Author: Jeff

The Danger of Planning Too Far Ahead

When I first started drafting estate planning documents in the 1990s, the federal estate tax exemption was only $600,000 per person. Even life insurance death benefits were included in your taxable estate. As a result, many middle-class families needed fairly complicated estate plans just to avoid estate taxes.

Today, the federal estate tax exemption for a married couple is nearly $30 million. That’s a remarkable change in a relatively short period of time — and a reminder that tax laws can change dramatically.

Years ago, I attended an estate tax planning class at Emory University taught by a respected trust and estate law professor. He advocated intentionally paying some estate tax at the death of the first spouse, even though the law allowed families to defer the tax until the second spouse’s death. His math was sophisticated and convincing. The problem? He never anticipated Congress drastically increasing the estate tax exemption. Some families who followed his advice ended up paying estate taxes they ultimately may never have owed.

We saw something similar with the Tax Cuts and Jobs Act of 2017. Because the law was originally scheduled to expire in 2025, many wealthy families rushed to make very large gifts to family members before the exemption potentially dropped. Then the law changed again. With the return of President Donald Trump and the passage of the “One Big Beautiful Bill,” many of those larger exemptions did not expire, but instead became permanent. Some families later realized they may not have needed to move assets so aggressively after all.

The lesson is not that tax planning is unimportant. Taxes matter enormously. The lesson is that predicting what tax laws will look like 10 or 20 years from now is incredibly difficult.

Good planning often means preserving flexibility and keeping your options open — because sometimes the world changes faster than the plan. Whenever you are considering a tax planning technique that’s related to estate or income taxes and the benefits that are touted are many years in the future, make sure you add in a healthy dose of flexibility to the strategy. As the Danish physicist Niels Bohr once said: “Prediction is very difficult, especially if it’s about the future.”

Fun Fact: For those of you who might remember me warning about private equity getting involved in youth sports, local news is reporting that a $3 billion youth sports campus is being planned in Romulus. The proposed development would reportedly span 452 acres and include an 11,000-seat arena, dozens of basketball and volleyball courts, and four hockey rinks. Youth sports are clearly becoming big business for those who can afford it!

When Should You Take Social Security?

Social Security gets talked about a lot these days, especially regarding its long-term viability. My view is that anyone currently in their 50s or 60s is probably very safe from substantial benefit changes. Younger workers may need to take more of a wait-and-see approach.

There is no “one size fits all” answer as to when you should take Social Security. Assuming you have enough work credits, you become eligible for benefits at age 62. However, each person is assigned a “full retirement age” (FRA) by Social Security. For people born in 1960 or later, FRA is age 67. For those born before 1960, it is based on a sliding scale. Those born in 1958 reach FRA at 66 years and 8 months, while those born in 1959 reach FRA at 66 years and 10 months.

There are two main consequences of taking benefits before your FRA: permanently lower benefit levels and potential earnings penalties. The main benefit of delaying Social Security past your FRA is a permanently higher monthly benefit.

As you can see, there are several important moving parts in this decision. The best we can do is make educated guesses about when it makes sense to start taking benefits. Factors such as lifespan and future investment returns can influence the outcome, and both of those are obviously unknown.

Here are some important things to consider:

• Health and longevity matter. People with shorter life expectancies may benefit from taking Social Security earlier in order to maximize lifetime benefits.
• The longer you wait, the higher your benefit. Your monthly benefit increases by roughly 8% per year for every year you delay taking Social Security, up until age 70. For example, someone entitled to $3,000 per month at age 67 would receive approximately $3,720 per month by waiting until age 70. Of course, those who wait until age 70 will only benefit if they live long enough to make up for the delayed payments. For those deciding between taking at age 62 versus waiting until age 70, it’s somewhere around age 80-83 that the decision to delay amounts to a greater total benefit.
• Marital status is important. Couples need to plan together. When the first spouse dies, the surviving spouse generally receives the higher of the two Social Security benefits. Delaying benefits can significantly increase the surviving spouse’s lifetime income.
• Employment matters too. Before full retirement age, benefits are temporarily reduced by one dollar for every two dollars earned above the income limit ($24,480 in 2026). Once you reach full retirement age, work income has no effect, and any prior reductions are gradually repaid through a slightly higher benefit.

The Social Security decision is rarely simple, particularly for married couples. Do your homework, read as much as possible, and make the most informed decision you can about what is truly a remarkable benefit.

Fun Fact: Your Social Security benefit is a major asset in retirement planning. A 67-year-old receiving $2,750 per month in Social Security who lives to age 87 will collect roughly $660,000 in lifetime benefits.

Wind Your Watch in Volatile Markets

I was reading a story last week about a commercial airliner that encountered a massive and unexpected bird strike during its landing approach. As the birds pummeled the airplane and warning lights began flashing, the pilots shifted into emergency mode. It would be easy—almost instinctive—for them to immediately take control and react. But that’s not what they’re trained to do when the unexpected happens.

Instead, they rely on an old aviation idiom: “wind your watch.” The phrase dates back to a time when pilots used manual-wind watches to track fuel, time, and distance. In moments of stress, they were reminded to pause—literally take a second—before acting.

While the watches themselves are no longer necessary, the philosophy still holds. “Winding your watch” is a metaphor for responding with calm and intention. It reminds pilots that they have time to assess the situation, evaluate options, and make measured decisions—avoiding panic and costly mistakes.

Despite all of the angst in the world right now, the stock market continues its slow, steady ascent—much like a plane leaving the runway. But sooner or later, the market will encounter the equivalent of a bird strike. The media will whip things into a frenzy. When that happens, think of yourself as a co-pilot alongside your financial advisor.

Avoid panic. Resist reactive decisions. Stop, assess, and remember—you have time and you are in control.

In most cases, winding your watch is the best first response to market turbulence.

 

Fun Fact: Before his legendary 2009 “Miracle on the Hudson” landing, Capt. Chesley “Sully” Sullenberger was a child prodigy who joined Mensa International at age 11. A lifelong aviation enthusiast, he began flying at 16, served as an Air Force fighter pilot, and was a safety expert who helped create training for airline crews.

A Beneficiary’s Divorce – The Unexpected Estate Planning Factor

Many people planning their estate wonder what impact a divorce will have on a beneficiary. The most common question I get goes something like this: “What happens to my son’s/daughter’s inheritance if they get divorced?” To answer that question, we need to review how divorce law works in Michigan. Here are some basics:

Not all states approach property division in divorce the same way. Michigan uses an “equitable distribution” legal framework in divorce. Equitable doesn’t always mean equal. Equitable has more to do with fairness than equality. It certainly does not mean an automatic 50-50 division. Courts want both parties to walk away with a fair property division in light of the circumstances of the marriage.

Michigan divorce courts do recognize separate property, defined as assets (e.g., investments, business interests, real estate, and inheritances) initially owned by only one spouse, either prior to the marriage, or by way of a specific inheritance during the marriage. But just because a judge recognizes an asset as separate property does not always mean it will stay separate property. It could still be something that gets divided, and several factors affect that determination, all within the context of fairness. Here are some of the factors considered:

1. How long ago was the inheritance received? Inheritances received many years ago slowly start to be considered marital property for the benefit of both spouses. Inheritances received closer to the date of the divorce filing are more likely to stay as separate property not subject to division.
2. Was the inheritance commingled with other joint assets? An inheritance that stays intact—in a separate brokerage account, for instance—stands a better chance of not being divided than an inheritance that was combined with other assets of both spouses. Commingling not only makes it hard to identify what’s left of the inheritance, it also can show intent by one spouse to share it with the other. Specific trust language can help avoid a commingling issue.
3. The intention of the person who gave the inheritance is important, too. A will or trust that states: “I give to my son and his spouse…” or “…to my son’s family…” can cause a different property division than one that states: “I give to my son…”.

More general factors of fairness also influence divisions of inheritances. An unhealthy spouse who cannot go back to work will need more, as will a spouse who is awarded primary custody of minor children. Relative financial need is important.

Whenever a judge is required to make a fairness determination, rest assured that his or her discretion will be very broad. Some divorces get nasty simply because one or both parties want to sway the judge’s perception of fairness.

Divorce is often a very unpleasant and disruptive time for the parties involved. If you have a beneficiary whose marriage gives you some concern, make sure you run it by your estate planning attorney so that your documents can be drafted to provide some possible divorce protection for your intended beneficiary.

Interesting (though not so fun) Fact: Among Americans age 50 and older, the divorce rate has roughly doubled since the 1990s, even as overall divorce rates have declined. Sociologists often call this trend “gray divorce,” and it’s especially common among long-term marriages.

The Slow Death of the Safe-Deposit Box

As an estate planning attorney, I’ve had my share of discussions about safe-deposit boxes. Some of my clients still use them to store legal documents and valuables. My attitude toward safe-deposit boxes has changed over the years. Here’s why:

Safe-deposit boxes have been around since the early 1800s. There was actually a company called The Safe Deposit Company of New York which provided a secure box for cash, gold, jewelry, heirlooms, etc. Banks quickly adopted the model, building large vaults with many small individual lock boxes inside.

Be aware that while your bank account is FDIC insured, the contents of your safe-deposit box are not. In fact, if you read the fine print on your safe-deposit box contract, you’ll probably see a disclaimer regarding responsibility for lost or stolen items.

Beyond that, they can also be a hassle. Most require two keys to open; one held by the customer and the other held by the bank. More importantly, and this is where I see real problems, woe to those who die without another name or their trust listed as the owner on their box. I’ve gone to court more than one time simply to get an order to open a safe-deposit box. That’s both time-consuming and costly.

The world is changing quickly, and things like digitization of documents, bank consolidation, and regulatory rules are starting to write the obituary for safe-deposit boxes. Few, if any, banks are installing them in new branches and many banks are closing any boxes that are given up by the customer.

I now advise safe-deposit box owners that it’s time to consider alternatives, including a heavy and secure fireproof safe in your home. Many documents, including insurance policies and deeds, can be digitized. I personally scan and keep most of those documents on a hard drive. There is typically no requirement that you maintain the original. Even vehicle titles are now going electronic.

Coins and jewelry are a different story. I recommend a safe at home, but I also tell clients that if you’re not using it and it’s tucked away in the box, why not consider giving that special coin or ring to friends or family now so you can see them enjoy it.

Slowly but surely banks are turning away from being landlords for your personal items. I think it’s time to take the initiative and rethink your storage system now.

Fun Fact: I dictated this edition of Up Early on my phone. That got me thinking about how much I look at it and my wife told me that on average people check or look at their phone between 80 and 100 times per day, with those in their 20s or younger around 120 to 200 times a day.

Chasin’ the Dream

A letter to my two sons…

Well done so far boys. You both seem to have strong relationships with friends and family. Only in your late 20s yet you’ve laid great foundations for career success. You’re well on your way to… well, what? That is the topic of this letter.

I know how I’ll reply to others over the years when I’m asked how you both are doing. But what’s really important to me is how I’ll answer a more personal version of that same question to myself over a cup of morning coffee 10 years from now. How are you going to chase the dream, and more importantly, just exactly what will the dream be?

I recommend you take a few minutes to read Ben Carlson’s recent post on his website A Wealth of Common Sense. It’s titled “The Business of Life is the Acquisition of Memories” and it’s a great read, particularly from my perspective. The loss of his younger brother last year certainly affected Ben’s perspective, too. Trust me, you might be impressed someday by looking at your personal asset spreadsheet, but it will never move you emotionally. Once you have enough to protect yourself and your family, the added “0s” won’t really mean that much.

I also want you to be aware of an important development taking shape. To understand it, I point you to Nick Maggiulli’s recent post at his site Of Dollars and Data. It’s titled “The Upper Middle Class Trap” and it’s a very important read. Turns out that despite all the gloom and doom in the media, the “upper middle class” (defined as those families with incomes between $133,000 and $400,000) is growing fast – from 10% of American families in 1979 to 31% now. But here’s the twist: That means there’s a lot more people ready, willing and able to drop meaningful money on status items like private schools, elite colleges, luxury homes and country clubs. The result is that all of those “status symbols” have gotten a lot more expensive to attain (bigger demand).

And just because something gets more expensive doesn’t mean it really increases in value. Here are some examples: In the last 10 years a new single-family home shrunk in average size by 11% while the price per square foot shot up by 74%. A few weeks ago, I walked through the airport and glanced at the “exclusive” premium lounge for high-end travelers. It was packed with people and a line of folks waited outside. A good friend of mine in Florida could not get us on his community’s private golf course because all the tee times were taken. He lives a stone’s throw away from the course and we had to play miles away, at a public course. And elite schools? Don’t get me started. In 1990 the acceptance rate at Harvard was 14.3%. In 2024 it was 3.5% due to more people chasing the same number of spots. Private equity is just getting acquainted with the youth sports obsession of the upper middle class. Your travel soccer club cost us about $2,000 a year. I won’t be surprised if it will cost you $20,000 for your child to “keep up” athletically (private coaching, premium equipment, elite sports camps, etc.).

Before you fall into line to chase all these things, ask yourselves if it’s really worth it. You both went to public schools and kicked butt. I have great golf and hiking memories with you that primarily took place on public courses and trails. Yes, your mom and I fly first class more frequently now, but my favorite travel memories are the four of us packed in a minivan slowly making our way to southeastern Kansas to visit family. (Why I could never convince any of you that you can get a decent sandwich at the right gas station is beyond me).

Listen, I’m not trying to slow you down. Professional and financial goals are important. Go for it while you are young! But remember, it’s very easy to get on the treadmill of material success without even knowing it. By design, a treadmill gets you to expend a lot of time and energy without getting anywhere. Don’t fall for it. In fact, do me this favor: As the years pass and you periodically check your asset spreadsheet, pull out your phone and spend 5 minutes scrolling through the family pictures you have there. Start with a different set of pictures each time and take a few minutes to remember the context. That’s your real net worth, and I promise you those memories will be much more valuable than any number of “0s” you will find on that spreadsheet.

I’m open to meeting for lunch to talk about these things in person. Heck, I’ll even bring the sandwiches…just don’t ask me where I got them from 😉.

All the best,

Dad

Fun Fact: Speaking of memories, it turns out we forget nearly 50% of new information within an hour, and up to 70% of new information within 24 hours

Investment “Advice” From Apex Predators

I was channel surfing the other day and landed on David Attenborough narrating a Planet Earth episode on crocodiles (What a voice!). Apex predators are at the top of their food chain, looking down on all other animals. Yes, they tend to be fast, have razor sharp teeth and often big claws; but design isn’t the only thing that got them to the top. Their habits play a major role, and those habits carry over to successful investing. Some examples:

Cheetah — The world’s fastest cat can reach speeds of 75 mph in pursuit of prey. But cheetahs don’t sprint all day long. They are smart enough to conserve energy, and they don’t turn on the jets unless and until they know their prey is in range. Investment parallel: You don’t have to be in constant action; you just must act decisively when opportunity arises. Over-trading and/or switching strategies is the enemy of long-term success.

Golden Eagle — Yes, their talons are big and they can dive at speeds of up to 200 mph. But what puts it all together for the Golden Eagle is their unbelievable eyesight. Multiple times sharper than human sight, they can spot a rabbit from up to 3 miles away. Investment parallel: It’s best to take the long view and parse out the short-term noise. Look out at the investment horizon to spot long term trends early, but act with caution.

Sharks — Aerodynamically designed, they glide through the water with tremendous efficiency and fluidity. Investment parallel: Keep costs low (fees, taxes, turnover). Small inefficiencies can compound over time.

Lions — A single lion can strike fear in any animal, but that’s not how they hunt. They hunt in packs using teamwork to force herds into a weak position before attacking. And they hunt at night to increase stealth. Working this way, they maximize the probability for success. Investment parallel: Your various investments should work efficiently as a team. Asset allocation matters more than stock picking. Being in the right position beats chasing every opportunity.

Crocodiles — Crocodiles are master ambush predators capable of waiting for hours or days for prey, and in periods of scarcity, they can go months without eating. They position themselves in the right spot, stay motionless, and then wait—and wait—for their prey to venture by. Hours can pass without a single movement. Investment parallel: Patience is the best investment strategy. Long periods of inaction (and boredom) often take place before real investment opportunities show themselves.

In nature and the markets, success (and survival) isn’t about constant motion; it’s about disciplined actions.

Fun Fact: One of the smallest apex predators is the dragonfly. Only a few inches long, they have nearly a 100% success rate when hunting insects which they grab mid-air with incredible precision. Around ponds and wetlands, they have no natural predators while actively hunting. I wonder if we humans would be on their menu if they weren’t so tiny

Annuities: Worth Exploring, but Handle With Care

Annuities tend to fall into one of two buckets for most people: either “safe and steady” or “confusing and costly.” Unfortunately, those in the “confusing and costly” bucket don’t often inhibit annuity producers from selling them, and trust me, many of those producers don’t have a firm handle on how the particular annuity operates either.

Some folks have an annuity but don’t even know it. I often come across that situation after a client visits their bank in search of a good, fixed interest rate and leaves with “something my banker recommended” which turns out to be an annuity. The money you put in the annuity sold by a banker doesn’t stay at the bank. It leaves there and ends up in the account of an insurance company. That’s not necessarily a bad thing, but many people are surprised to learn that fact.

There are strong opinions, both good and bad, about annuities. Let me try to clear things up:

Annuities aren’t inherently good or bad. If you’ve heard horror stories about an annuity, that is usually a problem with the annuity salesman. Understanding the basics can help you decide whether they belong anywhere in your financial picture.

At their core, annuities are contracts with an insurance company. You give them money and in return, they promise some combination of growth, income, or protection. Think of them as a way to turn a lump sum into a stream of payments, often designed to last for life.

There are three primary types of annuities worth knowing:

• Fixed annuities offer a set rate of return. They’re straightforward and behave a bit like a CD, though typically with longer lock-up periods. Often, these are the annuities people walk out of a bank with.
• Variable annuities allow your money to be invested in market-based subaccounts. This introduces growth potential—but also risk, and complexity, and sometimes unknown (unexplained) fees. The value of these annuities can go up and down with the market.
• Indexed annuities fall somewhere in between, tying returns to a market index (like the S&P 500) but with caps, floors, and participation rates that limit both the upside and downside.

One commonality of all three annuity types is that the growth is tax-deferred until it is withdrawn. Annuities do not provide a step up in basis on the gain at death and all tax on an annuity withdrawal is at ordinary income rates.

One of the main reasons people consider annuities is income certainty. Some annuities can convert your savings into a guaranteed monthly payment you can’t outlive. That can be appealing, especially for those without pensions or who value predictability over flexibility.

That said, annuities come with trade-offs. They often include surrender periods (meaning your money is not easily accessible for several years), fees (particularly with variable annuities), and complexity that can make apples-to-apples comparisons difficult. In many cases, you’re giving up liquidity and simplicity in exchange for guarantees.

So where do they fit? For some, annuities can serve as “personal pension” that covers essential expenses with reliable income. For others, especially those comfortable with market volatility and managing withdrawals, they may be unnecessary.

Bottom line: Annuities are tools. Like any tool, their value depends on whether your needs can be matched with a specific annuity type. I do have one important reminder that applies to all annuities: If you do use an annuity in your financial toolbox, make sure you have beneficiaries listed on file with the insurance company.

Fun Fact: A “millionaire” and a “billionaire” are both well off, but far from similar. In fact, the clearest way I found to get people to understand the difference is in seconds. A million seconds amounts to 11.57 days. A billion seconds amounts to 31.7 years. Quite a difference!

What Your Tax Return Is Trying to Tell You

Most people see their tax return as a finished task—filed, signed, forgotten. I completed my business tax returns and personal returns last week. I fought the urge to move on to other tasks and sat down to slowly review the personal return. It was enlightening. Your personal tax return is one of the clearest financial snapshots you will get all year.

If you are willing to take a few minutes to review your 1040, here are some points of interest:

You may be more dependent on one income source than you think.

W-2, business income, or investments—concentration shows up clearly.

Your portfolio’s tax efficiency is either helping…or hurting.

Too much ordinary income via short term capital gains and qualified dividends can create unnecessary tax drag. Some ordinary income is inevitable, but realized stock sale gains are only taxed as ordinary income (short term) if the stock is sold within a year of purchase.

Your real tax rate is often lower (or higher) than expected.

The effective rate—not the bracket—is what matters for planning decisions. Your income is taxed in part under all brackets up to your highest bracket. So, your effective tax rate is much lower than your marginal tax rate. It’s helpful to know your effective tax rate because that is your “real” tax rate.

Retirement savings habits don’t hide here.

Retirement contributions—or the lack of them—are easy to spot if they are made to IRAs. If they are employer based—like a 401K or SIMPLE IRA, then they only show up on your W2.

How Michigan’s flat 4.25% income tax fits into the picture

Retirement income may be partially or fully exempt depending on your birth year.

Don’t forget about local tax.

No local income tax (outside a few cities if you are here in Michigan) keeps things simpler. My wife works at UD Mercy, so we must keep track of the City of Detroit income tax (1.2% for non-residents working in Detroit).

Surprises in April usually aren’t surprises.

Large tax balances due often point to missed withholding or planning gaps during the year. Likewise, a big refund might sound nice, but it means you withheld too much over the year and gave Uncle Sam an interest-free loan.

Your giving strategy may not be as efficient as it could be.

Many people give generously—but not always tax-smart. Check into the Qualified Charitable Distribution (QCD) that I touched upon a few weeks ago.

Opportunities are easier to see in hindsight.

Roth conversions, tax-loss harvesting, and timing decisions tend to stand out after the fact.

You may be closer to key thresholds than you realize.

IRMAA brackets (Medicare Part B and D premiums), NIIT(3.8% when applicable), and marginal tax rate jumps can be triggered by relatively small changes in income. Know how much wiggle room you have left.

Your tax return isn’t just a record of last year—it’s a guide for what to do next. Take some time to review it before you file it away.

 

Fun Fact: The NCAA Basketball Tournament is in full swing. The term “March Madness” was actually first used for high school basketball in Illinois—not the NCAA tournament. It wasn’t until the 1980s that broadcaster Brent Musburger popularized it during NCAA coverage, and it stuck. Good luck with your bracket!

During Times of Market Jitters, It Wouldn’t Hurt to Remember the Pyramids

Growing up, my family loved to travel, and I had the good fortune to visit Egypt in the early 1980s. There we toured the great pyramids in Giza just outside of Cairo. We had a wonderful tour guide who seemed to have almost infinite knowledge of the structures. But the most profound statement she slowly spoke with a fascinating Arabic accent was this: “Man fears time….but time fears the pyramids.” Ah yes, man-made structures that are over 4,000 years old will surely get the attention of Father Time.

At this moment of such turmoil in the Middle East, it seems to me that keeping the long-term time perspective is important. If you are still digesting the headlines about an “oil shock,” and now know more about the Strait of Hormuz than you ever expected, you’re not alone in feeling a bit uneasy. Sharp moves in oil prices tend to grab attention quickly because energy touches almost every part of the economy from transportation costs to inflation expectations. Markets often react fast to these headlines, and the first move is frequently downward. That initial reaction must be separated from the typical long-term result.

Historically, oil spikes create short-term volatility but mixed long-term market outcomes. Investors tend to assume that higher oil prices automatically lead to recession or prolonged stock declines. Sometimes they do contribute to economic slowdowns, but more often the market digests the shock over time as businesses adapt, supply adjusts, and policymakers respond. Markets are remarkably good at recalibrating once the initial uncertainty fades.

It’s also worth remembering that the stock market represents the entire economy, not just the cost of fuel. While higher oil prices hurt some sectors, they benefit others, particularly energy producers. Meanwhile, many companies today are less sensitive to oil than in past decades. Technology, healthcare, and service businesses make up a much larger portion of the modern market than they did during the oil crisis of the 1970s.

For long-term investors, episodes like this often feel worse than they ultimately turn out to be. Markets dislike surprises, and oil shocks certainly qualify. But volatility is not the same thing as permanent damage. More often than not, these moments become just another bump in the market’s long upward journey.

The key is perspective. If your investment horizon is measured in years rather than weeks, the most productive response is usually patience rather than reaction. Markets have climbed through wars, inflation spikes, recessions, and multiple energy crises. The lesson history tends to repeat is simple: uncertainty creates headlines, but time creates returns. A solid investment strategy will stand the test of time, just like the great man-made structures that have stood watch over Giza for thousands of years.

 

Fun Fact: Speaking of time. The Great Pyramid of Giza was the tallest structure on Earth for more than 3,800 years. Built around 2560 BC, it stood as the world’s tallest man-made structure until the Lincoln Cathedral in England surpassed it in 1311. That means the pyramid held the record longer than the entire span of the Roman Empire, the Middle Ages, and the early Renaissance combined.