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September 15, 2007

Synergy Financial Group

George Van Dyke The Full Spectrum of Wealth Management
401 Washington Ave #703
Towson, MD 21204 Perhaps you're fortunate enough to be consid- be allocated appropriately? Are your assets
410-825-3200 ered wealthy--maybe even very wealthy. If so, structured in the best possible way to mini-
410-530-2500 (cell) you know that wealth alone doesn't fulfill all mize taxes, not only as you accumulate them, your dreams; in fact, it may create a few chal- but also as you distribute them during your
lenges of its own. Where can you turn for ad- lifetime and after your death? And what would
vice tailored to your level of wealth? The an- happen to your plan if you were to fall ill, be-
swer may be wealth management. come disabled, need long-term medical care,
or die?
What is wealth management?
A wealth manager may recommend
Wealth management offers an indi- adjustments to your investment portfo-
vidually customized array of sophisti- lio as the financial weather changes,
cated financial planning services to structure tax-advantaged investment
high-net-worth clients. These ser- vehicles most congruent with your
vices may include banking, invest- goals and timetable, and suggest life,
ment portfolio management, asset health, disability, and long-term care
and trust management, legal ser- insurance products appropriate for
vices, taxation advice, protection your situation.
planning, and estate planning. Ser-
vices may be provided by a team of profes- Deciding what to take when
sionals under one roof; alternatively, a wealth
manager may coordinate the efforts of a cus- In most cases, you'll have accumulated your
tomized network of professionals who special- wealth to provide (at least in part) for your own
ize in the areas relating to your needs. retirement needs. But what will your needs
be? Wealth managers help you assess your
Wealth managers work with you to articulate anticipated retirement lifestyle and its cost, the
and understand the hopes, dreams, and goals assets you'll have to meet that cost, and the
you really want to fulfill with your wealth, then best ways to "cash in" those assets--
craft solutions to help. These plans focus not everything from when to start collecting your
only on accumulating wealth, but also on pro- pension payments to how much and in what
tecting and distributing it, both during your order to draw against your investments.
lifetime and after your death.
In this issue: Leaving a legacy
Managing what you have
The Full Spectrum of Wealth Perhaps you want to help your heirs get a "leg
Management You've already been successful at accumulat- up" in life, or maybe you want to engage in
The Power of a Dynasty Trust ing wealth; now you need to optimize the de- philanthropy, or both. Wealth managers can
gree that your dollars work for you. Wealth help you explore what's most important to you
Putting Working Capital to managers may ask probing questions to help when it comes to leaving a legacy, and can
Work paint a picture of your fundamental desires, devise strategies (e.g., trusts, beneficiary des-
Ask the Experts and then recommend investment vehicles, ignations, and leveraging transfer tax allow-
asset allocations, and even borrowing strate- ances and gift tax exclusions) to help you
gies designed to help you most effectively make your dreams a reality.
obtain all you'll need to fulfill those dreams at
a level of risk you're comfortable with. Don't just dream about what you want--reach
for it. A wealth management team can help
Minimizing your risk you find creative solutions to fit all your
financial needs.
As you accumulate your wealth, you'll need to
have measures in place to protect it. What if
the market changes--will your investments still
Page 2

The Power of a Dynasty Trust

Early in the twentieth century, the United access to the trust as much as possible, you
States began taxing wealth transfers under can name an independent trustee who has
Why was the the gift and estate tax system. This system sole discretion over distributions coupled with
dynasty trust was designed to impose tax on each and a spendthrift provision. The trustee will have
created? every generation (father to son, son to grand- full authority to distribute or not distribute in-
son, etc.). The very rich soon began to thwart come or principal to the beneficiary as the
The dynasty trust this system by transferring wealth directly to trustee deems appropriate. The spendthrift
came into being in grandchildren, thus skipping a level of taxa- provision will prevent the beneficiary from
the early twentieth tion. Congress eventually caught on to this voluntarily or involuntarily transferring his or
century. During this strategy and responded with the generation- her interest to another before actually receiv-
time, the great skipping transfer tax (GSTT). GSTT is an ad- ing a distribution. The greater the restrictions,
industrialists, such ditional tax that's imposed whenever transfers the less likely creditors or other claimants will
as Rockefeller, are made to persons who are more than one be able to reach trust property.
Carnegie, and Ford, generation below the taxpayer (e.g., grandfa-
who had amassed ther to grandson). GSTT is a flat tax imposed
enormous fortunes, at the highest gift and estate tax rate in effect
sought a way to at the time of the transfer (45% in 2007).
preserve their
wealth and keep it Furthermore, most states impose their own
in their families. transfer taxes. Together, these taxes can take
an enormous bite whenever substantial
wealth is being handed down, and over time
they can erode a family's fortune. This can be
troublesome to individuals who would prefer
to have their legacies benefit their own family
members. It's from these circumstances that
the dynasty trust evolved.
How does a dynasty trust work?
The law allows generation-skipping transfers
to go untaxed up to a certain amount by pro-
viding a lifetime exemption (currently $2 mil-
Income taxation of lion per taxpayer, or $4 million per married
trust income couple). Typically, a dynasty trust is funded
Federal and state with amounts that take full advantage of the
income taxes may GSTT tax exemption. The trust then provides
be owed on income for future generations for as long as it exists.
generated inside Although the trust assets effectively move
the trust. from generation to generation, there are no
Depending on how corresponding transfer tax consequences. How long can a dynasty trust last?
the trust is To enjoy this tax benefit, access to trust prop- A dynasty trust can last as long as state law
structured, the erty by the beneficiaries must be limited. You allows. In states that still have a "rule against
grantor, the can decide how narrow or broad a benefici- perpetuities," the life of a trust is limited to 21
beneficiaries, or the ary's access will be within those limits. For years after the death of the last beneficiary to
trust entity may be example, if you wish to give a beneficiary as die (which conceivably could be 100 or more
liable for the taxes. much control as possible, you can name the years). Trusts in the states that have abol-
beneficiary as trustee, and give the benefici- ished their rules against perpetuities can, in
ary the right to all income and the right to con- theory, last forever.
sume principal limited by "ascertainable stan-
The bottom line
dards" (i.e., health, education, maintenance
and support). The beneficiary can be given A dynasty trust can meet the objectives of
even more control by granting a special (or high-net-worth individuals concerned about
limited) testamentary power of appointment intergenerational planning.
(i.e., the power to name successive
beneficiaries). A dynasty trust is not a do-it-yourself project.
See an experienced estate planning attorney
On the other hand, if you want to restrict for more information.
Page 3

Putting Working Capital to Work

Every business owner knows it's important to account--often a money market account or
keep some cash available to pay bills. But mutual fund, though you may also be able to
assuring adequate cash flow doesn't mean choose from a range of investments. Invest-
your assets can't do more for you. For exam- ments are automatically liquidated as neces-
ple, if you have an infusion of cash that you sary and the proceeds moved into the check-
don't expect to spend immediately, you don't ing account to cover outstanding payments
have to let it sit idle. It may make sense to and maintain the target balance, which in
explore alternatives for putting at least some some cases may be as low as zero.
of that money to work. Managing your working
capital wisely can help improve your busi- A sweep account also may be linked to a line
ness's overall performance. of credit, enabling you to set a zero target
balance for one or more checking accounts
Determine your time frame and borrow to cover checks. Deposits are
then automatically used to pay down the line
Before you think about increasing returns on of credit and minimize interest charges.
any excess cash, you need to make sure
you've adequately forecasted upcoming If you have a longer time horizon ...
needs. What looks like excess now could be
needed if your cash flow projection is faulty or If you're confident you won't need the money
an emergency arises. for at least several months--for example, if
you're raising capital for a future expansion or
Is your cash flow relatively steady? Does it equipment purchase--you could explore buy-
change dramatically from season to season? ing a certificate of deposit (CD) with a term
Vary from month to month, or year to year? All that matches your time frame. You get a guar-
No interest in
of these factors will influence whether and anteed interest rate, FDIC insurance up to
how you should put working capital to work. $100,000, and return of your principal when business checking
you need it. Or put some money into a short- Since the Depression,
For money that's likely to be used at any mo- term CD and the rest into a longer-term in-
ment, your major objective is to preserve both banks have not been
vestment with a higher yield. If an emergency allowed to offer interest
capital and liquidity. For money that isn't requires use of the money, you might forfeit
needed immediately--for example, money you directly on a small
interest on only part of the assets. business's checking
plan to use eventually to grow the business or
pay off existing debts--you may have addi- You also could explore short-term Treasury account unless you are
tional flexibility to try to increase the return on bills, which can be bought in $1,000 multiples a sole proprietor,
that money until it's needed. and whose terms range from a few days to six nonprofit organization,
months. T-bills are bought at a discount to or governmental entity.
For money you'll use soon ... their face value; when they mature, you re- The original intent was
A money market savings account, especially ceive the difference between the purchase to provide stability to
one linked to your checking account, is a rela- price and the face value as interest. Treasury the banking system and
tively straightforward option, and one you may notes are available in 2-, 5-, and 10-year de- to prevent interest rates
already be using. You may be able to com- nominations. CDs and T-bills can be rolled from becoming
bine your checking and savings balances to over if they mature before you need the cash. exorbitant because of
meet any minimum balance requirements and competition among
A short-term bond fund might offer a higher banks for business
avoid monthly fees. A savings account's yield yield; however, it will not be FDIC-insured.
will depend in part on how actively a bank is deposits. Sweep
Also, share prices of the fund may go down as accounts and savings
courting deposits, so it can pay to compari- a result of interest rate increases, and you
son-shop. Also, check on how many transac- accounts linked to
could lose principal. Companies in a high tax checking accounts
tions are allowed each month. bracket or with frequent large cash balances have functioned as
If you're a sole proprietor or run a nonprofit might consider tax-exempt bonds or even a substitutes.
organization, you may be able to find an inter- custom-tailored money management solution.
est-bearing checking account. Otherwise, a If you're a sole proprietor, you have more free-
sweep account combines a checking account dom to invest the money as you might in a
with an investment account that pays interest. personal account--for example, by having an
With a sweep account, you set a target bal- investment account with a specific goal, such
ance for the checking account. Once transac- as retirement or purchasing office space.
tions have been posted each day, the account
automatically sweeps any cash above that A financial professional can help you review
target amount into the income-producing the many possibilities for putting cash to work.
Ask the Experts

Two-career couples--who should retire first?

You and your spouse are continuing to work would impact your
both employed and nearing Social Security benefits.
retirement age. Even if
you've accumulated enough • Insurance: Are either of you eligible for
assets to allow you both to retiree health insurance? If so, are you
retire at the same time, however, you might required to work to a certain age to get
not want to do so. The transition into retire- that important coverage?
Synergy Financial Group ment can often be difficult, and doubly so if
George Van Dyke • Plans: Does one of you have specific
you're both struggling through that phase si- plans for your retirement years? Perhaps
401 Washington Ave #703
Towson, MD 21204 multaneously. So, who should retire first? you'd like to concentrate on a hobby, or
410-825-3200 If one spouse is earning significantly more spend time volunteering, or even learn a
410-530-2500 (cell) new skill? If so, consider whether that than the other, then it usually makes sense for that spouse to continue to work in order to person should retire first in order to pur-
maximize current income, ease the financial sue those goals.
George Van Dyke is a Financial transition into retirement, and perhaps even • Job satisfaction: Does one of you find
Consultant with Synergy Financial increase your retirement nest egg. working more self-fulfilling than the other?
Group of Towson Maryland. Securities
offered through Linsco Private Ledger Would one of you feel more lost without
But what if your incomes are relatively equal?
(LPL) - Member NASD, SIPC. LPL your current routine?
does not provide legal or tax advice. Here are some other factors to consider:
The information contained in this
report should be used for informational One thing is clear--you'll need to discuss this
purposes only. • Pensions: If only one of you is covered by with your spouse, preferably well ahead of
an employer pension plan, it may make time.
Synergy's mission is to build, preserve
and protect the capitol of our clients by sense for that person to continue to work
offering a comprehensive and if he or she hasn't yet maximized that
professional level of advisory and
planning services as well as providing pension benefit. Similarly, consider how
exceptional customer service. Our
investment objective is to provide
serious investors with a very
acceptable after tax (where
applicable) total return over a long Are online retirement planning calculators useful?
term horizon. In order to achieve our
client's goals, we recommend
investing in a diversified portfolio of The answer is an unqualified "maybe." Online expectancy tables, it could significantly
high quality securities spread over retirement calculators are designed to help understate the amount of retirement as-
multiple asset classes. We place
emphasis on creating tax efficient you determine whether or not you've saved sets you'll need.
portfolios and managing risk. Through enough for retirement, and if not, how much
modern asset allocation techniques,
you'll need to save each year in order to elimi- • Can you input your own expected rates of
portfolios are assembled to match
each investor's individual investment nate the shortfall. return? Does the calculator take inflation
goals and risk tolerance. We believe into account? At what rate?
that strict adherence to a disciplined But the output of a retirement calculator is
approach increases the likelihood of
generating consistent returns and only as good as the data that goes in, and it's • Can you specify your anticipated ex-
limits the risk of significant loss. here that the various online calculators differ penses during retirement?
greatly. Some ask you only a few simple • Are amounts you've already saved taken
questions, and base their results on a large into account?
number of assumptions. These are easy to
use, but the results can be suspect. Other, • Can you input your expected income dur-
more sophisticated, calculators require more ing retirement (for example, from a part-
effort on your part, but may (or may not) come time job, Social Security, a retirement
up with more meaningful results. plan, or an annuity contract)?
In many cases, online calculators fall short All retirement calculators, sophisticated or not,
because you can't override their built-in as- have one good trait in common--they get you
sumptions, even though they clearly don't thinking about your retirement. But in most
apply to you. Some specific items to consider: cases, the results should be considered a
Copyright 2007 Forefield Inc. ballpark estimate, and a starting point for a
All Rights Reserved. • Can you insert your own life expectancy? more detailed discussion with a seasoned
If a calculator is using standard life financial professional.