Dying Without a Will: “The Prince Story”

What would the future hold for your family and loved ones if you were to unexpectedly pass tomorrow? Would they be in a position to handle all of your affairs in addition to the funeral arrangements and other stressors inherent with your unexpected death? What would happen to all of the assets you’ll be leaving behind? Who will be entitled to those assets? These are just some of the questions that must be answered prior to embarking on the estate planning journey. Although this is not a pleasant matter to discuss, it is a critical financial event that needs attention. The vital estate planning decisions you make today may have effects on those who survive you when that inevitable day does come.

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Corporate Retirement Plan Fiduciary

The forever changing regulatory environment within the financial services industry has brought about many significant changes and improvements over the years. It is evident that the industry’s ongoing evolution has been beneficial to individual investors. The governing and regulatory bodies that be were enacted to protect average retail investors. It is important for investors, both retail and institutional, to have an understanding of the scope of a fiduciary so that they can best protect and insulate themselves from fraudulent financial practice and other detrimental risks that could have adverse effects on their investments. A key area where many people tend to fall short of maintaining optimal compliance standards and practices is seen with corporate retirement plans.

A corporate retirement plan must have at least one fiduciary named in the plan documents as having control over the plan’s operation. Although many individuals are aware that corporate retirement plans are administered by the fiduciary to the plan, what many fail to realize is the fact that the financial advisor/ consultant selected to manage the plan should also be a fiduciary. Why is it so important to have a financial advisor in the fiduciary capacity manage your corporate retirement plan if there is a fiduciary responsible for selecting that advisor/ consultant in the first place?

The investment oversight provided by the financial advisor/ consultant hired to manage the retirement plan is directly linked to the workers participating in the plan as well as their beneficiaries. Although being a fiduciary is not indicative of an advisor’s ability or experience, it is a huge responsibility to administer a corporate retirement plan and hiring any old money manager is not an action in the best interests of the plan’s participants. Hiring an inexperienced, non-fiduciary advisor/ broker can result in devastating repercussions and financial loss if the advisor/ broker was not to act in the best interest of the retirement plan and its participants alike.

With responsibilities ranging from diversifying the plan’s investments to maintaining the plan at a reasonable expense, the fiduciary financial advisor/ consultant is required to carry out all duties with care, skill and prudence. Aside from the inherent ethical requirements, a corporate retirement plan involves many components and responsibilities that should be carried out only by an advisor with considerable expertise and experience with handling such plans. Some other key responsibilities of a retirement plan advisor/ consultant include assistance in the development of an investment policy statement, help in choosing a plan provider, plan design guidance, assistance with selecting the investment options that will be available to the plan’s participants, participant engagement and education and most importantly, plan monitoring and regular review.

It is important to note that not every advisor is capable of administering a qualified retirement plan (in a fiduciary capacity) and the plan fiduciary must be mindful of this fact when choosing the financial professional they think should manage the plan. It is crucial that all plan sponsors confirm that they have employed a financial advisor/ consultant who abides by the fiduciary standard as opposed to a regular financial services professional (aka broker).

Is your current corporate retirement plan advisor a fiduciary? This is a vital question that all plan sponsors must answer as they too are required to act as a fiduciary to the plan. If you are unsure whether or not you have employed an advisor whom is a fiduciary, it is crucial that you give us a call at (631) 952-4466 x12 so that we can help you answer this question and ensure that you are doing right by your company’s corporate retirement plan and its hardworking participants. To learn more on the importance of the hiring a financial advisor whom is a fiduciary to manage your corporate retirement plan, be sure to check out the latest edition of the Mitlin Minute. It is not worth assuming that your plan’s financial advisor is a fiduciary. Let Mitlin Financial help you be certain of this fact so that your financial future looks that much brighter!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

The Fiduciary

Is your current financial advisor acting in your best interest? Does your advisor follow only the suitability rule to determine appropriate investments for your portfolio? Does he or she act in a fiduciary capacity? It is important for an individual to understand the regulatory standards and confines by which financial professionals work. In order to attain the best possible financial advice, guidance and client service, investors need to realize that there are great differences between how financial advisors and brokers qualify investments for their clients.

In order to determine which regulatory standard is the best fit for your situation, it is crucial that you understand each standard on its own. By definition, FINRA’s suitability rule states that firms/ brokers must have reasonable basis to believe that any investment strategy or transaction involving securities that they recommend is suitable for that particular customer. This belief is based directly on the client’s information as per only their investment profile. An investment profile includes information such as the client’s age, other investments, investment time horizon, investment experience, net worth and liquidity needs. As long as the financial professional believes the investment to be suitable for the client given their investment profile, the broker can then go ahead and recommend that security or strategy accordingly. Although this may sound like a thorough vetting process, it is not as in depth as the fiduciary standard.

What is the fiduciary standard? This standard requires advisors to always act in their clients best interests and put their client’s interests before their own. The fiduciary standard is similar to that of an attorney, CPA and medical professional. A prime example as to when this standard is important is when an advisor is purchasing securities. If acting as a fiduciary, the advisor cannot purchase securities for his or her account prior to purchasing them for a client. Additionally, the advisor must always disclose any potential conflicts that may exist. As you can see from the two, the fiduciary standard is significantly more client-centric and appropriate

Although there are rules and standards in place that help to govern both the broker-dealer and the Registered Investment Advisory world, it is evident that the RIA fiduciary standard is far more stringent. With an advisor always acting in the best interests of the investor, clients are significantly more insulated from fraudulent business practices as well as unsuitable investments that may result in avoidable loss. It is extremely important for every investor to discern whether their current advisor, or even one they are looking to hire, acts in a fiduciary capacity or if they are only obligated to make recommendations that are consistent with the underlying investment profile of the client.  

As an SEC Registered Investment Advisory firm, Mitlin Financial, Inc. acts in a fiduciary capacity. The fiduciary standard is a topic that should be discussed with your advisor, broker-dealer and/ or every financial services professional. Knowing who will be managing your financial future ahead of time can help an investor circumvent potential downside risk. Check out our latest edition of the Mitlin Minute to learn more about the fiduciary standard. Call us at (631) 952-4466 x12 to learn whether your financial advisor acts in a fiduciary capacity or not. Don’t leave it to your imagination, let us help facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.


Advisor Succession Planning

While taking inventory of your individual financial circumstances, have you considered what’ll happen to your hard earned assets upon your demise? Have you given sufficient thought to the process by which the beneficiaries and heirs to your estate will come to inherit those assets? Will they have to deal with the nightmare of probate or outlandish estate taxes? These are just some of the important questions that can be answered through facilitating your own succession planning. But have you ever stopped and considered whether or not your advisor has executed a plan for their firm and clients? As registered investment advisory firms continue to grow and evolve, the idea of advisor succession planning continues to become more and more prevalent. There are many reasons why it is crucial for your advisor to have their own succession planning in place as well as certain questions that need to be answered by your advisor.

Advisor succession planning has recently become an important consideration of financial advisory firms and rightfully so. First and foremost, if your own financial advisor acts as a fiduciary and is going to recommend that you execute your own succession planning, they should certainly have already executed or already be in the process of executing their own plan.

There is a great deal of downside to working with an advisor who does not have a firm succession plan in place; especially a sole practitioner. A prime example includes the possibility that you could be stuck searching for a new financial advisor at an inopportune time if your advisor were to retire, or worse, get hit by the proverbial bus. In addition, just because your advisor is part of a larger firm it does not mean that they have a succession plan in place. It is very important that you handle this proactively, as this is not a matter you want to leave to chance. You want to make sure that your advisor will be able to facilitate continuity for their clients should they retire or pass away.

How can you ensure you don’t end up without a financial advisor at a critical stage of your financial life? The best place to start is by asking your advisor what plans they have made to maintain client care after their retirement. Although this is a topic that your advisor should have already covered on their end, there are many financial advisors that have never addressed this issue. It is very important that you initiate this conversation if it has not yet taken place. You want to make sure that your advisor has executed a succession plan that touches upon all fronts like asset management and servicing continuity and leaves nothing to the imagination.

If your advisor currently has no plan in place, it may be time to start looking for a financial advisor that has already executed a sufficient succession plan. Never assume that every advisor has a plan. Here at Mitlin Financial,Inc., we already have an in-depth succession plan that’ll ensure seamless continuity for our clients with regards to asset management and client service. If you are unsure if your current financial advisor has a succession plan in place or if you’d like to hear more about the Mitlin philosophy, be sure to give us a call at (631) 952-4466 x12. To learn more about the importance of advisor succession planning, check out the latest Mitlin Minute. You’ve worked hard to get your finances to where they are, do take the risk of reversing all of that progress by leaving your financial future to the imagination.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Cost Basis Step-Up

What’s the single biggest expense that you will incur during your lifetime? You guessed it, taxes! Nobody enjoys giving away their hard earned dollars to the Tax Man. This is all the more reason to take advantage of any rare instances where tax implications can be minimized. A step-up in cost basis on inherited assets (from a decedent) is a prime instance where your tax liability can be reduced. This commonly overlooked tax benefit can be advantageous to a beneficiary when inheriting assets and it is crucial to understand when and how to effectively implement this strategy.

What exactly is a step-up in cost basis and how is this beneficial? Defined as the readjustment of the market value of an appreciated asset for tax purposes upon inheritance, a step-up in cost basis values the asset using the cost basis at the time of inheritance rather than the value at the time of purchase. It is very important to understand that this tax benefit only applies to appreciating assets, such as securities and property.

Often times, when an asset gets passed on to a beneficiary, its value tends to be greater than the value at which the original owner had acquired it at. For example, your friend’s Aunt has just passed away and left your friend 100 shares of Disney stock. The stock was originally purchased for $50.00 and the current market value is $100.00. The $50.00 difference between the purchase price and market price is defined as the capital appreciation and this is the component that the beneficiary will have to pay capital gains taxes on. But what if we could reduce the amount of that capital gain? Can we also reduce the amount of the capital gains taxes owed?

The answer is yes; this is exactly where the step-up in basis comes into play. On the day your friend’s Aunt passed away, the Disney share price was $90.00. With a stepped-up cost basis, the asset’s cost basis is now the market value as of the date of the decedent’s death ($90.00) and not to be confused with the current market value ($100.00). Instead of your friend paying capital gains taxes on a $50.00 gain, he is only responsible for paying taxes on the $10.00 capital gain. The adjusted cost basis has decreased the size of the capital gain and the capital gains taxes which go along with it.

As a beneficiary inheriting assets, it is very important that you remain aware of the limitations associated with a step-up in cost basis. One important rule to note is that this tax benefit does not apply to any assets that are held jointly with children. In addition, you cannot apply a step-up in basis to any tax-deferred, qualified retirement account. This means that you will not be eligible to receive a step-up in cost basis on any IRAs, 401(k)s, 403(b)s or any other qualified account. Lastly, you must be aware of the fact that assets can also receive a “step-down” in cost basis. This is simply the opposite of a step-up in cost basis.

Although this tax rule is not one that an inpidual uses regularly, it is still important to be cognizant of the fact that it exists. Be sure to view the latest Mitlin Minute to learn more about a step-up in cost basis. If you think that you, or someone you know, may be eligible to receive a step-up in cost basis on recently inherited assets, it would be wise to consult with your financial advisor on how to proceed. You may also want to give us a call (631) 952-4466 x12 to see how Mitlin Financial, Inc. can help you in these types of scenarios. Contact us today and see how we can help facilitate and maintain your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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