Many individuals are aware of the importance of managing their finances with purpose but putting that knowledge into action can be challenging. Often, our desires for the present conflict with our desires for the future. For example, one might plan to wake up early to get that workout before the day gets away from them. We know that the workout is good for us in the long term. Longer life, happier life, healthier life. But the snooze button feels right now, today. Nine minutes of bliss is just one keystroke away. This struggle is referred to as "present bias" by behavioral scientists, where immediate temptations overpower future benefits. Research shows that pre-committing to our goals can help us overcome this natural impulse to prioritize immediate gratification. We also know that sharing our goals with others results in more consistent outcomes. As such it is helpful to not only put a plan in place but also share that plan with others as a part of a broader legacy planning exercise. Families often have priorities for their personal and lifestyle spending, but it is also important to consider priorities for the family. This is Family Mission and Legacy Planning. A family with a value of hard work might set aside resources for a child to go away for the summers to work on a farm or in the “trenches” of the family business. A family with a value of philanthropy might set aside resources to send a family member to a non-profit board leadership training program. However, these priorities are not only items that the family spends on during their life but these are also codified family values and deserve to be recognized in the family legacy plan. This third bucket, the legacy bucket, presents a unique challenge. It holds money for our heirs and beneficiaries, which we hope they will receive well into the future. When planning for this bucket, none of our decisions have immediate consequences. Moreover, we know that we should plan for beyond our lifetime, but most of us would rather not contemplate a world without us. So, how can we overcome this natural hesitancy and plan for the legacy we want to leave? This article provides a framework for thinking about these issues and a practical guide to achieving our desired outcomes. When we pass away, we leave behind memories, businesses, personal stories, and love for friends, family, and the community. This is our legacy, which is often challenging to measure, shape, or control. However, a significant part of our legacy is indeed something tangible and controllable: a collection of assets that will go to specific individuals, organizations, or entities. If we do nothing, these assets will be transferred to others by default, often according to the laws of our jurisdiction. This might result in our assets being administered by unsuitable individuals or passed on to people we may not want to benefit. We can choose to be intentional, making deliberate choices based on our values and goals. We might divide our assets among beneficiaries who will receive our wealth upon our death. Alternatively, we could structure our wealth to be preserved and sustained across several generations beyond our lifetime.   It helps to think about the people who will receive the assets. Research shows that thinking about how our decisions affect others can motivate us to be more intentional. Identifying who we want to benefit from our assets can be a constructive starting point for taking action. Once we have a clear idea of our desired outcomes, we can start fleshing out the details. Here are four critical questions to ask ourselves: Who is the money meant for? Is it for our spouse, partner, children, future generations, or other significant people in our lives? What, exactly, are we giving? Do we have a mix of belongings, investments, real estate, and businesses? What are they worth now, and what might they be worth in the future? What portion of our assets do we want to be divided among beneficiaries upon our death, and what portion (such as a property or business) might we want to preserve for multiple generations? When do we want to make our gift? Will it be during or after our lifetime? How do we want to make our gift? What is the best way to transfer our assets to our beneficiaries, such as setting up trusts or establishing a will? By answering these questions, we can take control, shape the future, and create the legacy we want to leave.

Leaders: Father and Son Family businesses, beyond their economic impact, hold a special place in the hearts of their owners, embodying a legacy of pride, identity, and shared dreams. However, the sobering reality is that fewer than 12% of family businesses endure into the third generation. One prominent cause is the lack of interest or preparedness in the next generation to assume leadership roles. This article explores five strategic approaches to inspire and equip the rising generation to not only engage with the family business but also contribute to its sustained success. Preserve Legacy Through Storytelling: Narratives are powerful tools for instilling pride and connecting generations. By recounting the business's creation, the founder's vision, and the values sustaining it, families can create a shared heritage. Documenting this history not only preserves it for future generations but also serves as a valuable resource for analyzing the business's trajectory, identifying strengths, weaknesses, and guiding succession planning decisions. Facilitate Exposure to the Business: Engagement flourishes with understanding. Regular exposure through facility tours, mentorship programs, summer jobs, and internships provides the rising generation with firsthand experiences, helping identify those genuinely interested in the business. This not only establishes a pipeline of potential leaders but also fosters a deeper appreciation for the responsibilities and benefits of being part of a family-owned enterprise. Three-Circle Model by Tagiuri and Davis Define Roles and Educate Family Members: The Three-Circle Model by Tagiuri and Davis aids in clarifying the often-competing priorities within family businesses. Defining roles and responsibilities for family, business, and owners mitigates conflicts and establishes transparent communication. Recognizing rights and responsibilities, especially for owners, ensures a smooth transition, emphasizing the importance of role clarity, transparency, communication, and ongoing education. Implement a Family Employment Policy: While family ties are essential, not every member is suited for every role. Families must decide whether the business is family-first, business-first, or a balance of both. Creating a family employment policy, based on objective criteria, ensures fair hiring practices and manages expectations, reducing potential conflicts arising from unrealistic assessments of competence based on familial connections. Teach Financial and Business Fundamentals: Basic financial literacy is crucial for informed decision-making. Providing education on financial concepts from an early age, using creative methods like experiential learning, lays the foundation for understanding the business's financial health and growth potential. Encouraging attendance at educational programs further nurtures financial acumen, ensuring the next generation is equipped to make sound business decisions. Running a family business requires intentional efforts to engage and prepare the rising generation for leadership roles. While challenges exist, a systematic approach involving storytelling, exposure, role definition, employment policies, and financial education can significantly increase the likelihood of a family business thriving across generations. By sowing the seeds of knowledge and passion today, families can secure a prosperous future for both their business and their legacy. Additional Resources & Videos -How to use the Three-Circle Model -Book: Harvard Business Review Family Business Handbook: How to Build and Sustain a Successful, Enduring Enterprise -How to Raise the Next Generation of Family Business Leaders

On Thursday, March 21st at 12:00 PM (PST), Avantia recorded a live discussion on “Cyber Prevention – How to Safeguard Your Family,” hosted by Trevor Cobb, CEO of Avantia, and featuring Tamara Stephens, National Client Executive and Personal Cyber Risk Advisor with Marsh McLennan Agency Private Client Services (PCS). The webinar addressed the following questions: What is Cyber Hygiene, and why is it crucial for your family's safety and security? How can you protect yourself and your loved ones from phishing and ransomware attacks, which are among the most common cyber threats? What role does the FBI play in cybercrime prevention and investigation? How can you prevent and address cyberbullying, an increasingly prevalent issue among children and teens? Speaker Bios: Tammy Stephens: Senior Vice President Tammy Stephens brings her clients the benefit of nearly 35 years of personal insurance experience as National Client Executive and Personal Cyber Risk Advisor with Marsh McLennan Agency Private Client Services (PCS). Based in Boston, Tammy collaborates with colleagues nationally on the ongoing review, design, and program management for complex individual and family office client programs exceeding $100,000 in annual premium. Having earned her Cyber COPE Insurance Certification (CCIC) from Carnegie Mellon University, she acts as the expert consultant on programs for clients with extensive personal cyber risk concerns. She is also a member of the MMA Cyber Center of Excellence (CCOE) Team providing guidance and direction on personal cyber risk for MMA clients across the U.S. and Canada. Trevor Cobb: Trevor Cobb has been an advisor to executives, entrepreneurs, founders, and their families on wealth management for over a decade. Before founding Avantia in 2020, Trevor provided wealth management to some of the Pacific Northwest's wealthiest families from 2008 to 2020 in his roles at J.P. Morgan's Private Bank, U.S. Trust, and Goldman Sachs. He received his BS in history from the United States Military Academy at West Point and his MBA from the University of Washington Foster School of Business. He also completed coursework at the Swiss Banking Institute, Zürich, Switzerland. Currently, Trevor serves as the Chair of the Finance Committee for America’s Automotive Trust, and the ACT Theatre Foundation Board. ​He is a decorated veteran, having been awarded the Bronze Star Medal, the nation’s fourth highest combat award and a graduate of the US Army Ranger Course, the Army’s premier leadership school.

Investors often seek private investments as they believe there to be the potential for substantial returns that surpass those of public markets, all while avoiding the day-to-day fluctuations typical of public market volatility. At Avantia, we have a nuanced view of this. While an investor should demand additional returns to accept the additional risk of illiquidity, lockups, late tax reporting, and other complications involved with private assets, the investor should also be very mindful of taxes and fees which can easily erode the performance difference. However, accessing these opportunities is typically restricted by securities laws designed to safeguard investors who may not possess the financial means to bear the risks associated with unregistered securities. As a result, individuals must meet specific net worth or asset thresholds to qualify for participation in private investment offerings. Among the various investor categories, accreditation, qualification as a qualified client, and status as a qualified purchaser or qualified institutional buyer are commonly required to access private market investments. Accredited Investor (AI) — The Entry Point to Private Markets Individuals or couples with a net worth of at least $1 million (excluding their primary residence) or individuals whose income has exceeded $200,000 (or $300,000 in combination with a spouse) for the past two years and is expected to continue at that level. Certain institutions such as banks, broker-dealers, and trusts with at least $5 million in assets. They may invest in 3(c)(1) funds which are limited to only 100 Accredited Investors or 250 under certain circumstances. Qualified Client (QC) — Extended Access Through Advisor Relationships Typically individuals with a net worth of at least $2.2 million (excluding their primary residence) and at least $1.1 million under management by an investment advisor following their investment in an applicable fund. Qualified purchasers automatically qualify as qualified clients. These thresholds are indexed to inflation and adjusted every five years. The next inflation adjustment will occur in May of 2026. Qualified Purchaser (QP) — Sophisticated Capital, Broader Opportunities Individuals or married couples with at least $5 million in investable assets (excluding their primary residence) qualify as qualified purchasers. Trusts may also qualify under certain conditions, such as having at least $5 million of investable assets or being established for the benefit of qualified purchasers. They may invest in both 3(c)(1) and 3(c)(7) funds. 3(c)(7) funds are allowed to have as many as 2000 Qualified Purchasers which gives these funds potentially more access to capital and thus a wider array of investment opportunities for the fund. Qualified Institutional Buyer (QIB) — Institutional Access & Scale Institutional investors that meet specific criteria outlined by the Securities and Exchange Commission (SEC), allowing participation in certain exempt offerings. Criteria often include large institutional investors such as banks, insurance companies, pension funds, and investment companies, among others. To qualify as a QIB in the United States, entities must meet specific financial criteria outlined in Rule 144A under the Securities Act of 1933, including financial institution status and asset size requirements. Financial Institution Status: The entity must be one of the following: • A registered broker-dealer under the Securities Exchange Act of 1934. • An investment company registered under the Investment Company Act of 1940. • A bank, insurance company, or savings and loan association as defined in the Securities Act. • A trust fund with total assets of at least $5 million, not formed for the specific purpose of acquiring the securities offered. Asset Size: Entities that are not registered broker-dealers or investment companies, must own and invest on a discretionary basis at least $100 million in securities of non-affiliated issuers. As we have presented this information, each progressive level of investor has more investment choices. Unfortunately, there is no perfect way to determine an investor's ability to understand the investments that are available to them and we feel that it is vital that an investor understand their investments before engaging in any complex transaction or investment structure. Conclusion: In summary, private investments offer unique opportunities for investors to potentially achieve significant returns beyond public markets. However, participation in these opportunities often hinges on meeting specific investor criteria, such as accreditation, qualification as a qualified client, or status as a qualified purchaser. The inclusion of Qualified Institutional Buyers (QIBs) underscores the importance of institutional participation in private markets, adding another layer to the spectrum of eligible investors. Sources and Disclosures Qualified Purchasers (QP) : Regulation 2(a)(51) of the Investment Company Act of 1940 (U.S.): Defines the term "qualified purchaser." Securities and Exchange Commission (SEC) Rules under the Investment Company Act of 1940: Provides additional guidance on the definition and criteria for qualified purchasers. Accredited Investors (AI) : Regulation D under the Securities Act of 1933 (U.S.): Defines the term "accredited investor" and outlines the criteria for accreditation, including income and net worth thresholds. Securities and Exchange Commission (SEC) Rules under Regulation D: Provides further details and interpretations of the accreditation criteria. Qualified Clients (QC) : Rule 205-3 under the Investment Advisers Act of 1940 (U.S.): Defines the term "qualified client" and establishes criteria related to assets under management. Securities and Exchange Commission (SEC) Rules under the Investment Advisers Act of 1940: Offers additional guidance on the definition and criteria for qualified clients. Qualified Institutional Buyers (QIB) : Rule 144A under the Securities Act of 1933 (U.S.): Defines the term "qualified institutional buyer" and establishes criteria for institutional investors to qualify. Securities and Exchange Commission (SEC) Rules under Rule 144A: Provides further details and interpretations of the qualification criteria for QIBs. Post Disclosures

As we step into 2024, the retirement landscape is evolving with new rules and regulations that could significantly impact your retirement planning. This article aims to provide a comprehensive guide to these changes. Social Security Changes Those currently collecting or about to start collecting Social Security and Medicare benefits see changes to both their COLA and Medicare costs Cost of living increase 2024 Cost of Living adjustment of 3.2 percent kicks for some as early as December 29th, 2023. This is a modest increase in comparison to last year's 8.7 percent increase1. Medicare costs Starting from 2024, the standard premiums for Medicare Part B will increase by 6 percent, from $164.90 to $174.70 per month, after a 3 percent decrease in 2023. Most Medicare beneficiaries have their premium payments for Part B deducted directly from their Social Security payments. Therefore, this premium increase will reduce the COLA benefit boost by $9.80 per month for this group. Additionally, the annual deductible for Part B will also increase from $226 to $240.   On the other hand, Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans will not see significant changes in their payments. Since these plans are provided by private insurers, costs vary. However, as per Medicare officials' estimates, the average monthly premium for an MA plan will only increase by 64 cents, from $17.86 to $18.50, and most enrollees will not experience any increase. Moreover, Part D plans will cost an average of $55.50 per month, which is slightly lower than the 2023 average of $56.49. Embracing the SECURE 2.0 Act The SECURE 2.0 Act, which went into effect on January 1, 2024, introduces several provisions that affect retirement accounts like 401(k)s and IRAs2. Understanding these rule changes can help workers optimize their retirement account funds. Student Loan Payments Qualify for 401(k) Matches Under the new law, employers have the option to make matching contributions to employees’ 401(k)s if the employee makes qualifying student loan payments during the year1. This could be a useful tool for companies to attract top talent while allowing cash-strapped employees to save for their futures, but it is not required that the employer offer this benefit, so employees in a 401k plan should check with their employers. 529-to-Roth IRA Rollovers Families may now roll over excess 529 plan funds to a Roth IRA in the beneficiary’s name. However, they must adhere to specific rules, including a lifetime maximum rollover amount of $35,000 and not more than the annual contribution limit each year*. Penalty-Free Withdrawals for Emergencies Beginning in 2024, there will be a new exception to the 10 percent early withdrawal penalty for taking money out of your tax-deferred retirement accounts before you’re 59 1/21. You may withdraw up to $1,000 to cover unforeseen or immediate financial needs*. Penalty-Free Withdrawals for Domestic Abuse Survivors Domestic abuse survivors may withdraw up to the lesser of $10,000, indexed for inflation, or 50% of their retirement account balance to help them escape their unsafe situation1. These withdrawals are not subject to the 10 percent early withdrawal penalty. 401k and IRA Rules for 2024 While congress left this area largely unchanged, the contribution limits have changed again this year to account for inflation and we provide some reminders and best practices to get the most out of these tax-deferred and tax-free (ROTH) accounts. Required Minimum Distributions (RMDs) RMD calculations are out, and account owners required to take distributions have until the end of the calendar year to take their distributions. An investor's first RMD must be taken by April 1st of the year after they turn 73. So, if you turned 73 on December 31st, 2023, then you must take your first RMD by December 31st, 2024. However, if you turned 73 on January 1st, 2024, then your first RMD is not due until April 1st, 2025. The penalty for not taking your RMD in time is 25 percent of the amount by which your withdrawal fell short of the required minimum. Investors may benefit from a "ROTH Conversion" and should discuss this technique with their financial advisor and tax advisor. Whether a ROTH conversion makes sense depends heavily on the investment time horizon of the investor.   Charitable Investors could benefit by directing up to $100,000 of their RMDs to a qualified charity. This avoids this portion of the RMD being subject to income tax. SEP IRA Contributions SEP IRA contribution limits increased. Self-employed investors can contribute up to 25 percent of the employee's total compensation or a maximum of $66,000 for the 2023 tax year or $69,000 for the 2024 tax year, whichever is less into a Simplified Employee Pension (SEP) IRA. Investors may qualify to contribute to both a SEP IRA and an IRA (ROTH and/or Traditional) but consult with your tax advisor to be certain. Traditional IRA Contributions The maximum annual traditional IRA contribution limit is $7,000 in 2024 up from $6500 in 2023 (those aged 50 or older may make an additional $1,000 contribution). Investors have up to the tax deadline (April 15th, 2024) to make their 2023 contributions and until April 15th, 2025 to make their 2024 contributions. Traditional IRA contributions may be tax-deductible in the year they are made, depending on one’s modified gross income (MAGI) and whether they are covered by an employer-sponsored retirement plan. Investments within the account grow tax-deferred, but withdrawals in retirement are taxed as ordinary income**.   This tool by Fidelity ***  is useful in assessing if an investor should select a traditional or ROTH IRA. This tool does not contemplate whether your participation in an employer-sponsored plan will affect the tax deductibility of contributions. Consult your tax advisor for guidance on your specific situation. 401k Contribution Limits 401k contribution limits increased from $22,500 in 2023 to $23,000 in 2024. Those aged 50 or older may contribute $30,000 for 2023 and $30,500 for 2024. Key Takeaways The retirement landscape in 2024 is set to undergo significant changes, and it’s crucial for individuals and families to stay informed. By understanding these new rules and regulations, you can make strategic decisions that align with your financial goals and ensure a secure and comfortable retirement. Remember, every individual’s financial situation is unique, and what works for one person may not work for another. Therefore, it’s always a good idea to consult with a financial advisor or wealth management firm to get personalized advice tailored to your specific needs and circumstances. Sources and Disclosures: * https://www.aarp.org/retirement/planning-for-retirement/info-2023/biggest-changes-impacting-retirement-finances-in-2024.html . ** https://www.nerdwallet.com/article/investing/traditional-ira-rules . *** https://www.fidelity.com/calculators-tools/ira-contribution-calculator . ****Post Disclosure

As we step into the new year, resolutions and plans are in the air. January, however, brings changes to the wealth planning landscape. The Tax Cuts and Jobs Act of 2017 is set to expire in 2025, impacting tax rates and exemptions. The Secure 2.0 Act adds another layer of potential change. Amidst this uncertainty, seizing the current window of opportunity is crucial. Here are key issues to discuss with your advisors: 1. Changing Exemption Rates: The federal estate and gift tax threshold which rose to $13.61 million per individual for 2024, is expected to rise further in 2025 before halving in 2026. Understanding these changes is vital for those with substantial estates. 2. Lifetime Giving Opportunities: Planning ahead of the 2026 deadline is essential. Advisors can help you explore options like trusts and partnership structures to strike the right balance for your situation. 3. Maximizing Charitable Impact: With the increased standard deduction, strategic charitable giving, like "bunching" contributions, can maximize both tax benefits and support for organizations. Consider tax-free qualified charitable distributions (QCDs) for those aged 70½ or older. 4. Secure 2.0 Act and Education Gifts: The Secure 2.0 Act offers new possibilities for 529 educational savings plans, allowing rollover contributions to a Roth IRA, and adding flexibility to gifting strategies. In this dynamic environment, discussing these opportunities with advisors sooner rather than later is prudent. The potential expiration of the Tax Cuts and Jobs Act in 2026 and the current uncertainty in tax laws underscore the importance of proactive planning for your family's unique situation.

High-Quality Fixed Income – Overweight duration The Federal Reserve is expected to hold rates flats at their meeting this week.  Rates currently  have a 98% likelihood of staying flat at the January 31st FOMC meeting and a nearly 100% chance of being down by the June 12th FOMC meeting according to the CME's FedWatch tool. This signals a high likelihood that short-term rates will be flat to down over the next six months. As such, longer-duration assets are becoming more attractive. The Fed announced they will likely cut rates three times this year at 0.25% each. High Yield Fixed Income – Overweight credit The main drivers of returns in this asset class are defaults and interest rate spreads. Default rates have risen to 2.88% in December, but are still below the long-run average of 3.54%. They are not expected to rise much beyond the long-run average since most companies refinanced their debt to long-term low rates and do not have debt maturities in the next year. That said, spreads  are tight at 3.58%. Also, delinquency rates , which are seen as a leading indicator of defaults, have risen over the past several quarters and remain low at 1.32%. We remain slightly overweight given the mix of low default risk, higher yield, and low delinquency rates. We will return to underweight if we see a rise in delinquency rates. We will increase our overweight if spreads widen beyond their long-run average. US Equities – Underweight, tilt toward value Up over the last month with broad participation except for healthcare and energy. The forward P/E ratio for US equities is 19.5x as of December 31st and has risen sharply in the past month. The 20-year average P/E ratio for the S&P500 is 15.6x which means that US Equities continue to be increasingly expensive relative to history.* Small cap value stocks, however, have a P/E ratio of 16.3x compared to a 20-year average of 16.7x. International Developed Equities – Overweight, tilt toward Japan P/E ratio for the MSCI ACWI ex-US index is 12.9x as of December 31st compared to its 20-year average of 13.1x. This represents a 33.7% discount to the S&P 500 after one corrects for the natural discount of the MSCI ACWI Ex-US to the S&P500.* Japan appears to be poised to outperform in the years ahead as their P/E is historically low and the government is enacting policies that are likely to raise the profitability of companies. The US dollar  continues to fall and provides a positive tailwind for non-dollar assets (and US travelers abroad). Emerging Markets (EM) – Neutral, underweight China, overweight Korea, Mexico, India Neutral Weight with regional preferences. There is generally more risk in this asset class than in International Developed and US Equity. The reasons for this are manifold and include a lesser presence of the rule of law, a higher level of corruption, and increased regional instability. The MSCI Emerging Markets Index Price-to-earnings multiple (11.9x) is roughly in line with the long-run average (11.3x). One area of concern in this area is China, which comprises 25% of the index. We are underweight in China but maintain a neutral weight to EM exposure by being overweight in Korea, Mexico, and India. Post Disclosures Notes: * https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/ page 35. 2) Ibid, pg. 45. 3) Ibid pg. 46.

Economic Outlook Key Takeaways: Historical precedent leans toward a recession in 2025 Does AI change this outcome? The US equity multiples are high (expensive) but debt maturities have been pushed out by corporations. The prevailing question facing economists this year centers on the trajectory of the U.S. economy: will it experience a soft, hard, or no landing at all? Each scenario carries plausible reasoning: Possible Outcomes for the U.S. Economic Outlook Reacceleration (No-Landing) Scenario: Supported by above-trend job growth, anticipated double-digit corporate earnings growth, and inflation lingering above 2.5%. Soft Landing or Below-Trend Growth: Indicated by slowing labor market indicators, such as hiring rates and wage growth cooling. Signs of stress among low-income consumers, such as rising default rates on credit cards and auto loans, further bolster this scenario. Hard Landing (Recession): Historical precedent and current indicators like the Fed's aggressive tightening (similar to Paul Volcker's era) and an inverted yield curve since mid-2022 suggest a looming recession. Previous instances of sustained restrictive monetary policy have typically led to economic downturns. Assessing the Most Likely Economic Path Source: J.P. Morgan Guide to the Markets A "no-landing" outcome appears improbable as economic indicators point to a slowdown, with inflation pressures easing due to diminished pandemic savings and the fiscal boost from the Inflation Reduction Act of 2022 turning into a drag. Despite recent upticks in core inflation measures, ongoing moderation in wage growth is expected to eventually stabilize inflation within the Fed's target range of 2-2.5%. Soft Landing or Recession? The primary debate hinges on whether the economy is poised for a soft landing or recession. Economic data are ambiguous: signs of deceleration could signify a healthy adjustment that curbs inflation without triggering negative growth, or potentially foreshadow a mild recession starting late this year or in early 2025. The case for a soft landing argues that unique factors distinguish this cycle, such as responsible borrowing by households and firms locking in low interest rates. Despite Fed tightening, the gradual economic slowdown has managed to curb inflation without precipitating a recession. However, the resilience of the economy could inadvertently delay necessary Fed rate cuts, making a hard landing increasingly likely. Market Perceptions and Risks Financial markets currently favor a soft-landing scenario, evident in optimistic earnings-growth projections and low credit spreads suggesting minimal default risks. Yet, the potential for a mild recession is underestimated, posing asymmetrical risks to market returns: while a soft landing could yield gains, a recession could trigger significant market declines. Global Economic Landscape Internationally, most developed economies are recovering, with Europe rebounding from near-recession conditions in 2023, supported by global manufacturing upturns and increased bank lending. Similarly, Japan and the UK show promising economic indicators despite challenges like persistent inflation. Source: Census Business Trends and Outlook Survey (Feb 2024) Long-Term Implications of AI on Economic Growth Looking ahead, the integration of artificial intelligence (AI) presents divergent views: while skeptics like Daron Acemoglu foresee modest GDP boosts, optimists project substantial gains akin to historical technological advancements like electricity and the internet. AI's potential to enhance productivity through efficiency gains and task reallocations underscores its transformative economic impact. Conclusion As mid-2024 unfolds, the U.S. economy stands on firmer ground with moderating inflation and robust corporate earnings. While a recession within the next year remains plausible, current economic trends and market conditions suggest a soft landing is more likely, albeit with significant uncertainties. Investors are advised to monitor closely for any indicators pointing towards deeper economic downturns. Sources and Disclosures: https://www.avantiamfo.com/post/economic-outlook-for-the-u-s-in-2024-analyzing-landing-scenarios https://russellinvestments.com/us/global-market-outlook

Introduction: Wealth Transfer and Estate Planning Challenges As our clients’ wealth grows, we look to bring effective planning techniques to their attention.  One such area of planning is around gift taxes. When clients have amassed a significant amount of wealth that will cover their future needs and goals and also puts them in a position where their estate might be subjected to taxes, they may start considering techniques that can help them transfer their wealth to the next generation in a more tax-efficient manner. One such technique is a Grantor Retained Annuity Trust (GRAT).   What is a GRAT?   A Grantor Retained Annuity Trust (GRAT) is a planning tool that may transfer substantially appreciating assets to family members and pay little to no gift tax. GRATs are an advanced planning tool requiring the family office to work closely with the client’s estate and tax advisors to create, implement, and manage.   Why should a client consider a GRAT?   Clients who face a large estate tax liability may use a GRAT to lock in the value of all or a portion of an asset that is expected to significantly appreciated.  For example, if a client owns an asset worth $1,000,000 as of September 2021 which the client expects to appreciate at 8.0% annually for the next two years, the client can transfer nearly all the appreciation to their children or family members nearly tax-free.   How is a GRAT created?   With the guidance of a qualified attorney, the client will establish an irrevocable trust that will exist for a certain period, often two years.  The individual establishing the trust, the grantor, pays a tax on the value of the gift when the trust is established.  As we will see, this tax is very low given how the value of the gift is calculated for tax purposes.  The assets are placed into the trust and the trust pays an annuity to the grantor every year.  The present value of the annuity is roughly equal to the value of the assets transferred into the GRAT.    Exhibit 1:   In Exhibit 1 above, we are contributing an asset with a value of $1,000,000 to the GRAT.  As of the funding of the GRAT, the §7520 rate is 1.00% and the IRS annuity factor from IRS Publication 1457 Table B is 1.9704.   Given these factors, we see that the client contributes the asset and receives an annuity payment each year of $500,000.00 for the two-year term of this GRAT. In this scenario, the client will be deemed to have retained $985,200.00 of the asset they contributed at the start and passed $126,400.00 to the beneficiaries of which $111,600.00 is tax-free and $14,800 is subject to gift tax.   In Exhibit 2 below, we see that by allowing the annuity payments to increase overtime at the maximum amount allowed (20%) we can further optimize the amount transferred from $126,400.00 to $130,036.36.  This is because more of the asset remains in the trust and is subject to annual appreciation.  The reader should note that the value of the gift is the same in both examples.  This is because the gift amount is calculated at the funding of the GRAT, not at the end.    Exhibit 2:   However, as we can see in Exhibit 3 there is more that we can do on the planning front in this technique.  Given that a client would generally want to pay less tax, we can further reduce the tax by increasing the retained annuity. In this example, we add an excess annuity amount of $7,500.  This reduces the value of the gift to just $22.00 and the tax to just $8.80!  Not bad when one considers that this has allowed a total transfer of $114,436.36 to the next generation.    Exhibit 3:    We chose an asset with an assumed annual appreciation rate of 8% in each of the above examples.  However, let us consider one final example, exhibit 4 below.  If we consider funding a GRAT with an asset that we believe will have very high appreciation, we can see the power of this tool. If a client had contributed a diversified pool of US small-value stocks in March of 2020, at the market low, as of August 2021 those securities would have been up 129.6%.  It is worth also noting that the §7520 rate in March of 2020 was 1.80% which changes our IRS Annuity Factor to 1.9473 and would cause us to consider a different excess annuity amount, in this case, $13,531. We can see now that the potential transfer to the beneficiaries is an incredible $3,657,805.09!!     Exhibit 4:                Conclusion As with any planning technique, a grantor-retained annuity trust is unique to the specific facts and circumstances of the client.   The family office needs to work closely with the client’s estate and tax advisors to bring relevant techniques to light for the client and to properly construct, implement, and manage the overall financial structure for the client. Post Disclosures

Why Concentrated Stock Positions Create Risk for Ultra‑Affluent Families Concentration risk in single equities is a common puzzle for ultra-affluent families. For this discussion, we define this as a single appreciated position of more than $500,000 that would result in a capital gain of more than 100% on the holder's initial investment and a substantial tax bill if they sold the position. This concentration risk exposes the family to various risks, such as a loss of wealth if the stock were to decline in value or a loss of income if the company were to stop paying a dividend. Employees of these companies face additional risks, such as the loss of both medical benefits and earned income if they were to be let go from the company during a financial hardship for the company. Moreover, if the individual were to sell the position, they could potentially realize a capital gain tax of as high as 23.8% on the gain, creating a substantial barrier to diversifying their risk and realizing the benefits of this investment. Furthermore, if the holder is still employed by the company, they can have requirements to continue to hold or increase their position in the company stock to attain higher executive roles, or the company culture may be one in which ownership of the stock is a point of both pride and commitment to the cause. As a result, holders of a concentrated stock position often feel stuck and unable to sell. Fortunately, a solution exists. By following a simple framework, a holder of a concentrated position can find a solution that meets their unique circumstances. Professionals use the acronym H.O.P.E.S to describe this framework. Hold The first obvious option is to hold the stock. This might make sense if the holder has a requirement to hold the stock as a function of their current or next potential role in the company. This is often the case for leaders in an organization. If holding is the right option then it may be important that the rest of the financial structure be aware of this risk and adjust accordingly. Some considerations in this area may include diversifying their portfolio away from the single stock position and ensuring their current spending level does not depend upon on the stock position. Options* Options contracts can give the holder of a concentrated position a number of valuable tools. Protective Puts - Protective Puts provide downside protection but are akin to buying insurance. This strategy can be effective at mitigating downside risk but will be a drag on performance over time and the investor will need to pay cash for the cost of the Put Option. This can be an effective strategy if the underlying stock declines in value or to ensure against a "margin call" if the stock is pledged to a loan. Collars - A collar involves simultaneously buying a protective put and selling a covered call. This strategy limits both upside and downside risk. The put provides downside protection, while the call generates income but caps potential gains. This strategy can potentially be structured as a "cashless collar" such that the premium received from the sale of call options is used to buy protective put options. Put Writing - A client can use the single stock position as collateral for an index options overlay in which put options on a broad index are sold to generate income. This will provide some diversification benefits and if index options are used, can have favorable tax treatment over equity options. The income generated can be used to fund investments elsewhere in the portfolio. It is common to contribute the cash to a direct indexing account that does not own the single stock position and to use this account to harvest tax losses to mitigate taxable gains elsewhere in the portfolio. An additional risk to put writing is that if the stock goes down, so does the value of the put option. Call Writing - For clients that are either comfortable or desire to exit a position, call writing can be an alternative to put writing. o generate income with limited upside participation. Philanthropy If the holder of a concentrated stock position is charitable, then giving long-term appreciated securities maybe a valuable decision. From a tax perspective, it may make the most sense to give highly appreciated positions to charity, in lieu of cash. Instead of making a cash gift, the holder of appreciated stock informs the charity that they wish to make a gift of securities. They then connect their financial advisor and the charity so that the advisor can send securities directly to the brokerage account of charity. By giving stock with a low tax basis, the donor is effectively giving away their future tax bill to the charity, however, the as a non-profit, charity is not subject to capital gains tax and therefore the donor may receive a tax deduction for the fair market value of the gift, meet their philanthropic objective of supporting the charity, and both the donor and the charity avoid a future recognition of capital gain! Exchange Fund* For clients that are qualified purchasers and have a highly appreciated concentrated stock position that are seeking tax efficient diversification, an exchange fund may be a creative alternative. An exchange fund and an exchange traded fund are not the same thing. An exchange fund, sometimes called a swap fund, is an illiquid fund in which investors contribute appreciated securities in exchange for a diversified pool of securities. This allows investors to defer capital gains and receive a more diversified portfolio. In this case the investor has the same tax basis as they did when securities were contributed, but now their investment is spread across a larger number of securities. Exchange funds are only available to qualified purchasers and have a 7-year lock up period to satisfy the tax deferral requirements. Sell According to Goldman Sachs, in a 20 year period, about 1400 of the 3000 stocks in the Russell 3000 index will experience a 75% loss of value and never regain more than 50% of that loss. Concentrated stock clearly presents a unique set of risks to the wealth of investors. If the above options are not viable solutions, the last resort may be the best alternative. By selling the position down to below 10% of the investor's net worth, this risk can be significantly mitigated. There are a multitude of considerations, depending on the size of the position. For example: Market Impact: Selling a large position could potentially influence the market price of the stock, especially if the stock is thinly traded. If your position is larger than the average daily trading volume, selling your entire position at once could overwhelm the market and depress the price. A seller would generally not want to sell more than 3-4% of the average daily volume of a stock. Regulatory Restrictions: If you’re an executive or large shareholder, there may be insider trading rules and regulations that restrict when and how you can sell your shares. Tax Implications: Selling a large position, especially if it has appreciated significantly, could result in a substantial tax liability. It’s important to understand the tax implications and potentially work with a tax advisor. An investor may consider selling over multiple tax years. Emotional Considerations: If you have a strong emotional attachment to the stock, such as if you’re the founder of the company or if the stock has significantly increased your net worth over the years, you might find it difficult to sell . Market Conditions: The overall condition of the market can impact the best strategy for selling a large position. In a volatile market, for example, it might be more difficult to sell without impacting the stock price. What is right for you? Remember, it’s always a good idea to consult with a financial advisor when making significant decisions about buying or selling stocks. They can provide personalized advice based on your specific situation and goals. Important notes and disclaimers *Option contracts are a form of derivative. The scope of this article does not fully address the risks involved in option contracts. This not a recommendation. Contact your financial advisor to learn more. *Exchange funds are a form of private equity investment and they are complex. It is important to read the offering memorandum and to fully understand the consequences of withdrawing funds early. Investors should consult with the financial and tax advisors before making an investment.

Washington State Capital Gains Tax: What You Need to Know Washington State is one of the few states in the US that does not have a personal income tax. Instead, it relies mainly on sales, property, and business taxes to fund its public services. However, in 2021, the state legislature passed a new law that imposes a 7% tax on the sale or exchange of long-term capital assets, such as stocks, bonds, and business interests, above a $250,000 annual threshold. This tax, which is effective from January 1, 2022, is expected to affect less than 0.25% of the state’s population and generate about $415 million per year for early-childhood education and school construction. The capital gains tax has been a controversial and contested issue in Washington, as it raises questions about its constitutionality, economic impact, and social justice implications. In this paper, I will examine the arguments for and against the capital gains tax, and analyze its potential effects on the state’s economy, society, and fiscal system. How Washington’s Capital Gains Tax Affects Investors This webcast recording gives an overview of the new Washington State Capital Gains tax which was recently upheld by the Washington State Supreme Court and its implications for taxpayers. Speaker Biographies: Pat Riley, CPA Pat is a Seattle office tax partner with over 30 years of public accounting experience. He focuses on tax planning and compliance services for high-net-worth individuals and their families. His clients have included individuals building their wealth, as well as families with established wealth. Pat has extensive experience helping clients with multinational issues, including the U.S. impacts of being a grantor or beneficiary of a non-U.S. trust, and estate planning where one or both individuals are not U.S. citizens. Prior to joining BDO, Pat was a partner and a Pacific Northwest practice leader for a Big Four firm.

High-Quality Fixed Income – Strongly Overweight duration At its meeting last week, the Federal Reserve did not raise rates as anticipated. Looking ahead, there is a 38% chance that rates may decrease during the March 20th FOMC meeting and a high probability of nearly 95% that they will fall by 1% or more by the September 18th FOMC meeting, as per the CME's FedWatch tool. This indicates that short-term rates are likely to remain the same or decrease in the next six months, making longer-duration assets more appealing and reducing cash yields. Our perspective is that the Fed could be influenced by the "long and variable lags" problem, which is a known issue related to the data they depend on, despite their "data dependence" policy. High Yield Fixed Income – Overweight credit Default rates have risen to 2.88% in December, but are still below the long-run average of 3.54%. We do not expect defaults to rise much in the near term. beyond the long-run average since most companies refinanced their debt to long-term low rates and have limited debt maturities in the next year. It makes sense then that spreads  are tight at 3.56%. Credit Spread Also, delinquency rates , which are seen as a leading indicator of defaults, have risen over the past several quarters but remain very low at 1.32%. We should receive an update to this data in mid-February. We remain overweight given the mix of low default risk, higher yield, and low delinquency rates. Delinquency Rates US Equities – Underweight, tilt toward small cap and value Last week, US stocks gained 2.6% on their march to record highs, driven by strong economic data, such as S&P PMI and Q4 GDP. However, the S&P 500 P/E ratio of 25.6 is above the historical average, implying a high valuation. Source: J.P. Morgan Guide to the Markets Next week may continue to be volatile due to the Fed decision last week, the jobs report, and mega-cap earnings. International Developed Equities – Overweight, tilt toward Japan The European stock market, as measured by the MSCI Europe Index, had a negative return of about -1.8% in local currency terms, and about -3.2% in dollar terms in January 2024. The market faced some headwinds from the ongoing war in Eastern Europe, the rising inflation, and the tightening monetary policy by the European Central Bank. However, some sectors, such as financials, utilities, and consumer staples, outperformed the broader market, as they benefited from higher interest rates, stable demand, and dividend yields. Some analysts are cautiously optimistic about the European market for the rest of 2024, expecting some reforms and opportunities. The P/E ratio for the MSCI ACWI ex-US index is 12.9x as of December 31st compared to its 20-year average of 13.1x. This represents a 33.7% discount to the S&P 500 after one corrects for the natural discount of the MSCI ACWI Ex-US to the S&P500.  The Japanese stock market, as measured by the TOPIX index, had a positive return of about 4.5% in local currency terms, and about 2.8% in dollar terms in January 2024. The market was boosted by solid global economic growth, strong demand for high-tech products, and improved corporate earnings and governance. However, the market also faced some challenges, such as rising interest rates, geopolitical risks, and a possible shift in monetary policy by the Bank of Japan. We are bullish on the Japanese stock market for the rest of 2024. Japan appears to be poised to outperform in the years ahead as their P/E is historically low and the government is enacting policies that are likely to raise the profitability of companies. We also believe the US dollar  will continue to fall and provide a positive tailwind for non-dollar assets. Emerging Markets (EM) – Neutral, underweight China, overweight Korea, Mexico, India Emerging market stocks, as measured by the MSCI Emerging Markets Index, had a positive return of about 7.9% in local currency terms, and about 6.4% in dollar terms in January 2024. The market was supported by the guidance from the Fed that interest rates may begin to decline in 2024, the recovery in earnings growth, and the signs of a bottoming in China’s economic growth. However, the market also faced some challenges, such as geopolitical tensions, rising inflation, and slowing global growth. The Mexican stock market, as measured by the S&P/BMV IPC index, had a positive return of about 11% in local currency terms, and about 9.2% in dollar terms in January 2024. The market was supported by faster economic growth, nearshoring activity, and solid corporate earnings. Post Disclosures