Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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When Your Plan Ends…

Written by Ginny Wilson.

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As our clients know, we use MoneyGuidePro (MGP) as our financial planning software tool and we generally review our clients’ particular plan with updates when we meet. This allows us the opportunity to discuss any changes in their lives, perhaps an upcoming life event, like retirement, or a new goal, like starting a 529 for a grandchild. We help to analyze all of the “known” factors and make some assumptions about the future, including when your time on earth may end. MGP euphemistically refers to this as the “plan end”, or in other words, the time when these variables, assets and concerns will no longer be yours!

Here is where good estate planning comes into play. At DWM, we think it is important to help you with the preparation for the end of your life, as well as your legacy after. We aren’t lawyers, but we work with some trusted estate attorneys and can use experienced insights and knowledge of your financial world to make sure that all of your wishes are properly addressed. We have helped many of our clients in this way, as well as many of their extended family members. We offer to carefully review your existing wills or trust in an effort to make sure your asset distributions and beneficiary designations are how you want them. We like to provide our own CliffsNotes version in a summarized Estate Flow for your convenience.   If things need updating, we can make some recommendations on how and also on who can help you with the legal paperwork and advice.

We also review all of your estate plan ancillary documents that discuss your end-of-life plan. These include the Health Care Power of Attorney (HCPOA), which designates an agent to represent you on health care decisions, the Durable Power of Attorney (DPOA), which designates a financial, legal and business representative on your behalf and the Living Will, which essentially outlines your care wishes in the event of incapacitation or when you can’t speak for yourself. Many of our clients come in not understanding how vitally important these documents can be for you and your family to have in place BEFORE there is a reason to need them! These documents are also state-specific and must be updated or kept current for where you spend time, either in a primary or secondary residence. Every situation is different – a terminal diagnosis may give you time to determine the answers for these questions and to generally get your affairs in order. However, a sudden, unexpected incident, especially for a younger person, can leave the people you love with decisions and demands that may be overwhelming.

An article in the WSJ recently talked about this issue of “Preparing for a good end of life”. Planning ahead and talking to your loved ones is important for everyone’s peace of mind. There are some fundamental pieces that should be considered to have a good plan ready. As the WSJ writer recommends, “Imagine what it would take to die in peace and work back from there.” This might include where you want to be and how you will manage the financial and physical obligation of your end-of-life. Would you want to be at home and perhaps have in-home care? Would you rather allow for in-patient hospice treatment so there is less demand on your family? The WSJ references a 2017 Kaiser Foundation study that suggests most people care much more about the burden on their families, both financially and emotionally, than about extending their own life.

The Living Will and HCPOA allow you to specify what kind of medical attention you want during a serious medical event or terminal situation. Will you want to be kept alive artificially while being treated so you can live as long as possible? These documents allow you to determine who will be your representative on these matters and what decisions for your care that you make ahead of time or ask that your representative decide for you. In some cases, the right choice might be someone more neutral than a close family member, as their judgement may be emotionally clouded. Either way, it allows you to make decisions now that will offer a guideline to follow for those who love you. Having these conversations ahead of time about who will make decisions and how you wish to be cared for will hopefully bring solace to your loved ones, as well as relieve any stress for you by knowing that this is in order.

It is also important to ensure that all of your legal affairs are in order. Make sure that all of your bequests to others and the timing for them to receive them are kept up to date. It is also important to make sure deeds and the beneficiary designations on other assets are current and titled the way you want them, whether in a trust to avoid probate or with named beneficiaries to make your wishes clear. Make sure to keep life insurance policy information in a safe place and the beneficiary designations current. Also, safely store a list of all important financial documents and social media passwords in at least one place to make it easier for your personal representative(s) to tie up your affairs. Prepare a business succession plan and keep all the documents current. Don’t put off assigning items of sentimental or financial value to those you want to receive them. Many people are now even planning their own memorial services and writing their own obituaries to lessen the obligation and make sure everything is how you would like it. We are happy to help you store some of these financial documents in our secure “vault” in our DWM cloud.

We may have all experienced or know about situations where no planning was in place or updates to wills, titles and/or beneficiary designations were missing or outdated. Your family and friends will be dealing with tremendous grief during this time, so making these preparations ahead of time will allow both you and them some comfort when it’s time. While it may be hard to have these conversations and make these decisions, it will certainly make it easier for everyone in the long run.

Please let us know if we can help you get these affairs in order. At DWM, we are always happy to help bring peace of mind to our clients and their families.

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Tick, Tock...is it Time for your Required Minimum Distribution (RMD)?

Written by Jenny Coletti.

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“Time flies” was a recent quote that I had from a client.  Remember a long time ago…putting money aside in your retirement accounts, perhaps at work in a qualified traditional 401(k) or to an individual retirement account (IRA)?  It’s easy to ‘forget’ about it because, it was after all, meant to be used many years down the road.  It would be nice to keep your retirement funds indefinitely; unfortunately, that can’t happen, as the government wants to eventually collect the tax revenue from years of tax deferred contributions and growth.

In general, once you reach the age of 70 ½, per the IRS, many of those qualified accounts are subject to a Required Minimum Distribution (RMD) and you must begin withdrawing that minimum amount of money by April 1 of the year following the year that you turn 70 1/2.  Of course, there are a few exceptions with regards to qualified accounts, but as a rule, when you reach 70 ½, you must begin taking money from those accounts per IRS guidelines if you hold a traditional 401(k), profit sharing, 403(b) or other defined contribution plan, traditional IRA, Simple IRA, SEP IRA or Inherited IRA.  (Roth IRA withdrawals are deferred until the death of the owner and his or her spouse).   Inherited IRAs are more complicated and handled with a few options available to the beneficiary, either by taking lifetime distributions or over a 5 year period.  The importance here, is to be aware that a distribution is needed.  Another word of caution…In some cases, your defined contribution plan may or may not allow you to wait until the year you retire before taking the first distribution, so a review of the terms of the plan is necessary.  In contrast, if you are more than a 5% owner of the business sponsoring the plan, you are not exempt from delaying the first distribution; you must take the withdrawal beginning at age 70 1/2, regardless if you are still working.

The formula for determining the amount that must be taken is calculated using several factors.  Basically, your age and account value determine the amount you must withdraw.  As such, the December 31 prior year value of the account must be known and, second, the IRS Tables in Publication 590-B, which provides a life expectancy factor for either single life expectancy or joint life and last survivor expectancy, needs to be referenced.  The Uniform Lifetime expectancy table would be referenced for unmarried owners and the Joint Life and Last Survivor expectancy table would be used for owners who have spouses that are more than 10 years younger and are sole beneficiaries.  It comes down to a simple equation: The account value as of December 31 of the prior year is divided by your life expectancy.  For most individuals, the first RMD amount will be roughly 4% of the account value and will increase in percentage each year.

It all begins with the first distribution, which will be triggered in the year in which an individual owning a qualified account turns 70 ½.  For example, John Doe, who has an IRA, and has a birthdate of May 1, 1949, will turn 70 ½ this year in 2019 on November 1.  A distribution will need to be made then after November 1, because he will have needed to attain the age of 70 ½ first.  Therefore, the distribution can be taken after November 1 (for 2019), and up until April 1 of the following year in 2020.

Once the first distribution is withdrawn, subsequent annual RMDs need to be taken for life, and are due by December 31.  In this case, John Doe will need to next take his 2020 distribution, using the same formula that determined his first distribution.  This will become a regular obligation of John’s each year.

So, we’ve talked about who, what, why and when, now let’s talk about the where.  Once the distribution amount is calculated, an individual can then choose where he or she would like that money to go.  Depending on circumstances, if the money is not needed for living expenses, it is advised to keep the money invested within one of your other non-qualified accounts such as a trust, individual or joint account, i.e. you can elect to make an internal journal to one of your other investment accounts.  Alternatively, if you have another thought for the money, you can have it moved to a personal bank account or mailed to your home.  Keep in mind that these distributions are taxed as ordinary income, thus, depending on your income situation, you may wish to have federal or state taxes withheld from the distribution.  At DWM, we can help our clients determine if, and what amount, to be withheld.  One exception is the qualified charitable distribution or QCD, which is briefly discussed next.

 Another idea that may be a possibility for some individuals is for the distribution amount to be considered a qualified charitable distribution (QCD).  Instead of the money going into one of your accounts, a direct transfer of funds would be payable to a qualified charity.  There are certain requirements to determine whether you can make a QCD.  For starters, the charity must be a 501 (c)(3) and eligible to receive tax-deductible contributions, and, in order for a QCD to count towards your current year’s RMD, the funds must come out of your IRA by the December 31 deadline.  The real beauty about this strategy is that the QCD amount is not taxed as ordinary income.  You would simply provide the QCD acknowledgement receipt(s) along with your 1099R(s) to your accountant for the correct reporting on your tax return.

It may be pretty scary to know how quickly time flies, but with DWM by your side, we can take the scare out of the situation!

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Ask DWM: Should I Consider Investing in Marijuana?

Written by Brett Detterbeck.

Cannabis-Investing

In 1996, California became the first state to legalize the use of medical marijuana. This began, for many, the first opportunity to legally invest in this industry. In 2012, both Colorado and Washington State legalized the use of recreational marijuana. Both events were monumental for the development of marijuana investments but, arguably, the most momentous day in marijuana investments occurred on October 17th, 2018 with the legalization of recreational marijuana in Canada. In June of 2018, Canada voted "yes" to legalization and became the first major country to do so. Interest in these investments have soared ever since.

Cannabidiol ("CBD") is one of the major attractions in this story. CBD is a cannabis compound used primarily for medical purposes. CBD has been proven to provide benefits for pain management, sleep aid, and stress. The primary difference between marijuana and CBD is its lack of hallucinogenic properties. CBD does not contain tetrahydrocannabinol ("THC"), the main hallucinogenic property found in marijuana. CBD is currently legal in all 50 states. As of February 2019, marijuana has been legalized in over 30 US states for medical purposes and ten, including Washington D.C., have approved it for recreational use.

Spending in the legal marijuana industry is expected to surge from $8.5 billion in 2017 to over $23 billion in 2022. As a side note and for comparison purposes, illegal sales of pot represented 87% of all North American sales and over $46 billion in 2016 according to Arcview Market Research. Hard to not get excited about those growth figures! Further, in a sign of credibility to the industry, major investments from some of the world’s largest beverage makers including Coca-Cola and Corona brewer Constellation Brands have created even more hype and have sent some pot stocks soaring. It’s not just Wall Street taking notice, but ordinary people are wondering if they should get in on the craze.

But just like Bitcoin & other cryptocurrencies, this upstart legal cannabis industry has many red flags and may lead to some scary results.

First off, “FOMO” or the Fear Of Missing Out is no reason to plow good money into a speculative area. It is prudent to do some serious research before dipping into the waters of an industry that faces many legal, regulatory and other hurdles. Further, beware of fraudsters on the internet claiming “this pot stock is the next big thing!” Investing in cannabis is like the wild, wild west and similar to the dot.com mania of the 90s with tons of extreme volatility and broken promises.

More specifically, there are a variety of risks associated with investing in this area. Marijuana is still not legal at the Federal level, which makes banking for marijuana companies within the US difficult and future issues uncertain. Second, most marijuana companies are considered “start-ups” where company revenues are low or nil, and they may be running at a loss. In addition to this, overall investments in marijuana continue to remain small, albeit growing, in comparison to developed industries. For example, the ETFMG Alternative Harvest ETF (symbol: MJ), one of the largest marijuana funds available, holds just $1 billion in capital. Lastly, with only a handful of well-known “reputable” companies in this area, don’t get burned by loading up in just one or two names and thus becoming subjected to company-specific risk.

If you are still interested in investing in marijuana, there are a few considerations to keep in mind. As a general rule, you should not allocate more than a couple percent of your total investment portfolio to one company name. Further, prudent portfolio management suggests to limit your overall exposure to a speculative area like this to no more than 5% of your total investable assets. Avoid concentrated company-specific risk and diversify. A diversified mutual fund or ETF like the ETFMG Alternative Harvest ETF (symbol: MJ) mentioned above is a great choice for those that aren’t good at research but “have to get in”…

At the end of the day, investments in marijuana should be considered widely speculative and highly susceptible to losses. Volatility in both specific companies and funds have been extremely high since their inception. Investments in these areas should be considered more like taking your money to Las Vegas. It’s a gamble and you could potentially lose your entire investment.

At DWM we consider ourselves to be financial advocates for our clients and we love being a part of all of our client’s financial decisions. Questions such as investments in marijuana have been a reoccurring theme as of late, eerily similar to those in 2017 about Bitcoin and we know what happened there….In other words, if you are still interested in this area, PROCEED WITH CAUTION!!!

At this time, DWM is not investing in marijuana for managed accounts due to the many issues mentioned above. For clients still interested in reviewing marijuana investments via a self-directed/unmanaged account, we welcome your calls.

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