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At Diversified Trust, we value knowledge and professional development.
Explore our colleagues’ publications on topics including investment and planning
Quarterly Investment Reports
Selected White Papers and Articles
White papers and articles are created by Diversified Trust to concisely inform our clients about complex issues on current topics of interests. These are regularly distributed to our clients and their advisors.
Recent White Papers
Population: A Tale of Two Worlds
What Do We Buy and Where Does It Come From?
Unintended Consequences – The Never-Ending Story
That’s Crazy! Financial Events Over Time That Are Hard to Believe
Deciphering the Alphabet Soup of Medicare
Social Security – Timing is Everything
Social Security and Medicare – The Basics
The FinTech Revolution
Click on a case study below to discover how Diversified Trust can make a significant impact.
The Jacobson Family decides that it is time to discontinue some of the planning measures put in place by prior generations. A change of course enhances benefits for future generations beyond maintaining the status quo.
Sometimes planning vehicles and structures can outlive their useful lives. Knowing when requires careful examination of the tax, legal and economic environment – much the same as when the planning transactions were first enacted. However, we believe that the decision to unwind requires increased consideration and understanding of the individuals involved. Some call this family dynamics, lifestyle planning or just good listening.
Revisiting the Documents
Previous generations of the Jacobson family judiciously used trusts and LLCs in order to transfer and preserve wealth for future generations. Now, four generations later, the youngest family members are coming into adulthood and the senior family members realize that the LLC structure could now be obsolete. For the first few generations, the advantages of pooling investments and sharing management responsibilities across the family was beneficial. As the family grows they realize that “unbundling” everyone may provide independence and autonomy that will allow future generations to tailor their assets to their individual goals and circumstances.
Devising a New Plan
Diversified Trust worked with multiple generations to review the advantages and disadvantages of continuing the LLCs. After much consideration a plan of dissolution was agreed upon and we coordinated activities with the family attorney.
Transferring Private Assets
Because the LLCs held private assets and artwork we engaged valuation experts to help value these assets. Once the values were known we devised a plan for division that transferred artwork and cash to the individual owners while leaving the investment assets intact for the trust owners.
The dissolution proved to be a win-win for multiple generations of the Jacobson family.
The senior generation finds great comfort in knowing that they have continued and even improved upon the planning that was created for them by earlier generations. An additional benefit of distributing artwork to individuals is that direct ownership provided them the freedom to transfer those works to other family members, charities, etc. as a part of their own estate plans. The youngest generations of the family can now look forward to having more direct involvement in their current and future trust shares. Finally, we believe that this interactive process served to strengthen the bonds between the family members and their advisors; something that we hope continues for as many generations into the future as we have addressed looking into the past.
The Tyler Family, which is headed by three siblings — Jack, Susan and Tom — needed to gain a better understanding of their shared wealth.
With combined assets exceeding $100 million, the family members have achieved significant success in their professional careers. None of them, however, works in finance, so they saw the need to gain a better understanding of the mechanics of their shared wealth, including investment management, working with advisors and more. Because the family is spread across the country, they also wanted to create an opportunity to bring everyone together to raise questions, share concerns and build a common understanding of wealth management.
A significant portion of the Tyler family’s shared wealth is through an LLC that is owned proportionately by each branch of the family. Financial education would help them optimize and leverage this structure by gaining a better understanding of sophisticated investments, tax planning and other opportunities.
They called on Diversified Trust to develop an ongoing process for education to improve their financial knowledge and prepare future generations for the responsibilities of wealth.
We began by assisting Jack, Susan and Tom in establishing the overarching goals they hoped to achieve and the lessons and the legacy that they wished to share. We then asked their children what results they hoped to attain from the education program. Other family advisors were also involved in the planning process, including those who have been instrumental in creating the existing family trusts and overall financial structure. The input from all parties was used to prepare the curriculum, which was personalized to include family history, explanations of prior wealth transfers and significant financial events and education on how each individual fits into the larger family financial structure.
Designing a Curriculum
The input from all parties was used to prepare the curriculum, which was personalized to include family history, explanations of prior wealth transfers and significant financial events and education on how each individual fits into the larger family financial structure. Topics for the curriculum included investments, taxes, trusts, estates and wealth transfer, how
to work with advisors, philanthropy, family dynamics and what it means to be a beneficiary. In addition to developing curriculum to address these topics, we engaged each family unit in lifestyle planning which provided a greater understanding of their individual financial situation and how the larger family structure impacts each individual. This planning also provided the basis for developing a global spending policy for shared family trusts which would support the needs of each individual while sustaining the trusts for future generations
Ongoing education was delivered during the semi-annual LLC meetings where all family members were in attendance, at smaller family gatherings and one-on-one sessions. The Tylers also attended a series of wealth management seminars that Diversified Trust presented in conjunction with a local university, where they had the opportunity to interact with and learn from other families facing similar issues.
The family gained confidence in making financial decisions and working with advisors.
The education program met several key goals identified by the family. It not only provided education to give the Tylers more confidence in making financial decisions and working with advisors, it also paid tribute to the legacy of prior generations, celebrated family values and improved family harmony. Through lifestyle planning and development of a global spending policy, a greater understanding was gained of how the family wealth can provide financial freedom for each individual to pursue their passions and attain their unique goals. Overall it provided peace of mind — the Tylers are now better prepared to manage their family wealth and continue the family legacy.
The Simmons, a couple with roughly $40 million in assets, had just sold their family manufacturing business and were ready to retire, but they faced a significant challenge.
They wanted to maintain the quality of their lifestyle as they transitioned from business owners to living off their investment portfolio. At the same time, they wanted to be able to transfer wealth to their heirs and meet their philanthropic goals, including major gifts to their church and the local symphony. And all this had to be accomplished as tax efficiently as possible.
They called on Diversified Trust to help them with a plan.
Capturing the Full Picture
Gaining a complete understanding of the couple's financial picture, including the makeup of their assets, sources of income, existing estate planning documents, lifestyle needs and tax situation.
Building a Custom Model
After setting goals for the efficient transfer of wealth and charitable giving, we built a comprehensive model with multiple scenarios to identify the best plan to achieve the clients' goals.
Affirmation and Integration
We reviewed our recommendations with their attorney and tax advisor to ensure everyone was in agreement on the proper course of action.
Our plan achieved immediate income tax savings of $2 million, and future estate tax savings could exceed $10 million.
Based on our cash flow and net worth projections, we established a spending policy that allowed the Simmons to comfortably expand their lifestyle. A $5 million contribution was made to a donor-advised fund to optimize the income tax deduction in the current year and satisfy philanthropic goals in future years.
Estate planning documents were revised to make specific outright bequests to the couple’s parents and siblings, as well as to fund a $10 million trust for each of their two children, with any excess going to charity. And we determined that these wealth transfer goals could be met without purchasing life insurance.
The Jacksons, a couple in their early 50s with a net worth of $25 million, recently sold their business. Their tax bracket and state presented challenges if they were to maximize their hard-earned wealth .
Selling a family business can be the culmination of a life’s work, the opportunity to reap what you have sewn and retire comfortably. But it can also bring significant tax consequences that can eat into hard-earned wealth. The Jacksons, a couple in their early 50s with net worth in excess of $25 million, faced such a situation when they sold their manufacturing business. They live in North Carolina, where they are in the highest tax bracket in a state with particularly high income tax rates. The Jacksons turned to Diversified Trust for a strategy to minimize their tax exposure.
After meeting with the couple to understand their objectives, we reviewed their recent income tax filings to put together a comprehensive picture of their income sources and deductions.
Revewing Existing Assets
Next, we reviewed their existing investment portfolio to determine their asset allocation, asset location, fee structure, asset turnover patterns and general tax attributes. We found they had approximately 30% of their investments in taxable fixed income mutual funds and 70% in a mixture of individual equities and equity mutual funds.
Examining the Code
We also examined the North Carolina tax code to see if the Jacksons might be able to take advantage of any tax credits and incentives, and we looked at the current legislative climate to see if there were any potential changes on the horizon at the local and federal levels. Finally, based on projections for taxation in future years, we developed a set of recommendations for the Jacksons, which we reviewed with their tax advisor to make sure we were in agreement on a course of action.
Our planning process identified several opportunities for reducing the Jackson’s income tax burden, which collectively amounted to meaningful annual savings.
First, we restructured their investment holdings to gain tax advantages. We migrated tax-inefficient assets into tax-deferred accounts. In their taxable account portfolio, we replaced national bond funds with more tax-efficient alternatives, including a North Carolina individual municipal bond portfolio. We reduced exposure to capital gains by incorporating managers that emphasize low turnover.
We also identified solar tax credit investment opportunities that were unique to the state of North Carolina and assessed their appropriateness for the Jacksons. The investment resulted in the pre-payment of North Carolina tax at a discount of 20% to the extent of the credits purchased.
The Jacksons’ commitment to supporting charitable organizations created another opportunity to reduce their tax exposure. They had planned to make annual charitable gifts of approximately $500,000 over five years. However, our tax projections revealed that strategy would not have allowed the Jacksons to receive the full tax benefit from their donations, because of much lower taxable income in the years after the sale of their business. As an alternative, we recommended a one-time $2.5 million gift to a donor-advised fund in the year of the sale, allowing them to receive the full tax benefit of $750,000. We further recommended funding the gift using stocks with significant appreciation, resulting in the avoidance of future capital gains taxes on those stocks.
Our comprehensive program not only resulted in immediate tax savings, but will continue to create significant tax savings over time. The Jacksons feel satisfied knowing they’ll keep more of the wealth they’ve earned to support their retirement lifestyle and the charities that mean the most to them.
The Clarks, a couple in their early 70s with roughly $30 million in assets want to provide for their family but also leave a charitable legacy.
Maximum wealth transfer with minimal taxes — that was the goal for the Clarks, a couple in their early 70s with roughly $30 million in assets. They wanted to provide for their children, grandchildren and charitable institutions close to their hearts, including two universities and a community foundation. Of primary concern was a grandson with special needs who requires care — including comfortable living arrangements and other necessities — beyond what government assistance provides.
All this had to be balanced with the couple’s need to maintain their current lifestyle in retirement. They called on Diversified Trust to develop a solution.
Listening to the Goals
We began by sitting down with the Clarks to gain an understanding of their financial picture including the makeup of their assets, their lifestyle needs and their estate and charitable giving goals.
We reviewed their existing estate planning structure to identify gaps between their current plan and their established goals. Numerous recommendations were made including modifications to legal documents, changes to ownership of assets and beneficiary designations, and establishment of new trusts to better align their estate plan with their goals. All recommendations were made with the current legislative climate in mind and the potential for future changes.
Building a Model
Next we built a comprehensive model to illustrate the impact of our recommendations on current and future cash flow, income and estate taxes and distributions to heirs and charity. We reviewed our recommendations with the client’s attorney and tax advisor to ensure all were in agreement and coordinated with all advisors to execute the agreed upon plan.
Through the use of trusts, retitling of assets and changes to beneficiary designations, we helped the Clarks create a wealth transfer plan that reflected the couple’s charitable giving goals as well as their desire to provide for children and grandchildren.
A life insurance trust was created to remove paid-up policies from the Clark’s taxable estate resulting in significant estate tax savings. A Special Needs Trust was established for the grandson who requires exceptional care and funded with an amount to ensure his ongoing needs will be met.
Generation skipping tax (GST) exempt trusts were created for the grandchildren to shelter the maximum amount allowed from taxes in the estates of future generations. Trusts for children were named as beneficiaries of the remainder of the estate. To accomplish charitable goals and to minimize estate tax and future income taxes, charitable institutions were named as beneficiaries of the couple’s IRAs.
Overall, the plan will save an estimated $5 million in taxes and still allow the couple to make annual charitable contributions of roughly $300,000 while living off retirement income of about $650,000 per year from defined benefit plans. More importantly, the Clarks can feel confident knowing that their heirs and the charities that mean the most to them will be benefit from their wealth.