Portfolio Updates

Happy Thanksgiving !

Please note our office will be closed on Thursday, November 22 and Friday, November 23, 2018 in observance of the Thanksgiving holiday.  Normal operating hours will resume on Monday, November 26, 2018.

Feel free to contact me should you have any questions or if you have specific needs that require special attention.  You can reach me at 239-287-3789 or via email at pmcintyre@namcoa.com.

Have a safe and happy holiday!

 

Due Diligence for Commercial Real Estate Transactions

Due diligence usually refers to the time after signing a contract that the buyer has to inspect the property and make a decision whether they want to buy the property or lease the property or otherwise go forward with the transaction.

It’s important during due diligence period that you gather all of your information. You have to get your inspections done, you have to get your environmental inspections done, you have to gather all the documents that relate to the property, you have to do your zoning checks and you generally have to be one hundred percent certain that you are going to go forward with this deal.

If you don’t gather all that information, when due diligence expires, your deposit money may become non-refundable. Before due diligence expires, you can still walk away. It’s what’s also called a Free Look Period. It’s important to have a good broker and a good team of professionals around you to conduct all of these inspections, gather all of the documents, tell you what everything means and advise you whether you should go forward or not. A good broker will quarterback all of these players and make sure that everything is done timely and keep you on track.

The scope, intensity and focus of any due diligence investigation of commercial real estate depends upon the objectives of the party for whom the investigation is conducted.

A  “Due Diligence Review” will address issues important to the Seller, Developer and Lender including:  

  • WHAT IS CONSIDERED TO BE “THE PROPERTY”Bank Property
  • PURCHASE PRICE & OTHER CONSIDERATION
  • TITLE
  • SURVEY
  • BUILDING INSPECTION
  • THIRD PARTY SERVICE AGREEMENTS
  • ZONING
  • EXISTING LEASES
  • PURCHASER FINANCING
  • ENVIRONMENTAL ISSUES

IRS Provides Guide for New Tax Law

Last week the Internal Revenue Service (IRS) issued a new publication to help taxpayers learn about the recent tax reform law and how it affects their taxes.  The IRS estimates they will need to create or revise more than 400 taxpayer forms, instructions and publications for the filing season starting in 2019 — more than double the number of forms it would create or revise in a typical year.

While the 2018 Tax Cuts and Jobs Act includes tax changes for both individuals and businesses, this publication  —  Tax Reform Basics for Individuals and Families— is specifically geared to individual taxpayers. According to the IRS, the publication breaks down the law in easy-to-understand language and highlights the changes that taxpayers will see on their 2018 federal tax returns they file in 2019.

Specifically, the new guide provides important information about:

  • Increasing the standard deduction
  • Suspending personal exemptions
  • Increasing the child tax credit
  • Adding a new credit for other dependents
  • Limiting or discontinuing certain deductions

IRS Tips to Prepare for 2018 Federal Tax Filing

Federal Income Withholding

What You Need to Know

  • Due to tax changes in the Tax Cuts and Jobs Act, many taxpayers’ withholding went down in early 2018, giving them more money in their paychecks in 2018.
  • You may receive a smaller refund – or even owe an unexpected tax bill – when you file your 2018 tax return next year, especially if you did not adjust your withholding after the withholding tables changed.Other changes that affect you and your family include increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, adding a new credit for other dependents and limiting or discontinuing certain deductions.

What You Need to Do

  • Use the IRS Withholding Calculator to perform a paycheck checkup to help you decide if you need to adjust your withholding or make estimated or additional tax payments now.
  • Use your results from this calculator to submit a new Form W-4, Employee’s Withholding Allowance Certificate, to your employer.
  • Make estimated or additional tax payments if the withholding from your salary, pension or other income doesn’t cover the 2018 income tax that you’ll owe for the year. Form 1040-ES, Estimated Tax for Individuals also has a worksheet to help you figure your estimated payments.

To download IRS Publication 5307, Tax Reform Basics for Individuals and Families, Click here.

Inherited IRA Rules

IRS rules for inheriting retirement accounts are complex, and an uninformed decision could result in unexpected taxes and penalties. Your options depend on your relationship to the original owner and the owner’s age at the time of death.

Beneficiaries of both traditional and Roth IRAs must take required minimum distributions (RMDs), with one exception for spouses (described below). If the original owner died after reaching age 70½ and did not take an RMD for the year of death, you may also have to take the owner’s RMD by the end of the calendar year.

Special Rules for Spouses

A surviving spouse can roll the inherited IRA assets to a new IRA in his or her own name. If the spouse is the sole beneficiary, the inherited IRA can simply be redesignated in the surviving spouse’s name (if allowed by the account trustee). Because the spouse becomes owner of the account, he or she can make additional contributions, name beneficiaries, and avoid RMDs from a Roth IRA. RMDs must be taken from a traditional IRA but don’t have to start until the surviving spouse reaches age 70½; they would be based on his or her life expectancy.

Options for Designated Beneficiaries

Nonspouse beneficiaries, as well as a spouse who does not treat an inherited IRA as his or her own, cannot contribute to the IRA and can only name “successor beneficiaries.” In most cases, the funds must be transferred directly (through a trustee-to-trustee transfer) to a properly titled beneficiary IRA; for example, “Joe Smith (deceased) for the benefit of Mary Smith (beneficiary).” All designated beneficiaries typically have four distribution options.

Life expectancy method. A “stretch IRA” typically involves taking RMDs over the life expectancy of the beneficiary. A nonspouse beneficiary generally must start taking distributions no later than December 31 of the year following the year of the IRA owner’s death. A spouse beneficiary may be able to delay payments until the year the IRA owner would have reached age 70½.

Five-year rule. If the original owner died before reaching age 70½, the beneficiary can satisfy RMD rules by withdrawing all assets — in one or multiple distributions — within the five-year period that ends on December 31 of the fifth year after the IRA owner’s death.

Lump-sum distribution. Regardless of the original owner’s age, the beneficiary can withdraw his or her entire share of the inherited IRA by December 31 of the year following the original owner’s death. This may be appropriate for small accounts, but you should think twice before liquidating a large account.

Disclaim the inherited funds. This may be appropriate if you do not need the funds and prefer that they pass to another beneficiary with greater needs or who would be subject to lower RMDs, allowing more time for the funds to grow. A qualified disclaimer statement must be completed within nine months of the IRA owner’s date of death.

Failure to take the appropriate RMD can result in a penalty equal to 50% of the amount that should have been withdrawn. Distributions from a traditional IRA are taxable as ordinary income. Distributions of Roth IRA contributions are not taxable, but the account must meet the appropriate five-year Roth holding period for tax-free distributions of earnings.

Distribution rules become more complex when multiple beneficiaries are designated and when the IRA is left to an estate or a trust. It would be wise to consult with a tax or estate planning professional before taking any specific action.

This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Advisers using ETFs and mutual funds more

A Schwab Advisor Group study of investment trends among financial advisers shows a growing preference for the ease of packaged portfolios such as exchange-traded funds  and mutual funds, with ETFs gaining ground.dollar pic

The report, “At the Core: Advisor Views on Investment Trends,” was based on a survey conducted in August of 381 independent investment advisers with at least $50 million in assets under management.

Here are that reports key findings: 

A. Core Holdings: 38% of advisers believe core holdings – defined broadly as U.S. and international equities, along with corporate and Treasury bonds – should make up 70% to 100% of portfolio holdings.

B. ETFs edge higher as a core allocation:  Allocations to core holding across client portfolios:

  • ETFs: 29%
  • Individual stocks: 25%
  • Mutual funds: 24%
  • Individual bonds: 18%
  • Other: 4%

C. Increasing Core Holdings:  Portion of advisers who expect increase in core allocations to the following types of investments in the next five years:

  • ETFs: 69%
  • Mutual funds: 53%
  • Individual stocks: 52%
  • Individual bonds: 46%

D. Decreasing core holdings: Portion of advisers who expect decreases in core allocations to the following types of investments in the next five years:

  • ETFs: 9%
  • Mutual funds: 16%
  • Individual stocks: 16%
  • Individual bonds: 18%

E. Active vs Passive Management: Despite the general trend toward passive investing, active management still accounts for 51% of client portfolios.  Other Events impacting core allocations include how advisers will change allocations to core portfolios based on key economic and market events:

  • Tax reform: 54% will increase allocations to core portfolios, while 23% will allocate less.
  • Rising interest rates: 51% will increase allocations to core portfolios, while 25% will allocate less.
  • Trade war escalation: 40% will increase allocations to core portfolios, while 33% will allocate less.

F. The Dominance of ETFs is clear: Client portfolios are currently made up of 52% ETFs, 41% mutual funds, and 7% other investments.  Advisers expect the allocations to move toward 64% ETFs, 30% mutual funds, and 7% other.

50% of advisers would consider allocating clients to all ETFs, and already do this for some clients and 48% of advisers would consider allocating clients to all mutual funds, and already do for some clients.

G. Age preferences of EFTs by age

  • 60% of advisers age 25 to 37 (millennials) already use all-ETF portfolios for some clients.
  • 55% of advisers age 38 to 53 (Gen X) already use all-ETF portfolios for some clients.
  • 43% of advisers age 54 to 72 (boomers) already use all-ETF portfolios for some clients.

EFTs are not for all investors and contain market risks.  In our portfolio management practice, NAMCOA advisors use ETFs in portfolio building but only based on a clients risk tolerance profile.  Investors should read a prospectus fully to understand risks fees,  disclosures and talk to a financial advisor.

For more information, please contact us.

New IRS tax limits for retirement plans in 2019

The Internal Revenue Service recently released some of its annual cost-of-living adjustments that will affect the 2019 tax year, such as contribution limits to qualified retirement plans.  The following are some of the important changes to keep in mind.

401(k) contributions:  Elective deferrals for 401(k) participants will be $19,000, increased from $18,500. The same limit also applies to defined contribution plans such as 403(b)s, most 457 plans and the federal Thrift Savings Plan.

IRA contributions:  The limit on annual contributions to an IRA is increased to $6,000 for 2019 from $5,500. And the additional catch up contribution limit for participants age 50 and older remains at $1,000, for a total of $7,000.

Roth IRA income limits:  The IRS increased income limits on who can contribute to a Roth IRA.  The income phase-out range for single filers is modified adjusted gross income between $122,000 and $137,000 in 2019. (That’s up from $120,000 to $135,000 in 2018.) Married couples filing jointly have a phase-out range with MAGI between $193,000 and $203,000, an increase of $4,000 on either end.

Within a phase-out range, contributions are limited, eventually reaching zero.

Traditional IRA deductions:  The income limit for deducting contributions to traditional IRAs will increase in 2019. Single taxpayers covered by a workplace retirement plan have a phase-out range between $64,000 and $74,000, up from $63,000 to $73,000.  

The phase-out for married couples filing jointly will be $103,000 to $123,000, if the spouse making the contribution is covered by a workplace plan. That’s an increase from between $101,000 and $121,000.

Defined benefit plan:  The limit on the annual benefit received under a traditional pension plan will increase to $280,000, from $275,000.

Simple plans:  The contribution limits regarding SIMPLE retirement accounts increased to $13,000 from $12,500.

For more information, please contact us.

Trends of the Wealthy

Let’s talk about some trends that are changing how private investors and especially the ultra-wealthy families worth $100 Million plus are allocating their capital.

While the mass affluent and billionaires are studied and talked about relentlessly in the media and by the general public, there are very few resources or facts available on those who are worth $100 million up to $2 billion.

These individuals are sometimes called Centimillionaires, a term rarely used.  This was similar to the use of the term “family office” used prior to 2000, and I think in the future the mass media, wealth managers, and dozens of other types such as industry service providers are going to sit up straight and realize that while there are only around 3,000 billionaires depending on what sources you trust, there are between 40,000 and 60,000 centimillionaires.

The families in the $100 million to $2 billion range need a lot of help, do not have as many gatekeepers as other 2 plus billionaires, and are less “famous” so they aren’t being pinged hundreds of times an hour with offers, pitches, requests and other inquiries.

Below are two trends we are seeing among Centimillionaires:

Transferring of Values (Not Capital): While the general public talks about baby boomers and the transfer of that wealth being central to their aging, Centimillionaire families seem to worry more about transferring values, responsibilities, family stories, and know-how being passed on to the next few generations.  Transferring of wealth in a tax efficient matter is important, but not much of that matters if the family tears themselves apart, wastes the money, embarrasses the family name, and squanders what past generations worked so hard to build as a family culture and legacy.  Many families are afraid that their family stories, governance structures, experience, etc. in creating the wealth is going to get lost between generations, and the true loss is either the family staying connected and/or the principles that lead to the wealth being created in the first place.  The wealth is truly transferred within the family values – not just a “warm fuzzy family emotions are more important than money” approach, but truly the only preservation and growth of the capital long-term is via the values/mission of the family.

Outsourcing: Most family offices are realizing that the only thing they should be doing in-house is what they did to create their wealth in the first place, the space where they believe there is great cross-over in a rising tide opportunity, using their experience and skills where they actively want to be 100% focused.  Trying to “recreate the wheel” just does not make sense.

Many single family offices, whether they hire a private bank or multi-family office or not, are leaning towards full outsourcing of their managers/stock/bonds/market exposure, a full in-house deployment of their investment back into the niches where they are playing offense, and then an in-between strategy of going through independent sponsors and some direct investments when it comes to real estate allocations.

This outsourcing trend with varying levels of accountability, control and transparency is likely to continue increasing with those with over $100 million in assets.

At NAMCOA we focus on adding real value, resources and peer connections to centimillionaires is one of those areas where those positioning now, building relationships now, and adding value now will do well long-term just as they will in the growing family office space.