Broker Check

The RFG Weekly Wealth Report

August 31, 2020

The Week on Wall Street

Stocks advanced relentlessly last week on positive COVID-19 developments, encouraging economic data, and a supportive policy shift in the Fed’s approach to its target inflation rate.


National Preparedness Month (NPM) is recognized each September to promote family and community disaster planning. The Federal Emergency Management Agency established the first national holiday in September 2004 to help support citizens and communities be better prepared for emergencies.


The Dow Jones Industrial Average increased by 2.59%, while the S&P 500 jumped 3.26%. The Nasdaq Composite index leaped 3.39% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.19%.

Stocks Power Higher

Investors pushed stock prices higher all week as hopeful news came with each new day, from the announcement of a potential treatment for COVID-19 to news that U.S. and China negotiators had met by video conference. Despite another high new jobless claims number, other economic data released during the week indicated a continuing economic recovery, further supporting investor enthusiasm for stocks.

The Fed’s announcement of a shift in its inflation policy, which suggested that rates are likely to remain low for a long time, helped push the market higher. The momentum carried over into Friday, leaving the S&P 500 and NASDAQ Composite at new record highs and the Dow Jones in positive year-to-date territory.

Changes in the Dow Industrials

It was announced last week that the Dow Jones Industrial Average will be undergoing some changes. Starting Monday, August 31,, Amgen, and Honeywell International will be added to the 30 stocks in the Dow Industrials and Exxon Mobil, Pfizer, and Raytheon Technologies will be removed.

In part, these changes were prompted by Dow-component Apple, which plans a four-to-one stock split on Monday, August 31. The Dow Jones Industrial Average is a price-weighted index, and Apple’s split reduces the impact of technology on the index. The new changes are an attempt to mitigate that issue.

Please remember that companies mentioned here are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.


Your Business Deserves an "Estate Plan"

Drafting a succession plan now can help your business stand the test of time.

As a business owner, you've invested so much into making your business successful – hard work, time, money, energy. It's tough to imagine your business without you.

Chances are there will come a day when someone else will take the reins. And a seamless succession plan, one carefully and thoughtfully devised well in advance, is essential to ensuring your business enjoys continued success for generations to come.

Harder than it sounds

According to Nuveen Investments, only 30% of privately held businesses survive into the second generation, and less than 15% survive into the third. However, a well-planned transition strategy can help support the longevity of your business.

In the manner estate planning seeks to protect your loved ones and assure your wishes carry out as you intend, a succession plan does the same for your business if, for any reason, you are no longer there. In short, its purpose is to safeguard your legacy.

A thorough succession plan considers your exit from the business and your retirement needs and personal estate. It provides for an orderly transition of management and the passing of control of the company.

It also avoids the potential pitfalls of your loved ones tasked with making difficult decisions during stressful times, or leaving the future of your business to happenstance. And it's never too early to start thinking ahead. With your professional advisors, consider these questions:

How can you protect your business and benefits to hedge catastrophe and ensure future continuity?

With retirement on the horizon, how can you gracefully exit the business and realize the maximum value for your hard work?

What if something happened to you unexpectedly? Have you created an effective contingency plan that protects your staff and customers?

You may want to groom an heir from within the family, groom someone outside the family, consider an outright sale, or have an expert take over until your chosen heir is old enough or fully prepared. Any of those scenarios would take time to develop.

Succession strategies

The financial implications of business succession can be complicated, however, with the assistance of your financial advisor, you can tap into several strategies to refine your plan. Here are a few examples:

  • Sale to an intentionally defective grantor trust (IDGT) – Don't let the name throw you off. A deal to an IDGT is a sophisticated planning strategy to transfer assets from one generation to another while minimizing income, estate, and gift tax liabilities. Families with closely held businesses structured as partnerships or S corporations may find it particularly helpful as they smooth transfers to your heir without incurring gift or capital gains taxes on the sale and shift the value of the assets out of the grantor's estate.

  • Grantor retained annuity trust (GRAT) – A GRAT can help insulate assets that you expect to appreciate significantly from being overly taxed and create a meaningful difference in net proceeds for business owners contemplating a sale or transfer. Such a technique can transfer wealth with little practical impact on the underlying transaction, yet substantial wealth transfer results.

  • Self-canceling installment note (SCIN) and intra-family loan – When you use a SCIN to finance your business interest, the buyer promises to make payments of portions of the sale price to you for a specified period. If the seller dies before fulfilling the payment requirements, the note becomes eligible for cancelation, and all future payments to the seller or beneficiaries estate will be exonerated or beneficiaries. Selling a business interest to a family member in a lower tax bracket using a SCIN may reduce overall family tax liability.

Putting a plan in place means you and your business are ready for come what may, even in the case of disability or untimely death. But it's not just about being prepared in an emergency. It's about sustainability.

While these can be difficult conversations to have with family members and business associates, they can bring comfort, knowing everyone is on the same page when it comes to your business's future success.

As always, please contact my office with any questions or financial concerns you may have.

Have a great week!