ARTICLES FROM OUR EXPERT TEAM

Forecast 2016

Our expert contributors weigh in on the elections, financial markets, interest rates, taxes, Social Security and their Super Bowl picks.

Elite Advisor Report interview with contributors Hyman Darling of Bacon Wilson; Glenn Demby, Esq.; Tim Voorhees of Matsen Voorhees; Blake Christian, tax partner of HCVT; and Josh Patrick, Stage2 Planning Partners.

Key Takeaways:

  • If you factor in the estate, gift, GST, income, IRD, capital gains, AMT and property taxes that would result, clients would spend four to six months a year working for the government if they didn’t have proper financial planning.
  • Clients worry about portfolio “event risk,” including a potential domestic terrorist strike or the impact of regional wars.
  • Look for some type of Social Security reform—raising the minimum age to 70 but allowing taxpayers to opt out and invest a lower lump-sum payout in a special IRA with a modified taxability upon withdrawal.
  • We need tax reform that will make the U.S. more competitive internationally, with incentives to invest in businesses and capital assets and possibly a lowering of the capital gains rate and/or the 3.8 percent net investment income tax.
ARTICLES FROM OUR EXPERT TEAM

Panelists, what are your clients most concerned about right now with such a diverse “portfolio of worry” to choose from?

Blake Christian: Clients are most concerned about the Fed’s interest rate policy’s impact on their bond and stock portfolios. There are also significant concerns associated with portfolio “event risk,” including a potential domestic terrorist strike or the impact of regional wars. On the positive side, clients are somewhat optimistic that we will see more friendly congressional activities that are pro-business, such as tax reform, lower regulation and other stimulus.

Tim Voorhees: When they add up all the estate, gift, GST, income, IRD, capital gains, AMT, property and other taxes that they would pay, many clients realize that they would spend four to six months each year working for the government [if they didn’t have proper financial planning].

Hyman Darling: Will I outlive my money? Will I have enough to live on for the rest of my life? How can I protect my assets from probate and long-term care expenses?

It’s early December now. When do you think the Fed will finally pull the trigger on interest rates and by how much short term and long term?

Voorhees: No material changes are expected until after the November 2016 elections.

Darling: Will it really make a difference in my life?

Josh Patrick: I agree. If we add 0.5 percent over the next year, it won’t make any difference in the economy. We’ll go from effectively zero to almost zero.

Let’s talk Social Security. What is the likelihood that younger, non-boomer clients will receive their full benefits? Are you advising older boomers (those age 62-plus) to take advantage of “file and suspend” before the window closes next year?

Darling: Will new changes in the law hurt me?

Voorhees: The Social Security retirement age will have to be above age 70 for younger employees.

Christian: Yes, the file-and-suspend election is very valuable, so we are raising this option. I am not optimistic that younger retirees will get their full benefits. I would like to see Congress allow taxpayers who are 50 and younger to opt out of Social Security and allow them to roll out a portion of their vested benefits into a segregated IRA (allowing deferral). Future taxability could parallel current Social Security benefit taxability to avoid 100 percent inclusion. This would give the taxpayer control and lower the government’s long-term obligations.

We can’t talk about 2016 without touching on the elections. If a Democrat wins, who will it be if NOT Hillary Clinton?

Christian: Biden or another latecomer.

What is your assessment of how an incoming Democratic president and administration would impact the tax, investing and wealth preservation climate for your clients?

Patrick: Not much different than it was under Bill Clinton. If you’re a hedge fund or a Fortune 1000 company and think that having an offshore headquarters is a good idea, then you’ll get whacked.

Christian: I predict a general negative estimate in the investing world and likely increases in income, estate and other taxes; fees; and regulatory costs.

If a Republican wins, who will it be?

Voorhees: A Trump-Cruz ticket could generate broad appeal.

Christian: Surprisingly, Trump has had some strong staying power. He does run the risk of shooting himself in the foot, but he is clearly resonating with the conservative voters.

Patrick: Possibly Rubio or John Kasich. If Trump gets the nomination, there is no way he gets elected.

How do you think an incoming Republican president and administration would impact the tax, investing and wealth preservation climate for your clients?

Patrick: Republicans are always good for big business and really crappy for small business. So, it depends on which side of the ledger you’re sitting on.

Christian: I foresee some tax reform that would make the U.S. more competitive internationally, some incentives to invest in businesses and capital assets (e.g., increasing IRC Section 179 and bonus depreciation), and possibly a lowering of the capital gains rate and/or the 3.8 percent net investment income tax. I also expect some Social Security reform—possibly allowing taxpayers to opt out and invest a lower lump-sum payout into a special IRA with modified taxability upon withdrawal.

Let’s talk about elder care and the rising fear of outliving one’s money. What is the biggest mental barrier your clients see to making their money last for 30 to 40 years of retirement?

Voorhees: Clients must understand strategies that add tax alpha. Advisers need to show the impact of ALL the unnecessary taxes on interest, dividends, capital gains and partnership distributions. With proper tax planning, $1 can grow to $5,300 instead of $700. See www.t-e-a-m-solution.com\Growth.

Christian: Clients must do a better job of estimating their retirement spending, including medical costs, and they occasionally do not plan their debt structuring properly. For example, they often fail to establish lines of credit and other long-term debt during their working years. It’s important to line that up while you’re still working, since securing such loans is much more difficult in retirement.

Patrick: They seem to be pretty clear about the issue, and most are seriously delaying retirement, or at least the ones I’m working with are.

Who will win the next Super Bowl?

Christian: Unfortunately, the Patriots—with legal balls.

Darling: I’m based in Springfield, Massachusetts. Let’s leave it at that.

Voorhees: The promoter who collects the advertising revenue.

Is there anything on your recommended reading list for advisors this holiday season?

Christian: The Slight Edge by Jeff Olson

Voorhees: The holiday season is a time to do year-end tax planning and reflect on plans to benefit family and charities. To guide such planning, I recommend these 100 books: www.WealthBookList.com

Patrick: Anything by Patrick Lencioni, especially The Advantage. For fiction, try anything by Neal Stephenson. You might want to start with Neal Stephenson’s Cryptonomicon. Also Digital Gold by Nathaniel Popper. It’s about bitcoins and the history of them. Missoula: Rape and the Justice System in a College Town by Jon Krakauer (anything he writes is great), and Choose Yourself by James Altucher. He’s a weird guy, but it’s a great book. Also Misbehaving: The Making of Behavioral Economics by Richard Thayler—a must-read for financial advisors. Finally, Becoming Steve Jobs by Bent Schlender. It’s the best book I’ve read on Jobs.

Any final thoughts about what’s in store for us in 2016?

Glenn Demby: Whether we’re talking about the holidays or finances, a man will argue with his wife. She will be right, and he will be wrong.

About the panelists

Blake Christian, CPA/ MBT is a Tax Partner in the Park City, Utah, and the Long Beach, California, offices of HCVTHCVT. He can be reached at blakec@hcvt.com or 562-305-8050.

Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law departments. His areas of expertise include all areas of estate planning, probate, and elder law. He is a frequent lecturer on various estate-planning and elder-law topics at local and national levels, and he hosts a popular estate-planning blog at bwlaw.blogs.com/estate_planning_bits. He may be reached at (413) 781-0560 or HDarling@BaconWilson.com

Glenn Demby is an attorney and prize-winning B2B journalist who specializes in explaining the law in plain English and providing how-to solutions to help business professionals overcome their compliance challenges. He can be reached at 203-354-4532 and at glennsdemby@gmail.com.

Josh Patrick, CFP®, is a serial entrepreneur and wealth manager who specializes in working with owners of privately held businesses. He spent 20 years in the commercial vending and food service business. From there he entered the wealth management business, where he now works exclusively with owners of private businesses, helping them create value in their business. His goal is to help business-owner clients create a better life. Josh can be found at Stage 2 Planning Partners.

Tim Voorhees, JD, MBA, is an estate planning lawyer and investment advisor based in Irvine, California. He is the president of the Registered Investment Advisory firm described at Voorhees Family Office Services.com and the managing partner of the tax law firm described at www.MVMLawyers.com Feel free to email Tim at tim@vfos.com.