What Is It?

The Corporate Transparency Act (CTA) is a new federal law that became effective on January 1, 2024.

It was enacted as part of the National Defense Authorization Act for Fiscal Year 2021, with a goal of reducing money laundering through shell companies.

The CTA mandates that millions of entities report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury department.

Although FinCEN and the Internal Revenue Service (IRS) are both subsets of the U.S. Treasury, BOI reports will not be filed with the IRS, and the CTA is not part of the tax code. It is part of the Bank Secrecy Act, a set of federal laws that require recordkeeping and report-filing on certain types of financial transactions.  

Who Will Be Affected?

The new law affects almost all limited liability companies, C corporations, S corporations, limited partnerships, and other closely held entities—both American and foreign-owned—that are registered to do business in the U.S.

The CTA refers to these organizations as reporting entities, meaning that they have an obligation to report information. Owners, principals, and other control persons involved in these organizations will have to provide information to the reporting entities.  

Generally, if you were required to file articles of incorporation or similar documents with the Secretary of State in order to form, you will have a filing requirement under the CTA. Trusts, depending on state law, generally do not have to file such documents, and, therefore, will not have to file BOI reports. However, if a trust is created in a U.S. jurisdiction that requires such filing with the state, then it may be considered a reporting company.

There are 23 types of entities that are exempt from the reporting requirements. Some exempt entities include large companies, public companies, other regulated companies, tax-exempt entities, and inactive entities. Chapter 1 of FinCEN’s “Small Entity Compliance Guide” can help you determine whether your entity is required to file a BOI report.

Under the CTA, a beneficial owner is defined as any individual who directly or indirectly exercises substantial control over a reporting entity, regardless of their title or seniority. These individuals may or may not be actual owners of the company. However, any person who owns or controls at least 25 percent of the reporting company’s ownership interests is automatically considered a beneficial owner.

Organizations that have trusts as beneficial owners may need specialized help navigating the complexity of these requirements.

When Does This Start?

Entities formed before January 1, 2024, will have until January 1, 2025, to file their initial reports. Those formed during the 2024 calendar year have 90 days to file, and beginning in 2025, newly formed reporting entities will have 30 days to file their initial reports.

What Information Must Be Reported?

Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company. This includes each individual’s name, address, email address, phone number, and more.

What If I Need to File Changes?

If there is any change to the required information about your company or its beneficial owners, your company must file an updated report within 30 days. This includes information related to address changes, ownership changes, or a change in senior officers.

Are There Penalties for Not Filing?

According to the CTA, a person who willfully violates BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years of imprisonment and a fine of up to $10,000.

Potential violations include willfully failing to file a BOI report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

What Actions Do I Need to Take?

If you are required to report your company’s BOI, you will do so electronically through a secure filing system. This system is available on FinCEN’s BOI e-filing website: boiefiling.fincen.gov. This is also where you can access the necessary form for reporting.

Business owners of newly formed reporting entities should talk to their business attorneys to confirm that all BOI filing deadlines and requirements are being met. Since the new law is not connected to a tax filing, there will likely be no need to contact your tax professional unless you do not have a business attorney.

Those who may be considered beneficial owners of established entities may want to contact their legal counsel, tax preparer, or business entity.

For help determining the next steps forward, reach out to your CAPTRUST financial advisor, or click the Talk to an Expert button to find a financial advisor in your area.

Budesheim, 79, ended up in the emergency room and then a catheterization lab, where doctors found that one of her arteries was fully blocked. Afterward, Budesheim’s daughter bought her an Apple Watch to keep track of her heart health. The watch includes an ECG app and can measure blood oxygen saturation, heart rate, and more.

Of course, the ECG in her watch is not as sophisticated as the ones used in hospitals, but Budesheim says it’s still comforting to have in reach. “It won’t detect a heart attack,” she says. “But it will tell me if I go into atrial fibrillation. And if that happens, I know I need to get in touch with the hospital or the doctor very quickly.”

Since Budesheim lives alone, fall detection is another important feature of her Apple Watch. “My watch does a whole lot of things,” she says. “But I am worried more about my heart than anything else.” 

This worry puts Budesheim in good company. According to data from Johns Hopkins University, a desire to track their heart health is one of the top two reasons why people use wearable health-tracking devices. (The other is exercise tracking.)

Budesheim tests herself for atrial fibrillation at least once a day, and sometimes more. “If I get stressed or something just doesn’t feel right to me, I’ll think, Let me just check my watch,” she says. “I get some reassurance that if something happens, the watch is going to give me a little heads-up.”

Fact Finding 

As technology advances and prices decrease, health-tracking apps and wearable devices are becoming increasingly popular. In 2023, 40 percent of American adults reported using health-related apps as part of their daily routines, and 35 percent used at least one wearable device, such as a Fitbit, Apple Watch, WHOOP band, Oura Ring, or digital pedometer, according to Morning Consult.

David Stewart, 65, of Park City, Utah, says apps and wearables are only part of the larger health-tracking trend. As host of the SuperAge podcast and founder of ageist.com, a media site that aims to break stereotypes of aging, Stewart keeps his finger on the pulse of health-tracking trends for people aged 50 and older. But health is also one of his personal passions.

Stewart tracks his own health with multiple wearable devices plus quarterly blood work through InsideTracker and an array of yearly check-ins with various physicians. His annual exams include a bone density scan, hearing test, and “all the usual” recommended physical examinations for people his age, such as a colonoscopy, prostate cancer screening, dental visits, and eye exams. He says the greatest benefit of consistent tracking is that it helps identify potential issues before they become bigger problems. 

For instance, Stewart says, his latest blood work revealed low iron and calcium levels, and various tests have made him realize he struggles to metabolize vitamin D. So he supplements with all three and hones the dosage of his supplements based on each quarter’s blood test. 

“You can only improve what you can track,” Stewart says. “If you’re not tracking, you’re just guessing. It’s great to be intuitive. But feelings are not facts.” 

Prioritizing Prevention 

Stewart says he thinks health care today is oriented toward disease treatment, not prevention. This is a common criticism within the circles of experts and consumers who support health tracking. “Health tracking is about optimizing your health before you can ever get to a disease state,” he says. 

Evan Melcher, a CAPTRUST financial advisor in Alpharetta, Georgia, says health-tracking data provides a starting point for planning. “We can’t shape the future if we don’t know where we’re starting from,” he says. “These tests and check-ins and devices, they’re not complete solutions. They are tools that can help guide you to make more informed decisions and, hopefully, create better health outcomes.” 

Budesheim agrees. In fact, she says she knows the exact moment when she really started paying attention to her health data—long before her heart attack. “I was never a real health nut until my husband passed away.” 

“It was very sudden,” she says. “We found out he was sick on a Friday, and Monday, he was gone. In my head since then, I’ve always had this voice saying, Nothing is going to sneak up on me. I’m going to be listening to my body. I’m going to be proactive with my health care. All the tests you have to get, the preventive stuff, I’m there. Sign me up.”

In addition to the data she gathers from her watch, Budesheim keeps a folder that contains years of results from cholesterol tests, mammograms, and more. She uses this information to make sure her new healthcare providers have a robust picture of her health history and trends. But health tracking isn’t only about long-term disease prevention. It might also help you create healthier daily habits.

More Good Habits

“What I’ve found over time is that I’m either spiraling up, or I’m spiraling down,” Melcher says. “It’s not one thing you do that keeps you healthy for life. It’s a lot of little things that add up, and they are all connected like dominos.” 

Melcher says health tracking has shown him how his daily choices impact his health. “I had back surgery a few years ago,” he says. “When I was recovering, I couldn’t exercise or anything, so I put on some unwanted weight. Also, I was indulging in too much red wine at night, which was affecting my sleep. There were all these trends that were going in the wrong direction.” 

When he was able to exercise again, Melcher says he started to feel better. “I was seeing improvements in almost all my metrics, except in sleep quality. So I quit drinking. My sleep score improved significantly, and my LDL-C cholesterol level also started to drop.”

Melcher began to view his wearable devices as accountability partners, encouraging him to keep up his good habits and avoid bad ones. Now, he uses an Oura Ring, an Apple Watch, a Qardio at-home blood pressure monitor, and a body composition scale. Plus he gets regular blood work through his cardiologist. Heart disease runs in his family, so he stays attuned to his heart health, like Budesheim. 

Most of Melcher’s tools report directly to his phone, which he uses as the central location for all his health data. 

“I try to keep moving in the right direction with baby steps that add up to a lot of good things because I want to be here for my wife and kids,” Melcher says. 

By paying attention to his metrics, then tweaking his habits slightly but consistently, Melcher says he’s seen dramatic health improvements. His resting heart rate has dropped by 10 beats a minute on average over the past year. “That’s more than five million heartbeats a year that I’m saving,” he says. “My heart is thanking me over and over again.” 

The New Doctor-Patient Partnership 

Culturally, the relationship between healthcare professionals and consumers is shifting, perhaps in part because of health-tracking tools. Patients have access to more information than ever, and many are eager for a more collaborative relationship. 

“There’s no longer just a physician behind a curtain interpreting your information and handing down advice,” Stewart says. Instead, consumers are becoming equal partners in the decision-making process. 

But of course, consumers also have access to misinformation and poorly interpreted studies. In a survey conducted by Merck Manuals, 97 percent of primary care providers said patients have come to them with misinformation they found online. 

For Stewart, learning more about how his body works is part of being an informed healthcare consumer. “Having health data allows a greater sense of partnership with the practitioner,” he says. “But we have to remember that those practitioners are infinitely more skilled than we are.” Mutual respect and humility are important to the doctor-patient partnership. 

Budesheim says she feels empowered by what she’s learned but tries not to obsess over the details. 

“If I see or I feel something that isn’t right, I check it out,” she says. “I’m not obsessive about it. I don’t diagnose myself. But understanding what might be happening gives me peace of mind.” 

She has some friends who disagree. For these people, health tracking feels like opening Pandora’s box. They worry about what they might discover and whether they’ll be equipped to handle it. Tracking like Budesheim, Melcher, and Stewart do is not for everyone, and people can rely too heavily on their devices for predicting or managing health outcomes. 

Also, when it comes to sleep specifically, there is some evidence that tracking can have a negative impact on outcomes. The Journal of Clinical Sleep Medicine calls this orthosomnia: a fixation on achieving perfect sleep data that leads to anxiety and disrupted sleep. 

For some, information can create fear. For others, it can lead to obsession. Those who most enjoy and benefit from health tracking seem to avoid both extremes. 

“If we’re willing to be informed and not alarmed by information, we can make better lifestyle choices,” says Melcher. “We can hack the system a little bit. And when we do, we give ourselves a better opportunity to live longer, healthier lives that can impact more people.” 

Numbers like these are common in the film industry, with project investments often surpassing hundreds of millions of dollars. Predicting box office success is, therefore, a high-stakes game. Losses can be devastating.  

Between these two releases, which one stood the best chance of winning with its audience? 

Box office receipts presented an unexpected outcome. Despite its relatively modest budget, the Barbie movie generated $1.4 billion in worldwide box office receipts, while the final Indiana Jones installment generated a disappointing $400 million.  

The disparity illustrates how difficult it is to predict the future, even for knowledgeable specialists with advanced tools. 

Like box-office prognosticators, economists, analysts, and financial market pundits apply a dizzying array of data, science, expertise, and gut feel to their annual market predictions. Yet it is exceptionally rare for any one forecaster to get everything right. This unpredictability reflects the complex nature of global economics and financial market dynamics, where success often hinges on factors beyond the numbers and consensus expectations. 

A Spectrum of Possibilities  

CAPTRUST’s Investment Group approaches annual predictions differently from most forecasters. Rather than focusing on one specific result, we prefer to prepare for a range of potential outcomes. Our objective, always, is to make prudent investment decisions that are resilient in the face of many different scenarios. We seek to minimize the potential for catastrophic losses and maximize the probability of success for clients.  

While we regularly adapt our expectations based upon changing market conditions, at the beginning of each year, we share our thoughts on what could lie ahead. We do this recognizing that the future is unpredictable. Yet this exercise is important to prepare for a range of potential outcomes. After all, it is better to be approximately right than precisely wrong. 

This year, we expect two scenarios to have the highest likelihood of playing out: stagnation or an economic soft landing. 

Figure One: The Spectrum of Economic Scenarios for 2024

Source: CAPTRUST Research

However, it is important to reiterate that the range of potential outcomes for 2024 is exceptionally wide—as it was in 2023. It has only been three years since the COVID-19 pandemic sent shockwaves through the global economy. Central bank policy responses continue to reverberate throughout the global financial system. 

Many other scenarios are also possible. At opposite ends of the spectrum of possibilities are stagflation and productivity-fueled growth. Stagflation, our economic worst-case scenario, would mean persistently high inflation, high unemployment, and stagnant consumer demand. On the other hand, productivity-fueled growth would mean technology-driven productivity gains that translate into strong corporate earnings and consumer spending. While each of these scenarios is possible, we believe stagnation or a soft landing to be the more likely outcomes. 

Likely Scenario Number One: Stagnation 

In this scenario, the robust annual gross domestic product (GDP) growth of 5.2 percent witnessed in the third quarter of 2023 becomes the high-water mark of the current economic cycle. The pace of economic expansion decelerates significantly to an average of approximately 1 percent in 2024. The exhaustion of excess household savings accumulated in the time of pandemic-related fiscal stimulus, coupled with decelerating wage growth, leads to a stark slowdown in consumer spending. 

Even as the economy loses momentum, inflationary pressures persist, compelling the Federal Reserve to maintain its higher-for-longer monetary policy stance. The labor market, which previously saw record job openings, begins to cool, leading to a rise in the unemployment rate. Corporations face a tough economic climate marked by slowed consumer spending and the need to make difficult decisions, including potential workforce reductions, to navigate ongoing economic headwinds.  

This scenario paints a picture of an economy in a state of sluggish growth, with continued inflation concerns and a labor market beginning to recalibrate to a challenging environment. 

Investment Implications: Faced with rapidly declining economic growth, equity analysts begin reducing overly optimistic estimates for corporate earnings in 2024 and 2025. Given persistently high interest rates, the net present value of future earnings declines, causing equity valuations to fall. The S&P 500 Index falls by at least 10 percent at some point during the year.  

Traditional fixed income investments experience positive returns, driven by high beginning yields and a falling interest rate environment, as the Fed begins to reduce interest rates to address a weakening labor market. In this environment, some diversifying and alternative investments—such as hedge fund strategies and private credit—may outperform the S&P 500. 

Likely Scenario Number Two: Soft Landing 

In this scenario, against historical odds, those predicting the Goldilocks outcome of an economic soft landing are correct.  

Although the transitory thesis regarding temporary inflation drivers was abandoned in 2022, it turns out that the supply chain disruptions and excess fiscal stimulus related to the COVID-19 pandemic had longer-term impacts than anticipated. By 2024, these impacts begin to wane and, combined with the cumulative effects of monetary policy, drive inflation steadily toward the 2 percent target. 

The Fed, acknowledging a moderating pace of inflation due to its successful policies, begins to ease interest rates by the end of the first quarter. This shows its confidence that inflation will approach the target by year-end. 

As growth tempers and inflation falls in line with its goal, the Fed initiates a series of interest rate cuts, aimed at maintaining employment levels. Lower interest rates alleviate some of the burden on corporate, government, and household debt refinancing. But they also exert pressure on the housing market as lower mortgage rates liberate homeowners who feel locked in by their current mortgages, leading to an increase in available inventory. This surge in available properties places downward pressure on housing prices in certain markets, exerting a negative wealth effect on consumer spending activity. 

Economic output shows modest expansion. While growth remains below the long-term trend, it signals a stable trajectory away from recessionary pressures. Consumer spending, which serves as a bellwether for economic confidence, stabilizes. Business investment shows signs of cautious optimism, with aggressive investments in automation and technology that set the stage for future productivity gains. These indicators suggest a growing sentiment that the economy is poised for a period of steady—if unspectacular—growth. 

Inflation, while easing, persists above the target threshold in select regions of the globe, a reminder of the uneven nature of economic recovery. The lingering inflationary pressures in these areas may reflect localized issues such as supply chain constraints or regional policy responses. 

This scenario paints a picture of an economy that is slowly but surely finding balance. Fed interest rate reductions serve as a testament to progress toward inflation control and provide a supportive backdrop for continued economic stability and growth. 

Here, it is important to remember that consensus expectations carry correction risks. As the soft-landing scenario has become the principal expectation for 2024, investor optimism has reacted positively across both equity and fixed income markets. This creates a risk of disappointment if the expected conditions fail to materialize. 

Investment Implications: Like a rising tide, the Goldilocks outcome raises all investment boats. Recessionary fears are laid to rest, and high inflation is defeated.  

In this optimistic scenario, wages continue to expand in excess of the inflation rate, and labor market strength bolsters consumers’ ability to continue spending at a high rate on goods and experiences. Corporate earnings growth benefits from consumer strength, plus modestly lower interest rate expenses that begin to alleviate bottom-line pressures.  

Mid-double-digit equity returns could be expected in this environment, with some industries generating performance of more than 20 percent. With rates beginning to fall early in the year, fixed income investments fully rebound from their 2022 drawdown, and equity-oriented alternative investments outperform. 

Powerful Undercurrents 

Regardless of how the economic script unfolds in 2024, there are powerful undercurrents likely to influence outcomes across each of these scenarios. These undercurrents will play a significant role in shaping economic conditions, as well as the extent to which market behavior diverges from the economy. 

U.S. Elections: 2024 is a presidential election year. Whether the plot unfolds with an incumbent victory or a new administration, the successful candidate’s impact on the economy and markets is generally not experienced until a year or more after they’ve taken office. It takes time for campaign agendas to flow into new laws or regulations.  

Nevertheless, in an endless news cycle, media attention on the candidates and their platforms is likely to introduce short-term financial market volatility. Historically, presidential election years have shown positive results for the S&P 500 Index approximately 80 percent of the time, regardless of which party succeeds. From an investment perspective, it’s better to vote with your ballot than your portfolio. 

Geopolitical Tensions: With significant military action across both Eastern Europe and the Middle East, geopolitical tensions remain a constant and influential undercurrent, capable of disrupting even the most well-charted economic scenario. In addition to direct military conflicts, tensions can manifest in various forms, including trade disputes, global supply chain disruptions, and commodity price impacts.  

These tensions can introduce significant economic uncertainty that affects the global climate via shifts in currencies, inflation, energy prices, and cross-border investment flows. In any scenario, the resolution or escalation of these tensions will significantly influence the global economy in 2024. 

Productivity Advancements: Another important undercurrent is the potential for rapid advancements in productivity. These advancements are driven by technological innovation, process improvements, and, in particular, the growing excitement around artificial intelligence (AI).  

Productivity gains have a direct impact on economic output. They influence labor market dynamics and corporate profitability.  

Productivity gains also have the potential to reshape industries, redefine work, and create new value streams, thereby playing an important role in determining the pace and nature of economic recovery and growth. 

Plan for Plot Twists 

It is possible 2024 will deliver the same blockbuster success as the Barbie movie did. But it is also possible 2024 could be a flop on the scale of the strange, 2023 horror interpretation of Winnie the Pooh. Just as moviegoing audiences can be unpredictably fickle, often defying box office forecasts, so too can the financial markets demonstrate unexpected volatility in their response to global events and policy shifts.  

As we begin 2024, inflation is still well above the Fed’s target. The costs of borrowing for households, corporations, and the government are higher than they’ve been in more than a decade. And the world is full of geopolitical strife.  

In this environment, it is imperative for investors to remain agile, informed, and proactive.  

Rather than attempting to predict the unpredictable, focus on understanding the economic drivers and undercurrents and how they might interact with these identified scenarios. This understanding allows for a more nuanced approach to investment, one that not only considers the potential for gains but also stays resilient in the face of uncertainty.  

Instead of expending energy worrying about the market narrative of the moment, investors should focus on their financial plans and work with their advisors to control the variables that are controllable. With the confidence gained through sound planning, investors can enjoy their popcorn, if not the show, regardless of how the 2024 screenplay unfolds. 

“The tax implications that accompany retirement decisions can significantly impact a person’s overall financial landscape,” says Jennifer Wertheim, director of tax planning at CAPTRUST. “That’s why tax planning is such an important part of financial planning overall. It’s a way to safeguard your hard-earned assets and stretch your savings.” 

“Retirement tax planning relies on four pillars,” says Elisabeth Jacobson, a CAPTRUST financial advisor in Lone Tree, Colorado. “Know how your assets will be taxed. Develop a strategy for how you’ll withdraw money. Avoid things that are going to put you in a higher tax bracket. And review your tax situation whenever life changes.” 

Jacobson says she has seen many cases where new clients could have benefited from earlier planning for retirement taxes. “There are so many people who are good at saving and investing but aren’t aware of how their accumulated assets will be taxed when they are sold or withdrawn,” she says. 

For instance, Jacobson says she once met with a couple who had already started taking required minimum distributions (RMDs) from their retirement accounts. RMDs are minimum amounts that must be withdrawn annually from individual retirement accounts (IRAs) and qualified retirement plans, like 401(k) or 403(b) accounts. Your birth year determines when you must start taking RMDs. Generally, they are required once you reach your early 70s. 

“These clients had done a great job saving money, but they’d put all their savings into a taxable IRA,” says Jacobson. “That meant every single dollar they had was going to be taxed. And their RMDs were huge, so every time they withdrew money, they were raising their marginal tax bracket—and their tax bill—even further.” Incorporating projected taxes into your financial plan can help avoid mistakes like this.  

“It’s impossible to predict what tax rates will be in a decade or more,” says Philip D’Unger, a manager on CAPTRUST’s wealth planning team. “And regardless, these rates are likely to change throughout your retirement years, which may be a long time considering life expectancy today.”  

According to the MIT AgeLab, the average American can expect to live roughly 8,000 days—more than 20 years—in retirement, assuming they retire at age 65. “The goal is to be financially resilient, whether you live to 75 or 105,” says D’Unger. 

Balance What Is Taxable   

“It’s important to know all your possible sources of retirement income and how each one will be taxed,” says Jacobson. To start, make a list of your assets. Label which ones are taxable and which ones aren’t. If you aren’t sure about a particular asset, talk to your financial advisor. “Then, you can develop a thoughtful strategy to make sure you have the funds you need while also minimizing tax consequences.” 

Some assets, such as Roth accounts, will be tax-free. Others, like pensions, will be fully taxable. You may see a third set of assets labeled as tax-deferred. This includes traditional IRAs and 401(k) plans. You don’t pay taxes on dollars in these accounts until you withdraw them. 

“Ideally, you will have some balance of taxable and nontaxable assets from which to draw your retirement income,” says D’Unger. If your assets are out of balance, or you aren’t sure, talk to your financial advisor about rebalancing. 

“As financial advisors, we talk a lot about diversification of assets, but having diverse accounts is also important,” says Jacobson. “With a balance of taxable and nontaxable assets, you give yourself more options, more flexibility. Once we see the full picture of where a person’s assets are being held, we can make sure they have a portfolio that will help them cover their expenses while managing tax implications.” 

“For instance, you may have built up substantial amounts of money in the taxable and tax-deferred buckets, but not enough in the tax-free bucket,” says D’Unger. “Rebalancing can help you minimize and prepare for future tax consequences. And it can help you spread your tax consequences across multiple years so that your tax bill is more predictable.” 

Make a Withdrawal Plan 

“Having a financial plan that includes estimated taxes in retirement can help you avoid unwanted surprises,” says D’Unger. It can also help estimate what your spending may look like as you age. 

Jacobson says people tend to spend more money in the first few years of retirement than they spend later. “Those early years can be a sweet spot for tax planning,” she says. “You don’t need to have everything figured out before you retire. But it’s a good idea to sit down in those first few years and figure out the big pieces of your new financial plan.” 

For instance, Jacobson says she helps clients understand when to start taking Social Security benefits, when to sign up for Medicare, and when they’ll be required to take RMDs. “RMDs are a big piece we manage around,” she says. 

“Up to 85 percent of Social Security benefits may be taxed, and RMDs are taxed at the ordinary income tax rates,” says Wertheim. “Deferring your distributions as long as you can makes sense from a tax perspective, but how long you can defer will depend on your retirement income needs.” 

Capital gains are another factor to consider. If you sell a capital asset, you’ll need to pay capital gains taxes on the profits. Capital assets include stocks, bonds, real estate, coin collections, jewelry, and digital assets like cryptocurrencies.  

Long-term capital gains tax rates are set at 0, 15, or 20 percent and apply to any investment owned for more than one year. Short-term rates are determined by a taxpayer’s ordinary income tax bracket and apply to assets owned for less than a year. This means long-term rates will be lower than short-term ones.   

“There are multiple tax strategies that can help you take advantage of lower capital gains tax rates,” says Wertheim. “But mostly, you want to make sure you are being strategic about when you sell your capital assets so that your profits from the sale don’t unintentionally bump you into a higher tax bracket for the year.” 

Capital gains can also increase Medicare premiums. “If you have a higher income year—for instance, because you’re selling real estate or some other large asset—pay attention to your Medicare premiums,” she says. “The Medicare system may automatically assume this new, higher number is now your regular yearly income.” 

Wertheim recommends people pay attention to state tax rules as well. “There may be nuances at the state level that also allow for specific tax planning,” she says. “In particular, it’s important to understand how retirement income is taxed in your state before finalizing your financial plan.”  

For example, Jacobson says, “Retirees can deduct between $20,000 and $24,000 in retirement income from state taxes in Colorado, depending on their age.” This means income from Social Security and pension plans may be mostly or entirely state-tax-free for many Colorado residents. 

Give Strategically 

Once you start taking RMDs, you may find yourself in a higher tax bracket. One way to minimize the tax consequences of a higher income is through a qualified charitable distribution (QCD). A QCD is a tax-free donation directly from your IRA to a qualified charity. Although there’s no tax deduction for these donations, making a QCD can reduce your RMD in a given year without boosting your overall income.  

“In 2024, anyone over 70 1/2 can contribute up to $105,000 directly from their IRA to a qualified charity,” says Jacobson. “This can help you meet your charitable goals and simultaneously meet your annual RMD. Plus, you don’t get taxed on it! It’s a triple win.” 

“Giving to a 529 education fund is another way to satisfy a gifting goal, and you’ll typically get a state tax deduction,” says Jacobson. “We used to advise against this strategy because it sometimes affected financial aid eligibility for the recipient, but the rules have recently changed. Now, it makes more sense for more people.” 

Another option to mitigate your tax bill is to use a donor-advised fund (DAF). This is a charitable investment account that lets you donate cash, securities, or other assets to qualified public charities.  

“If you contribute to a donor-advised fund at about the time you retire, you can claim a federal income tax deduction for the year in which you make the donation,” says D’Unger. “Later in retirement, if you sell a capital asset, a DAF can also help you avoid the capital gains tax that would be due on the sale.” 

“Taxes are inevitable,” says Jacobson. “But they can be managed. Having a retirement income plan that accounts for taxes can make your tax bill more predictable. It can give you confidence to spend what you’ve worked so hard to save.”

Written By Neil Downing

What is the actual value of a dollar? The obvious answer is 100 cents. However, this purely financial assessment fails to account for emotional attachment. There are, essentially, four different types of dollars investors encounter, and each has a different emotional value. Failing to understand the differences among the four has disrupted many well-designed investment plans.  

Theoretical Dollars 

The first type of dollar is one that investors often meet at the beginning of their investment journeys. These are purely theoretical dollars. They exist only in statistical models. Still, they’re important because they help establish expectations for long-term returns and short-term setbacks that could happen along the way. 

Theoretical dollars are the foundation of all strong investment programs and financial plans. Using complex modeling tools and customized investor data, advisors can demonstrate a range of future outcomes that shift, depending on interim inputs. The future net worth they estimate, minus your net worth today, is composed entirely of theoretical dollars. At best, these dollars have no emotional value. At worst, they can be misleading—especially if we let ourselves get emotionally attached. 

It’s difficult for the human brain to forecast feelings of loss. Visualizing joy is much easier. That’s why, although we often underestimate how we will feel after a surprise market dip, we can easily slip into daydreams about spending our theoretical dollars at age 70, when we’re on a beach somewhere with our loved ones.  

Theoretical dollars are important, but keep in mind, they are not real. 

Statement Dollars 

As investors successfully navigate their journeys, theoretical dollars gradually become statement dollars. These are real dollars, built by discipline, sacrifices, and time. But they are invested, illiquid, and hopefully, growing. The effort required to accumulate these dollars creates a connection that gives them emotional value.  

Statement dollars are like a scoreboard—one that can be checked every day. Their emotional characteristics are driven largely by two conflicting definitions of success: absolute success and relative success. Absolute success means setting a clear, immovable objective like a specific dollar amount or percentage growth. If portfolio returns exceed this objective, the investor can declare victory.  

Relative success means evaluating portfolio performance compared to a similar portfolio or benchmark. For instance, many investment portfolios aim to outperform the S&P 500 Index. If the S&P 500 falls 2 percent, but the investor’s portfolio falls only 1 percent, this is considered a relative success. Because relative success has no absolute requirements, it can be measured in both up markets and down markets. However, it is important to remember the old Wall Street proverb that “you can’t eat relative performance.” 

Both measures of success carry emotional risk because it’s human nature to want to outperform. A truly emotion-free portfolio—one that delivers absolute success in down markets and relative success in up markets—exists only in theory. 

It doesn’t matter how much statistical modeling we do. Nothing can replicate, and no one can avoid, the emotional value of statement dollars. But each investor’s time horizon often determines how much emotional value they have. Thus, one piece of a financial advisor’s job is to keep investors focused on the long term. Like a fisherman pitching and rolling in a boat, watching the horizon can stabilize perspective. 

The Spendable Dollar  

Once a statement dollar is deemed spendable, its emotional value climbs dramatically. Statement dollars can rise and fall, but the spendable dollar (also known as cash) is king. 

People feel real emotional pain when separated from their spendable dollars. That’s why the government withholds taxes before paychecks can be cashed. It’s why casinos use chips instead of real money. And it’s why companies encourage saving via payroll deductions. Once we feel a sense of permanent ownership over our spendable dollars, they’re much harder to let go of. 

From an investment perspective, the emotional impact of a spendable dollar is often seen when an investment distributes income. Income is the least tax-efficient way to grow wealth, and taxable investors should nearly always choose unrealized gains instead.  

Most investors view unrealized gains as statement dollars until they are sold or withdrawn. Then, they become spendable dollars and may feel more permanent. 

While income-producing strategies can be an important part of a well-diversified portfolio, overexposure or a premature conversion of statement dollars into spendable dollars (like selling stocks) can significantly reduce the portfolio’s long-term value. Yet, the comfort of watching a spendable balance grow can tempt even the savviest investors. 

The Spent Dollar  

Generally, there is only one definition of a spent dollar. It is a spendable dollar we used to own, and now we don’t. This can be highly emotional. When dealing with spent dollars, investors often lose rational perspective. 

Of course, not all spent dollars have the same value. We enjoy spending when it is voluntary and rewarding but usually not when we are forced to spend money on taxes, speeding tickets, or insurance premiums. These dollars often carry a sense of loss, and we commonly resist spending any dollar that has been hard-earned, diligently saved, or long-awaited. This resistance can lead investors to make imprudent investment decisions, but it typically makes an even bigger impact on planning.  

Even if a strong foundation was established via theoretical dollars, the emotional roller coaster of statement dollars was successfully navigated, and the conversion to spendable dollars was perfectly planned, there is always a heightened sense of doubt when turning a spendable dollar into a spent dollar.  

Why? Throughout the other three phases, time generally rewards you, healing wounds, providing flexibility, increasing options, and maximizing the power of compounding. But a spent dollar reverses the clock, turning time into an adversary by reducing future options. Nothing feels more limiting than a permanent decision, and spent dollars are spent, forever. 

Navigating Emotional Values 

Investing is emotional because saved money and long-invested assets often require sacrifice, patience, and persistence. These emotions can be clearly defined, and even predicted, but rarely avoided. To push back against the natural cognitive tendencies that lead to emotional decision-making, consider these four suggestions. 

Be wary of using theoretical dollars to define risk tolerance. A risk profile that feels right with theoretical dollars will inevitably feel wrong when hard-earned statement dollars decline in value. 

Attempt to prioritize which definition of success is most important to you, then manage statement dollars accordingly. 

Try to resist the allure of spendable dollars from cash distributions. Even if they are reinvested into statement dollars, some portion will be spent on taxes. If they aren’t reinvested, you could miss out on future gains and still have to pay taxes. 

Finally, when it is time to spend, spend. Enjoy the rewards of a successful investment journey.  

The fear of running out of money is real and powerful. Consequently, many retirees fail to fully capture the value of their prudent historical decisions. A financial plan is a critical piece of the investment journey not only because it helps build wealth, but also because it can give you permission to enjoy what you’ve constructed. Remembering the differences among these four types of dollars can also be helpful, especially if it helps us mitigate our natural emotional connections.

In 2019, Gilbert cleaned out his locker at the Apex, North Carolina, police department and officially retired from what he calls a highly unlikely 29-year career in law enforcement. Gilbert grew up in a culture where people distrusted and sometimes disliked police officers. Yet by all measures, he’d become a hugely successful one.

After a lifetime in the force, he put his uniform and badge away, turned off the lights, and walked out the door into charming, historic downtown Apex. “It’s been a great ride,” Gilbert wrote at the time. “On to my next assignment.”  

This sign-off, he says, contained a hidden message. Gilbert was about to do something he once thought was even more unlikely than becoming a police officer. Seven months later, he was elected mayor. 

Gilbert, now 54, grew up in Apex. His neighborhood, Justice Heights, was on the other side of what he says was a clear dividing line marked by State Highway 55. Most Black people lived on one side, he says, and people on the other side didn’t see the neighborhood or the people who lived there as part of their town. 

Now, Apex is different—more diverse, more developed, and much larger. In 2023, the town’s total population was 77,000. In the 1970s, when Gilbert was a child, it hovered around 3,000. 

Gilbert lived in public housing, where he witnessed repeated hardships in his community. He had friends and relatives who got in trouble with the police. Although he never had any personal run-ins with law enforcement, he got the message that police officers were not to be trusted. He certainly never dreamed of becoming one. 

When Gilbert graduated from high school in 1987, he went to work as a water meter reader for the nearby town of Cary. “It was just a job,” Gilbert says, and he wanted something that felt meaningful.  

“A friend of mine became a police officer,” Gilbert says. “At first, I thought, that’s not for me. In the community where I was raised, being a police officer, that’s not what we do. It’s not who we are. But my friend kept sharing all the great things he was doing, and it just really intrigued me.”  

Gilbert let his curiosity lead the way, enrolling in criminal justice courses at a community college and working his way through the North Carolina Coastal Plains Police Academy. After graduation, he says, “Everything just started opening up.” 

In 1990, Gilbert joined the Apex Police Department, eventually becoming the town’s first Black police captain and later graduating from the Federal Bureau of Investigation (FBI) National Academy. 

Suggesting Solutions 

His path toward becoming an elected official began by responding to a noise complaint. A teenager was annoying neighbors by doing skateboarding flips in his driveway. Gilbert found the teen, whom he recognized as part of a local skateboarding group that often got in trouble around town.  

He told the young man, Tracy Stallworth, that he would have to stop. “He looked at me and said, ‘I can’t skateboard in my own driveway?’ And I said, ‘Nope.’ So, he picked up his skateboard, walked in his house, and slammed the door.” 

Gilbert drove a few blocks away before he realized he had missed an opportunity. “I hadn’t offered him any solution,” he says. Gilbert was troubled by what felt like an unfair outcome.  

So he rekindled the conversation with Stallworth, and they started dreaming of solutions. Their biggest idea was a downtown park where skateboarders could practice and hold competitions or events without disturbing neighbors. But a skate park seemed impossible at first. 

In the meantime, as police captain, Gilbert helped organize weekend skateboarding events for the community—a short-term solution that often drew more than a hundred skateboarders and spectators of all ages. Over time, momentum for a skate park grew. Stallworth’s skateboarding friends helped raise funds and community support.  

Making it real meant asking the town council for a significant amount of money, Gilbert says. “One night, they all skated to a town council meeting, and we filled the council chamber,” he says. Three of the skateboarders spoke, showing their enthusiasm and the growing demand for a safe skateboarding space. 

The council saw their vision and, at the next meeting, approved $750,000 in funding—a huge amount, especially for a relatively small town. The council asked Gilbert and the skateboarders to raise another $250,000. With the help of a local benefactor, they did it. 

Since it opened in summer 2015, the Rodgers Family Skate Plaza—often called Trackside because of its location between two historic rail lines—has become one of the most popular gathering spots in Apex. For their efforts, Gilbert and Stallworth were invited to the White House, where they received a Champions of Change award from President Obama.  

Stallworth, now 28, says he was awed by the energy and passion Gilbert gave to the project. “Jacques, who had never skated a day in his life, put almost a year into this thing,” he says, and in the process, inspired Stallworth to show up and be a leader himself. Stallworth now gives free skateboarding lessons to kids. He wants to pay forward what he learned from Gilbert. 

The skate park project got Gilbert thinking too. “If a young police officer, just a shy kid from the ’90s, can end up at the White House, perhaps he can inspire others to show up where they’re not invited,” he says. 

Why Not You? 

In Gilbert’s mind, becoming an elected official was farfetched and improbable. Community leadership didn’t feel like it was open to people from his background, and he had little understanding of what those jobs entailed. But others saw his potential.  

Nicole Dozier, a local health policy advocate, says she was attending regular town meetings back in 2013, when Gilbert and Stallworth were campaigning for the skate park. She was there the night the skateboarders filled the chamber, and she was impressed. Later, Dozier became a town council member and served eight years as Apex’s mayor pro tempore.  

During her second campaign, she says, she heard Gilbert was approaching police force retirement and asked him if he might consider running for office. “I thought he could be really inspiring,” she says. “People liked him so much.” Gilbert’s first response was, “Absolutely not.” 

He was already focused on another big project: the Blue Lights College, a post-high school program for young people considering police careers. Gilbert was also busy training new officers, coaching youth basketball, and teaching self-defense classes. He likes to stay busy and meet as many people as he can. 

One of the people he met was Jennifer Kopras. At the time, Kopras was 46 and hoping to fulfill her lifelong dream of becoming a police officer. Now, she’s a Blue Lights College graduate and has been a part of the Apex police force for more than a year. She says meeting Gilbert was a big part of her journey.  

“Jacques sees a spark in someone and ignites it,” Kopras says. “He saw something in me and helped me follow my dreams. He gave me a little more hope to push through.” 

Dozier saw a similar spark in Gilbert and kept encouraging him to run for office. “At some point, he finally said, ‘OK, I’ll think about it,’” she says. 

A few months later, Gilbert was watching Apex’s annual State of the Town address when he says he heard a voice in his head asking, “Why not you?” 

He went home and talked to his wife Meshara; daughter Kalabria, now 27; and son Logan, now 21. They loved the idea. “My son said, ‘You’re already the mayor! You just don’t have the title yet.’” Kalabria, a public relations professional, signed on as his campaign manager. With his family behind him, Gilbert felt confident and capable. 

Stallworth says he heard the news through the grapevine and was glad but not surprised. “It just made so much sense,” he says. 

A Golden Year 

Gilbert is now in his second term, after winning an unopposed election in November 2023. Since he was first elected in 2019, his list of wins includes writing the town’s first-ever 10-year strategic plan, negotiating tens of billions of dollars of deals with big and small businesses that are relocating to Apex, instituting diverse holidays and better benefits for town workers, and leading the town through the intense period of COVID-19 shutdowns and racial unrest that have defined the last few years.  

Throughout, he has maintained his focus on providing solutions and building community.  

Dozier says at the height of the pandemic, when schools were holding all events outdoors, she ran into Gilbert at her daughter’s prom, wearing what by then had become his trademark gold-toned shoes. “He says he wears those golden shoes for golden moments,” she says.  

Online, there are pictures of Gilbert wearing the shoes at the opening of a park, a community event at a local mosque, a dance contest to benefit people with disabilities, and a party celebrating the town’s 150th birthday. He says he hopes the gold shoes make him feel approachable so people won’t feel intimidated to talk to him. They’re one small part of his overall strategy to listen, learn, and provide solutions. 

Gilbert says he wants residents of Apex to know that he is there for them. At its core, he says, the role of mayor is not so different from that of a police officer. “Our campaign slogan was ‘People First,’” he says. “And that’s how I look at everything. It’s always about the people.”  

The difference is, as a police officer, Gilbert was often working reactively, responding to a crisis or an isolated incident after it happened. As mayor, he can strategize and be more proactive. He can get closer to the root of things. 

Supporters say Gilbert’s charisma is contagious, and the changes he’s making are genuine—a direct result of what he hears from his constituents. Officially, “it’s a part-time gig,” he says. “But for me, it’s a full-time job.”  

“Jacques’ purpose, you can see clearly, is to help others,” Kopras says. “There is no rank with him. We are all equal. You can tell he doesn’t see himself better than anyone else. […] If we could mold him and create others like him, the world would be an incredible place.” Gilbert says he is especially proud that, under his leadership, Apex has increased its efforts to include and celebrate its Black communities. “We’re formally celebrating Juneteenth now,” he says. “And that was never the deal before. A walk for Martin Luther King Jr. Day? We never had that.”  

With Gilbert’s influence, the entire town calendar has become more diverse. Apex now officially celebrates Pride Month, Hispanic Heritage Month, Hanukkah, and more.  

While Gilbert speaks out on issues from traffic to housing to policing, his main job, as always, is showing up. Whether it’s a ribbon-cutting event, a town festival, or a football game between two rival high schools, he’s almost certainly going to be there.  

And every Friday, he shows up somewhere in the town to knock on doors and ask people what they need from their local government. He includes town employees in these rounds.  

“People get so laser-focused on what’s happening on Pennsylvania Avenue,” Gilbert says. “But when we ask them what we can improve on Salem Street [Apex’s main street], they know what we need. A pothole that needs fixing has no political affiliation.” 

During his police force career, Gilbert says, he was often called to help people on their worst days. As mayor, he gets to be there for some of the golden moments too. 

Written By Kim Painter

AI stocks are garnering a lot of attention lately, and for good reason. In late 2022, the technology sector saw a breakthrough in large language models, allowing AI to learn and respond in conversational language. And last summer, when Nvidia, which makes processors that power AI technology, delivered second-quarter sales drastically higher than expected, it unleashed a fervor of excitement. In the days after, mega-cap technology stocks rose sharply, pulling the entire S&P 500 Index upward. 

Although mass adoption is distant, AI has the potential to unlock productivity in a host of different industries, and companies across sectors are now investing heavily in related infrastructure. This means AI also has huge potential to generate wealth. 

Despite this potential, it is important to remember that AI is still nascent technology, and investing will be risky. AI stocks are likely to be volatile, it will be difficult to predict winners and losers, and investors could lose everything.  

That’s why it’s critical to do your due diligence. Make sure you or someone with AI-specific knowledge is vetting the opportunity set on your behalf, and never invest more than you can afford to lose.  

If you do decide to invest in AI, consider a diversified approach, either a portfolio of AI stocks, a mutual fund, or an exchange-traded fund (ETF). These can offer better diversification than individual stocks alone. 

As with any investment, risks abound, and AI strategies will not be right for everyone. A financial advisor can help you understand how AI investments may fit into the larger context of your investment portfolio and how much risk might be appropriate. 

Succession planning is an important part of running any business, especially a family enterprise. Less than one-third of family businesses survive into a second generation, and only about one in 10 continue through a third generation. Success often depends on how well the business and family have prepared. 

As part of the succession planning process, you may want to consider centralizing your finances so your family can access all your financial information in one place. 

One way to do this is to establish a family office, which is a formal business entity created to manage your family’s wealth. Another, more informal, approach is to work with a team of advisors who provide family office services. Typically, this team is led by a financial advisor and includes tax professionals, estate planning attorneys, banking professionals, and others. 

Family office services can include multigenerational wealth and estate planning, coordinated tax planning and compliance, insurance and investment advisory, family governance, consolidated reporting, bill-paying solutions, and more. Depending on your needs and goals, your team will provide a unique mix of these services that adjusts as your family and business evolve. 

Regardless of which approach you choose, look for a firm with specialized expertise. A successful leadership transition will require careful planning, reliable governance, next-generation leadership education, and effective operational structures. With those pieces in place, your family can feel confident and prepared to continue your legacy. 

Generally, it’s better to consolidate investments into fewer accounts and, ideally, with one advisor or investment manager.  

There is a common misconception in financial management that diversification means having several investment accounts at different institutions or with multiple financial advisors. In truth, diversification refers to the variety of investments in your portfolio, not where you hold them. For instance, maintaining multiple 401(k)s with different providers is not diversification, but balancing the quantity of stocks and bonds within your 401(k) is.  

Asset consolidation has four main benefits:

Optimized planning. With investments in one place, it’s easier to see your full financial picture. This helps you make better financial planning decisions.  

User-friendly implementation. Consolidation also makes it easier to implement portfolio changes like buying and selling investments. It can also reduce account administration fees. 

Simplified recordkeeping. Working with fewer institutions means fewer monthly statements and tax documents.  

Reduced fees. Generally, the more assets you hold with one provider, the more opportunities you may have for reducing or eliminating account fees, transaction costs, and other expenses. 

For cash accounts, different rules apply, and it can sometimes be a good idea to spread deposits across multiple banks to keep each account balance below $250,000. This is the maximum amount insured by the Federal Deposit Insurance Corporation (FDIC). 

Before you make any moves, talk to a financial professional to discuss the best strategy. Asset consolidation will look different for each investor. 

The Deals enjoy their 3,500-square-foot vacation home, which sits on 119 acres near Sylva, North Carolina, for weekend getaways and as a place where their family can gather for holidays and vacations.“The property is gorgeous, and the views are spectacular,” says Steve, 63, a gastroenterologist. “We’ve got trails to hike, and the cute little mountain town of Sylva is only about 10 minutes away.”  

The Deals have three adult children and, so far, four grandchildren, all under three years old. “One day, we plan to host Grandpa and Grammee Camp for the kids,” says Mitzi, also 63, a retired schoolteacher.  

“My goal is that my grandchildren will grow up playing together at the house, creating ties that bring them back,” says Steve. “I want them to have great memories growing up with their cousins.” 

The property’s location works well for most of their family. The Deals can drive to Sylva in less than three hours. Their two daughters’ families live just a little farther away. And their son and his wife, who live in Miami, drop in as often as they can. 

While drafting their estate plan, the Deals discussed several ideas for handing down the house, then decided to let their kids take part in the conversation. “We talked to our children and asked if the mountain house was something they wanted to keep when we are gone or if they wanted us to get rid of it,” says Steve. “The consensus was they wanted us to keep it.” 

Like the Deals, many people hope their vacation properties will become a part of their legacy: a place to enjoy with family and friends now and somewhere their children and grandchildren can find comfort in the future. 

Assessing Your Estate Plan 

People are often deeply passionate about their second homes, whether that home is a cottage on the beach, a lodge in the mountains, a farm in the country, or a cabin on a lake. That passion can sometimes cloud their decisions about how to include the property in an estate plan, says William Blair, a CAPTRUST financial advisor in Charlotte, North Carolina. William helps his clients navigate these and other estate planning decisions. 

“My goal is not to influence how clients structure their estate plans but, rather, to help them understand some of the unforeseen consequences that can arise from certain strategies,” he says. “A great estate plan considers the needs and circumstances of the beneficiaries and the nature and complexity of the assets.” Mike Blair, another CAPTRUST financial advisor and William’s father, agrees. 

Mike says more than half of his clients own second homes, and a few have two or three vacation properties. “Everybody wants their grandchildren to grow up together so that first cousins and second cousins have shared family memories,” he says. “It was easier in the past when people lived closer together, but now they often come together only for vacations.” 

Keeping the Peace 

When deciding what to do with a second home, Mike says parents should ask themselves if leaving the property to their children will mostly improve or complicate their children’s lives. Do the kids want this home, or would they prefer to have the proceeds from its sale?  

Passing down a vacation property can give your family roots, he says. “But the risk is that it can also create family drama. If you think that could happen, you may need to sell. It’s not worth fraying relationships.” 

Most of the time, Mike says, things go smoothly, and parents typically have good intuition about how their second homes will impact family dynamics. “I’ve been doing this for 35 years, and there have been very few situations where it has gotten bad,” he says. “We try to deal with things before anyone can get terribly upset.” 

Both Mike and William frequently talk to clients about ways to pass down their second homes. “Family is important to people,” William says. “The last thing they want to do is create conflict with the people they love because of their estate plan.” 

What Heirs Can Expect 

To reduce conflict and make sure heirs are aware of what ownership entails, William suggests clients talk with their family about what’s required to maintain the property. “Most of the second homes our clients own are not revenue producing. There are property taxes, insurance, and maintenance expenses, and those can be high.”  

There’s also time required for upkeep. “For many second homeowners, the time spent maintaining their home is a labor of love rather than a chore,” William says. “Their children may not fully understand the significant time required to maintain it. Additionally, when property ownership is shared among several people, the division of these chores and the burden of the maintenance costs can create rifts.” 

Some heirs don’t think they’ll use the residence often. For instance, an adult child living in California might not want to spend their vacation time going to a beach house all the way in Georgia. But their siblings who live closer might use it more frequently. 

“It can cause friction if one of the adult children barely gets to use the house but is still asked to cover an equal share of the expenses,” William says. 

In other cases, heirs might not be able to afford to contribute. “We have one client who has a beach house where they spend a lot of time with their family,” William says. “Their adult children love the house, but they have very different financial situations and incomes right now.” The parents are concerned that if they leave the house to all three children, the kids may not be able to contribute equally. 

“We also see significant conflict among adult children when they disagree about who can use the house when, who should pay for which expenses, and whether the house should be used for different activities, like parties or rentals,” William says. For instance, should the house be available for public rental when it’s not in use by family members? Should friends be invited? And if so, can they bring pets? 

Honest conversation and group planning can help avoid these problems. “I had a client with a mountain home that had a spectacular view,” Mike says. “Only one adult child could afford to maintain it, so the family agreed that she would inherit the vacation house, and her two sisters would inherit the parents’ primary residence.” 

The father asked his daughter who received the mountain house to give her sisters at least one week there each year. “It wasn’t a requirement,” Mike says. “It was a request.” 

Paying It Forward 

Some clients also choose to set aside money in their estates to pay for second home maintenance, says attorney Todd Stewart, managing partner at Stewart Law P.A., also in Charlotte. “Almost all of the time, when people want to keep the home long term for their family, we talk about some sort of endowment to cover the necessary expenses, including tax bills, insurance, and maintenance,” he says.  

Stewart works with one client who has two vacation properties—one at the beach and another in the mountains. This client plans to create a foundation that will turn his mountain property into a camp for kids. The beach house will be left to his children, with funds allocated for taxes and maintenance. 

Stewart says most of his clients put their vacation homes into revocable living trusts. The trust holds ownership for the beneficiaries, usually the family. The clients have control over the property during their lifetimes, and the beneficiaries inherit the home when the client passes away.  

The advantage of using a revocable living trust, instead of a will, is that the trust removes the home from court supervision and its associated costs and delays, Stewart says. 

“An irrevocable living trust is another option and comes into play when we think the estate is large enough to be subjected to estate taxes,” Stewart says. In this case, the property’s value is based on the time when it is transferred into the trust, instead of years later when it may be worth more. “It takes the property out of the taxable estate,” he says. 

Some people choose to place their second homes in a qualified personal residence trust. This tax-advantaged strategy allows the home to pass to the beneficiaries for less than its full economic value, Stewart says.  

Another option is to put the property into a limited liability company (LLC). “The two main reasons we use LLCs for homeownership are liability protection and convenience in gifting,” Stewart says.   

Liability protection is important if the home is going to be used for third-party rentals and there is a risk of lawsuits due to fire, theft, or injury.   

“Sometimes, clients use an LLC to transfer ownership of the property to their heirs over time,” Stewart says. “Every year, the owner can transfer shares of the residence to their beneficiaries while still maintaining control.”  

Planning for Different Options 

The Deals have tried to plan for a variety of scenarios for their mountain residence. The home is now in an LLC, and at their deaths, it will roll into a revocable living trust.  

“We are leaving money in the trust to help care for the property, so the upkeep won’t be a burden for our children,” Steve says. “We made it so that, if they decide to sell it, they can, because we don’t know what’s going to happen in the future or where they are going to be.”  

The Deals recently renovated the house, hiring an architect to create a more open floor plan so the family could be together in one room. They also added lots of windows to frame their wide mountain views. The house has a yard, a fire pit, a terrace for grilling, and a huge picnic table that seats their entire family of 12.   

“Our intention is that it’s comfortable,” Mitzi says. “We have the world’s biggest sofa in the family room. Three people could sleep on it.” 

“Having the whole family together is magical,” Mitzi says. “It’s a dream come true.” 

Since their family may continue to grow, the Deals considered building a bunk house out back, but their children said they’d rather have an addition to the existing home, Steve says. “They told us, ‘We don’t want to be in separate houses. We want to be all together.’” 

Steve and Mitzi were pleased to hear that. “It means they treasure the time together as a family as much as we do,” Steve says. 

Written By Nanci Hellmich