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Wealth encompasses accumulating assets and then preserving them for the future. Those assets can include savings, investments, real estate, and cash. The future in question may be yours or that of your heirs.
Present market conditions can, of course, affect wealth. That’s why it’s a good idea to turn to financial and legal experts for their insight and forecasts. While favorable conditions can grow and enhance wealth, new and alternative investments may offer opportunities for better rewards and/or tax advantages.
Thinking about future financial contingencies is part of asset protection: You want the money to be there when it’s needed — for your benefit and, often, for the benefit of others. Unexpected life circumstances or market downturns can cause financial worry, and that makes smart management and planning for future needs essential.
Trusts can be used to create a bridge from the present to the future, helping protect assets for the next generation, whether they’re part of a business succession plan or a personal estate plan. When properly set up, trusts can also prevent those who are not entitled to the funds from accessing them.
Consulting with experts regarding investing, taxes, asset protection, and managing financial stress can be a wise move. And with so many aspects to wealth, a career in finance can be worthwhile, too.
Q: As a manager, what’s the best way to handle an employee who wants to discuss their financial stress?
A: When an employee experiences financial stress, regardless of the reason, the burden often falls back on their employer. They may ask for a pay increase or loan and will be disappointed if that’s not possible.
While you can be empathetic, you shouldn’t get involved with an employee’s personal finances or give psychological advice related to their stress. Instead, refer them to resources you offer, such as your company’s Employment Assistance Program (EAP) provider. The Ulliance Life Advisor EAP® will help identify the root cause of their distress and develop a plan for resolving it, including teaching them money management—this allows you to focus on the employee’s performance.
Kent Sharkey, President and CEO
Human Resource Management Solutions
900 Tower Dr., Suite 600
Troy, MI 48098
Q: How can I protect my child’s inheritance from their spouse?
A: You’ve worked your whole life to build a legacy for your children, and you want your assets to be passed down to them when you die. Leaving assets outright to a child may leave the door open to potential claims to such assets by the child’s spouse, particularly in the event of divorce, death or bankruptcy.
If you’re comfortable with the idea, encourage your child to enter into a prenuptial agreement with his or her spouse before marriage. If your child chooses not to enter into such an agreement, you should consider leaving their inheritance in a Trust for their benefit. Your child may receive distributions, but because your child does not have unfettered access to the Trust, the inheritance is protected from potential claims against and by their spouse. This arrangement allows your child to benefit from their inheritance without the possibility of the funds being raided by their spouse.
Joan Cripe Skrzyniarz
Practice Group Chair – Estate Planning & Trusts
2600 W. Big Beaver, Suite 300
Troy, MI 48084
Q: Will higher interest rates or fears of a trade war cause a recession?
A: Rising interest rates and rising tariffs could cause a recession. The Federal Reserve has increased the federal funds rate from .5% to 2% over the last 18 months in an attempt to slow down the amount of investment by companies and the spending levels of consumers. That’s caused a flattening of the yield curve and concerns of inversion. An inverted yield curve can be a sign of a recession in the next 12 to 18 months.
Tariffs can cause inflationary concerns and loss of confidence, and ultimately the potential for a recession. A number of U.S. trading partners have begun tariff retaliation, yet the parties involved are well aware of the consequences, and it behooves them to find constructive solutions.
The U.S. tax cuts have certainly been a positive catalyst for economic growth. Corporate earnings are strong and the U.S. unemployment rate is below 4%. These are positive signs of strength in the economy. Our investment team is encouraged by the willingness of businesses to expand and invest, not only in the U.S., but abroad. Provided the Federal Reserve is successful in timing future interest rate increases, and U.S. trading partners can achieve a trade solution, higher interest rates or tariffs should not result in a recession in the near future.
Regional Manager of Wealth Management
2301 W Big Beaver Rd
Troy, MI 48084
Q: What is an Opportunity Fund and how can I benefit from investing in it?
A: There is currently more than $2 trillion in unrealized capitalized gains sitting on individual and corporate balance sheets across the United States, the result of profitable stock market investments. Normally, those proceeds would be taxed at the capital gains rate (maximum rate of 20%), plus a 3.8% surtax. Under a provision called the “Opportunity Zone” incentive, included in the Tax Cuts and Jobs Act signed into law in December 2017, there may be an alternative: roll those unrealized capital gains into an “Opportunity Fund” and at least temporarily defer federal taxes.
An Opportunity Zone is, in general terms, limited to economically distressed communities with low incomes or areas contiguous to low income communities. An Opportunity Fund must hold at least 90% of its assets in qualified Opportunity Zone property stocks, partnership interests or business property.
Under the new law, the deferral grows the longer the investment is held. After seven years, an investor will only pay 85% of the capital gains that would have been due on the original investment. If held for 10 years or longer, an investor avoids capital gains taxes on the proceeds from the Opportunity Fund.
There is obvious risk in any real estate investment. A qualified Opportunity Fund should be considered an alternative investment in real estate.
38505 Woodward Ave., Suite 100
Bloomfield Hills, MI 48304
Q: My child is thinking about a career in finance, can you offer any advice?
A: The field of finance is exciting, challenging, and rewarding. For a student who enjoys working with numbers to provide business or personal financial solutions, a career in finance can be a great fit.
Finance is at the foundation of our capitalistic society. Employers are actively seeking banking, personal finance, business finance, real estate finance, insurance, and even governmental finance professionals, so your child can choose from many different financial “tracks.” The study of finance is also versatile and flexible, such that transitioning from a career in business finance to personal finance is not out of the question. Additionally, to be even more flexible and marketable, many students will complement their main study of finance with other quantitative disciplines.
In case you are wondering, compensation in the field is pretty good, too. However, from my own experience in the field, the true reward rests in helping others!
Dr. Dennis Witherspoon
Associate Professor and Chair — Finance
4000 Whiting Drive
Midland, MI 48640
Q: What role do Trusts play in a business succession plan?
A: A business succession plan is designed to ensure the smooth transition of a business following the retirement, death, or disability of the principal(s). It is geared to satisfy the demands of customers, bankers, employees, and suppliers, and mitigate the possibility of business asset mismanagement.
Revocable and irrevocable trusts play a crucial role. Particularly for family businesses, trusts help accomplish the following key objectives:
- Ensure management continuity by providing qualified trustees to vote company shares.
- Provide certainty that ownership, and particularly voting control of the business, stays with lineal descendants and heirs who are active in the organization.
- Allow for substantial portions of the organization’s equity to be held outside of the taxable estate to lessen the estate tax burden on shareholders.
- Provide a “safe harbor” for equity and wealth to be accumulated outside the reach of creditor claims (particularly divorcing spouses).
Coupled with appropriate corporate structure and buy-sell planning, trusts are critical in ensuring proper management and ownership continuity of the enterprise.
Michael J. Beals
Business & Corporate; Estate Planning & Trust Administration
450 West Fourth Street
Royal Oak, MI 48067
Q: With long-term care premiums increasing, should I keep the coverage or explore other options?
A: According to Genworth, the annual median cost of long-term care services increased an average of 4.5 percent from 2016 to 2017. This is the second highest year over year increase for nursing homes and nearly triple the 1.7 percent U.S. inflation rate at that time.
Additionally, the annual median cost of long-term care in Michigan is $49,192 for a home health aide, $42,000 for assisted living facility care, and $103,295 for private room nursing home care.
What should you do?
Assess your risk to determine if a long-term care policy is needed. Factors include health, longevity, and financial resources. You can purchase a policy that provides a per day benefit, but those premiums can increase substantially over time. Also consider a hybrid product combining long-term care with life insurance, which typically is a one-time lump sum.
When preparing your retirement plan, consider not only income and medical insurance, but also long-term care needs.
Principal & Financial Advisor
39300 W. Twelve Mile Rd., Suite 100
Farmington Hills, MI 48331
P: 248-579-614 (x1100)