It was late. The smell of smoke and ash in the air stirred everyone in the house awake. The bedroom felt warmer than normal. You remember setting the air conditioner to 73 before bed because it was a hot day earlier. Walking to the door, the handle was hot to the touch when you grabbed and swung it open. The house was on fire.
I hope this experience never happens to anyone, but it could. Homes can burn down or be badly damaged by fires or the water used to put them out. Similarly, wind and rain from a storm or hurricane can rip strong homes to shreds. When that happens, preservation of life or the lives of whom you are responsible for come first. After that, what will be removed from the house?
Many people keep important documents at home, and storing them in a place that could easily be removed or safe from catastrophe could make the difference between wealth and poverty. When considering how to store possessions or important documents, choose one that is most comfortable for you. Protecting your valuables by keeping them out of harm’s reach means you can focus on the safety of your family.
Home safes are steel lockboxes designed to store important documents or valuables. Home safes are typically part of a larger security system for the home, but a few general options stand out for understanding. Floor safes can be designed to be hidden as well as being bolted into the foundation but cannot be removed easily. Wall safes are designed to be kept out of reach of children or hidden behind clever pictures or TVs.
Protecting your valuables by keeping them out of harm’s reach means you can focus on the safety of your family.
Portable safes are small and compact, often weighing far less than the latter options. Most include handles or cables so they don’t “walk away” unnoticed. Different safes are designed to withstand water while others have fireproof ratings of 1800 degrees Fahrenheit for one or two hours.
Home safes have been a staple of the household since the medieval times when wooden boxes wrapped with iron were used to store titles, jewelry, and other keepsakes. Mass production of the modern home safe came about in the early Nineteenth century. Ranging from inexpensive and mobile to a multi-generational investment with complexities, home safes provide a great option for those looking to keep items close by.
Safety Deposit Boxes
Similar to home safes, these types of boxes are also made of metal, typically stored at a bank or credit union. Unlike home safes which are purchased by the homeowner, safety deposit boxes are rented for as long as necessary to keep valuables and documents stored in a vault. Rarely would a bank be blown away in a storm or burnt down. Banks will allow most anything to be kept in their boxes outside of passports, medical directives and living wills. These items should be easily accessible at home, protected in a different way.
Keep in mind that items inside of a safety deposit box are not insured by the bank or FDIC. The individual would have to purchase their own insurance (typically applied to a homeowner’s policy) to cover the contents inside the box, thus increasing the overall cost over time.
Finally, if the person owning the box passed away and no other individuals were given access to the box, it could be weeks or months before it’s able to be opened.
It’s so easy in our modern world to be able to access documents at a moment’s notice via digital cloud storage. Of course, a person won’t be able to store valuables this way, but digital storage keeps documents readily available and safe. It’s important to note that most cloud storage comes with a fee, which can be shared in the event that a server loses power and information needs to be backed up elsewhere. Attorney’s offices are able to store legal documents for you either physically or digitally with a retainer fee. Other professional offices may do the same. It’s also important to note that the State of Florida allows for most legal documents to be copies, but not all.
For planning purposes, it makes sense to have digital copies of legal documents to be able to read through and sort on a computer. Powers of attorney, living wills, advanced directives, and trust documents are able to used legally as copies. Last Will and Testaments should be original or at least certified copies of an original, and this document should be kept somewhere safe. If this document is not an original, probate court will usually require a hearing, witnesses, reporting, and could come with a hefty price point.
Having trusted advisors to walk you through this step of financial and estate planning can leaven the shoulders of the most astute client. Either way, seek guidance from a fiduciary whenever possible. We’re here to help.
Derek M Oxford | CFP®️, AEP®️
Gone are the days of brokers that would call randomly with a stock tip or buy request like movies we have seen with Charlie Sheen or Leonardo DiCaprio. “Advisory Services” has taken over as a foothold in the industry that is Finance.
What was once a transitionary relationship for the wealthy is now a long-term planning type of relationship for all walks of life. Designations are many and confusing. In fact, the financial services industry has more than 250 of them. Some credentials overlap; some are just plain “pay us and we’ll let you use the letters” type; and some actually mean something. Similarly, the type of advisor you may receive also depends on what laws govern their business and their actions.
So, how can an investor tell which type of advisor is right for them? Here are a few key questions one could ask to determine if the advisor is a good fit.
Are You a Fiduciary?
A fiduciary is one that must put your interest before their own when recommending securities or planning opportunities. The Securities & Exchange Commission has required new forms be distributed to prospects and clients alike detailing what conflicts of interest are present with any interaction. If either cannot be handed to you in writing, walk away.
How Are You Compensated?
Just how a fiduciary must put your interest before theirs, knowing how an advisor is compensated is paramount to understanding about any back-door dealings, side fees, hidden fees, or other forms of soft dollars. If the advisor is compensated any other way besides what they charge you directly, think twice about any recommendation they give.
What Is Your Investment Philosophy?
This one is a bit more difficult to grasp, but an advisor that has different philosophies for different clients and different from their own doesn’t have a clear understanding of what they do and may only receive knowledge from a strategy desk far, far away.
What Is Your Succession Plan?
When an investor places the outcome of their life-long savings in the hands of an advisor, they want to know that the advisor will be around for a while. And, if not, are they comfortable with a team they’ve set up to perpetuate them? Most estate plans are multi-generational. Having an advisory relationship that can follow the plan will be worth while.
What Are Your Qualifications?
As I stated earlier with the credential frenzy, look for advisors that are fiduciaries and carry credentials to back it up such as the CERTIFIED FINANCIAL PLANNER™ designation, advisors that are Certified Public Accountants (CPAs) but also carry the Personal Financial Specialist (PFS) designation to signify extra study on financial planning to complement their fiduciary position as a CPA, and finally the Certified Financial Analyst® designation proves a highly difficult and rigorous multi-year examination for expertise in the investment professional world. An advisor having one or many of these specific designations will mean that the investor is speaking with someone that has credibility, knowledge, and experience to help make a great financial plan.
Derek M Oxford | CFP®️, AEP®️
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in response to the COVID-19 pandemic provided much needed relief to businesses and taxpayers to assist with the resulting economic crisis. The relief offered to individual taxpayers included the opportunity to take penalty free early distributions from retirement accounts and made it easier to take loans from retirement plans. Also, the Act waived Required Minimum Distributions (RMDs) for 2020 and allowed those who had already taken RMDs to roll the funds back into their retirement plan or IRA.
However, there are several restrictions that limits a taxpayers’ ability to roll back RMDs. One of the restrictions required the funds to be returned to the account with 60 days of the distribution, thereby falling under the existing 60-day rollover provision in the I.R.S code. Additionally, although 2020 RMDs from inherited IRAs were also waived, those already received could not be rolled back into the inherited IRA. Furthermore, the limit of one rollover per year was still in effect, so those who receive their RMD in a series of payments could not roll back more than one of the payments.
Luckily, the IRS recognized the challenges with the original plan and has recently provided some welcome relief. On June 23, 2020, the IRS issued Notice 2020-51 which eased many of these restrictions. The time period for rolling back 2020 RMDs has been extended until August 31, 2020, or 60 days from the date of the RMD, whichever is later. The notice also clarifies that rolling back RMDs will not count toward the one rollover per year limit, so those who receive their RMD as a series of payments can roll them all back to their retirement plan or IRA. Also, the IRS is now allowing those who received RMDs from inherited IRAs to roll them back.
If you have taken an RMD in 2020 and are curious what your options are, or simply want more information on these opportunities, contact your trusted advisor at CPS for a more thorough, personalized review.
Rick Bernard | MBA
Election day is a few months away, and it’s natural to wonder what the possible outcomes might mean for your portfolio. Fortunately for investors, there are many previous elections we can study to give us insight into how the market might react.
Policy Matters, Politics Doesn’t
The most important thing to keep in mind is that policy matters to long term investment returns, but politics doesn’t. Everything that will happen between today and election day is just politics. As the election gets closer, both sides will undoubtedly ramp up their rhetoric. Political vitriol can cause market volatility, but it doesn’t change the fundamentals of the economy. No matter what the outcome of the election is, we will be well into 2021 before policy changes are made. History also shows us that policy changes rarely work out as planned, and often have unexpected effects. For long term investors, there is no reason to rush to make portfolio changes just because it is an election year.
To understand the future, study the past.
The way the markets react to elections and changes of power in Washington is remarkably consistent over time. Historically, when Republicans control Congress and the White House, the markets tend to go up and the economy tends to grow. When Democrats control Congress and the White House, the economy tends to grow and the markets tend to go up. When there is divided government in Washington, the markets tend to go up, and more often than not, the economy grows.
History tells us that during the run-up to an election, market volatility increases. Despite the increased volatility, the market most often trades sideways in the months ahead of an election. Uncertainty is a far greater problem for the markets than who wins or loses an election. Once the results are known, long-term trends take over.
Policy changes might have an impact on individual companies or entire industries. Policy changes won’t derail the long-term trends that have created tremendous returns for investors over the past 100 years. American capitalism is still the engine that powers the global economy. Long-term investors in American businesses will continue to be rewarded no matter who wins the election.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer
After a loved one dies, there are important – perhaps time-sensitive – decisions to make. Losing a family member or friend is one of the hardest life events to cope with. Survivors are the people who must make the decisions or carry out the directives of the person who died. The husband, wife, partner, or maybe even the child, parent, brother or sister, or close friend may have to step in to help with this process. Each person may have different tasks to handle, while some might not have any responsibilities after their loved one dies. In any situation, the best preparation is to have a plan. A valuable lesson, at any age, it to take time to organize your financial life and seek the assistance of a fiduciary to help with your planning needs.
As a financial advisor, some of the greatest joys are seeing my clients reach their version of financial independence. During our relationship, I watch my clients grow throughout their careers until that major milestone of retirement meets them face to face, then I fortunately get to watch them through retirement until that last milestone is upon them. But, along the way, we are always planning since there are many revisions to their personal plan as their family dynamics change and the investment landscape changes alongside them.
Being proactive, I have found, is the best way to help my clients in preparation of that last milestone. Whether it is a review of their beneficiary designations, a review of the charitable organizations dear to the client for philanthropic donations, or a review of their estate plan because they know they can’t take it with them but they can sure tell everyone how to spend it. We work together to create a plan then monitor the plan because “a goal without a plan is a wish,” was once said by a French writer. Having a plan is extremely important during this emotional time to help the survivors. In my experience, I have helped several clients through this last milestone and have collected a few best practices for what you may expect after losing a loved one.
Collect various documents and important paperwork.
This may include insurance policies, marriage license, birth certificates, revocable trusts, Last Will & Testament, Social Security information, etc. Keeping everything organized will help limit the search for some of them. Do not throw anything away until someone reviews it. You cannot be sure what might prove to be needed later, therefore, a good record keeping system is very important. At CPS Investment Advisors, we keep a secure electronic file for each client’s personal records. I, as the advisor, maintain that database for the client so when something happens, I can help immediately.
The death certificate of your loved one is generally needed every time you go to make a claim for benefits. Your funeral director or county health department can help you obtain certified copies of the death certificate. There will most likely be a cost associated with certified copies, but some companies you will deal with for a benefit claim will require one, so it is best practice to request about 8 to 12 initially. You may need more later, but this should get you through the bulk of your need.
A nice clean color copy, although this is clearly not a certified copy, may be used in some instances. Some companies just need to see the pertinent information from the death certificate while some require the certified certificate with the raised embossing.
Simplify your life.
When you lose a loved one, and you start to put together the pieces to their financial life, you may encounter assets that you never knew they owned. The first place to look is at the balance sheet. Make sure you know where everything is and have a plan for where everything is going. If you come across an asset you were not previously aware of, add it to the balance sheet so you know to come back to it later. If you are the surviving spouse, and you are set to inherit everything, simplification helps the transition process. Would you rather have same amount of assets in the same number of accounts or the same amount of assets in a fewer number of accounts? This is a best practice of where less is more. Bank accounts, investment accounts and retirement plans are some examples of assets that can be consolidated into your existing like-registered account(s) easily. After a death, you may need to change the title on property or transfer ownership. Automobiles, your house, credit cards and safe deposit box are some examples of assets that may require action on your part to change ownership or title. Getting assets out of the deceased name and into the names of the beneficiaries is an important part to the simplification process.
Note: You may need to open a bank account for the estate, if so, the estate will need its own tax identification number. The Internal Revenue Service website, irs.gov, is a great source of information or you can just stop by our CPS Group tax department and we can handle this for you.
Establishing a new normal.
As the survivor of a loved one, there are a few new normalcies that will take place over time. Try to focus on what needs to be done right away, less attention to what can be done tomorrow, or even less focus on what can be put off for some time into the future. The future may seem very far away, especially during this time of grieving. It is a natural feeling to seem overwhelmed by practical matters so try to take one step at a time. Allowing others to help is not always a bad thing, so consider the advice given to you from those you trust.
The most often asked question I usually get from a surviving spouse is, “Do I have enough money to cover my expenses for the rest of my life now that my spouse is gone?” My immediate response is, “How long are you going to live?” In my experience, the surviving spouse generally loses some income after the death of a spouse. In some instances, changes in social security, pensions, annuity payouts and required minimum distributions from retirement plans, your income may change.
But expenses do not go down by nearly as much as you may think they might. Therefore, it is best practice to keep an eye on your bank account balances. Look at the value at the beginning of the month, again at the end of the month, and do this for the next 3 to 6 months following the death of a spouse.
This may take you even longer but tracking those balances will keep a high-level overview of the income and expenses occurring within your various accounts without having to dig into the details. If balances go up, then your income is exceeding your expenses, all appears fine. If balances go down, then you might be spending more than you thought. At this time is when you will want to review the details or consider creating a budget.
Your financial plan likely changed after the death of your spouse, so it is important to know what your new plan looks like going forward and make any necessary changes as appropriate. If you, or someone you know, needs guidance after losing someone they love, feel free to reach out to one of our advisors. As fiduciaries, legally and ethically obligated to act in your best interest, we’re here to help create a plan based on your unique needs.
Tony Corrao | CFP®️
Over the next 25 years, 45 million households will be receiving an inheritance after the passing of a loved one, according to analytics firm Cerulli Associates. The transfer of assets from baby boomers to millennials and beyond will be in excess of $68 trillion.
According to a poll by the Ohio State University, most Americans will only save about half of their inheritance. That means most Americans will essentially use it for immediate gratification purchases. Firsthand, I’ve seen how some beneficiaries used their inheritance on special breed dogs, new cars, lavish vacations, and other items.
I won’t discount that some of these impulse purchases are due to a form of mourning after the loss of a loved one. However, if we can plan properly for when these inevitable wealth transfers occur, a person’s financial plan can allow the inheritance to flow nicely into it. Here are a few examples of what to do if you know that you’ll be receiving an inheritance either soon or in the future.
Follow the Wishes of the Deceased
If your loved one had wishes on how the money was to be spent or who it was to be spent on, hopefully they had those conversations with the beneficiaries already. If not, well-crafted estate documents should explain their wishes and instructions.
Take It Easy
It’s ok to think of some of this money as a windfall. Weigh the cost of the total inheritance against the price of what you want. Discuss the idea with your trusted financial advisor. Having a second opinion from a great advisor can be helpful, especially if they can calculate how it will affect any future compounding of your own pile.
Assemble the Team
If you don’t already have a trusted fiduciary advisor, now is the time to interview and acquire one. Similarly, find a trusted estate attorney because your finances may get a bit more complicated after you receive the inheritance. Now it’s time for you to make your own instructions for your wishes by drafting estate documents to surpass you. Hire a CPA to weigh in on the potential taxes of your decisions as well. A team approach will pay dividends in planning opportunities down the road.
Review Your Finances
If you don’t already have one, build an emergency fund with your new inheritance. Depending on your financial
situation, having three to six months’ worth of necessary expenses in an easily accessible high yield account will help you sleep at night knowing that you can cover an emergency purchase on a rainy day or help with expenses if you are furloughed or lose your job.
Other Items to Think About
Sometimes, people don’t just inherit cash or securities. Sometimes, they inherit houses, cars, or jewelry. The estate documents of the deceased may explain how to handle these other items. If not, this is another area where that team approach can help you. You may now be in the realm of capital gains tax, and items kept need to be added to your estate documents. Will a second home become a rental property where liability protection may become necessary?
Use your inheritance wisely, and do not try to handle it all on your own. For some, emotions can cloud financial judgement. Trusted professionals are here to guide you through it all, and most of them have extensive experience to provide insight. Remember to seek out true fiduciaries that will steer you in a direction that benefits you and not them. We are here to help!
Derek M Oxford | CFP®, AEP®
On July 4th the President signed into law a bill that extends the PPP loan application deadline to August 8th 2020. If you have an interest in applying for the PPP loan, you still have time to access the remaining funds for the PPP program. We have included a link to the revised PPP application and encourage you to speak with your local lender about access to these funds if you are interested.
Furthermore, on June 5th, 2020, the President signed into law the PPP Flexibility Act that superseded and modified some of the PPP loan provisions included in the CARES Act. We previously published an article summarizing these changes, but also wanted to highlight the two revised loan forgiveness applications: 1) Form 3508 and 2) Form 3508EZ. Both of these forms include the recent changes from the PPP Flex Act, and provide additional clarity to borrowers regarding loan forgiveness.
We have updated our list of frequently asked questions (below) to accommodate the recent changes. Please note, additional guidance is still needed on several issues and the following information is not intended to be relied upon for official guidance. If you have specific questions regarding the PPP loan, or another financial related question, we invite you to contact our team at CPS Investment Advisors at: Info@CPSInvest.com
1) Question: The act allows a business to use 24-weeks instead of 8-weeks as their covered period. Do I need to wait for the 24-weeks to pass before applying for forgiveness?
Answer: No. After you have used the PPP funds, you can apply for forgiveness before the 24-week covered period expires.
Please note: Applying before your covered period expires might negatively impact certain safe-harbors. Please consult with your lender or trusted advisor prior to applying for forgiveness.
2) Question: Is the forgiveness “all or nothing,” or can the loan be partially forgiven?
Answer: The loan can be partially forgiven. For any amount not forgiven, the business will have 5 years to repay the loan.
3) Question: Is the $100,000 annual salary limit a different amount for the 8-week covered period vs the 24-week period?
Answer: Yes, the loan forgiveness application specifies the following:
“For an 8-week Covered Period, that total is $15,385. For a 24-week Covered Period, that total is $46,154.”
4) Question: Can the PPP funds be used to pay bonuses or increase salaries?
Answer: Perhaps yes, but further guidance is needed.
Covered payroll cost are currently listed as salary, wages, commissions, or tips (Capped at $100,000 on an annualized basis for each employee) Current guidance does not restrict an increase in salaries or bonuses, but keep in mind that each employee is still restricted to the $100,000 annualization cap.
5) Question: When does the covered period start?
Answer: The date the lender makes the first disbursement of the PPP loan to the borrower
The SBA answered this question on Question #20 of the PPP FAQ’s.
IMPORTANT: See question #12 (What is the “Alternative Payroll Covered Period”?) for an election to possibly adjust the start date.
6) Question: Are the expenses used for forgiveness cash or accrual?
Answer: It’s a bit of a hybrid.
The loan forgiveness application specifies the following:
Eligible Payroll Cost: “Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.”
Eligible nonpayroll cost: “An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.”
7) Question: If my rent increase, or if I’m renewing my lease agreement soon, will the new lease payment count toward loan forgiveness?
Answer: Not under current guidance. A leasing agreement must be in force before February 15, 2020.
8) Question: Can I contribute to my profit sharing plan (PSP) with PPP funds?
Answer: Further guidance is needed
Currently, employer contributions to defined-benefit or defined-contribution plans are considered covered payroll cost. However, because PSP contributions are more discretionary, we caution the use of the funds into this type of plan until more guidance is provided.
9) Question: What utilities can I use the PPP funds for?
Answer: Electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. See the CARES ACT SEC. 1106 (5)
10) Question: Will I get a tax deduction for the expenses paid with the PPP loan?
Answer: Not if the amounts used are forgiven.
The IRS provides more guidance in IRS Notice 2020-32 stating, “Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)”
11) Question: I have the PPP loan & EIDL loan. Can I keep and use them both?
Answer: In general yes, but the funds cannot be use for the same purpose.
Each loan has different restrictions regarding the use of the funds. Make sure you are using the funds in accordance with approved qualifying/covered cost.
12) Question: What is the “Alternative Payroll Covered Period”?
Answer: You can elect to start the covered period beginning the first pay period following their PPP Loan disbarment date
The following is from the Loan Forgiveness Application:
“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the borrower, the eight-week (56-day) period) that begins on the first day of their first pay period following their PPP Loan Disbursement Date.”
13) Question: A safe harbor exists for loans less than 2-million dollars. Am I still subject to review?
Answer: Yes, you are subject to review regarding loan forgiveness.
The $2 million safe harbor regards the “good faith” certification made by a borrower when they initially applied for the PPP loan.
The SBA addressed this on Question #46 of the FAQ’s on the SBA’s website.
14) Bonus Question: How long should I retain my records for loan forgiveness?
Answer: Six years after the loan is forgiven.
The following is from the Loan Forgiveness Application:
“The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.”
If you have any additional questions, please contact our team. Our CPS Team is committed to helping both our clients and community get through these uncertain times. If you, or someone you know, needs assistance, please be sure to reach out. Our advisors are working around the clock to answer all your money questions: Info@CPSInvest.com
Sterling J Searcy Jr | CPA