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Mid-Quarter Newsletter – June 2021

 

Hear Our Story Video

We’ve been busy capturing some exciting video content these last few months as we prepare to launch a new look on our website. As a firm, we wanted to create a video to give our clients and our community the opportunity to learn more about us: how we began, why we believe in investing in alternatives, how we define our mission of “empowering better investors,” what we think sets us apart as a company, and what our vision is for the future of Morton Capital.

We hope you enjoy this behind-the-scenes look into our company. Click below to meet our leadership team and hear our story.

Watch the video here.

 

Why Is Everyone Talking About Inflation?

Inflation has been a hot topic over the last couple of months. Core consumer prices, which are how much you pay for typical goods and services (excluding much more variable food and energy prices), rose 0.9% last month, the biggest monthly gain since April 1982. The combination of higher labor and material costs is leading to a larger pickup in inflation at a time when governmental policies are supporting faster economic growth. The Federal Reserve has told investors that it will continue to support the economy, with the goal of achieving full employment, so it’s willing to let inflation run “hotter” than before. The question is whether or not these factors will lead to a short-term but temporary bump in inflation or a sustained and problematic increase.

There are several global trends that are helping make the case for higher sustained inflation going forward. For years, globalization had been a force keeping inflationary pressures in check, as manufacturing and consumer goods production moved to emerging economies with cheaper labor. This trend appears to be reversing and many countries, including the U.S., are looking to bring manufacturing jobs back home. Another important global trend supporting inflation is the push toward decarbonization to offset the damage and danger of climate change. Demand for renewable sources of energy will continue to push up prices on base materials like silver, copper, nickel and lithium, as these are essential components to implementing these technologies. A third, and perhaps more important, factor has been the explosion in global debt following the COVID-19 pandemic. The ratio of global debt to gross domestic product (the total value of goods and services in an entire year!) rose to 356% in 2020, up 35% from 2019. For perspective, this ratio only rose 10% in 2008 following the Global Financial Crisis. Given this huge amount of debt, policies have to support higher inflation so that debt burdens can be paid back in future years with cheaper dollars.

As fiduciaries, we must be aware of the risk of higher inflation and its resulting erosion of purchasing power in our clients’ portfolios. We’ve been concerned about increasing inflation for many years now, and have consequently built certain positions into the portfolio that we believe can act as hedges against the depreciation of fiat currencies, which don’t have intrinsic value on their own. For example, our positions in gold and mining companies, as well as our focus on real assets (real estate equity and lending strategies backed by real assets), we believe will remain resilient and maintain their true value in an inflationary environment. In the face of rising inflation pressures and expectations, we’ll continue to monitor the overall landscape and incorporate additional real assets and inflation hedges as we see fit

 

DISCLOSURES
Information presented herein is for educational purposes only. It should not be taken as a recommendation, offer or solicitation to buy or sell any security or asset class, and should not be considered investment advice. Certain investment opportunities discussed herein may only be available to eligible clients and are presented for illustrative purposes only. Past performance is not indicative of future results. All investments involve risk including the loss of principal.

 

What to Expect from an In-Depth Financial Plan

 Here at Morton, creating a financial plan is one of the key steps to our clients getting the most life out of their wealth. But what does creating a financial plan look like for you, our clients? Contrary to what you might think, a financial plan is not something that your advisory team does for you; it’s something that you and your advisory team do together.

Your advisory team will work behind the scenes with Morton’s financial planning team to craft your plan, but it’s only with your participation in the process that we can create a plan that will serve as a road map for your financial success. There are a lot of strategies in financial planning that can help solve issues, but the more information you give us about your financial life, the better we can determine which of those planning strategies are right for you. After all, if you buy a sweater in the wrong size—no matter how beautiful—you won’t be able to wear it. If, however, you spend the time upfront taking your measurements, you’ll end up with a sweater that actually fits you. In financial planning, just like in life, one size does not fit all.
That’s why, over the course of the next several weeks, we’ll be publishing a series of posts on the various components of an in-depth financial plan: cash flow, retirement, insurance, investments, tax, and estate. Our goal is to educate you on what to expect in the financial planning process so that you can fully partner with us: what topics we’ll bring up, what documents we’ll ask for, and why all of this is important to create a full picture of your financial situation.

We believe that committing to doing a financial plan is committing to investing in yourself. The success of your plan is directly impacted by how much time and effort you want to invest in the process. If you make the commitment, we can help empower you to make informed decisions so that you’re in control of your wealth and success, whatever that means for you. Might that be a lofty goal? Yes. Is it worth it so that you can sleep at night and achieve what you want in life? Absolutely. You may still be able to make an ill-fitting sweater work, but don’t you deserve a sweater that fits you just right? Here at Morton, we think so too.

 

DISCLOSURES
Presented for informational purposes only. You should seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your financial plan.

 

New Podcast: The Ripcord Moment

Our Senior Vice President and Wealth Advisor, Joe Seetoo, recently kicked off his passion project called The Ripcord Moment, a podcast dedicated to empowering business owners through the exit planning process. Each episode of the podcast focuses on the experiences of business owners and their team of advisors who have made the jump and successfully handed off their business to the next generation, existing partners or strategic buyers.

Subscribe to the podcast and listen to the latest episodes of The Ripcord Moment by clicking below.

Also available to listen on Apple and Spotify
Listen to The Ripcord Moment Podcast here

 

Welcome, Brian and Sherry

Brian Mann
Wealth Advisor

What does wealth mean to you?
“Get the most life out of your wealth” have been words to live and work by at Morton Capital for years. Notice how the word “life” comes before the word “wealth”? That’s intentional. I don’t think my definition of wealth has changed over the years—it’s still very much associated with accumulating money. What has changed, however, is that my wife and children have completely transformed and refocused my purpose behind actually building wealth. Now, wealth to me feels much more like a means to an end, the “end” being a life spent using the money I earn on the people and experiences that produce lasting and meaningful memories. I want to continue to go on dates with my wife. I want my children to experience the world. And I want the time and freedom to enjoy the little things along the way. THAT’s my wealthy life.

What inspires you about the work you do at MC?
I’m inspired by the prospect of doing well by doing good and by helping clients uncover what values guide their lives (and investing accordingly). I started my career working at Human Rights First in Washington, D.C., advocating for and defending the rights of immigrants and refugees, so doing good is incredibly important to me. On a daily basis, I have the privilege of speaking with my clients about sustainable and values-based investing, and I’m able to design financial plans and portfolios that allow them to speak with their dollars. At Morton Capital, we’ve been deeply involved in our local communities and charities and offering investments in socially conscious funds for years. True to our mission and investment philosophy, I’m proud that we consistently seek knowledge and resources that allow our clients to pursue these investments at our firm.

What’s a fun fact that most people may not know about you?
I learned to scuba dive in the Philippines but am still terrified of any large marine animals.

 

Sherry Uchuion
Compliance Administrator

What does wealth mean to you?
Wealth is often defined in terms of possessions and the abundance of quantifiable things, but what if we were to consider the unmeasurable aspects of our lives the most precious? To me, wealth has always been about those moments in between: the slow mornings with your family making breakfast, taking the day to be outside with your friends, or having the ability to be present for your partner in times of celebration and times of despair. I have always defined my wealth by how I spend my time, because unlike any other currency, time is one that cannot simply be replaced.

What inspires you about the work you do at MC?
I’m inspired daily by the entire team at MC. The best part of what I do here is providing support so that my coworkers feel confident that they’re delivering the best possible service to our clients.

What’s a fun fact that most people may not know about you?
I was a piano teacher for almost 10 years and I taught students from the age of three years old all the way up to adulthood.

MC Stories – Eliminating Capital Gain Tax on the Sale of an Appreciated Asset Through the Use of a Charitable Tax-Exempt Trust

For many investors, a barrier to diversifying their portfolio is the impact of losing 25% of their profits if they sell a highly appreciated asset. If you are charitably inclined, that barrier can be eliminated by using a tax-exempt trust, as outlined by the following example:

Let’s assume you have a highly appreciated asset (perhaps stock or real estate) that you paid $200,000 for, and that has a market value of $1,200,000. Your capital gain would be $1,000,000. If you sold that asset, you’d only have about $950,000 to reinvest after paying 25% of your gain in taxes (approximately $250,000). By using a tax-exempt trust you would have the full $1,200,000 to reinvest.

    Here’s how it works:

  1. You establish this trust prior to selling the asset. The terms and provisions of the trust are established at its inception. Prior to selling the asset, you transfer the asset to the trust. You and your spouse (if married) become income beneficiaries for your lifetimes to the trust. The IRS sets a range of “approved interest rates”; let’s say 5% per year.  So, in year 1, the trust will distribute an income to you of $60,000 ( 5% of $1,200K). If the trust earns a return of greater than 5%, your income the next year will go up. But the big advantage is that you have $1,200,000  to invest, rather than the $950,000. Additionally, you can be your own trustee, so that the investment decisions and control of the assets are retained.
  2. Why does this trust qualify to be tax-exempt? Primarily there are 2 reasons:
    1. The trust is irrevocable, so once established, it cannot be modified.
    2. A t the death of the last income beneficiary, the remaining balance of the trust is paid to a 501c3 charitable organization (the legal name of this trust is a Charitable Remainder Trust). An additional benefit is that upon transferring the asset(s) to the trust, you receive an immediate charitable income tax deduction for the “present value of the future interest” of the “gift”. Depending on the age(s) of the income beneficiary and the established interest rate, the deduction can be in the range of 25% of the gift. So, in this example, instead of paying $250K in capital gain taxes immediately, you’ll SAVE $100K in income taxes as a result of the charitable deduction.

   The main disadvantages of this arrangement are:

  1. Lack of liquidity. You do not have access to principal; only the income that the trust distributes. If you are dependent on the principal from the sale proceeds for your lifetime/retirement, this may not be the best strategy for your cash needs.
  2. At the death of the last income beneficiary, the money is not retained by your heirs. That “negative” can perhaps be eliminated through the use of a life insurance policy (the premium will be substantially less than the capital gains taxes you, otherwise would have paid). However, for those investors where this trust makes sense, this technique allows them to fulfill their charitable wishes, and normally, this is only a “piece of their estate” so the balance of their net worth will be distributed to their chosen heirs.
  3. While the earnings and gains in the trust are tax-exempt, the income that is distributed from the trust to the income beneficiaries is generally taxed.

The above is only meant to be a concise summary of this strategy. You should consult your financial advisor, tax professional or attorney to obtain more information. Tax rates used in this article are for illustrative purposes only and may not apply to your unique situation.

 


Disclosures:

This information is presented for educational purposes only, is hypothetical in nature and does not represent actual clients. The information presented is not written or intended as financial, tax or legal advice, and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. Use of this information is not a substitute for legal counsel, and Morton Capital makes no warranties with regard to information contained herein. You are encouraged to seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your taxes or estate plan.