Articles of Interest

Market Update for the Month Ending May 31, 2021

June 8, 2021

Mixed May for Markets

Equity markets started off strong in May, but volatility later in the month led to a partial pullback. The early gains brought the S&P 500 and Dow Jones Industrial Average (DJIA) to all-time highs. The Nasdaq Composite suffered from additional volatility due to its heavy technology weighting. The S&P 500 gained 0.70 percent, and the DJIA saw a 2.21 percent return. The Nasdaq Composite fell by 1.44 percent.


Biden's Tax Plan is All About the Basis

May 18, 2021

On April 28th President Biden released his official fact sheet regarding his proposals for 2021 tax reform, commonly called the American Families Plan. Estate planning practitioners initially breathed a sigh of relief as estate and gift tax reform seemingly escaped adjustment as part of the plan, or so we thought. A closer study reveals, however, there is a tax basis wolf hidden underneath that fluffy coat.


What Happens After the Stock Market is Up Big?

April 13, 2021

Given the US market’s recovery since the COVID pull back last year, we are having many conversations around whether to stay in the market and/or continue current DCA or other buying strategies. The data analyzed by Ben Carlson below indicates sticking with the current program when investing for the long term is the most prudent course. The article is concise, well written and very worth the 5 minute read. If you have any questions regarding your situation at this historic time, please give us a call.


It’s All About Jobs

April 6, 2021

We have had a lot of good economic news recently, including the significant bounce in consumer confidence reported by the Conference Board. Consumer confidence rose by more than 20 percent last month, to the highest level since September, before the third wave. According to that increase, people are feeling much better about the economy and their place in it.

This is good news, and in many respects, the economy seems to be turning the corner. There has been one big missing piece, however—jobs. Job growth has been very low for the past several months. For things to really get going, we need to see much faster job growth. This week, we should find out whether that is starting to happen.


Market Update for the Month Ending February 28, 2021

March 9, 2021

Markets Rebound in February

After a weak January, equity markets rebounded in February, despite some late-month volatility driven by a spike in U.S. interest rates. The S&P 500 gained 2.76 percent in February, while the Dow Jones Industrial Average increased by 3.43 percent. The heavily technology-weighted Nasdaq Composite gained 1.01 percent.


Has Reddit Revealed Major Cracks in the Market?

February 3, 2021

With concerns growing over a potential stock market bubble and a recent market pullback, it seems another crisis has hit the headlines: a group of retail traders has come after the market itself. Specifically, these retail investors tried to beat Wall Street by trading up several stocks well beyond what the professionals think they are worth. In doing so, the headlines claim, they have broken the market. Could that possibly be true? Let’s take a look at the details.


Has Washington Gone Blue?

January 12, 2021

This past Wednesday was a monumental day. A riotous mob attempted but ultimately failed to prevent Congress from recognizing the electoral votes that named Joe Biden as our 46th president. And in a Georgia Senate runoff, two Democrats won the seats, giving control of the Senate to that same party. Come the inauguration on January 20, all three arms of government will be under control of the Democratic Party.

What will a blue government mean for you as an investor? Take a look at this article from Brad McMillan, CFA®, CAIA, MAI, chief investment officer at Commonwealth Financial Network®, the firm we partner with to serve you. In it, he explores both the potential drawbacks and the advantages we can expect from the new administration.

As always, we like to keep you informed and help you stay on track toward your long-term financial goals. If you have questions about this article, please don’t hesitate to contact our office.


Market Perspectives

January 5, 2021

Happy New Year!
We hope your holiday season provided joy and cheer at the close of a challenging year.
I found the market perspectives highlighted in the attached resource kit from First Trust encouraging as we look forward to 2021 and beyond. The high level messages the historical analysis provides are:
• Markets are resilient
• Equities outperform other classes
• Periods of positive returns are more frequent and last longer than periods of negative returns
• Enduring volatility is rewarded over the long term
• White House politics haven't changed theses outcomes historically
Hopefully, these observations increase your confidence in your plan and the outlook moving forward. Here's to a terrific start to 2021. It certainly should have less surprises than 2020.

Market Update for the Month Ending 11.30.20

December 4, 2020

Vaccine news boosts markets in November
November was a strong month for markets, as news about developmental vaccines for the coronavirus caused markets to surge. The S&P 500 gained 10.95 percent in November, and the Nasdaq Composite rose by 11.91 percent. The Dow Jones Industrial Average led the way with a 12.14 percent gain. These strong results brought the three indices to all-time highs.

These market gains were accompanied by improving fundamentals. According to Bloomberg Intelligence, as of November 24 with 97 percent of companies having reported results, the blended third-quarter earnings decline for the S&P 500 sits at 7.3 percent. This is notably better than analyst estimates at the start of earnings season for a 21.5 percent drop during the quarter. Roughly 85 percent of companies are beating expectations.


Economic and Market Overview 10.6.20

October 6, 2020


As most of you know, a few weeks ago we emailed a survey asking for feedback on our digital communications. We received a great deal of response and appreciate the comments, suggestions and general overview of what you want to see from us. First, in terms of timing, it was somewhat surprising to us that you overwhelmingly prefer monthly outreach as opposed to more frequent emails and posts. In terms of content, the feedback was also heavily weighted toward the market and economy, but a measurable contingent would like to continue to see coverage on planning ideas.

Because we want to give you the information you want when you want it, we have decided to move from weekly communications covering a broad range of topics to a monthly commentary with an overview of the markets and the economy. We will lean heavily on the monthly updates provided by Commonwealth’s CIO, Brad McMillan, as he tends to cover the pertinent data and gives good perspective on what the information means for our clients. We will occasionally provide our own commentary which may include information from other sources we review each week when it has greater relevance to you.
For those who enjoy coverage of current planning strategies, we will intersperse various articles and overviews in between the monthly economic reports. These will probably occur quarterly depending upon the circumstances and relevance. For instance, if we have a change in power after the election generating sweeping tax reform you can expect us to provide general strategic concepts to minimize the impact of the laws will have when enacted.

Thank you again for your extremely valuable input and here is this week’s economic and market overview:


Why Even the Best Stocks Have to Crash

September 8, 2020

Sometimes the biggest reason the stock market or certain stocks experience a severe decline in price is because they first experienced a massive rise in price.

Trees don’t grow to the sky and all that.

The pandemic has changed the way we view the many previously held ways of doing things which has led to some insane gains in certain stocks that have been able to capitalize.

Many of those pandemic winners finally took a breather in recent days.



Estate Planning Update: How the SECURE Act Affects IRA Beneficiaries

August 25, 2020

In December 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which is changing retirement and estate planning for many. One major provision of the law affects those who inherit individual retirement accounts (IRAs). So, whether you might be inheriting an IRA or are planning on leaving one to your heirs, you should understand how the SECURE Act has changed the rules for beneficiaries. The IRA strategies discussed below could help enable a sound financial plan for a rewarding retirement—for both you and your heirs.


Does the Presidential Election Spell Risk for the Markets?

August 18, 2020

As the U.S. presidential election draws closer, there are growing questions (from both sides) on whether the outcome will negatively affect the markets. Of course, this is not unusual. As you may remember from the last election cycle, many predicted doom if Trump were to win. In the election before that, we saw similar worries concerning Obama. In both cases, despite the fears, the markets ended up doing quite well. Given this, what risks—if any—does the upcoming election pose for the markets? Let’s take a closer look.


Economic and Market Update

August 4, 2020

There were two major items of news connected to the economy last week. Both were negative and raised concerns about how the second half of 2020 would react to the ongoing pandemic crisis. These were:

Economic Risk Factor Update

July 28, 2020

READ MORE about July 2020 Economic Trends.


Anyone else feel like 2020 is not halfway over?

July 16, 2020

2020 has been one of the most exciting years in memory and we are just past the halfway mark! What could possibly happen in the next 6 months?

The first quarter was truly a “we have never seen this before” experience. It seemed to many that this time was different and could truly be the end. We dealt with one of the fastest market declines and recovery in our history. Covid-19 initiated a near shutdown of our economy and many lives have been permanently impacted.


Irrevocable Trust Overview

July 8, 2020

Today’s email is the third in our series of general estate planning tools and techniques.

Irrevocable Trusts
An Irrevocable Trust is an inflexible, fixed trust. You cannot change or cancel it once it has been signed. Despite the lack of flexibility, an Irrevocable Trust may be the right choice to potentially reduce taxes due on an estate at death. There are far too many variations of irrevocable trusts to discuss in a simple overview, but read more for a description of those most commonly used.


Coronavirus Update from Commonwealth CIO Brad McMillan, June 26, 2020

June 29, 2020

I would like to offer you the opportunity to hear thoughts from Brad McMillan, managing principal and chief investment officer at Commonwealth Financial Network®, our Registered Investment Adviser–broker/dealer.

In this video, available at, Mr. McMillan discusses the coronavirus, including the economic and market implications. We’ve had some setbacks on the pandemic front this week, with notable outbreaks in Arizona, California, Florida, and Texas. Although we’re not yet seeing a national second wave, the risks are rising. Both the daily spread rate (now at 1.6 percent per day) and daily case growth (about 40,000 per day) have jumped from last week, in large part due to the four outbreak states.
Despite this concerning medical news, the economic news was good. Layoffs continued to decline, while hiring continued to improve. Plus, with metrics like consumer confidence, consumer spending, and housing all showing signs of improvement, it appears the overall recovery remains well on track. But will this positive economic data be enough to cushion any market volatility caused by the most recent outbreaks? Watch this video to learn more.

IRS Notice 2020-51

June 24, 2020

Yesterday, the IRS issued notice 2020-51 which extends the deadline for rolling over Required Minimum Distributions taken earlier in the year. The CARES Act allowed you to suspend your RMDs for 2020 and gave you 60 days to roll over any distributions already taken. This Notice gives everyone until August 31 to redeposit any 2020 RMDs they would like to suspend to avoid unnecessary income tax exposure for tax year 2020.

Please call us to discuss whether it is in your interest to take advantage of this extension.

June 23rd market update

June 23, 2020

As usual, the U. S. economy continues to present a volatile and mixed picture that makes
forecasting difficult. If you’re a glass half full kind of person, you might be encouraged by
the following:

  • Retail sales – jumped sharply, increasing by 17.7% in May after a decline of 14.7%in April. Auto sales were stronger than expected and increased driving and slightlyhigher gasoline prices increased fuel sales. These trends are likely to continue asmore states exit the “lockdown” due to the COVID-19 crisis.
  • Foreign trade – surprisingly, despite the pandemic, our trade with other nationswas virtually unchanged in the first quarter – a deficit of -$104.2 billion. As a shareof GDP, the current account deficit increased slightly to 1.9%.


Is the Risk of a Second Wave of Infections Rising?

June 16, 2020

Over the past week, we’ve had some good news in that there hasn’t been any sign of a national second wave of infections. In fact, the spread rate dipped below 1 percent for the first time on two days, and case growth seems to have stabilized to around 20,000 per day. On the other hand, we’ve also had some bad news. Several states are seeing local second waves, with case counts rapidly on the rise. For now, those increases have been offset by improvement elsewhere in the country, as they’ve been severe at the local level but haven’t translated to a national level. This situation is something we’ll need to keep an eye on, as a further increase in case counts in the affected states or a slowdown in improvement in the other states could reverse the trend.


Revocable Trust Overview

June 9, 2020

Today’s email is the second in our series of general estate planning tools and techniques.  
Revocable Trust (Living Trust)
One of the first questions we usually hear when starting the estate planning process is “what is, and do I need, a Revocable trust?” 

Estate Planning Overview

May 27, 2020

I have been asked by several clients to provide an overview of the estate planning process and highlight the most common strategies and vehicles. Because this is such a broad area, I have decided to break it up into a series of focused excerpts over the next few months. I will begin with a general overview of estate planning and will follow up with the techniques and vehicles used in later editions.


Do Downturns Lead to Down Years?

May 18, 2020

Since the beginning of February, we have experienced one of the most volatile periods in market history. This volatility may not be over as we begin to cautiously re-open our economy. 
It is our job to help you make prudent financial decisions in both good and difficult times. The recent downturn and bounce back has certainly not been a fun ride, but we have made it through so far and expect to do the same in the coming weeks and months.
This recent article published by Dimensional is a good reminder as to why we must stick with a long- term investment strategy and we can’t react to short-term fluctuations.

Coronavirus Update: Does the Market Have It Right?

May 4, 2020

We would like to offer you the opportunity to hear thoughts from Brad McMillan, managing principal and chief investment officer at Commonwealth Financial Network®, our Registered Investment Adviser–broker/dealer.



April 23, 2020

Volatility is tremendous right now … DUH!! The S&P 500 started the year at 3257 and rose 3.9% to 3386 at the close on February 19th. The index then whipsawed with a drop of 33.9% to close at 2237 on March 23rd, followed by a rally of 28.4% to a 2874 closing price on last Friday, April 17th (source Yahoo Finance). The crisis in the oil market caused a negative move again at the beginning of this week but the additional stimulus package announced Tuesday evening has quelled that fall a bit … for now. History has shown the market doesn’t like uncertainty and the current environment is proving this in spades.

The SECURE Act and IRA planning for retirees

April 7, 2020

Please take a moment to read Kevin's online article in the Orlando Business Journal summarizing planning options to consider for your retirement accounts in the wake of the Secure Act. If you have any questions or would like to discuss more of the details, please shoot us an email or give us a call.


Today's Message

March 19, 2020

Today is yet another day of dreadful uncertainty causing some to panic. The markets are as volatile as ever as the coronavirus continues to wreak havoc in so many ways. Everyone is feeling some negative effect except for the Bezos family perhaps. As it relates to your portfolio, in times like this I try to remember the sage advice from one of the best investors of our time, Warren Buffet, "Be fearful when others are greedy and greedy when others are fearful." This is certainly a time when others are fearful and so we are here to help you turn that fear into confidence. We believe this will pay dividends over the long term. Everyone's situation is different, so to say we are buying across the board would be inaccurate. We are, however, facing the challenges boldly which means buying, harvesting losses, and rebalancing in some cases, while raising cash, and even selling outright, in others. In every case we are available to look at your specific scenario and help you make decisions that put you in the best position to be bold in these uncertain times. Together we will overcome these difficult times.

Please call us when fear creeps in.

Is the Bear Market Here to Stay?

March 13,2020

With the Dow dropping 20 percent from its highs and the S&P 500 following suit, we have finally seen the end of the bull market. And so we find ourselves officially in a bear market, with all that implies. Stock markets around the world dropped again on the news.


Coronavirus Update

March 10, 2020

Flu vs Coronavirus... some perspective.




Adding Fuel to the Fire

March 9, 2020

Wow! We are experiencing an exceptionally fidgety market. As I write this, US equity futures point to at least 5% drop at today’s open. The OPEC meeting this weekend ended in a stalemate between Russia and Saudi Arabia. Because Putin wouldn’t accept the production reduction OPEC proposed, the Saudis slashed prices and increased production – a double whammy! 







What Does the Coronavirus Mean for Investors?

February 25,2020

Despite attempts by Chinese authorities to contain the coronavirus, the numbers make clear that the virus is now spreading around the world. According to the World Health Organization, there are 79,331 confirmed cases, of which 77,262 are in China and 2,069 are outside of China (as of February 24, 2020). Unfortunately, the numbers only seem to be growing, with the Washington Post recently reporting that there were 833 confirmed cases in South Korea and 53 confirmed cases in the U.S.


Bob LeClair’s Finance and Markets Newsletter W/E 2.1.2020

News about the worldwide spread of the coronavirus and the winding down of the President’s impeachment trial in the Senate dominated the headlines last week. There wasn’t much room left over on TV, radio, or the press for economic news – too bad.
The Bureau of Economic Analysis released its preliminary report on Q4 2019 Gross Domestic Product (GDP) for the U. S., and it pretty much confirmed that our economy is running near its potential. GDP increased by 2.1% in the fourth quarter, nearly matching its growth for most of 2019.

Test Your Knowledge of 2020 Key Federal Numbers for Financial Planning

Each year, the government reviews the gift and estate tax exemptions and contribution limits for retirement plans to make inflation adjustments. As you assess your plans for gifts and retirement plan contributions for 2020, it’s important that you understand this year’s key federal numbers.

Which of the following is not true about 2020 federal financial planning numbers?

Important Timing Changes to 2019 Tax Form Mailings (1099 and 5498)

The IRS tax form mailing date for most non-retirement 1099 tax forms is February 15 . As in past years, National Financial Services LLC (NFS) has applied for and received a mailing extension from the IRS that will permit the generation of some non-retirement 1099 tax documents after February 15, but no later than March 6.


SECURE Act Information

On December 20, 2019, the SECURE Act was signed into law. The SECURE Act contains 29 provisions, encompassing many aspects of financial planning and retirement saving. Once treasury regulations are released, nuances in interpreting this new law will become clearer. Until then, individuals are left to interpret the law’s effects based on the language of the law itself. This article will address what the SECURE Act entails and who it affects, as well as provide suggestions on how to plan for the changes that have been instituted.


A Tale of Two Decades

Investors naturally want to only hold the best performing assets all the time. One of the most important jobs we have is to make sure our clients maintain the proper allocation for their risk level and time horizon and avoid the persuasion to react to recent market swings. Inevitably, portfolios covering a broad spectrum of asset classes will have positions that do not compare favorably with the flavor of the day. No one ever likes to own a loser. However, research and history continue to remind us that a broadly diversified portfolio is ultimately the only way to win over the long term. 


Rate Cut, Trade War, and Global Political Unrest - What Does It Mean?

There is a lot going on now and volatility in the financial markets has increased again. Not really, but when it comes to finances, the human condition only considers negative volatility volatile. The market can be racing up at a frantic pace and no one calls it volatile. 


The Uncommon Average

The return of Market Volatility this past week and the headlines of a trade war with China
have the media in a frenzy. We want to remind our clients and friends that we are still in a
normal range of returns and that as long as you have an investment philosophy that you
can stick with, you will be ok. Please review this short article from Dimensional Funds on
setting proper expectations. As always, if you have questions or concerns, please call us
and we will be happy to review your situation.


Economic Forecasting

Are Economists Accurate?
Everyday we see predictions of highly acclaimed economists of what is going to happen in the economy and markets. These forecasts are so ubiquitous that most people take them for gospel. The truth about what the markets and economy will be doing next year is more elusive than the media portrays. The Wall Street Journal published an article on March 26th touting the most accurate forecaster from their monthly survey for 2018. The winner was Bernard Baumohl. 
How accurate was he? 

Here's the Prescription

We hope you are enjoying the warmer temperatures and are avoiding the pollen that comes with it! In our efforts to stay informed we spend a lot of time reading industry relevant information and frequently come across articles and information that we deem worth sharing. This article from David R. Jones at Dimensional Funds is one such article. Please take two minutes to read this brief article.


Inflation Under Control, But Data Still Weak

Last week was a busy one for economic data. But the week ahead will be slower, consisting of housing reports and the regular meeting of the Fed.


SEC Charges Wealthfront, Hedgeable with False Disclosures

Wealthfront one of the first, largest and widely known robo advisors has been fined for a series of violations by the SEC. As is evident from the attached article, the robos can break the rules and are doing so.


A Solution to the Password Problem

Whether you’re looking to make a New Year’s resolution or you’re simply trying to implement some information security best practices, you would be well served to start using a password manager. Why?

Read More

Financial Steps You Can Take to Improve Your Relationship with Your Spouse

One of the most rewarding things we have done over the years is to help a family get on the same page financially. Finances can be one of the biggest causes of arguments within a marriage and there are some simple steps you can take to significantly reduce the stress that comes from disagreements about money.
In most marriages, one partner takes the lead when it comes to handling the financial responsibilities but this does not mean that the other should be kept in the dark. Couples can reduce financial anxiety by taking a few simple steps to clearly communicate the current financial picture as well as the plans in place for future goals. Each family is unique and has a different set of financial circumstances, but these steps can improve the communication in any household. 

Getting to the Point of a Point

A quick online search for “Dow rallies 500 points” yields a cascade of news stories with similar titles, as does a similar search for “Dow drops 500 points.” These types of headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. The potential for misunderstanding also exists among even experienced market participants, given that index levels have risen over time and potential emotional anchors such as a 500-point move do not have the same impact on performance as they used to. With this in mind, we examine what a point move in the Dow means and the impact it may have on an investment portfolio.

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Team Announcement

We are writing to inform our clients and colleagues of some exciting changes at Vaughn Wealth. First, Christina Hoffman, our client communications coordinator, recently married and is moving to Atlanta to start her new family. Christina has been a wonderful part of our team for 4 years and we will miss her. However, we are truly excited and wish her many blessings in this new chapter in her life!

We are equally thrilled to announce that in less than one week after Christina’s departure, we were blessed to identify her replacement, Mary Ann Wells. Mary Ann comes to Vaughn Wealth from West Chester, Ohio where she worked as an operations specialist in the trust and wealth management department of First Financial Bank. Already, Mary Ann’s background has proven to be an asset to our firm increasing the value we provide you. Her values and personality blend well into our culture and we believe you will all claim her to be part of our overarching family.

Thank You, Jack Bogle

Presented by Kevin & Kyle Taylor

As most of you know, John “Jack” Bogle passed away January 16th at the age of 89. He was the founder of the Vanguard fund family and is credited with creating the first index fund. In the video below, David Booth reflects on the impact Jack had on investing for the retail client. We couldn’t agree more and salute Jack’s accomplishments as well.

Read More


Recent Market Volatility

While it may be difficult to remain calm during periods of market volatility, part of our job is to help our clients stay on course and provide confidence in how they are invested. Please watch this short video that shares our sentiments. As always, if you need to talk please give us a call. We are here to help.

Market Corrections

Don’t let the recent equity market downturn influence your long-term discipline.  We couldn’t agree more with the points Tony Robbins makes in the attached article on market corrections.  

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Estate Planning

Most people tend to avoid or lose focus on events that aren’t imminent, such as death. Nobody expects tomorrow to be their last day, and thus, estate planning languishes at the bottom of their to-do lists. Planners and attorneys can speak about the importance of estate planning until they’re blue in the face, but sometimes it takes a concrete example to drive the point home. 2017 was a year of several high-profile cases where a lack of planning created nightmares for the remaining family resulting in litigation, fines, taxes, 2 court costs and, most importantly, tattered relationships with potential permanent estrangement.

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Lessons for the Next Crisis

It will soon be the 10-year anniversary of when, in early October 2007, the S&P 500 Index hit what was its highest point before losing more than half its value over the next year and a half during the global financial crisis. Over the coming weeks and months, as other anniversaries of major crisis-related events pass (for example, 10 years since the bank run on Northern Rock or 10 years since the collapse of Lehman Brothers), there will likely be a steady stream of retrospectives on what happened as well as opinions on how the environment today may be similar or different from the period leading up to the crisis.

Read More

Market Highs and Diversification

The Dow Jones Industrial Average and the S&P 500 stock indices have recently made new all-time highs.  With the markets hitting new highs, you may think it is a good time to cash in those gains, however historical data shows that 80.5% of the months following a new index high had positive returns.

Exhibit 1.  S&P Total Return Index Highs:  1926-2016* (Chart provided by Dimensional Fund Advisors.)

                     Percent of months with Positive Return Over Next 12-Month Period

From January 1926-December 2016, 319 months, or approximately 29% of monthly observations were new closing highs.**

After considering this data, we believe that a more disciplined strategy would be to revisit your long-term objectives and to make sure you are invested in the proper asset allocation for those stated objectives, your risk tolerance and your time horizon.

What does the term “asset allocation” mean?  It is a systematic approach to investing that can help you create a more efficient mix of investments by diversifying a portfolio among the major asset classes including stocks, bonds, alternatives and cash.  We also believe that proper diversification includes investing in large, small, domestic and international companies.  A well-diversified portfolio will include assets from around the globe. 

There are investment opportunities in the Global equity markets and nearly half of the companies you can invest in lie outside of the United States.  A portfolio that consists solely of companies within the Dow Jones Industrial Average or the S&P 500 would not be exposed to opportunities outside of the US.   You should examine your portfolio to determine whether you are properly diversified and invested for your specific situation.

If you would like help with this, give us a call and we would be happy to review your situation.

* 1,081 Monthly observations

**The S&P data is provided by Standard & Poor's Index Services Group. For illustrative purposes only. Index is not available for direct investment. Past performance is no guarantee of future results.

DJIA: A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. S&P 500: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

Choosing Your Trustee: Things to Consider

Trusts are an integral part of many estate plans for a multitude of reasons including:

  • avoiding the probate process
  • maintaining control and use of estate assets within the family, or bloodline
  • protecting spendthrift beneficiaries from their own poor judgment
  • minimizing the impact of taxation on the transfer of wealth from one generation to another
  • shielding assets against creditors and potential lawsuits
  • providing for the support and care of a family member with special needs

A Trust is a written contract between the Grantor and the Trustee for the benefit of all Beneficiaries, which can include the Grantor and anyone else he chooses including spouse, children, grandchildren, friends, or charities. A Trust can be created during one’s life or by will upon death. The person who creates the trust is called the “Grantor.” A trust that is created at death of the Grantor by virtue of a will is referred to as a Testamentary Trust. A Trust created during the life of the Grantor is referred to as an “inter vivos” trust.

What Are Common Types of Trusts and Their Purposes?

One of the first considerations in selecting your trustee is the type of trust your trustee will administer. Because different trusts may require different trustee roles, selection of your trustee should, in part, be driven by the type and purpose of the trust.

Revocable Trusts

A revocable or "living" trust is designed to hold your assets during your life. Most often, you will serve as the initial trustee of your revocable trust. However, if you become incapacitated or are unable to manage your financial affairs, your successor trustee will step in. The role of your successor trustee will be to manage the assets in your trust for your benefit and to make distributions to you or for your benefit to ensure that your needs are met. You want someone who is going to be aware of your needs and situation and will act in your best interests.

After your death, the role of your trustee will shift. Your revocable trust becomes "irrevocable" and its terms establish how your assets will be distributed, much like a will would. At this point, your trustee's role will be similar to the role of an executor under a will. Your trustee will be responsible for collecting, managing, and distributing your assets to your beneficiaries (or to trusts for their benefit, described below) in accordance with your trust agreement.

Irrevocable Trusts

A trust for a beneficiary established under the terms of your revocable trust or by your will and funded after your death is an irrevocable trust. Likewise, in certain circumstances, you might establish an irrevocable trust during your lifetime, which means that you relinquish the right to change or terminate the trust. With any irrevocable trust, you must understand that you will be relying heavily upon your trustee to carry out your intent and the terms you have established in your trust.

Below are some of the purposes, including tax and non-tax reasons, for including an irrevocable trust in your estate plan:

  • Irrevocable trusts frequently are used for estate tax planning. For example, establishing a "credit shelter trust" for the benefit of your surviving spouse will preserve your estate tax credit and shelter assets in the trust (and any appreciation on the assets) from taxation in your spouse's subsequent estate. If your taxable estate is in the ballpark of $5,450,000 individually, or $10,900,000 as a married couple as of 2016, your planning likely includes an irrevocable trust.
  • An irrevocable trust can be used to control the disposition of your assets in the future. For example, in a blended family scenario where each spouse has children from prior marriages, an irrevocable trust will allow you to not only provide for your spouse, but also to control the disposition of the assets remaining in the trust following your spouse's death, including, if you desire, a requirement that all or a disproportionate share of the assets be directed to your children rather than your spouse's separate children.
  • If you have a beneficiary who is too young to manage assets or otherwise is not financially responsible, an irrevocable trust may be appropriate in order to preserve and manage the assets you are designating for that beneficiary. Your trustee can judge how to distribute trust assets in a way that will make them last.
  • Oftentimes, an irrevocable trust is chosen because of its asset protection benefits. Assets received in certain trusts are immune from claims of a beneficiary's creditors. Many people consider creating an asset protection trust if their potential beneficiary has heightened exposure to lawsuits because the beneficiary is involved in business or a high-risk profession (such as a doctor), or if the beneficiary is or may be involved in a divorce or similar dispute.
  • Finally, an irrevocable trust often is used for a beneficiary with special needs. A special needs trust can be set up in a way that will not affect your beneficiary's receipt of governmental benefits. Similarly, if your spouse may need to qualify for Medicaid in the future, assets received in certain trusts will facilitate this.

In any of these scenarios, your trustee will manage the assets of your irrevocable trust and make distributions for the benefit of your beneficiaries pursuant to the terms set out in your trust agreement.

Once you have carefully chosen which trust, or trusts, is best for your estate plan, it is important to also carefully choose your trustee. The trustee will hold the investment and distribution power, and will be responsible for respecting and enforcing the terms of the trust as you have established them. A trust meant to protect assets is of little benefit if a poorly selected trustee squanders the assets. If your plan includes a trust – whether it is revocable or irrevocable – don’t stumble at the finish line by naming the wrong trustee.

What is the General Role of a Trustee?

The trustee you select will have special obligations to you as the creator of your trust, as well as the beneficiaries of your trust. The trustee's duties arise under the terms of your trust agreement as well as under Florida law. Some of the essential obligations include:

  • Administering a trust by its terms. First and foremost, your trustee must administer your trust in good faith and in accordance with the terms and purposes you have established in your trust agreement.
  • Exercising skill and care. Your trustee must administer your trust as a "prudent person" would. In taking any action, your trustee must consider your trust's purposes, terms, distribution requirements, and other circumstances of your trust and its beneficiaries.
  • Duties of loyalty, fairness, and impartiality. Your trustee must act in the best interests of your beneficiary. This means that your trustee must avoid situations in which your trustee's personal interests conflict with those of your beneficiary. If your trust has more than one beneficiary, your trustee's decisions must be made by weighing each beneficiary's interests.
  • Managing trust assets appropriately. Your trustee must invest and manage trust assets as a "prudent investor" would. This means that your trustee must consider the investments in the context of your entire trust. For example, an appropriate investment may depend on your trust's need for liquidity to make distributions, the types of assets in your trust, your beneficiary's other resources, or general economic conditions. Your trustee can delegate investment decisions to a financial advisor, but will still have an obligation to carefully select the advisor and monitor performance.
  • Keeping records and communicating. Your trustee must keep records in connection with the administration of your trust, and provide information to your beneficiary as required in your trust agreement.

What Factors Should You Consider in Selecting Your Trustee?

TRUST PURPOSE. As noted earlier, you must consider the purpose of your trust. If the primary purpose is to provide asset protection for your beneficiary, it may be okay for your beneficiary to serve as trustee. However, if the goal of the trust is to preserve assets for a spendthrift beneficiary or for future generations, it could defeat the purpose of the trust for your beneficiary, or someone the beneficiary can influence, to serve as trustee.

FAMILY DYNAMICS. In addition, you should consider the relationship of your trustee and your beneficiary. Are they generally going to be able to work together? Will your trustee be comfortable standing up to your beneficiary if necessary? In tricky family circumstances, the best option for the trustee may be an unrelated third party, a bank, or a trust company.

JUDGMENT AND EXPERIENCE. Trust assets can waste away while under the care of an inexperienced trustee. A good trustee will exercise sound judgment in making investment and distribution decisions. Expertise helps, but common sense is just as good. You don’t need a Wall Street whiz to act as your executor or trustee. But you do need a person who knows when it’s time to involve an expert. “You need someone with good, basic business sense. I like people who aren’t afraid to research and ask for help, not know-it-alls who think they don’t need help.

AWARENESS OF YOUR BENEFICIARY'S NEEDS. A trustee often has some degree of discretion in determining whether to make distributions to a beneficiary. Your trustee should be someone who will be aware of, and sensitive to, your beneficiary's needs. You may want to consider a trustee who lives in the same community as your beneficiary, or is personally close to your beneficiary.

FAIRNESS. The lack of a conflict of interest is important in selecting your trustee. For example, a trustee who is a potential future beneficiary of your trust may be reluctant to make distributions, even if the current beneficiary needs them because a distribution now will lessen the amount of trust assets that will be available to your trustee as a beneficiary later. A good trustee will be able to make decisions without being influenced by personal interests.

ATTENTION TO DETAIL. Managing assets and keeping track of distributions and other trust matters requires a certain level of accountability and attention to detail. Your trustee ideally should be organized and responsible.

AVAILABILITY. This criterion has two aspects: permanency and proximity. Take into account the person’s age, health and the likelihood of that person being around to administer your estate. Obviously, a trustee has to outlive you, so you wouldn’t want to name your brother or sister if they’re your age or older. Every estate-planning expert has faced an executor or trustee who was unavailable when needed — whether because of disability, distance, or death. That’s why they harp on naming backups. Proximity should also be considered. In many states, a non-resident individual may act as a trustee, although as a practical matter, geographical considerations often argue against selection of an individual who lives a considerable distance from the beneficiaries of the trust. It can’t be emphasized enough to have flexible language in your trust instrument allowing you to "hire and fire" new trustees should circumstances change. You can name a successor yourself, allow your executor or trustee to name a successor, or designate a corporate executor or trustee. Another option to consider is to make provisions that give beneficiaries the power to change from one corporate fiduciary to another.

FEES. It is customary for corporate trustees to charge a fee for their services. Usually, this fee is based on a percentage of the income and principal of the trust. A distribution fee equal to a percentage of the principal disbursed from the trust may also be charged. Although this fee is typically based on a standard schedule of fees, it may be possible to negotiate the fee in the case of a trust with a large amount of assets. This may be an agreed-upon amount or a flat hourly charge. Many individuals name as trustees spouses, relatives, close friends, or even trust beneficiaries because they will serve as a personal favor or as an accommodation and will not charge a fee to act as a trustee. This may be an economic necessity where the value of the trust assets is small and payment of minimum fees to a corporate fiduciary would significantly reduce the income and principal of the trust. In larger trusts, when a relative or friend is trustee, it may be a good idea to provide for fees, even at a reduced schedule, in order to ensure prompt performance and avoid building a resentment toward onerous duties. There are many reasons for using a trust in your estate plan. To achieve your goals in using a trust, it is important to choose your trustee wisely. Selecting a Trustee can very complicated, and this list is by no means an exhaustive discussion of the issues you can face. But in general, a good trustee will exercise sound judgement, be fair, and follow the terms of your trust as you have created them, keeping your intentions in mind. Finally, the selection of your trustee should not be a decision that is made once and never revisited again. You should "kick the tires" on your estate planning documents every few years to make sure that your trustee selection (and the rest of your estate plan) is still appropriate. If you find that amendments to your plans and changes to your trustee are needed, you should act accordingly.



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