Frank Talk - 4th Quarter Newsletter (2022)
Table of Contents
Editorial
Happy Holidays, Clients and Friends!
We hope this finds you and your family well this holiday season! Whether you plan to gather with loved ones and friends in the weeks ahead or enjoy some much-needed quiet time, we hope you will have a chance to reflect on this year’s milestones and accomplishments, and what they mean for your family or business. While our role as wealth advisors naturally focuses on the financial aspects of wealth planning, we believe that true wealth is as much about the shared experiences, memories and cherished family values that transition from one generation to the next as the assets you pass down.
As your personal financial stewards, we are honored to have the opportunity to help you pursue the individually-defined Return on Life® that you and your family desire. Ensuring that you consistently receive the exceptional level or care and attention that you, your family and business require is one of the most important ways we can deliver on our commitment to you. Earlier this year, we welcomed five new team members in our ongoing effort to expand and enhance our services offering for the benefit of our growing client base. We encourage you to reach out to your dedicated team whenever you have questions or when circumstances in your life change. We’re here to help whenever you need us.
In the coming months, we will continue to proactively communicate information about the markets and economy, as well as information and education on topics such as charitable giving, estate planning, retirement income and preparing your business for a sale, through our blog, newsletter, social media channels, email communications, articles, seminars and webinars. If there are topics you would like to see us address through these or other communication channels, please don’t hesitate to contact us with your thoughts and suggestions.
As the year draws to a close, we extend our heartfelt gratitude to you, our clients, friends and business associates, for your friendship and trust in your PFS team. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130.
What’s In It for You?
At-a-glance guide to your 4th Quarter 2022 Frank Talk newsletter:
- News & Events
- Awards & Recognition
- PFS Selected as Weatherhead 100 Winner for 10th time
- Recent Events
- Market Noise Live Webinar: 2023 Perspective
- Last Chance for Year-End Tax Planning
- 2022-2023 Tax Planning Guide
- Complimentary Second Opinion Service
- Visit Our Getting Frank Blog and Join Us on Social Media
News & Events
PFS Selected as Weatherhead 100 Winner for 10th Time
Planned Financial Services (PFS) was named a Weatherhead 100 Upstart* company for the 10th time by the Weatherhead School of Management, Case Western Reserve University. Established in 1988, The Weatherhead 100 awards are the premier celebration of Northeast Ohio’s spirit of entrepreneurship and the companies leading the way in Northeast Ohio. Each year, the organization recognizes an elite group of companies who are the best example of leadership, growth and success in our region. Frank Fantozzi attended the 34th Annual Weatherhead 100 Gala and awards ceremony where PFS was honored on Thursday, December 8th at the Hilton Cleveland Downtown.
Recent Events
It’s Not Too Late to Access Our 2023 Market Perspective
Thank you for joining us for our special Market Noise Live: Managing Market Volatility & Uncertainty webinar where we shared our 2023 Market Perspective via Zoom on Tuesday, November 29, 2022, at 11am – 12pm EST. In addition to sharing their insights on the markets and economy, PFS wealth advisors Frank Fantozzi, CPA, MST, PFS, CDFA, AIF®, CEPA, Amy Valentine, CFP®, CFA® and Cynthia Yang, CFA®, CAIA®, CIPM discussed steps you can take now to help manage risk, identify opportunities and prepare for the year ahead.
If you were not able to join us for the live event, or would like to revisit any of the information discussed, please click on the links below to access the recorded webinar and/or the slide presentation at your convenience:
Year-End and 2023 Tax Planning
Now Is the Time to Wrap Up Any Remaining Year-End 2022 Tax Deadlines
If you’re wrapping up year-end tax deadlines in the days ahead, the 2022 Quick Tax Reference Guide makes it quick and easy to find the information you need at-a-glance. The guide provides information on capital gains rates, contribution limits for retirement plan and health savings accounts, annual gift and estate tax exclusion amounts, limits for charitable deductions and much more. Feel free to download it, print it out or save it to your device for easy access.
Prepare for the Year Ahead with Your 2022-2023 Tax Planning Guide
The Planned Financial Services 2022-2023 Tax Planning Guide is your comprehensive guide to key tax provisions and deadlines that can help you reap the full benefits of collaboration with your qualified tax advisor. View or download your PFS 2022-2023 Tax Planning Guide now.
Our Complimentary Second Opinion Service Was Designed for Your Family Members, Friends and Business Associates
Our complimentary Second Opinion Service continues to be well-received among the friends, family members and colleagues of our clients and business associates. This valuable service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.
In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.
DOWNLOAD a full description and learn more about the Planned Financial Services Second Opinion Service and the benefits it offers to the people you care about most.
Don’t Miss Out on the Topics that Are Important to You: Visit Our Getting Frank Blog
Get a jumpstart on the new year with timely information on the financial planning, business growth and investment topics that are meaningful to you. Visit our Getting Frank Blog at PlannedFinancial.com. We post new articles and opinions weekly, so be sure to visit often. You can also read the latest blog articles by connecting with Frank personally on social media at LinkedIn, Twitter and Facebook.
Market & Economic Update
As expected, the Federal Open Market Committee (FOMC) increased the fed funds rate on December 14, 2022, by 0.50% and made upward revisions to both inflation forecasts and interest rate forecasts in the next few years. The target range is now 4.25–4.50%. This meeting signaled the beginning of a downshift in the pace of rate hikes, as the previous four meetings concluded with a 0.75% increase to the target rate. The Committee delivered a well-telegraphed move, barely changing any verbiage from the previous statement, and unlike the recent rate decision in the U.K., the FOMC was unanimous.
The FOMC released an updated Summary of Economic Projections (SEP) after this meeting and from all appearances, the Committee is more pessimistic about growth and inflation than they were in the September edition of the SEP.
The Committee downwardly revised growth forecasts for both 2023 and 2024 as high inflation is expected to weigh heavily on consumer spending. As inflation is expected to erode purchasing power, growth will likely stall next year. Short-term interest rates will likely be higher next year, as the Committee believes inflation will not come down as fast as projected in September. The Committee did not change the long-run estimate of the fed funds rate, but the Committee revised up projections for fed funds in 2023 and 2024. A healthy minority of committee members are forecasting fed funds above 5.25%, creating a hawkish tilt to the overall forecast. In the press conference, Chairman Powell focused on the imbalances in the labor market, indicating that the job market is the linchpin for economic growth in the coming year.
In summary, the Fed is uncertain about the future path for inflation and therefore, has remained decidedly hawkish on short-term rates. However, the Fed has demonstrated a penchant for forecast revisions, so we should not be surprised if the Fed revises the expected peak fed funds rate as inflation, including the sticky components, starts to moderate. Looking ahead, investors need to watch the inflation path for non-housing core services, which is closely tied to labor market conditions.**
Closing Remarks
As these and other conditions evolve in the weeks and months ahead, you can rely on your PFS team to continue to monitor and adjust our portfolios and keep you up to date on market and economic developments. We understand the concerns that can accompany change and uncertainty and are confident in our approach to navigating through these challenging times.
We also want to remind you that you are always welcome to schedule time to meet with us at our office. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!
We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to us at 440.740.0130.
Click here for a summary of the material changes made to our ADV Part 2A between March 2021 and March 2022.
To review our firm’s privacy policy, full ADV Part 2A Firm Brochure and ADV Part 2B Brochure Supplements, please visit our website at PlannedFinancial.com/contact-us/.
You may also request copies of these current brochures by contacting our office at 440.740.0130.
Real People. Real Answers.
Health, Happiness, and Good Fortune,
Frank Fantozzi
CPA, MST, PFS, CDFA, AIF®, CEPA
President & Founder
Frank@PlannedFinancial.com
**Some research was provided by LPL Financial, LLC, December 2022. Neither PFS or LPL make any representation as to its completeness or accuracy.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Unless otherwise stated LPL Financial and the third-party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Planned Financial Services, LPL Financial and the Weatherhead 100 are all separate, unaffiliated entities.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.
Investment advice offered through Planned Financial Services, a Registered Investment Advisor.
Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC.
Financial planning offered through Planned Financial Services, a Registered Investment Advisor and a separate entity from LPL Financial.
Don't Get Taken By Investment Fraud
Many legitimate investments have potential to be risky enough without investors getting involved in what may turn out to be fraud. Whether you’ve received an anonymous email about a “hot” stock or a tip about an “exclusive” real estate opportunity from someone you actually know, it’s important to remember the old axiom, “if it sounds too good to be true, it probably is.” Here’s how to steer clear of investment scams.
Stock scams
One of the most popular investment scams is called “pump-and-dump.” Here’s how it works: A fraud perpetrator buys shares in an inexpensive, relatively illiquid publicly traded stock whose price is likely to react dramatically when trading volume increases. Then the crook makes false or misleading statements to encourage people to sink their savings into the stock and drive up its price. When it hits a certain dollar amount, the fraudster sells, locking in short-term gains before the stock price returns to a more realistic market price. Investors are left with what often are substantial losses.
In many cases, pump-and-dump schemes are perpetrated via email. So a simple way to prevent getting taken is to simply delete investment emails from anyone you don’t know and trust. If, however, you have reason to believe an investment is legitimate, determine whether it’s a good investment opportunity. Read publicly available reports and financial statements, review coverage by third-party analysts and news organizations, and note the stock’s trading volume. The more thinly traded a stock, the greater the potential for fraudulent manipulation.
Businesses built to fail
Business opportunity scams can be relatively straightforward — for example, an offer to invest in a start-up that’s hyped as the “next big thing,” but is actually set up to fail. Or they can be complicated, such as pyramid schemes that offer no actual product or service and are sustained by constantly recruiting new “investors.” Pyramid schemes often call themselves “clubs” or “gift programs” and frequently are promoted on social media platforms.
Whatever the opportunity, be skeptical and perform due diligence before investing. Make sure you understand what the business does and whether there’s a viable market for its products or services. Study disclosure documents, earnings claims and proposed contracts and look for potential loopholes that might benefit the seller at your expense. For instance, are start-up costs particularly high? If you’re required to buy inventory, does the seller agree to buy back unsold goods?
General safeguards
With all potential investments, research the seller’s history and reputation online and check for complaints with the Better Business Bureau, your state’s attorney general’s office and the Federal Trade Commission. (Note, however, that the absence of complaints doesn't necessarily mean the seller is aboveboard.) Also ask the seller for names and contact information of current investors or participants — and be sure to follow up with those individuals.
Important: Don’t assume that only strangers are dangerous. Among the thousands of victims of Bernie Madoff, perpetrator of the biggest Ponzi scheme in history, were many friends and family members. This isn’t unusual. It’s also possible that someone you know will unknowingly pass along a bad tip.
Important takeaway
Finally, to avoid investment scams talk to your legal and financial advisors. An attorney should review any legal contract before you sign it. Your financial advisor can help you determine whether investments are legitimate and if they make sense given your financial resources, investment goals, risk tolerance and other factors.
Investment advice offered through Planned Financial Services, LLC (“Planned Financial”), an SEC registered investment adviser.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
Spousal Lifetime Access Trusts: How couples can lock in gift and estate tax exemptions
Many affluent married couples planning their estates face a dilemma: Although they’d like to take advantage of the record-high federal gift and estate tax exemption — $12.06 million per person for 2022 — before it disappears, they’re not yet ready to part with significant amounts of wealth. One strategy that may offer the best of both worlds is the spousal lifetime access trust (SLAT). This trust type makes it possible for couples to leverage the current exemption amount while retaining access to trust assets.
Shielding assets from taxes
A SLAT is an irrevocable trust that one spouse creates for the benefit of the other. The grantor spouse uses his or her gift tax exemption to shield the gift from taxes and, provided the trust is designed properly, its assets will be kept out of both spouses’ taxable estates. Typically, the beneficiary spouse is the current beneficiary of the trust. Any remaining assets pass to the couple’s children or other heirs, although it’s possible for the children to be current beneficiaries as well.
To qualify for the gift and estate tax exemption, the donor spouse must give up all rights to the trust assets. Nevertheless, the donor retains indirect access to them through the beneficiary spouse. The safest way to provide such access is by appointing an independent trustee with discretionary authority to make distributions to the beneficiary. It’s also possible for the beneficiary to act as trustee, but in that case distributions must be limited by an “ascertainable standard,” such as amounts necessary for the beneficiary’s health, education, maintenance or support.
Funding the trust
To preserve a SLAT’s tax benefits, donor spouses must fund the trust with separate property. Contributions of jointly owned or community property can be included in the beneficiary spouse’s taxable estate, so it may be necessary to transfer, retitle or partition property before funding the trust. After the trust has been funded, its assets can’t be commingled with marital assets.
Ideally, you should fund a SLAT with assets you expect to appreciate in value. That’s because once assets are transferred to the trust, all future appreciation is removed from your estate (and bypasses your spouse’s estate), allowing you to leverage the current exemption.
Suppose you transfer assets worth $5 million to a SLAT, and their value grows to $12 million in 10 years. That appreciation in value avoids taxation in your estate, even though you used less than half of your exemption amount, and regardless of how much the exemption may have shrunk since you made the gift. Avoid contributing assets that may depreciate in value over time. If you do, you risk wasting a portion of your exemption.
Reviewing other potential issues
Because the benefits of a SLAT depend on indirect access to its assets through the beneficiary spouse, you risk losing those benefits if you get divorced or your spouse dies. So it’s a good idea to build some protections into the SLAT. For example, you might:
- Make benefits available only to a current spouse, not former spouses, or
- Provide that the trust terminates, or the beneficiary spouse ceases to be a beneficiary, in the event of divorce.
A common technique for mitigating the risk of death is for each spouse to create a SLAT for the other (see “His and her SLATs” at X). Also, some states have enacted SLAT-friendly laws that allow donor spouses to become beneficiaries after the death of beneficiary spouses.
Also consider potential income tax implications. The tax basis of assets transferred at death is “stepped-up” to their market value, minimizing or eliminating capital gains when your heirs receive them. Assets transferred to a trust, however, retain the donor’s basis, which can result in a significant capital gains tax bill when the assets are sold. So, it’s important to weigh a SLAT’s potential estate tax savings against its potential income tax costs.
Don’t wait
The increased gift and estate tax exemption is scheduled to “sunset” at the end of 2025. At that point, it will return to its previous level of $5 million (adjusted for inflation). It’s also possible that Congress will reduce the exemption amount earlier than that. So, if gift and estate taxes are a concern, the sooner you act to preserve the current exemption with a SLAT or other vehicle, the better. Be sure to work with experienced advisors to ensure your SLAT is designed and implemented properly.
Sidebar
His & her SLATs
One way to reduce the risk of losing a spousal lifetime access trust’s (SLAT’s) benefits if the beneficiary spouse dies is for each spouse to establish a SLAT for the benefit of the other. Even if the beneficiary of one trust dies, the donor spouse can retain access to the other trust.
However, careful planning is critical to avoid the reciprocal trust doctrine. Under that doctrine, the IRS can “uncross” the trusts — and include their assets in both of the donors’ estates — if it concludes that they’re so similar that the economic effect is about the same as if the spouses had each created trusts for their own benefit.
To avoid this result, work with your advisors to be sure that the two SLATs are sufficiently different that they can’t be viewed as a quid pro quo for each other. There are several potential ways to do this, such as creating the trusts at different times or including powers in one trust (such as a special power of appointment) that aren’t included in the other.
Investment advice offered through Planned Financial Services, LLC (“Planned Financial”), an SEC registered investment adviser.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Can Kids Use a Roth IRA? Yes!
If you’re looking for ways to teach your kids about financial planning and want to give them a head start on building a retirement nest egg, take a look at Roth IRAs. Contributions to a Roth IRA can’t exceed an individual’s earned income, so your child must have some earnings from an after-school or summer job. But, subject to that limit, anyone can contribute to a Roth IRA on the child’s behalf.
Contributions and withdrawals
Here’s why Roth IRAs work so well for kids. Although contributions aren’t tax deductible, qualified withdrawals are tax-free. This makes Roth IRAs advantageous for people who will likely be in a higher tax bracket when they’re ready to withdraw funds. Most kids are in the lowest tax bracket, which means tax deductions aren’t worth much to them. But the benefits of tax-free withdrawals, when their income is likely to be much higher, are significant.
Contributions to a Roth IRA can be withdrawn tax- and penalty-free at any time. Earnings withdrawn before age 59½ generally are subject to a 10% penalty. Because kids have many decades before they will reach retirement age, the power of compounding can help them generate meaningful savings even with relatively modest, but early, contributions.
To take an example, Emma is 12 years old and earns $1,200 per year babysitting. Her parents set up a Roth IRA for her and contribute $100 per month over the next 10 years. Even if Emma never makes another contribution to the Roth IRA, by the time she turns 62 the account will have grown to more than $250,000 (assuming a 7% rate of return).
Flexible tool
Roth IRAs can give kids a big head start on retirement saving, but they also offer flexibility. For example, because contributions can be withdrawn any time without penalty, your children can use their accounts to help pay college tuition, buy a house or even start a business.
Investment advice offered through Planned Financial Services, LLC (“Planned Financial”), an SEC registered investment adviser.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
New Year's Financial Resolutions to Implement Now
When it comes to New Year's Resolutions that include financial goals, writing them down and being visible is essential to your success. After you’ve written down what your financial resolutions for the New Year are, tell others about your progress and failures. Here are some things you may want to focus on this year:
Decrease your spending
The less you spend, the more you may be able to save into an emergency fund, pay toward debt reduction, or save for retirement. Review your spending this month to determine what you can eliminate and reduce. If you felt financially insecure the past year or on the brink of it, now take control of your financial future.
Reduce your debt
If you are one of the ‘revolver households’ that carries credit card debt month after month, make this the year you pay off your debt, cut up the cards, and close credit card accounts.
You may want to consider paying down your mortgage, refinancing, or moving to a home that costs less. If you become unemployed in the future, making your mortgage payment is essential to remaining sheltered. If you’ve maintained employment but have a higher interest rate than today’s rates, consider refinancing or making extra payments toward your mortgage.
Pay off your auto loan, increase your monthly payment, or refinance the remaining term at a lower rate. Although refinancing may look appealing, confirm that the refinance saves you money and reduces your loan term.
Start your debt reduction investigation by using financial calculators or consult your financial professional to determine if these ideas are appropriate for you.
Establish an emergency fund
Start with a minimum of one month’s expenses and work toward a fully-funded emergency fund. A fully-funded emergency fund should have six months or more of expenses in savings that you won't access and that's not tied to stock market performance like a money market account.
Save for retirement
Set your retirement savings contributions up automatically, increase year over year and make an effort to maximize your contributions. Additionally:
Get your employer’s retirement savings contribution match
Contribute enough to your employer’s retirement plan to receive matching dollars. If you’re not saving enough to receive a matching contribution from your employer (commonly a 2-4% match), you’re throwing away ‘free money.’
Take some risk (in your investments)
If you have your retirement savings in an interest-bearing account outside of the stock market, you will not keep up with inflation in retirement over time. Having 100% of your retirement savings tied to stocks may not be best for you, but all of it outside the market may not be either. Meet with your financial professional to determine if your risk tolerance and portfolio allocations are appropriate to your situation.
Be aware of how taxes impact you
We recommend that part of your investments be in tax-sheltered accounts and some after-tax investments. Discuss how each investment may affect you this year and in retirement with your financial and tax professionals. Part of tax awareness is understanding how trading and rebalancing impact your taxes and how your financial professional can help.
Monitor your investments
Meet with your financial professional for a financial review at least once this year to determine if your risk tolerance, investment options, and your timeline for retirement are still on target. Receiving financial help from a professional can help you accomplish your financial resolutions.
Important Disclosures:
Investment advice offered through Planned Financial Services, LLC (“Planned Financial”), an SEC registered investment adviser.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however, Planned Financial Services makes no representation as to its completeness or accuracy. Planned Financial blog articles are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security and are not an offer or sale of a security. This is not a research report and is not intended to serve as the basis for any investment decision. Any third-party information provided therein does not reflect the views of Planned Financial Services, LLC or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Planned Financial Services’ blog contains articles on budgeting, business, insurance, planning, spending, and financial health, etc. The goal is to make business and financial news accessible to our clients. Writers conduct daily research through a variety of primary (e.g., press releases, financial reports, public statements, economic data, social media accounts, interviews, etc.), and secondary sources (e.g., The Wall Street Journal, Bloomberg, etc.). Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. The content on this article is for informational purposes only and does not constitute a comprehensive description of Planned Financial Services’ investment advisory services. Please see our website and Brochure for more details.
This article was prepared by Fresh Finance.
Tracking # 1-05221674
