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Happy New Year

Welcome to 2025! We trust that you and your family had a safe and happy holiday season. With the turning of the calendar, we have renewed hope for the future, along with those annoying resolutions that we all usually leave behind by the middle of February even with the best of intentions. Thank you for being part of the ProVise client family.

What a Year It Was!

The S&P 500 finished with a gain of 25.02%. This is the second year that it finished over 20%, which has not occurred since 1997 and 1998. Much like that period, technology stocks led the charge with the Magnificent 7 representing much of the gain. The S&P 500 Growth Index was up 36.07% and S&P Value Index was up 12.29%. The market reached a record high fifty-seven times as AI, lower interest rates, Trump’s victory, and a general feeling of euphoria by the US consumer drove much of the enthusiasm.  But that enthusiasm could be tempered in the coming months as Apple’s P/E is 41, Meta’s is almost 29, Netflix’s tops 52, Nvidia’s is 57, Microsoft’s is 36, Telsa’s is a lofty 115, Amazon’s is 48, and Google (Alphabet) seems a bargain at 26. These stocks were responsible for 50% of the gain through the year’s first half, but a small rotation occurred in the second half. Still, the Mag 7 drove 35% of the gain for the year.

Other equity markets were also up, with the DJIA up 12.88%, Russell 2000 up 11.54%, and MSCI World ex US up 4.35%. Bonds had a good year with lower interest rates generating a return of 1.25% based on the Bloomberg Aggregate Bond Index.

As we look ahead to 2025, it is difficult to believe that the markets will continue to increase so dramatically without substantial increases in company earnings. In fact, a small slip in earnings expectations could lead to a correction in the market. That is the bad news, but the good news is that corrections are a normal part of a long-term bull market. More volatility is likely in 2025, and patience will be needed and rewarded.

With the market near all-time highs, little help expected from the Fed, earnings growth growing but slowing, and lots of geopolitical events, it is hard to see a similar result in the equity markets in the new year. However, a positive year is likely as a recession in 2025 does not seem to be on the horizon.

Why Do We Ask For A Trusted Contact

Clients age along with us, and sometimes, age gets the better of us. Muscles are not as strong as they once were. The golf ball does not go as far as it used to. We need to see the doctor more often, and things do not heal as quickly. Unfortunately, many of us will begin to show early signs of cognitive decline. Oh sure, we all have those moments when we cannot remember a name or what we had for dinner last night. One of the early signs of serious cognitive issues is the inability to handle money as well as we once did. None of us want to give up control, and we should not do so until it is absolutely necessary.

At some point, it may be best for someone to intervene. We may be one of the first to recognize when a client misses regular meetings that they have never missed before, forgetting about updating estate documents or making changes to the portfolio. By providing us with a Trusted Contact, you allow us to mention something to the person you set up in advance. When married, we often turn to the spouse, but when without a partner, we need to know the name of the person to whom we should reach out on a personal level. You see, we are planners and planning means preparing for the things that may never happen, but if they do, we put you back in control by having a conversation with your Trusted Contact. Rest assured that it is not a responsibility that we take lightly.

Bipartisanships Lives!

In the rare display of bipartisanship, the House on November 12th passed the Social Security Fairness Act (327-75) and the Senate (76-20) followed a few days before Christmas. The President will sign the bill on January 6th so the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) are now eliminated from law and will increase benefits for those affected. The GPO was enacted in 1977 and applied to recipients of spousal or widowed benefits. The WEP was enacted six years later, in 1983. Both provisions reduced the Social Security benefits for people who had a federal, state or local government that was not withholding Social Security taxes for about 3 million of their employees. The change does not come without cost, however.  The bill is projected to cost $196 billion over the next 10 years, accelerating Social Security’s insolvency by six months.

Estate and Gift Taxes

2025 will be an interesting year for estate and gift taxes. First, the inflation-adjusted amount that can be left estate tax-free increases to $13,990,000 per person so that married couples can give away double that amount. However, this amount will decrease in 2026 to about $7 million under current law, but it is likely this will change with the anticipated tax bill that Trump will put before Congress early in his new presidency. For those with more complicated estates, like those with a farm or business real estate, the special estate tax valuation rises to $1.42 million. The annual tax-free gift amount also increases to $19,000.

Beneficial Ownership Information Back On

In early December, a District Court in Texas issued a nationwide preliminary injunction that stayed the requirement for businesses to file a Beneficial Ownership Information (BOI) form by December 31, 2024. The business community cheered this move as they felt the Corporate Transparency Act was unconstitutional. However, the U.S. Court of Appeals for the 5th Circuit stayed the injunction, which means the mandatory filing is back on. The Federal Crimes Enforcement Network (FinCEN) has extended the deadline to January 13, 2025. The penalties for not completing this filing are steep, so be sure to get it done.

Dividing Wealth: Tax Pitfalls to Avoid in High-Net-Worth Divorces

High-net-worth divorces often involve dividing complex financial assets and navigating significant tax issues. One of the most detrimental pitfalls is the tax impact of property transfers. While these transfers are typically tax-free during divorce, the receiving spouse inherits the original cost basis of the asset, leading to potential capital gains taxes when the property is sold. For example, selling a vacation home with a low-cost basis could result in hundreds of thousands of dollars in tax liability. Couples should carefully evaluate the cost basis and consider selling the property during the divorce to share the tax burden equally.

Retirement accounts also pose unique challenges. Dividing a 401(k) or other qualified plans without a Qualified Domestic Relations Order (QDRO) can trigger penalties and income taxes, significantly reducing the value of the settlement. Similarly, IRA transfers must be handled as trustee-to-trustee transfers to avoid immediate taxation. Failing to manage these accounts properly can lead to unanticipated tax consequences, eroding the intended financial support for both parties.

Investment portfolios can carry tax liabilities in the form of unrealized gains or losses. Dividing these assets without considering their tax impact can create an imbalance in the settlement. For instance, one spouse may inherit highly appreciated stocks, burdening them with significant future tax obligations, while the other spouse receives cash. To address this, settlements should be based on after-tax values, ensuring fairness in the division of assets.

Additionally, the Tax Cuts and Jobs Act (TCJA) of 2017 changed the taxation of alimony for agreements finalized after 2018. Alimony is no longer tax deductible for the payer or taxable to the recipient, fundamentally altering how spousal support is structured. This change has shifted the focus toward dividing assets rather than relying heavily on support payments. Understanding how these changes affect cash flow and tax liabilities is essential for negotiating a fair settlement that supports both parties’ financial well-being.

By proactively addressing these tax considerations, divorcing couples can minimize financial surprises and ensure a more equitable settlement. Working closely with attorneys, financial advisors, and CPAs experienced in high-net-worth divorces is key to navigating these complex financial landscapes and protecting short- and long-term financial stability. 

Sources:

Tax Implications of Divorce | Charles Schwab

Splitting Assets During Divorce – Fidelity

Some tax considerations for people who are separating or divorcing | Internal Revenue Service

Episode 3: Up Your Assets™

What is it like covering the ever-evolving world of personal finance? Ray Ferrara, CFP®, sits down with veteran financial journalist John Waggoner to explore his journey through decades of market coverage, the changing landscape of digital media, and the advice he would give to his younger self. Learn about the good, bad, and ugly stories he covered. Gain insights into how Ray and John developed a professional relationship that evolved into a friendship. Just click on any of the links below: 

Fun While Getting A College Education

The cost of getting a college education has risen dramatically for several decades and especially these past few years of inflation. Some are questioning this cost and wonder if it is worth it. From our standpoint, while college is not for everyone, it makes a difference in many situations. So, if you spend lots of money, why not have some fun at the same time? Once again, the website Niche lists its top 10 based on student surveys, available nightlife, athletics, and Greek life. (Why do they only do Greek life when independents have a party life to live as well?) You may be surprised by a few, but here they are:

10)   Howard University – Washington, DC

9)    University of Illinois Urbana-Champaign – Champaign, IL

8)    University of Wisconsin-Madison – Madison, WI

7)    University of Georgia – Athens, GA

6)    University of Southern California – Los Angeles, CA

5)    Syracuse University – Syracuse, NY

4)    The University of Alabama – Tuscaloosa, AL

3)    Tulane University – New Orleans, LA

2)    Florida State University – Tallahassee, FL

1)    University of California – Santa Barbara – Santa Barbara, CA

Expensive Private Colleges

Speaking of college expenses, how about the cost of going to college at the most expensive of the lot by going to a private college? The College Investor studied all of them and found the average cost of tuition to be about $41,500 per year based on the 2024-25 academic year. While the published tuition cost often differs significantly from the actual cost paid, hold onto your wallet if any of the children or grandchildren mention these top ten names:

10)  Tulane University (New Orleans, LA) – $68,678

9)   Reed College (Portland, OR) – $69,040

8)   Pepperdine University (Malibu, CA) – $69,130

7)   Colby University (Waterville, ME) – $69,600

6)   Amherst College (Amherst, MA) – $69,820

5)   Haverford College (Delaware County, PA) – $69,884

4)   University of Southern California (Los Angeles, CA) – $69,904

3)   Colorado College (Colorado Springs, CO) – $70,224

2)   Franklin & Marshall College (Lancaster, PA) – $70,566

1)   Kenyon College (Gambier, OH) – $71,196

Are you surprised to not see any of the Ivy League schools?  Yeah, so were we.

 

We hope you continue to stay safe and well.

Proudly and successfully serving our clients for over 38 years. As always, we encourage you to call or email us if you would like to discuss anything.

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