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Here’s How to Set Up a Trust

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

While there aren’t many things you can control after you pass away, one thing you can have a direct impact on is who receives the property you own afterwards. But how do you gain this type of protection for your assets and avoid the probate process? You might find a solution in a revocable trust. Below, we’ll explain how to set one up along with the advantages and disadvantages of doing so.

What is a trust?

A revocable trust, also sometimes called a living trust or inter vivos trust, is an estate planning tool you can set up during your lifetime to hold your assets. When you pass away, the trust controls who receives the assets and under what terms. Typically, trust beneficiaries receive their inheritance outright, without restrictions, or in trust, which can control when and how they receive trust income and principal.

Parties to a trust

There are typically three parties to a trust.

  • The grantor is the person who sets up the trust and funds it with his or her assets.
  • The trustees are the people who manage the trust assets. You would generally name yourself as a co-trustee during your lifetime. You have the option of naming one or more co-trustees, who might be family members or close friends.
  • The beneficiaries are the people who will benefit from the trust and its assets when you pass away. This might include your spouse, children, grandchildren or other close family members.

In addition to controlling the distribution of your assets at death, you can also use a revocable trust to determine what happens to your assets if you become disabled and are unable to make financial decisions. During your lifetime, you have full control over the assets in the trust. But if you become unable to manage those assets, a revocable trust will typically give co-trustees the ability to manage trust assets until you are once again in a position to manage them yourself.

Setting up a trust

The mechanics of setting up a trust are fairly straightforward. A revocable trust must follow the laws of the state where you have your primary residence. The best way to make sure this happens is to consult an attorney licensed in that state. While online tools are available to help you set up a trust, the legal complexity suggests that you may be best served to use an attorney to draft the trust.

Choose co-trustees and beneficiaries

After you hire an attorney, you will need to make several decisions. The first will be who — besides yourself — should be a co-trustee. People typically choose family members. At least some of your co-trustees should be younger than yourself so that they are more likely to survive you and can manage the trust when you are no longer able to do so.

Second, you have to decide who will be the trust beneficiaries. Typical candidates include your spouse, your children and grandchildren. You’ll also have to decide if they will receive money outright when you pass away or in trust. Often, younger beneficiaries might have their inheritance held in trust until they are old enough to manage it. A trust can also be a good way to protect an adult child who has shown he or she isn’t yet responsible enough to handle money or may be involved in a divorce or other situation where full access to assets might complicate things.

Customize the structure

Revocable trusts are easy to customize. As the owner or grantor of a trust, you decide when the trust begins operating, who benefits from it and under what circumstances beneficiaries can use the money. The trust structure allows you to grant beneficiaries access to funds at certain ages or for certain purposes, such as education or to purchase a home.

Trusts also come with some attractive benefits for beneficiaries. For example, if you name your adult child as a beneficiary, the assets in the trust are not part of his or her estate once you (the grantor) die and the trust becomes irrevocable. This helps protect these assets for future beneficiaries (perhaps your grandchildren) from events such as bankruptcy or divorce.

Draft the trust and retitle assets

There are also some mechanical tasks you need to handle. Your attorney will generally do a draft of the trust so you can comment on its provisions. Then he or she will use those comments to draft a final document for your signature. Your attorney will also get a taxpayer ID for the trust from the Internal Revenue Service.

The biggest mistake some people make after creating a trust is not completing the next step — retitling their assets in the trust’s name. If you want to include your bank and brokerage accounts in the trust, you need to change the ownership of each account to the name of the trust. For example, your savings account might now be owned by the Mary Smith Revocable Trust.

Some assets, however, are not well-suited for a trust. Most people don’t include things such as clothes, jewelry, furniture and other personal property. Rather, they use their will to pass this property to the people they want to have it. If in doubt about what property works well in a trust, it’s a good idea to consult an attorney.

What are some advantages of trusts?

There are a number of advantages to setting up a revocable trust.

  • A trust can help manage your assets if you become disabled.
  • A trust makes it easier to distribute assets to heirs and avoid probate when you pass away.
  • Revocable trusts are easy to change, including the trustee. Depending on the nature of the change you want to make, most changes can be made easily and inexpensively with an amendment to the original trust.
  • Revocable trusts are transparent for income tax purposes. Tax rules are no different than if trust assets were titled in your name.
  • You can name a revocable trust as beneficiary of your 401(k) and IRA plans and have the trust govern how to distribute those assets.
  • A revocable trust can protect heirs from creditors.

What are some disadvantages of trusts?

There are some disadvantages to revocable trusts as well.

  • You generally need an attorney’s help to set one up and will have to pay for this service.
  • Revocable trusts don’t allow you to designate a guardian for your minor children. You will need a will to do that.
  • The trust may become irrevocable when you pass away, limiting the ability to make changes after that time.
  • If you decide to have a professional administer the trust and manage the assets, doing so may be costly.

Trust costs vs. probate

Trust and probate costs vary by geographic area. Generally speaking, the cost to probate a portfolio of assets is around 5% of their value, split between the executor and his or her attorney. In contrast, the cost to administer similar property in a trust would be less than half that amount. Speak to a local attorney for exact information about local costs in your area.

Who should set up a trust

For many people, deciding whether to set up a revocable trust depends on their stage in life. Marianela Collado, a CPA and certified financial planner with Tobias Financial Advisors in Plantation, Florida, says that for single clients just starting out in life with not very many assets, “There is no need for a trust.” Most of these clients will find estate planning is relatively simple, including how they title their assets or who they designate as the beneficiary of life insurance or retirement plans.

As you start to accumulate assets, a revocable trust may be “a necessary and effective tool,” according to Collado. A trust, she emphasized, can do more than just pass assets to the next generation. It gives you a level of control and the ability to avoid probate. While probate varies from state to state, Collado said the probate process is the last thing many families want to deal with after a loved one has passed away. Collado has encountered some clients who believe having a will avoids probate. “It doesn’t,” she said. “But assets in a revocable trust do.”

Collado emphasized that clients who want to set up a revocable trust should seek the help of an attorney. After the trust is set up, “I get a list of every asset the client owns and retitle them with the trust as the owner,” Collado said. She points to a quote from one of the attorneys she works with as a good way to conceptualize their value: “A trust is like a house. After you build it, you have to fill it.”

Speaking about the benefits of revocable trusts, Collado cited a situation where a client’s son had gotten married for a second time and also had children from his previous marriage. She explained to her client that if her son died not long after she did, without a will, his mother’s money would likely go to his second wife and not to her grandchildren. A revocable trust could help ensure that the money went to her grandchildren instead.

Collado told another story about a client who developed dementia. Before she got sick, she added her two daughters as co-trustees of her existing revocable trust, which held all of her assets. The mother is now in the hospital and unable to make decisions for herself. “With a revocable trust, the family doesn’t need to go to court to prove Mom is incapacitated to manage her assets,” Collado said. “A revocable trust eliminates that frustration.”

Bottom line

Many Americans will find revocable trusts are a good way to manage their assets and avoid the probate process. Adding a co-trustee can also ensure that someone can manage their assets if they become disabled. And for many people, the only cost of the trust is likely the legal fees to set it up. (You may have to pay a recording fee to retitle real estate, including your home.) While revocable trusts aren’t right for everyone, they deserve a second look by people who want to have a say over when and how their heirs receive their assets.

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SIMPLE IRA Contribution Limits 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SIMPLE IRAs are tax-advantaged retirement savings accounts that benefit small business owners and the people who work for them. In addition, you can use the SIMPLE IRA to save for retirement if you are self-employed. Like many other retirement savings vehicles, SIMPLE IRAs are subject to annual contribution limits.

SIMPLE IRA contribution limits

The annual SIMPLE IRA contribution limits for employees and employers in 2020 are as follows:

Annual SIMPLE IRA Contribution Limits

Employees under the age of 50

$13,500

Employees 50 years and older

$13,500, plus $3,000 in catch-up contributions

Employer matching contributions

Up to 3% of employee’s salary

Employer non-elective contributions

2% of the employee’s salary

SIMPLE IRA contribution limits 2020 for employees

For 2020, the amount employees may contribute to a SIMPLE IRA plan is capped at $13,500 per year. That’s an increase from 2019’s limit of $13,000, and an even bigger leap from the $12,500 limit imposed from 2015 to 2018.

It’s worth noting that for employees who are also participating in other employer-sponsored retirement plans, such as 401(k) or 403(b) plans, aggregate annual contributions to all plans cannot exceed $19,500 in 2020. For those 50 and older, the overall annual limit for catch-up contributions is $6,500 for 2020, for a total ceiling of $26,000.

SIMPLE IRA contribution limits 2020 for employers

If a small business owner chooses to offer a SIMPLE IRA plan, they are required to make contributions to their employees’ accounts. They may choose to either match their employees’ contributions, up to a certain limit, or make non-elective contributions.

If an employer chooses matching contributions, their match is capped at 3% of an employee’s annual compensation. While an employer can make matching contributions of less than 3%, the match cannot be less than 1% of the employee’s annual compensation — and it cannot be less than 3% for more than two out of five consecutive years.

If an employer chooses non-elective contributions, they are required to put money into their employees’ SIMPLE IRAs regardless of whether the employees themselves make contributions. With non-elective contributions, the employer must make fixed contributions of 2% of their employees’ compensation. For 2020, the maximum amount of an employee’s total compensation that can be considered for calculating a non-elective contribution is capped at $285,000, up from 2019’s cap of $280,000.

What are the contribution deadlines for a SIMPLE IRA?

Employers are required to deposit their employees’ SIMPLE IRA contributions within 30 days after the end of the month in which those contributions were withheld. Employers are required to make their matching or non-elective SIMPLE IRA contributions by their tax return filing deadline, including extensions.

For people who are self-employed, the deadline for depositing SIMPLE IRA contributions for a calendar year is 30 days after the end of year, or Jan. 30.

SIMPLE IRA contribution limits vs. Roth contribution limits

While SIMPLE IRA contributions are capped at an annual limit of $13,500, annual Roth IRA contribution limits are much lower. For 2020, Roth IRA contributions are capped at $6,000, with an additional $1,000 allowed for catch-up contributions for those 50 and older.

Another differentiating factor of Roth IRAs is that they have income phaseout limits. Depending on how much you make, you may be limited to how much you can contribute or whether you can contribute at all. For 2020, single filers cannot contribute to a Roth IRA if they make more than $139,000, and if married and filing jointly, you’re only able to contribute if you earn less than $206,000.

Can you contribute to both a SIMPLE IRA and a Roth IRA?

You can contribute the maximum allowed amounts to both a SIMPLE IRA and a Roth IRA, as their contribution limits are not cumulative. In fact, most financial advisors recommend you max out both your SIMPLE IRA and Roth IRA if you can afford to do so, as they offer different tax benefits.

While SIMPLE IRA contributions are made pre-tax, and therefore lower your taxable income, your Roth IRA contributions are made with after-tax dollars, so qualified distributions are tax-free.

“Advisors talk about diversification all the time, and usually they are talking about stocks and bonds,” said Gregory Kurinec, a certified financial planner with Bentron Financial Group in Downers Grove, Ill. “But investors will want to diversify their accounts into different tax categories as well. By having a combination of pre-tax (SIMPLE IRA), after-tax advantage (Roth IRA) and non-qualified, this will allow the investor to pick and choose which account to take funds from to best impact their tax situation.”

What is a SIMPLE IRA?

A SIMPLE IRA is an effective retirement savings match plan, especially for small business owners. SIMPLE IRAs are available to small businesses with 100 employees or fewer.

SIMPLE IRAs require employers to make contributions on behalf of their employees, either up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

As with most financial products, when it comes to saving for your golden years, a SIMPLE IRA is just one of the many options available to you. Explore all of the options at your disposal when deciding how to build your nest egg.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review of Altfest Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Altfest Personal Wealth Management is an investment management firm based in New York City. The firm typically only accepts clients with a minimum investment of $1 million. For these high net worth clients, Altfest Personal Wealth Management provides customized investment portfolios with comprehensive financial planning services. The firm has 16 employees who provide investment advisory services, and currently oversees $1.21 billion in assets under management (AUM).

All information included in this profile is accurate as of February 10th, 2020. For more information, please consult Altfest Personal Wealth Management’s website.

Assets under management: $1,210,000,000
Minimum investment: $1 million (waivable at the firm’s discretion for young professionals)
Fee structure: A percentage of AUM, ranging from 0.50% to 1.40%, depending on account size; hourly fees; fixed fees
Headquarters: 445 Park Avenue
Sixth Floor
New York, NY 10022
www.altfest.com
212-406-0850

Overview of Altfest Personal Wealth Management

Dr. Lewis Altfest launched Altfest Personal Wealth Management in 1983. He is still the majority owner of the firm and acts as CEO. He runs the organization along with his wife, Dr. Karen Altfest, the firm’s executive vice president, and their son, Andrew Altfest, the firm’s president. Both Lewis and Karen hold Ph.Ds; Lewis is an associate professor of finance at Pace University.

Including the Altfests, the firm has 37 total employees, 16 of whom provide investment advisory services. Altfest Personal Wealth Management specializes in creating customized, actively managed investment portfolios for high net worth clients. The firm and the Altfest family have won numerous awards for their performance, and both Lewis and Karen are regular contributors to financial news programs and publications.

What types of clients does Altfest Personal Wealth Management serve?

Altfest Personal Wealth Management primarily works with individual investors. A client usually needs a portfolio of at least $1 million to open an account with the firm — however, Altfest does make exceptions to this account minimum for “young professionals” who they believe will become high net worth clients in the future. The firm’s individual client base is currently split 40/60 between individuals and high net worth individuals, with the SEC defining high net worth individuals as those with at least $750,000 under management or a net worth of at least $1.5 million.

While the firm works with a diverse range of clients, it specializes in advising women, executives and healthcare professionals. In addition to individual investors, Altfest Personal Wealth Management also works with pension plans, profit-sharing plans, trusts, estates, corporations and other business entities.

Services offered by Altfest Personal Wealth Management

Altfest Personal Wealth Management specializes in investment management and financial planning. However, the firm’s investment management services are available to individuals and small businesses only; these services are not offered to investment companies, pooled investment vehicles, large businesses and institutional clients.

Most of the firm’s investment accounts are run on a discretionary basis, meaning that Altfest Personal Wealth Management advisors can make trades on behalf of the client. The firm does have a few nondiscretionary accounts, where the client must approve all trades themselves.

If a client only wants a few investment recommendations, rather than the management of their entire portfolio, the firm can provide this service as well.

Altfest Personal Wealth Management also offers comprehensive financial planning, as many of its advisors hold the certified financial planner (CFP) designation, a professional certification for financial planners. The firm’s financial planning services include the creation of a detailed financial plan outlining the necessary steps to achieve their goals and objectives. The plan can address specific areas, such as college savings, estate planning and debt management.

More specifically, Altfest’s services include:

  • Investment advisory services and portfolio management (mainly discretionary but some non-discretionary)
  • Financial planning
    • Retirement planning
    • Trust and estate planning
    • Charitable planning
    • Education planning
    • Tax planning
    • Cash flow forecasting
    • Budgeting and strategic planning
    • Long-term care planning
    • Debt management
    • Divorce planning
  • Insurance and risk management
  • Workshops and seminars
  • Newsletters and publications

How Altfest Personal Wealth Management invests your money

Altfest Personal Wealth Management builds unique, customized portfolios for each client based on their time horizon, risk tolerance, income level and long-term goals.

As part of this analysis, the firm follows a system called Total Portfolio Management. Rather than only looking at a client’s investment history, the firm also gets to know their entire financial plan, including income, debts, spending requirements and future earnings potential. The firm uses this information to finetune a portfolio comprised of stocks, bonds, mutual funds, ETFs and private funds.

Altfest Personal Wealth Management follows an active investment approach: this means the firm is regularly trading in an attempt to earn above-average portfolio returns.

Fees Altfest Personal Wealth Management charges for its services

For portfolio management services, Altfest Personal Wealth Management charges a fee based on a percentage of assets under management, with the rate ranging from 0.50% to 1.00%, depending on the size of the client’s portfolio. Altfest does not charge trading commissions or performance-based fees.

Portfolio Size Annual Asset-Based Fee
First $3 million* 1.00%
Between $3,000,001 and $6,000,000 0.75%
Over $6,000,000 0.50%
*If a portfolio falls below $2 million in value at the end of the quarter, the firm will assess an additional 0.10% fee on top of the asset-based fee listed above.

For “young professional” clients who don’t meet the firm’s portfolio minimums, Altfest charges the following fee schedule:

  • In the first year, the firm charges an annual fee of either 1.10% of assets under management or $2,500 whichever is greater.
  • After the first year, the firm charges 1.10% of the portfolio value or $1,500 per year whichever is greater.

This rate includes cash flow analysis, investment analysis, investment management and 401(k) recommendations. Clients who want additional financial planning services will be billed at a rate of $250 per hour.

If a client only wants standalone investment recommendations, Altfest Personal Wealth Management charges either an hourly fee ranging from $500 to $800 an hour, or a fixed fee of at least $3,500 for specific investment recommendation requests.

Finally, some of the investments included in Altfest’s portfolio recommendations may carry additional fees. Clients are responsible for covering these costs, though the money won’t go to Altfest Personal Wealth Management.

Altfest Personal Wealth Management’s highlights

  • Wide range of awards: Over the past few years, Altfest Personal Wealth Management has been recognized as a top investment advisor by publications including Barron’s, Forbes, Financial Times and Financial Advisor magazine.
  • Highly educated management team: The heads of the firm, Dr. Lewis Altfest and Dr. Karen Altfest, both hold Ph.Ds; Lewis is also an associate professor of finance at Pace University. In addition, many of the financial advisors at the firm hold the CFP designation.
  • Customized investment approach: Altfest Personal Wealth Management designs a customized portfolio for every client, tailored to their specific needs, and don’t lump people into one-size-fits-all funds as some firms may do.
  • Extensive financial planning in addition investing: Altfest Personal Wealth Management also specializes in financial planning. When the firm creates a portfolio recommendation, it goes over a client’s entire financial situation before designing the portfolio, not just their existing investments.
  • Specialty in advising women, executive and healthcare clients: The firm specializes in advising women, executives and professionals in healthcare. Additionally, Forbes named Dr. Karen Altfest one of the top women advisors in the country in 2017, 2018 and 2019.

Altfest Personal Wealth Management’s downsides

  • Above-average investment fees: Altfest Personal Wealth Management charges an annual 1.00% asset-based fee on the first $3 million in a client’s account (plus an additional 0.10% per quarter if their portfolio value falls below $2 million). In comparison, the median investment management fee charged by firms for accounts over $2 million is 0.75%, according to Kitces.
  • High minimum to open an account: It takes at least $1 million to open an account with Altfest Personal Wealth Management. While the firm does waive the minimum at its discretion for “young professionals,” the typical investor would need to be quite wealthy to make use of the firm’s services.
  • Only has one location in New York City: The only way to visit the Altfest Personal Wealth Management office in person is in New York City, the firm’s only location.

Altfest Personal Wealth Management disciplinary disclosures

Whenever an SEC-registered firm or its employees or affiliates face disciplinary action, including a criminal charge, a regulatory infraction or a civil lawsuit, the firm is required to report that incident in its Form ADV, paperwork filed with the SEC. Altfest Personal Wealth Management reports in its Form ADV that it has faced no such incidents over the past 10 years, indicating a clean disciplinary record.

Altfest Personal Wealth Management onboarding process

To start the onboarding process with Altfest Personal Wealth Management, you can request a free consultation with one of its advisors. You can contact the firm either by phone at 212-406-0850, by email at [email protected] or by filling out a form on the firm’s website. As part of the onboarding form, the firm asks you to share your story, which helps the firm start determining whether you are a good fit based on your income and profession.

If it seems like a good match, the firm’s advisors will then get to work designing your customized investment portfolio based on your goals, risk tolerance and overall financial situation. When you’re ready to launch, the firm’s advisors would then take care of opening your new accounts, transferring over your existing accounts, making the necessary investments and keeping up with the records for your portfolio.

The bottom line: Is Altfest Personal Wealth Management right for you?

If you’re a high net worth individual or a young professional who wants personalized investment recommendations combined with financial planning, Altfest Personal Wealth Management could be a good choice. This may be especially true if you are in one of the firm’s specialty client categories: women, executives and healthcare professionals. Since Altfest Personal Wealth Management only has one location in New York City, however, the firm might be a better choice if you live in the Northeast rather than other parts of the country.

On the other hand, Altfest Personal Wealth Management’s comprehensive services do not come cheap. The firm’s fees are higher than average, and you’d need at least $1 million to open an account (unless Altfest waives the minimum because you’re a young professional). If you want a simpler investment strategy or prefer to manage your portfolio more on your own, you could find less expensive advisors than Altfest Personal Wealth Management.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.