I mean, how do you stay sane with everything going on? Um, it’s all overwhelming. Um, for those of you who didn’t know, I was supposed to get married on April 4th. So you can imagine the stress of having to a wedding.

Speaker 2 (01:02:20):

That I’ve been planning for the last year and a half for now two years, um, re postponing at once, and then three more times and counting, um, and, uh, ended up with the virus, my own thankfully, and fully recovered. Um, moved, I already mentioned moving silver lining is I bought, we adopted a puppy, we rescued a puppy, so that’s been fun and keeping us busy. Um, but really to say that, um, a lot’s been going on is an understatement. And honestly, the best thing that I’ve been able to do is make sure I disconnect and take time for myself to work from home. And I’m here every day, all day, every day. I think I’ve worked in almost every room in this house. So, um, I read a quote recently that said, we’re not working from home, we’re living at work. And I, I really feel that.

Speaker 2 (01:03:06):

So, um, it’s really helped taking days off, um, doing stay-cations and unplugging, not checking my email, not working. Um, and it’s allowed me to reset and be a better version of myself personally, in my personal life, um, at work and for my clients. Um, so that’s really the main thing I’ve been doing well, thank you. The three of you and, um, you know, definitely disconnecting is a great reminder and, and of course, trying to find the silver linings and remaining grateful, and we’re grateful for everyone who’s able to attend this call. Um, just as a reminder, we will have this information available to you. And another reminder, if for some reason we were not able to get to your question. Um, so somebody will certainly be reaching out to you directly with regard to your questions. So I just want to make sure I got that in as well. Um, thank you everyone for joining us this afternoon and please take care and be safe. Thank you. Take care.