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Banking and Financial Services

Investing for the Long Run

By Barbara Trombley, CPA, MBA

 

As I write this article, the S&P 500 index, which tracks the performance of 500 large companies in the U.S., is down almost 22% for the year. Even more remarkable is that the Barclays Aggregate Bond Index is down more than 14% year to date. If the average investor had a 60% equities / 40% bond portfolio that followed these two indexes, they would be down 18.8% for the year! This is without any portfolio or advisor fees.

After many years of positive stock market returns, this is extremely unsettling for the average investor. Usually, investing in bonds or ‘fixed income’ serves as a buffer to the stock market by providing what is usually a more conservative return. This year, because of rampant inflation, the Federal Reserve has rapidly increased interest rates. Bond prices and interest rates move in opposite directions, leading to large drops in bond prices and, therefore, a depressed bond market.

Barbara Trombley

Barbara Trombley

“Sometimes during volatile market periods, an advisor may strive to counsel a client to change their withdrawal strategy from their portfolio or offer advice on large purchases that can be financed another way.”

As a financial advisor, I wear many hats. The obvious one is that I provide investment guidance and strive to help my clients make financial choices. A less obvious role that I play is that of cheerleader. At times, some investors are very tempted to sell out of the market when times are bad. They feel nervous and uncomfortable. But history has shown us that investing is a lifelong event. A financial plan needs to be followed in good markets and bad.

There is a J.P. Morgan asset-management study that shows that seven of the best ten days in the stock market occurred within two weeks of the ten worst days. Since Jan. 1, 2002 through the end of 2021, for example, an investor who was fully invested in the S&P 500 would have returned 9.52% year over year (without fees). If the same investor missed the 10 best days in the market during that same time period, their return may have been 5.33% year over year (without fees) — almost half! An advisor will strive to provide guidance and education to prevent their client from making rash decisions.

Another area where an advisor can assist clients during volatile stock-market periods (and other times as well) is, if appropriate, potential tax-loss harvesting. If an investor has money that is not in a retirement plan, they can sell positions held at a loss in order to offset any gains held in other stocks. The investor can also offset $3,000 in ordinary income each tax year (if he or she has already offset gains) and carry forward unused losses to be used against gains in future years.

The investor would want to be aware of wash sales rules, which prohibit selling an investment for a loss and replacing it with the same or a ‘substantially identical’ investment 30 days before or after the sale. This would void the loss that the investor was deliberately trying to achieve. The investor is allowed to sell a stock at a loss and buy a similar one in the same industry so that he or she can continue to have their money working for them. Tax planning in volatile times could be part of your financial plan as well.

Sometimes during volatile market periods, an advisor may strive to counsel a client to change their withdrawal strategy from their portfolio or offer advice on large purchases that can be financed another way. I have often counselled clients on the options available to them, from where to draw money for their monthly expenses. In a volatile market, for many clients, using cash savings to pay monthly expenses can take the stress off a portfolio that has declined.

The greatest benefit to you from using a financial advisor is having someone to listen to you, someone for you to seek out and reassure you that, based on history, industry knowledge, and their experience in the financial world day after day, you can pursue financial independence.

 

Barbara Trombley, MBA, CPA is an owner and financial consultant with Trombley Associates. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Law

To Contest or Not to Contest?

Benjamin Coyle, Esq.

 

None of us want to think that, after we pass away, our loved ones may someday fight over an inheritance. But as we all know, family relationships are complex, and can be particularly so when finances are involved. Add in the grief of losing a loved one, and suddenly, relatives who have always gotten along well may find themselves at odds. Keeping peace in the family is often a vital consideration in estate planning.

One of the most important components of a person’s estate plan is the document that ultimately directs the final disposition of their property, both real and personal, upon their passing. In most circumstances, that document is either a last will and testament or a trust. A question that often arises during the drafting process is: “what can I do to make sure that no one fights over my estate?”

Benjamin Coyle

Benjamin Coyle

“Family relationships are complex, and can be particularly so when finances are involved. Add in the grief of losing a loved one, and suddenly, relatives who have always gotten along well may find themselves at odds. Keeping peace in the family is often a vital consideration in estate planning.”

While an attorney can never guarantee that heirs or beneficiaries will not fight, there are provisions that can be made to deter an interested person from contesting the terms of a will or trust. For wills, Massachusetts law recognizes a provision purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate. For trusts, the courts in Massachusetts have upheld the enforceability of ‘no-contest’ (or ‘in terrorem’) clauses.

In 2012, Massachusetts adopted the Uniform Probate Code (UPC), a model code adopted by 18 states in order to standardize probate laws. However, in adopting the UPC, Massachusetts did not incorporate the model’s no-contest provision, which essentially allowed for challenges or contests where probable cause exists. Rather, Massachusetts determined that the Commonwealth would maintain its historic baseline regarding no-contest provisions, and, in doing so, the Legislature provided that such clauses are enforceable as a matter of law, subject to some limitations as determined by the court.

Generally speaking, a no-contest provision is a clause within a will or trust with specific language stating that any person who challenges the estate must then forfeit their share. One of the primary purposes of including such a provision is to deter an interested person from bringing a challenge against the estate.

Typically, if an interested person believes they are not receiving what they may consider to be their fair share of the estate, that perception can provoke a desire to fight the terms of the will or trust. Emotions tend to run particularly high if a sibling or family member may receive a larger portion, or if someone is left out of an estate altogether. These challenges are not often successful, so long as the creator of the will or trust complied with all statutory requirements, was not subject to undue influence or duress, and had the appropriate mental capacity to execute the document.

Occasionally, though, when an interested person is able to present evidence of duress or incapacity, a successful challenge to a will could result in the entire document being invalidated, which would naturally include the no-contest provision. If the no-contest provision is eliminated as a result of the challenge, the contesting party may then be eligible to receive a share of the estate or trust, depending upon the other circumstances at hand.

When administering any will or trust, whether a no-contest provision is included or not, the fiduciary in charge (that is, the trustee of a trust, or the personal representative under a will) must still comply with all the other terms of the document, and the fiduciary is still responsible to beneficiaries. They are required to account to the beneficiaries for the assets under their control, as this is a matter of public policy that the courts have determined cannot be avoided with a no-contest provision.

Typically, we might see no-contest provisions enforced within the discretion of the fiduciary, for frivolous matters involving the administration of the will or trust. Occasionally, a beneficiary may ask the court for an interpretation of the provisions of a will or trust, to make sure the fiduciary is complying with its terms. Provided they are not trying to challenge or change the provisions in the document, the court is unlikely to invoke the no-contest provision when a request for interpretation is made by an interested person.

If you are a beneficiary of a last will and testament or a trust, it is extremely important to review the document to see if it contains a no-contest provision. If it does, and if a challenger comes forward, the court is likely to uphold the no-contest clause, which could result in the forfeiture of an inheritance. One must carefully weigh the options and potential outcomes before asserting a challenge.

On the other hand, if you are preparing your own estate plan and are concerned that disagreements may erupt among beneficiaries, you may wish to consider including a no-contest provision in your documents. Keeping the family peace in the future is certainly worth spending some time and effort today.

 

Benjamin Coyle is a shareholder with Bacon Wilson, P.C. He specializes in matters of estate planning and administration and also has extensive experience with real estate, business, corporate, and municipal law; (413) 781-0560; [email protected]

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