VESTED Winter 2017 by CAPTRUST

The Challenges and Joys of International Adoption

From Starting Gate to Starting Over

PLUS Managing Your Life Insurance Portfolio Winging It Down-to-Earth Planning for a Dream Home Is This the Beginning or the End?

WINTER 2017

At CAPTRUST, we believe we have a profound responsibility to share our success with those less fortunate than us. One way we do that is through the activities of the CAPCommunity Foundation, our in-house, employee-run charitable foundation. Its mission is to enrich the lives of children in communities we serve. The foundation, a registered 501(c)(3) charity, was formally organized in 2007 to provide our employees with opportunities to participate as a group in community outreach efforts and to offer their time, passion, and financial support as a way to give back.

“The purpose of life is not to be happy, but to matter, to be productive, to be useful, to have it make some difference that you have lived at all.” – Leo Rosten

We invite you to like the CAPCommunity Foundation on Facebook.

www.capcommunityfoundation.org | toll free: 855.649.0943 4208 Six Forks Road, Suite 1700 | Raleigh, NC 27609

Volume 3, Issue 1 | Winter 2017

For me, the beginning of a new year is always a time for optimism. It’s a fresh start. After recharging my batteries over the holidays, I come back to the office full of inspiration and ideas about how we can better serve clients and sustainably grow our business. I hope that you find something in this issue of VESTED that inspires you in the new year.

PUBLISHER J. Fielding Miller Chief Executive Officer

EDITORS John Curry Editor in Chief

EDITORIAL ADVISORY BOARD

Our cover features Elizabeth Macdonald as the winter issue’s “hero” profiled in our Second Act feature. A successful designer and art director living in Manhattan, Macdonald returned to North Carolina and her passion for horses as the founder of a nonprofit that rehabilitates and finds homes for retired Thoroughbred racehorses. This issue’s columns and features cover topics, including: • Things to consider as you plan to build your forever home, • Money conversations for couples as they transition into retirement, • An insider’s look at quail hunting, • Why you should keep tabs on your life insurance portfolio, and • What you need to know about probate (and how to avoid it). This issue’s must-read article, titled “The Challenges and Joys of International Adoption,” was written by regular VESTED contributor Kim Painter. Full of great photos, the article details key aspects of international adoption through the experiences of several parents who pursued their goal to adopt. And finally, new contributor David Hood from CAPTRUST’s Consulting Research

Jennifer Liebel Managing Editor

Scott Matheson, Ben Goldstein, Fielding Miller, and Wilson Hoyle distribute cupcakes as part of CAPTRUST’s 2016 Employee Appreciation Day.

Group serves up three critical investment themes for 2017 (and beyond) on behalf of the firm’s Investment Committee. As always, our primary aim with VESTED is to provide you with timely, relevant, and actionable ideas and recommendations. Please help by sending your thoughts, reactions, and story ideas to VESTEDmagazine@captrustadvisors.com.

Jeremy Altfeder Client Relationship Manager

Karen Denise Senior Manager, Wealth Operations

Rush Benton Senior Director, Strategic Wealth

Mike Gray Senior Vice President, Financial Advisor

Hugh (Trae) Cole Financial Advisor

Land Hite Senior Vice President, Financial Advisor

Ellen Crowley Vice President, Financial Advisor

Aaron J. Morris Vice President, Financial Advisor

Nick DeCenso Manager, Wealth Strategy

Mark Paccione Director, Investment Research

Teri Parker Vice President, Financial Advisor

ART DIRECTION & MARKETING Jessica Rose Art Director Jennifer Mastrapasqua Promotion Manager

Greg Middleton Production Manager

Lonzetta Allen Designer

Colby Warren Senior Designer

WITH THE ASSISTANCE OF

All the best,

J. FIELDING MILLER CAPTRUST Chief Executive Officer

Azul Photography Raleigh, NC

Classic Graphics Morrisville, NC

800.216.0645 | www.captrustadvisors.com 4208 Six Forks Road, Suite 1700 Raleigh, NC 27609

kathleen burns kingsbury

neil downing

nanci hellmich

david hood

Kathleen Burns Kingsbury is a wealth psychology expert, founder of KBK Wealth Connection, host of the Breaking Money Silence™ podcast, and the author of several books, including How to Give Financial Advice to Women and How to Give Financial Advice to Couples. Her next book, Breaking Money Silence: Shatter Money Taboos by Helping Your Clients Openly Discuss Their Finances, will be published in 2017. For more information, visit kbkwealthconnection.com.

Neil Downing is a Certified Financial Planner™ and enrolled agent licensed by the U.S. Treasury to represent taxpayers before the Internal Revenue Service. A newspaper reporter, editor, and columnist for 35 years, Downing has authored several publications focused on maximizing the value of employee benefits and retirement savings vehicles.

Nanci Hellmich, an awardwinning multimedia reporter, covered personal finance, retirement, nutrition, health, and other topics for USA TODAY for more than 30 years. She now enjoys writing for AARP, Encore.org, and other companies and organizations. She has been named one of the top 10 national online influencers on weight loss and nutrition. Hellmich has appeared on both local and national television shows, including NBC’s TODAY Show.

David Hood is director of investment research in CAPTRUST’s Consulting Research Group and is responsible for investment manager research and oversight of the due diligence team that evaluates and monitors investment vehicles across CAPTRUST’s primary business lines. He received a Bachelor of Arts in journalism and mass communication from the University of North Carolina and a Master of Business Administration from Wake Forest University.

Winter | 2017

Features 4

THE CHALLENGES AND JOYS OF INTERNATIONAL ADOPTION

by Kim Painter

15 16

ELIZABETH MACDONALD

From Starting Gate to Starting Over by Sylvana Smith

MANAGING YOUR LIFE INSURANCE PORTFOLIO

by Neil Downing

Columns

GLEANINGS

PASSION PURSUITS

Down-to-Earth Planning for a Dream Home by Nanci Hellmich

EXPERT ANGLE

Winging It by T. Edward Nickens

MARKET REWIND

IS THIS THE BEGINNING OR THE END?

MONEY TALKS

Transitioning to Retirement: Must-Have Money Conversations by Kathleen Burns Kingsbury

LASTING LEGACY

What You Should Know About Probate, Trusts, and Beneficiary Designations by Nanci Hellmich

CLIENT CONVERSATIONS

CAPTRUST HAPPENINGS

by David Hood

t. edward nickens

kim painter

sylvana smith

T. Edward Nickens is an award-winning journalist, editor-at-large for Field & Stream, contributing editor to Audubon, and a frequent contributor to Garden & Gun, Shooting Sportsman, and many other publications. He has served as host, co-producer, and lead writer on television and web-based series, and is the author of the best-selling book, Field & Stream Total Outdoorsman Manual. Nickens is a recognized expert on hunting and fishing culture, conservation, and environmental issues.

Kim Painter is a freelance writer specializing in health and lifestyle issues. She was a USA TODAY staffer for many years and has continued to contribute to the newspaper as a reporter, columnist, and blogger. She lives in McLean, Virginia, where she practices what she preaches: wearing sunscreen, eating broccoli, and getting at least 10,000 steps a day.

Sylvana Smith is a freelance writer living on an antebellum farm in central North Carolina. Educated in graphic design at Carnegie Mellon University and journalism at the University of North Carolina, she writes marketing communications for Fortune 100 companies. An active horsewoman, Sylvana has seven horses, including a Thoroughbred who raced 51 times before finding a second calling through Blue Bloods Thoroughbred Adoption and Placement as a sport horse.

All publication rights reserved. None of the material in this publication may be reproduced in any form without the express written permission of CAPTRUST: 919.870.6822. ÂŠ2017 CAPTRUST Financial Advisors. The opinions expressed in this report are subject to change without notice. This material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. CAPTRUST does not render legal, accounting, or tax advice. If you require such advice, you should contact the appropriate legal, accounting, or tax advisor. The information and statistics in this report are from sources believed to be reliable but are not warranted by CAPTRUST Financial Advisors to be accurate or complete. Performance data depicts historical performance and is not meant to predict future results.

THE CHALLENGES AND

JO Y S

OF INTERNATIONAL ADOPTION by kim painter College sweethearts Paul and Mary Jean (MJ) Schaffer married in the late 1980s and always wanted three children. But life happened, and by the time their first two children, Alex and Natalie, were in grade school, time was running out for the couple to have more biological children. MJ, a stay-at-home mom, and Paul, a financial advisor at CAPTRUST in Doylestown, Pennsylvania, started talking about their options. The couple had friends who had adopted children from Russia and China. Soon, they were thinking seriously about international adoption.

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In 2001, they started working with an agency that facilitates adoptions from Russia. A long three years later — filled with paperwork, social-worker visits, mandatory parenting classes, and excruciating stretches of waiting — they found themselves in a rural orphanage several hours outside of Moscow, holding a healthy, “happy, calm, and wide-eyed” five-month-old girl, says MJ, now 54. An adoption official “turned around and looked us in the eyes and said, ‘Do you want her?’,” MJ recalls. “We said ‘Yes, of course!’” Today, that baby is a typical 13-year-old American girl named Riley. The Schaffers did not know it at the time, but they were part of a peak wave of Americans to adopt children from abroad. Americans adopted 22,989 children internationally in 2004, and numbers have dropped steadily since then, reaching only 5,647 adoptions in 2015, according to the U.S. Department of State.

The reasons for the decline are varied.

five-month-old girl.

long

three

social-worker

years visits,

later — filled mandatory

with

paperwork,

parenting

classes,

and excruciating stretches of waiting — they found themselves in a rural orphanage several hours outside of Moscow, holding a healthy, “happy, calm, and wide-eyed“

The Schaffers were among more than 5,000 U.S. families to adopt Russian children in 2004, but today no children can come from Russia to the United States because of a Russian law the State Department says is “motivated by political sentiment.” Meanwhile, unrest in Ukraine related to conflict with Russia has slowed adoptions from that country. Other countries, including China, now try to place most orphaned children with families within their own borders, the State Department says. In still other nations, including Guatemala, adoption programs in need of reform have been suspended while changes are made to meet tougher global standards. There’s no question that adopting a child from another country “has gotten a little tougher and a little more complicated,” says Paul Schaffer, now 55. But the quest remains well worthwhile, say the Schaffers and families who have adopted internationally in recent years. Experts agree that international adoption remains a great option for some families. If you are considering expanding your own family in this way, here’s what you need to know:

THE CHANGES ARE NOT JUST ABOUT NUMBERS If your heart is set on adopting an infant, international adoption is less of a possibility. “The children I’m seeing coming in now are older,” says Denise Bierly, an attorney in State College, Pennsylvania, and director of adoption for the American Academy of Adoption Attorneys. “Many are preschool age. Some are even older.” That’s largely a result, she says, of policies that strongly favor in-country adoption of infants, especially healthy infants. The State Department confirms that trend. In 2015, just 35 children under the age of one were adopted into the U.S. About 1,500 adoptees were ages one to two; 1,500 were ages three to four; 1,800 were five to 12, and 800 were teenagers.

Paul and MJ Schaffer pose in front of the lodge where they stayed in Russia when they adopted their daughter, Riley.

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Another significant change: children available for adoption today are more likely to have special needs, ranging from minor health problems to profound disabilities. That’s especially true for children from China, which remains by far the most common birthplace of children adopted internationally by Americans (followed by Ethiopia, South Korea, Ukraine, and Uganda). In 2005, 95 percent of Chinese adoptees were healthy girls; in 2015, 90 percent were girls or boys with special needs, says the State Department. The shift means that parents willing and able to care for children with more significant challenges will find themselves on the fastest track to adoption. Some parents are eager to adopt children with challenges such as Down syndrome and cerebral palsy, says pediatrician Dana Johnson, founder of the International Adoption Clinic at the University of Minnesota. Others are more wary, and that’s OK, Johnson says.

Paul Schaffer holds Riley at the adoption center’s visitation room.

“We want to put a child with a family where the family can meet the needs of that child and will be able to parent effectively. It’s reasonable to take all of this into account, to be very honest with yourself about what you can handle,” he says. Prospective parents are asked to go through a checklist of specific conditions they would or would not be able to accommodate in an adopted child. “We don’t pressure or push families in any direction,” says Deb Harder, adoption information coordinator at Children’s Home and Lutheran Social Service of Minnesota. All that said, many children coming to the United States have health problems “that we can take care of pretty readily,” such as correctible heart defects, cleft lips, and treatable infectious diseases, Johnson says. Some children who have spent long periods in orphanages arrive with developmental delays and emotional difficulties that can make it tough for them to bond with their new families, he says. “But the vast majority of families accommodate and do very well with their adopted children,” Johnson says. And research shows that, for the children, the benefits can be huge: “The difference between growing up in an orphanage versus with a family is just astounding,” Johnson says.

THE PROCESS IS LONG AND COMPLEX In June 2014, just two months after starting their application to be adoptive parents, Brian Barch, 32, and his wife, Jena, 29, of Minneapolis, Minnesota, got wonderful news. They had been matched with three potential adoptees from South Korea. Brian and Jena Barch with their son, Jude.

Winter | 2017

After a prayerful weekend looking at photos and records, they could not stop thinking about a particular one-year-old boy. “We felt this child was ours,” says Barch, a logistics manager for a cosmetics company. But it would take nearly two years for the Barches to meet their son, Jude. They finally brought him home in April 2016.

The months in between were filled with paperwork and proceedings in the U.S. and Korea. Meanwhile, Jude was living with a foster family in Korea, and the Barches received pictures as he grew. “It’s exciting to see pictures of your child,” Barch says. “It’s also upsetting to see pictures of your child growing up when you can’t be with him.” Sara Pensyl, 33, and husband, Marc, 34, of Mount Bethel, Pennsylvania, applied to adopt a child from the Philippines in early 2012. Their application was quickly accepted — and then they waited nearly three years to be matched with a child. In March 2015, they learned that a two-year-old boy was waiting for them in an orphanage in Manila. Then there was more waiting and more paperwork, Pensyl says. They brought their son Michael home in October 2015. “The adoption process is not for the faint of heart,” says Pensyl, a program manager at a Christian conference center. “You have to want this. You can’t just do it on a whim … If you are not a detail person, this could be unbelievably challenging.” The differences in those details reflect varying practices in each country, Harder says. But there are some standard, predictable steps, she says. The first step is to meet with an adoption agency to discuss options and determine your eligibility for various adoption programs, based on factors that may include your age, marital status, and financial health.

“The adoption process is not for the faint of heart. You have to want this. You can’t just do it on a whim … If you are not a detail person, this could be unbelievably challenging.” Sara Pensyl

Next, comes a home study, a formal review of your home and family by a social worker. The study needs to be conducted by an agency licensed in your state. It may or may not be the same agency working with you on international placement, which must be approved to work in the country from which you want to adopt. International agencies in the U.S. also must comply with the Hague Convention on Intercountry Adoption, a set of rules that protects children and families. Details on finding accredited agencies are on the website of the nonprofit Council on Accreditation, found at coanet.org. For their part, prospective parents must attend classes on parenting and adoption and compile an extensive dossier that includes documents such as birth and marriage certificates and results of physical and psychological exams. Pensyl recalls that she even had to get a report from a veterinarian attesting to the health of the two dogs she had at the time. “No one can say they are not thorough,” she says. The Schaffers remember a similar gauntlet. “It was just tons and tons of paperwork,” MJ says, including references from friends, a police background check, tax returns, and financial statements. “I’d say it took us a year just to gather all of it,” she says.

The Pensyl family: Sara and Marc with their son, Michael, and their dog Lily.

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IT’S EXPENSIVE Harder says she tells families to expect a total cost, including travel, court costs, and fees for the agencies involved, of at least $35,000 to $40,000. There is some risk of spending a lot of money without completing an adoption. Countries sometimes close their adoption programs with little notice, Bierly says. Barch says he and his wife spent about $50,000 on Jude’s adoption, with a big chunk of that going to cover his excellent foster care in Korea. The expenses came in uneven “lumps,” he says. “We had a $20,000 bill that came at one point, and we were able to get a quick loan.” Pensyl says her child’s adoption cost about $30,000. She and her husband paid most of that, but got grants from their church and a nonprofit group to cover some expenses. One silver lining: the Internal Revenue Service offers a tax credit for adoption expenses up to $13,460, which you can apply to your federal tax bill over three years.

IT CAN BE A BEAUTIFUL THING “Each kid’s story is different,” Pensyl says, and she knows that some adopted children struggle to adapt to new homes. “But Michael has adjusted really well,” she says. He was underweight, but has gained nicely. “On paper, we were told he had mild asthma, but we haven’t seen it,” she says. What they do see is a happy, loving preschooler who has learned enough English to be quite a chatterbox. Barch says that “adoption has been a beautiful thing for us,” and his son also is thriving, loving, and healthy. Jude’s records said he had a heart murmur, but U.S. doctors do not consider it a problem. Jude also is a toddler who sometimes acts out, Barch says. It has not been easy for him and his wife to “go from zero to toddler” instantly, he says, but it’s been worth it. They hope to adopt again. “God blessed us with a four-bedroom house,” he says. “We want to fill those bedrooms.” And Riley Schaffer, the American girl who was once that orphaned Russian baby? Today, she’s busy with dance, gymnastics, and voice lessons, and appearing in plays, singing in a chorus, and spending typical teenage hours on her phone. She recently redecorated her room and got rid of the Russian dolls and pictures that were part of her childhood décor and a link to her past.

Top: The Schaffer family celebrates son Alex’s graduation. Bottom: Alex, MJ, Natalie, Paul, and Riley Schaffer in Chicago.

But that does not mean Riley has forgotten her roots. “We’ve always talked about her adoption. She’s proud of it,” mom MJ says. And every March 15, the anniversary of the day they brought Riley home, the whole family celebrates. “It’s just like another birthday.”

Winter | 2017

FROM STARTING GATE TO STARTING OVER by sylvana smith It is a long way from Manhattan to Yanceyville, North Carolina, the county seat of a rural area once made great by bright-leaf tobacco, only to see its economy ruined by the Civil War. Yet that is just where Manhattan designer Elizabeth Macdonald found her second calling â€” helping retired racehorses from Northeastern tracks find their ways into new homes in the South. Macdonald is executive director of Blue Bloods Thoroughbred Adoption and Placement, the 501(c)(3) organization she founded in 2013. Before that, Macdonald served as North Carolina director for the New Jersey-based ReRun program. Through both of these organizations, Macdonald has placed more than 300 retired racehorses into new careers. Continued on page 10

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The need is never-ending. The headlines herald the tiny fraction of Thoroughbreds who win Grade I stakes races, where the purse is $75,000 or more. Everybody has heard of American Pharoah, but Triple Crown winners are true statistical outliers. Of the more than 20,000 Thoroughbreds born and bred for the U.S. racing industry each year, most will be also-rans, running in relative obscurity and retired by age six or younger. What will they do for the remaining 20 or 25 years of their lives? American Pharoah’s future is set. He now stands at Ashford Stud in Kentucky for a breeding fee of $200,000. Top mares become broodmares, raising the next generation of racehorses. But others need intermediaries such as Macdonald to help them adapt to post-racing life and find new homes and jobs. Despite her lifelong love of horses, working with them was the last thing on Macdonald’s mind as a career when she was younger. Macdonald earned a Bachelor of Fine Arts degree in communication arts and design from Virginia Commonwealth University in Richmond, and then moved to Manhattan, perhaps one of the least horse-friendly places in the United States. “As soon as I graduated, I headed to New York City,” she says. That was in the early 1980s. She built a successful career as a designer, working

Of the more than 20,000 Thoroughbreds born and bred for the U.S. racing industry each year, most will be also-rans, running in relative obscurity and retired by age six or younger. What will they do for the remaining 20 or 25 years of their lives?

Winter | 2017

as an art director for Estée Lauder and at CBS Television. She also worked in the music industry, designing album covers, which is where she met her future husband, Holland, who was creative director at CBS Records. Macdonald collaborated with other designers and ran a design business in Manhattan for 18 years. “My husband and I got married after I’d been there 15 years or so. Then we commuted in and out of Westchester County. I didn’t have horses then, and he didn’t know anything about them because he had always lived in and around the city,” says Macdonald. As exciting as New York City can be, “it just felt like we were going to be tied to the city forever,” says Macdonald. So they sold their home in Westchester, thinking they would move to Atlanta and work there. However, Macdonald had grown up in North Carolina, still had family there, and the Research Triangle Park area was booming with business opportunities. The couple bought a Revolutionary War-era home on the National Register of Historic Places near Yanceyville, North Carolina, close to the North Carolina-Virginia state line. With the advent of the Internet, a design business could be run from anywhere, even rural Caswell County.

Now Macdonald was in a perfect place for horses, but with 160 acres of overgrown fields and tumbledown fences to restore, a good show horse or hunt horse was not in the budget. “So I went online and found out I could adopt a racehorse,” she says. “Nobody wanted them because everybody in the show world at the time had European Warmblood horses, which are purpose-bred for horse show disciplines and tend to have more mellow temperaments.” Macdonald saw an opportunity. She had grown up with her family’s Thoroughbreds and understood their personalities. She knew how to work with them. Here was a source of quality horses at bargain prices. Macdonald fell in love with and adopted her horse, Ollie, who raced under the name Colonial Times in his early life. She adopted him from the ReRun Thoroughbred adoption group in New Jersey. Since it is so expensive to board horses in the Northeast, the group had a hard time finding adopters. Macdonald became friends with ReRun’s founder, Laurie Lane, and Lane soon asked if she could take another horse. “I said, ‘well, okay, I’ll take another one.’ So they sent one down, and within a week that horse was adopted. That opened the floodgates. Then they said, ‘Well, we’re going to send you a few more if that’s okay.’ So at 3:00 in the morning one day, an eighteen-wheeler backs up, and I have eight horses. It was like Christmas.” Macdonald soon became ReRun’s director for North Carolina, a role she held for eight years, which gave her the experience she needed to start Blue Bloods. It proved to be the right niche at the right time. For one, Thoroughbreds are gaining new favor for non-racing careers. “There is a resurgence of sorts in the horse show world; the mighty Thoroughbred is getting a second look,” writes blogger Ann Taylor of Horse Country Chic. “Some of the greatest show hunters of all time came off the track, and that movement is again taking hold.” Taylor recommends turning to Thoroughbred adoption and placement programs to find promising show hunter prospects at bargain prices. Continued on page 12

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Here’s where the economics can get interesting. One of the horses representing the U.S. at the Rio Olympics was an off-the-track Thoroughbred with modest beginnings. Blackfoot Mystery raced three times, never finishing better than sixth in the sport’s lowest level of racing. His career was over, yet he passed through a Thoroughbred adoption program like Blue Bloods, moved up the levels in eventing and was syndicated as a sport horse for $300,000. Granted, not every horse that comes off the track is a potential Olympic ride. Every year, thousands of ex-racehorses need new homes. It takes a good product and a good process to meet that need and place these horses responsibly. Macdonald’s location gives Blue Bloods two key advantages: North Carolina has a strong horse community and does not have pari-mutuel betting, so the state does not have the glut of ex-racehorses found in the Northeast. Even with those geographic advantages, “we work to make the horses as adoptable as possible,” Macdonald says. “They have to be ready for jobs.” Macdonald has collaborated with the equestrian studies program at nearby Averett University in Danville, Virginia. In a class on retraining former racehorses, students are assigned an adoptable Blue Bloods horse to ride all semester. For three years now, all of the horses used in the program have been quickly adopted — some by their student riders. “Our horses shattered all misconceptions and stereotypes of the typical off-the-track Thoroughbred, and I fell in love with the breed even more,” said Averett senior Jess Stipic. “This semester truly proved how diverse, athletic, smart, and willing these horses are. Also, this organization and Elizabeth are such good people with big hearts. They truly want the horses to go to good homes that will match the rider and horse. She is so appreciative of any time spent with the horses helping them become more adoptable.” Stipic’s assigned horse, Winged Delite, was swiftly adopted. “I’m grateful to Blue Bloods for providing me with my very first horse, the broodmare with so much to offer,” said Winged Delite’s new owner, Catherine Carter. “She is a true blessing to me, and I wouldn’t trade her for anything.” Another Blue Bloods also-ran is Meet in Khartoum. Unlike her famous brother, American Pharoah, Khartoum had only one win in five starts for career earnings of $23,915. She found herself out of a job, retired at only four years old — not ambitious enough to be a racehorse and too slow to be prized for breeding more racehorses.

Winter | 2017

Thanks to Blue Bloods, Khartoum landed in very good hands. She was adopted by Denny Emerson, a gold medalist at the 1974 Eventing World Championships. Emerson, named by Chronicle of the Horse magazine as “One of the 50 Most Influential Horsemen of the Twentieth Century,” is a vocal proponent of off-the-track Thoroughbreds for second careers as sport horses. Khartoum is now decompressing from track life and enjoying a thoughtful reeducation at Emerson’s Tamarack Hill Farm in Southern Pines, North Carolina. For the horses’ original owners, Macdonald provides a valuable service and new channels to create awareness and place their horses. “We evaluate the horses’ abilities and temperaments and seek to pair the right person with the right horse,” Macdonald says. “We want it to be a happy home with a good match.” The key to Macdonald’s success is arranging the right pairing. Some of the adoptable Thoroughbreds are high-octane athletes best suited for advanced riders to take to the upper levels of horse sports. Some are workmanlike prospects for riders who want to hunt or show at the local levels. Others are retired broodmares ideal for beginner riders, “husband horses,” and therapeutic riding programs. For a modest adoption fee of $1,000 to $3,000 (based on the horse’s age and abilities), adopters can get a horse that once cost hundreds of thousands of dollars. “The second horse I adopted sold as a two-year-old in Continued on page 14

“We evaluate the horses’ abilities and temperaments and seek to pair the right person with the right horse. We want it to be a happy home with a good match.”

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training for $250,000,” says Macdonald. One of the retired broodmares adopted in 2016 originally sold for $1 million. For a horse lover, this is thrift store shopping at its best. Of course, the true value of a sport horse is not about money; it is about partnership. Consider the 27-year-old mare Purer Than Pure, who won $55,000 on the track and spent most of her life raising foals. “She hadn’t been ridden in quite a long time, but once we brought her into the program, we had volunteers riding her, and she was so good and easy and very nurturing,” Macdonald recalls. “That mare went to a little girl with cognitive issues, and she looks after that girl. The mother told me, ‘This mare is absolutely incredible.”

BLUE BLOODS THOROUGHBRED ADOPTION AND PLACEMENT Established in 2013, Blue Bloods Thoroughbred Adoption and Placement, Inc. is a 501(c)(3) organization dedicated to providing Thoroughbred racehorses a healthy life and second career after retiring from the track. Services include assessment, rehabilitation, training, and rehoming of horses to approved adopters. In 2015, Blue Bloods received a TCA grant to help support the mission of retraining and rehoming ex-racehorses. In 2016, the North Carolina Thoroughbred Association presented Macdonald with the Thoroughbred Charities of America (TCA) Award of Merit.

Blue Bloods Thoroughbred Adoption and Placement 2305 NC Hwy 62 North | Blanch, NC 27212 For more information, visit www.bluebloodstb.org.

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PEDIGREE FACTS AND FIGURES Thoroughbreds, as we know them, developed in seventeenth and eighteenth century England. The breed

1665

that started with just three imported stallions is now the heart of the horse racing industry. Thoroughbred breeding is highly competitive, with horses selected for their bloodline purity, athleticism, and physical attributes. • For a nation addicted to cars, we still have a lot of horses. In the U.S., we have 9.2 million horses, according to US Equestrian, with 840,000 involved in some form of racing.

1820s

Horse racing is the favorite pastime of the Southern elite. American track organizers standardize weights, plan yearly schedules, arrange the settlement of bets, and fix rules of entry.

1860s

The Civil War and the Indian wars promote breeding of Thoroughbreds for military needs.

1863

A new racetrack opens in Saratoga, New York. New York State becomes the center of American racing.

1873

The first Preakness Stakes runs at Pimlico Race Course in Baltimore, Maryland.

1875

The Kentucky Derby runs at the Louisville Jockey Club Course, later known as Churchill Downs.

1905

The Belmont Stakes moves to Belmont Park on Long Island, just outside of Queens.

• The Thoroughbred breed began when native mares bred with imported Arabian, Barb, and Turkoman stallions. Their pedigree traces back to three stallions: the Godolphin Arabian, Darley Arabian, and Byerley Turk. • The Thoroughbred stud book closed more than 200 years ago and does not allow outcrossing with other breeds.

1919

Horse racing booms after World War I. Spectators enjoy freedom from food rations and limits on transportation to and from the tracks. More racetracks open, and the pari-mutuel system at tracks helps to build support for the legality of horse race betting.

1919

Sir Barton becomes the first horse to win all three of the most important stakes races: the Kentucky Derby, the Preakness Stakes, and the Belmont Stakes. This series of races later becomes known as the Triple Crown.

1930s

Racetrack betting is legalized in more than 20 states as the Depression sets in and the government struggles to find revenue and stimulate employment.

Breeders stress the most desirable qualities with each generation: agility, speed, and heart. • The number of ex-racehorses needing new homes remains a concern for the industry, though the number in the U.S. is declining. • Ferdinand won the 1986 Kentucky Derby and 1987 Breeders’ Cup Classic and was sold in Japan for pet food. Ferdinand’s death became the catalyst for the Ferdinand Fee, a program that funds racehorse rescue and retirement groups.

1947

Man o’ War, the greatest Thoroughbred of all time, dies at the age of 26. As he lies in state at Kentucky Horse Park, thousands come to mourn.

1973

Secretariat is the first Triple Crown winner in a quarter century. He secures the first two races by modest margins, but wins the Belmont Stakes by a record 31 lengths.

1978

The Interstate Horseracing Act expands the market for horse track wagering.

2015

A 3-year-old bay colt American Pharoah becomes the first Triple Crown winner in nearly 40 years.

Sources: • Byles, Tony, 101 Interesting Facts on the History of Horse Racing. January 14, 2015. Apex Publishing Limited. • Costantino, Maria, The Handbook of Horse Breeds, Barnes and Noble, 2004. • Encyclopedia.com. • PBS, American Experience, Timeline: Horseracing in the U.S. • Lloyd, Sandra, “Thoroughbred”, Wikipedia, referenced online, 2008.

Organized horse racing begins in the U.S. when Richard Nicolls, the royal governor of New York, authorizes the first track at what is now Hempstead, Long Island.

DOWN-TO-EARTH PLANNING FOR A DREAM HOME by nanci hellmich

There’s no place like your dream home. That’s what Grace and Joe Simcoe have found. When they were in their 50s, the couple decided they wanted to move from Baton Rouge to Lexington, Virginia, when they retired.

But they couldn’t find a house they loved, so they custom built their dream home in the Shenandoah Valley. Their 4,500-square-foot Prairie-style residence has everything they want at this stage of their lives: two huge porches with mountain views, a large kitchen with a cathedral ceiling and beams, a main-level master bedroom, and a comfortable guest suite. “Home is important to us,” says Joe, 60, who is retired from the insurance business. It’s a place where “our children and friends can come and feel welcome.” “It’s a special house. It has a character all its own. We are always glad to be here,” adds Grace, 60. “It has met every expectation that we had.” That’s true for others too. Sue Viray and her husband Rico, who own an advertising agency in New York City, split their time between an apartment in the city and their dream retreat about 90 miles away—a 6,780-square-foot residence with expansive windows overlooking the Hudson River in Saugerties, New York. The setting is “magical,” Sue says. “It’s beautiful every season. It’s amazing.”

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For many people, owning their dream home is part of living the American dream, says architect Fauzia Khanani, the founder and principal of Foz Design in New York City. She designed the Virays’ home. It allows you to have all the things you always wanted in a house, she says. It’s an idea that many people are introduced to at a young age. “In second grade, our teacher asked us to draw our dream home.” Your home represents you, says Baton Rouge-based architect Kevin Harris, author of The Forever Home. It’s where you invite friends and family. It’s where you go to rest at the end of the day. It’s where you recharge and find motivation to go back into the world. It becomes part of your identity, says Harris, the Simcoes’ architect. Government statistics show about 158,000 custom-built homes were started in 2015, out of the 713,000 single-family houses that were begun that year, according to the National Association of Home Builders. But not everyone starts from scratch. Some people renovate and add on to their current residence to create their ideal nest.

So how do you begin to make your dream a reality? For most people, it starts with their budget, Khanani says. Clients often tell her how much money they have to spend. “Part of my role is to help them come up with a realistic project and budget and then try to gain savings here and there in the process.” Many people plan for construction costs, but they don’t consider other expenses such as the cost of hiring an architect or engineer or building a septic system or digging a well, she says. More people today are thinking about how much space they’ll really need, Khanani says. “Bigger is not always better.” Bruce Graham, a CAPTRUST financial advisor in Greenwich, Connecticut, encourages his clients to be realistic when building or renovating. Some people add extra rooms expecting their older parents to move in or their adult children to vacation with them, but that doesn’t always happen, he says. People should also consider resale, he says. If the property is a unique “statement piece, then finding someone to buy it later may not be easy.” From an investment point of view, Graham reminds his clients that real estate prices are cyclical. “Many people think they’ll build it, and it’ll be an investment, but real estate has fallen in the past, and at times, it has fallen sharply,” he says. Graham also makes sure his clients aren’t over-invested in real estate. So if they have multiple homes, such as an apartment in New York City, a beach house, and a mountain retreat, then he advises them to adjust their investments in stocks and bonds accordingly, putting less money in real-estate-related securities.

The Simcoes spent more than they expected, partly because they decided to upgrade many features. They didn’t want to cut corners in the place where they hope to spend the rest of their lives, Grace says. The details matter, Joe says. “All the little things create a quality, comfortable, livable home.” Jeri and David Kelly, both 65, of Baton Rouge, Louisiana, built a 6,000-square-foot Victorian Greek Revival house designed by Harris. The beauty of a new house is you can get the look of an older one without the maintenance problems, says Jeri, who previously remodeled two older homes. The Virays, who are both in their 50s, say their home on the Hudson River came together exactly as they envisioned. There’s a guest wing so family and friends can have privacy as well as a huge kitchen where “everybody congregates, and we have cooking competitions,” Sue says. “When we have the house filled with 25 people, it still doesn’t feel that crowded, and when the two of us are there it doesn’t feel empty.”

Garrett Rowland Photography

“Part of my role is to help them come up with a realistic project and budget and then try to gain savings here and there in the process”. Fauzia Khanani Founder and Principal, Foz Design

“Whether you’re building a $1 million or $10 million home, many of the issues are the same,” Graham says. “Often it costs more than you think, takes more time than you think, and is more stressful than you think. You will need to make a lot of decisions.” But for many, the joy of having something of their own creation makes all the effort worthwhile, he says.

Before she starts a design, Khanani talks to her clients about their vision: how many bedrooms they need, whether they work at home, what hobbies they have, how much they cook, how they entertain, and if they expect aging parents will live with them at some point. “It gets pretty detailed,” she says. Some clients bring photos they’ve found online or in magazines or books. Often they have ideas for some of the finishes, and they may have an idea of some of the spaces they want, but they don’t usually have a layout and a plan, she says.

“One of our clients came to us with 10 books on renowned architect Frank Lloyd Wright. They had marked pages and pages of houses that they loved. After talking with them at great length, we figured out the aspects of every one of those pictures that they liked. Without replicating it, we used those ideas to influence the design of their home,” Khanani explains. Continued on page 18

Garrett Rowland Photography

Continued from page 17

If you’re planning your dream home, other things to consider include:

The Future People have to think about where they see themselves in 5, 10, and 30 years, Khanani says. Her firm recently completed a dream home for a family of five who live outside Chicago. “They were thinking about their present day life, near future life, and life as seniors and how the space could accommodate all those periods.”

The Environment Clients often are interested in incorporating green and sustainable practices in their home, including using more efficient insulation and energy-efficient HVAC systems, Khanani says.

Aging in Place Many people plan to remain in their homes for as long as possible, which Harris calls “grace in place.” To make that easier, doorways can be built wide enough to accommodate a walker or a wheelchair. “We can incorporate an elevator into the design or create space where we can add one later,” he says. Features that support aging in place have little impact on initial construction budgets, but their absence causes problems for people as they get older.

Hobbies Often clients want their dream house to accommodate their passions. For many that’s cooking and entertaining, so they build both outdoor and indoor kitchens. Harris recommends that the outdoor 16 18

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“It doesn’t have to be a mansion. It doesn’t have to be huge. It just has to be you”. Kevin Harris Author of The Forever Home

kitchen be located near the indoor one to reduce duplications such as having two refrigerators or freezers. People who are passionate about restoring old cars may opt for a shop where they can work. Avid gardeners may build a gardening shed or greenhouse, he says.

Practical Matters Harris has noticed that his clients are more likely to use the exercise room if it’s accessible to their bathroom or master bedroom suite. In one case, the homeowner can see the door to his exercise room in his bathroom mirror.

Hiring the Right Contractor When custom building, it’s important to select the right builder, Harris says. Some aspects to consider: the contractor’s personality, reputation, experience, price, work quality, and ability to complete the project in a reasonable time. If you have a place you identify with, it will be your forever home, Harris says. “It doesn’t have to be a mansion. It doesn’t have to be huge. It just has to be you.”

Garrett Rowland Photography

Steps to Take You From Dreaming to Planning a Home When planning a dream home, it’s important to understand the “hierarchy of design,” says architect Kevin Harris, author of The Forever Home. For the best results, he recommends making choices in this order: •

The most important thing to consider is the neighborhood. It should be convenient to work, school, shopping, and social activities, which allows you more time to enjoy the sanctuary of your home, he says.

•

The next consideration is to pick the right lot within the neighborhood. You have to take into account the views from the residence as well as possible problematic issues such as noise or lights from the road. For example, Harris designed a renovation of an existing house for a friend. The plan included a master bedroom that extended out over a pond on her property. “It was a magical setting,” he says.

•

Determine the floor plan to work with your lifestyle, your site, and existing views.

•

Figure out the style of the home, which is determined by your likes and dislikes, Harris says. Some questions to ask yourself: Do you like a light and airy feeling? Hard materials such as stone? Warm or cool colors? These ideas are woven into the design so the home is unique to you, he says.

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MANAGING YOUR LIFE INSURANCE PORTFOLIO by neil downing

A corporate executive for a large, publicly held company had a sizeable life insurance policy. The company paid the premiums while he was employed. At his retirement, the policy transferred to him as its owner. But the policy “was expensive, with large ongoing premiums, and the death benefit would be taxable in his estate,” said Mike Gray, a financial advisor at CAPTRUST in Raleigh, North Carolina. It was an older policy with “a high internal cost structure,” Gray said. The retired executive was in good health, so Gray worked to find him a policy with the same death benefit and 57 percent lower annual premiums. He placed the new policy in an irrevocable trust so that its proceeds would not be part of his taxable estate. This revised ownership structure could save the family millions of dollars in estate taxes. About 87 million U.S. households own some form of life insurance. Some households own more than one product or policy, said James Scanlon, senior research director at LIMRA, an insurance and retirement research trade association based in Windsor, Connecticut. “However, too few policies are being analyzed to make sure that the insurance matches the policyholder’s needs,” said Mike Molewski, CFP®, principal and financial advisor at CAPTRUST’s Strategic Advisor Group in Bethlehem, Pennsylvania. “When a professional advisor conducts a thorough life insurance review, clients often reap substantial benefits.”

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A review may be a necessity. Primarily because of the current low-interest-rate environment, many life insurers are being squeezed financially. As a result, some policyholders are facing the possibility of having to pay more out of pocket for their coverage or run the risk of having the coverage lapse — even though they have been paying premiums as scheduled for many years. Often, they must make difficult choices about what to do next.

NEED TO MONITOR Have you reviewed your policies lately? Does your life insurance portfolio match your current needs? And do you need other types of life insurance as you near retirement — or during your retirement? Whether you are working or retired, you should not ignore your life insurance. “There are many people who do not understand what they own,” says Molewski. “Your needs change as your life progresses, and your life insurance coverage must keep pace,” Gray said. Market conditions change, too, which could affect a life insurance policy’s performance and viability. Life insurance “should be managed, just like any other investment,” Gray said. It also needs to be examined as one element of a person’s broader wealth plan, he indicated. “Often, insurance agents sell you a policy and are never heard from again,” Gray said. At the same time, policyholders are often busy people — engaged with their work, families, and lives — “and may not have paid any attention to it at all,” he said. There has been a 26 percentage-point increase in the proportion of insured households that want to have a life insurance review, said LIMRA’s Scanlon. “That’s just a huge change,” one that is consistent across demographic groups, regardless of age, income, and marital status, he said. Molewski recalled an attorney who had a life insurance policy with $2 million of coverage. But there was not enough cash value built up to support the policy past the attorney’s life expectancy, he said.

“Your needs change as your life progresses, and your life insurance coverage must keep pace.” Mike Gray CAPTRUST Financial Advisor

The attorney wanted his life insurance to last longer, and he didn’t want to pay any more premiums. Molewski recommended reducing the death benefit to $1.5 million, a move that extended his coverage through age 115 — with no additional premiums needed. The existing cash value was enough to cover the entire cost. Continued on page 22

Continued from page 21

INSURANCE AMOUNT “Among the issues to consider when it comes to life insurance is whether one has the correct amount of insurance, the correct type of insurance, and is paying the proper amount of premium,” Molewski said. Of these, “Having the correct amount of insurance is the most important consideration.” Determining insurance needs varies by insurance professional and by insurance company, he said. As a general rule, he said, “We see five to ten times a professional’s income as a starting point.” But other factors matter too, such as family size and financial resources. No single rule of thumb can take into account all the variables. A professional with a young family may have the greatest need for replacing lost income, as well as for providing for a college education for children, taking care of a spouse, paying off a mortgage, and creating a fund for emergencies, Molewski said. Molewski knows of a 39-year-old woman who died last year, leaving two young children. Fortunately, the couple had life insurance coverage on each spouse. As a consequence, the death benefit gave her husband the ability to take an extended leave of absence from his company to arrange proper family counseling and make childcare arrangements. “It was extremely sad … but reassuring to be able to go on and not have to deal with the financial hardship caused by the death of a loved one,” Molewski said.

NEEDS EVOLVE Term insurance provides coverage for a limited amount of time. Other types of policies, called permanent life insurance, generally provide lifetime coverage. These policies include an investment component that builds up over time as the policy’s cash value. Such a policy may be better suited for an older profes“Among the issues to consider when it comes to life sional, or a business owner, with substantial assets, Molewski said. insurance is whether one has the correct amount The net cost of such a policy over time can be lower than term for of insurance, the correct type of insurance, and is most of these individuals. paying the proper amount of premium. Having the For example, permanent life can provide the financial wherewithal correct amount of insurance is the most important for principals in a business to buy out the interest of a deceased partconsideration.” ner, Gray said. It can also allow you to leave a legacy to loved ones in Mike Molewski an amount far beyond the value of your assets. CAPTRUST Principal & Financial Advisor

For successful people who have accumulated substantial wealth, life insurance can provide a means of preserving and protecting family wealth over multiple generations. “It can also help provide needed liquidity to pay any death taxes that may be due, allowing heirs to keep a closely held business intact,” Gray said.

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DIFFERENT TYPES OF POLICIES “There are different types of life insurance products for different needs,” Molewski said. “Selecting the right type depends on factors, including one’s risk tolerance and comfort participating in the ups and downs of investment returns within the insurance product.” For example, a universal life insurance policy featuring a no-lapse guarantee may best suit someone who wants the least amount of risk. Assuming the person pays all the premiums when due, the policy remains in full force until the age of 100 or even 120, Molewski said, and will pay the guaranteed death benefit. On the other hand, a variable universal life insurance policy may best suit someone who wants to participate in the policy’s investment return over time, but who still wants to have the certainty of a death benefit. With a variable universal life product, the cash value of the policy is credited with investment returns from the policy’s underlying investments (called subaccounts) that work much like mutual funds.

IMPORTANCE OF REVIEW “A review may also show that someone no longer needs life insurance, or perhaps not as much as before,” Molewski said. An advisor might recommend adjusting the amount of insurance coverage up or down based on a client’s current or future needs. As a professional nears retirement and his or her children reach adulthood, the need for coverage may diminish to the point that life insurance may no longer be necessary. At that point, a review may reveal a number of options for the person, Molewski said, such as: • cashing in the policy and investing its cash value; • converting the policy into an annuity, which in turn could provide income to the insured; or • reducing the death benefit and thereby reducing or eliminating future premiums. Continued on page 24

“A review may also show that someone no longer needs life insurance, or perhaps not as much as before,” Molewski said. An advisor might recommend adjusting the amount of insurance coverage up or down based on a client’s current or future needs.

Continued from page 23

MARKET CONDITIONS A life insurance coverage review may also reveal “headwinds,” Molewski said, such as the following: • the insurance carrier may be underperforming financially; • the investment component of the policy may not have the proper asset allocation or investment selections; • the policy may be underfunded; • the policy owner may have missed some of the required premium payments; or • the policy owner may have taken out excessive loans against the policy’s cash value. Some problems have emerged in recent years, mainly as a result of the low-interest-rate environment. Some insurers have sent letters to universal life policyholders informing them that the cost of insurance is increasing. They are telling policyholders that they’ll have to pay higher premiums to keep the amount of their death benefit intact, reduce the amount of their death benefit, or give up the policy altogether — in other words, surrender the policy for the amount of its cash value. In response, some policyholders have filed suit against the insurers. Short of legal action, policyholders should review the terms of their policies and the consequences of any action they may take. For example, reducing the death benefit of a policy could trigger a surrender charge that could wipe out any savings resulting from a reduced death benefit.

SILVER LINING A regular life insurance review may also show that the policy owner should take no action. For example, some whole life policies are paying approximately 4 percent on the policy’s cash value — a high rate, given how low interest rates have been. Such a policy “has very low risk and is income tax deferred,” Gray said. Still, some policyholders are being talked out of such policies by agents eager to sell them new policies — a practice called replacement. “People often see life insurance as an expense, but don’t look on it as an investment,” he said. Overall, “life insurance may be the most undermanaged asset that most clients own,” said Molewski. “You get an annual statement that can be difficult to read,” so the statement and the policy are set aside. “It goes into that stack of papers and it doesn’t get the needed attention.”

“It’s important to measure and monitor the performance of a client’s life insurance portfolio much like we do with their investments. We use a consultative process that often leads to substantial improvements.” Mike Molewski CAPTRUST Principal & Financial Advisor

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WINGING IT story and photos by t. edward nickens

Chloe parts the broomsedge like Moses, headed for a milo strip, muzzle to the ground. A bird dog with a nose full of quail is a wonder to behold: flanks quivering, breath heaving in great plumes of steam. When the setter locks up to point the covey of birds, she stops so suddenly that there are skid marks behind her paws.

“Look at that,” whistles my friend, George Dixon. North Carolina State University’s admissions director emeritus and a senior consultant to The College Board, Dixon has watched bird dogs point bobwhite quail all his life, and like me, he never tires of the sight. We both stand quietly for a moment, shotguns in hand, hesitant to break the spell of the moment. In some respects, it’s a scene lifted from another time. Quail hunting has a storied, centuries-long tradition across much of the South and Midwest. Many people remember the days when a young hunter and a bird dog could take off after school and chase bobwhite quail across the tangled farm fields of the mid-20th century. Quail were plentiful, and so, too, were places to hunt them.

Thankfully, despite years of headlines about the alarming decline in wild quail populations, a growing interest in bird hunting is supporting a growing number of commercial quail hunting preserves operating across the country. On these managed properties, penraised birds are released to support finely tuned hunting operations that often include world-class accommodations, gourmet dining, and managed shooting grounds that harken back to the glory days of golden sun in the longleaf pines. It’s a scene that’s attracting plenty of hunters, including a growing number of business clients who treat customers and colleagues to a day of quail hunting the same way many others put together a links foursome for a day on a golf course. Continued on page 26

Continued from page 25

The camaraderie is unbeatable. The scenery is often unforgettable. And the shooting can be fast paced. “Steady, girl, steady,” our hunting guide calls to Chloe as he unsnaps the leash on a flushing English cocker. Dixon and I step quickly to the bird dog, shotgun muzzles at the ready. When the quail covey flushes, a dozen bobwhites burst from the tangled turkey oaks and partridge pea in front of the dog with the sound of an old car motor roaring to life. Dixon shoulders his shotgun and pulls the trigger before I can get a bead on my bird, but I’m not far behind. Soon, feathers float in the crisp winter air. Dixon and I exchange handshakes and big grins. Then we move deeper into the piney woods. Somewhere ahead, Chloe is working her magic again.

Hunting birds on a managed quail plantation today might not involve polo or horse racing, but it’s still a congenial sport. Forget 4 a.m. wake-up calls and tough slogs to a muddy duck blind. On most quail hunting plantations, the hunts only commence after a serious hunt breakfast.

Quail hunting has long fostered an intersection between the sporting and business worlds. In the famous Red Hills shooting grounds between Tallahassee, Florida, and Thomasville, Georgia, wealthy industrialists from the North snapped up huge parcels as southern land prices collapsed after the Civil War. Fueled by a growing interest in bird hunting with pointing dogs, the trickle of Yankees swelled into a flood. Today, some 300,000 acres of prime quail land are still owned by titans of industry. In North Carolina, scores of quail plantations covered tens of thousands of acres. Frank Fleer, inventor of bubble gum, owned a massive quail plantation. J.P. Morgan built a sprawling lodge in the region with as many as 26,000 acres of leased ground. His friends shot 10,000 wild quail a year — a feat made easier with mule-drawn carts for both men and dogs. Stockbroker William Ziegler put together a 20,000-acre spread. There were racetracks, polo fields, golf courses, and trap shooting. In an average day of hunting, gunners expected to put up 18 to 40 wild coveys. William Gould Brokaw, grandson of the robber baron Jay Gould, ran a 30,000-acre quail spread in the area. Hunting birds on a managed quail plantation today might not involve polo or horse racing, but it’s still a congenial sport. Forget 4 a.m. wake-up calls and tough slogs to a muddy duck blind. On most quail hunting plantations, the hunts only commence after a serious hunt breakfast. Guests might walk behind the dog, or follow in utility terrain vehicles until a dog goes on point. Quail hunting is an inherently social activity, so there’s plenty of time for conversation before, during, and after the hunt, when most plantations put on impressive meals for boot-sore hunters — all of which makes a visit to a quail plantation a perfect scene for business gatherings, be it a oneon-one afternoon with a treasured client or a full weekend designed to accommodate a corporate meeting. “We are definitely seeing an increase in the number of people who come to shoot as part of a business outing,” says Dan O’Conner, general manager of the 1,100-acre George Hi Plantation, an Orvis-endorsed lodge in the historic quail country of North Carolina. “Quail hunting is a relaxed setting with an atmosphere that suggests that you are getting away from it all. There is rarely a feeling of being rushed, and that’s certainly conducive to meaningful conversations.” Not to mention the gorgeous surroundings. Shooting preserves around the country showcase some of the finest landscapes in America. At Colorado’s Kessler Canyon, I’ve followed rangy pointers through mesquite flats where Continued on page 28

Winter | 2017

BIRD HUNTING 101 If you’re lucky enough to score an invitation to a quail hunt, you’ll want to know what to expect to get the most out of a day afield.

Licenses

Firearms

Requirements for licenses vary from state to state, so be sure to get the proper information before you hunt. Some states require standard hunting licenses, while others issue commercial shooting preserve licenses for commercial hunting operations. Your hunting preserve will have the details, but inquire early enough so you have what you need.

Many plantations request that hunters use shotguns of no larger than 20 gauge, and over-and-under or side-by-side doublebarreled shotguns only. That means your trusty all-black, synthetic stocked, autoloading duck gun may not be smiled upon. The reasons are twofold. First, smaller 20-gauge shotguns are considered more sporting than larger 12-gauge shotguns and reduce the temptation to shoot too far. And break-open, double-barreled shotguns make it easy for all parties to confirm that guns are carried safely during all aspects of the hunt. And no worries — if you don’t own the correct type of shotgun, most quail operations have firearms for loan or rent.

Clothing You’ll want sturdy shoes, either hiking boots or midcalf leather boots. Brush pants are hunting pants that have been faced with briar-proof material, and they are definitely a plus. Shooting chaps serve the same function. Wear comfortable clothing; you’ll be walking quite a bit. And pack a hunter-orange hat and vest. You probably won’t need a full hunting vest with large pockets for shells and game. Your guide should have plenty of cargo space and will carry these items.

Other gear You should definitely consider eye and ear protection. Shooting glasses are best, as they have been tested to withstand the impact from shotgun pellets. Inexpensive foam earplugs will suffice, although shooting muffs with electronic amplification can make carrying on conversations a bit easier.

Shooting preserve etiquette Quail hunting is a convivial activity, but safety is always absolutely paramount. Be prepared for a safety talk and demonstration before any hunt. You’ll never load your shotgun until a dog points and is waiting for the shot. And maintaining complete control of your muzzle so that it never crosses another person is critical. After the shot, of course, heartfelt compliments for good shooting are always appreciated. And good-natured ribbing over missed opportunities is always expected. Fire away!

Continued from page 26

ribbons of golden aspen coursed through deep valley floors. In Missouri, rolling plains of native prairie grasses hid coveys of quail. And in Florida, vast forests of longleaf pine created a vernal overhead canopy as English setters vaulted through wiregrass meadows that stretched as far as I could see. And everywhere, the hunt is a pageant. That’s the beauty of bird hunting: this is an ever-changing, theatrical performance. There’s a classical choreography to a quail hunt, with the dogs moving first across the grassland stage, followed by the hunters. There is something quite dramatic about a white bird dog turned to stone along a field edge, and the percussive explosion of a quail covey bursting from a thicket. The players know their places. Everyone follows the rules. Mind your manners. Don’t walk in front of your companions. And let others go first. Sometimes, at least. Late in the day, on the afternoon that Chloe is working so hard to make unforgettable, my buddy George has dropped back behind me, moving through Indian grass and big bluestem to take up a position to the left of the dogs. “I want you to notice,” he announces, “that I’m switching sides.” I grin. The last five bird rises have been to my right, where George worked that flank of a flushing English cocker. Five flushes and I haven’t had a shot while, George put on an impressive run of downed birds. I’ll give him credit for good intentions, but these bobwhite quail are having none of it. Not 60 seconds later, Chloe goes rigid again. One moment she’s sailing through waisthigh grasses, tacking the wind like a schooner. The next moment she’s channeling her inner Michelangelo, solid as a sculpture, pointing birds. In front of George. Again.

And everywhere, the hunt is a pageant. That’s the beauty of bird hunting: this is an ever-changing, theatrical performance. There’s a classical choreography to a quail hunt, with the dogs moving first across the grassland stage, followed by the hunters.

The little English cocker, Ranger, has to practically dig the birds out of a tangled gnarl of maple and sweetgum, but off they go, rocketing through the pines at 10 o’clock to my gun. George drops a single quail and then holds his fire. “I’m trying to be a gentleman about this,” he laughs, “but the birds aren’t helping!”

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IS THIS THE

BEGINNING OR THE

END? by david hood Director, Investment Research Consulting Research Group

The deflationary forces that dominated the last eight years led to a period of prolonged economic stagnation. Then, just as the global economy appeared ready to reemerge, geopolitical change shook the world. Is the U.S. business cycle primed to continue with the tailwinds of new policy and a stabilizing global economy powering it higher? Or will new geopolitical and policy risks finish it off? While the world seems more uncertain than ever, this year’s predictions highlight three areas we’ll be watching that should give us some answers. To understand what’s next, it’s important to understand where we’ve been.

A Quick Look in the Rearview Mirror Starting with the financial crisis, two major deflationary forces were unleashed on the global economy that led to a 10-year deleveraging cycle. It started with the collapse of the U.S. housing market and retrenchment of the consumer, the power behind the U.S. economy. There was a concurrent slowdown in China, the world’s production superpower and factory floor. After years of debt buildup, that economy buckled under the pressure of slower growth and a weaker currency. While the world seems more uncertain than ever, It is the damage inflicted by these forces that produced this period of global economic stagnation. Simply put, we have just experienced a period of low growth and low inflation that, if graded, would fall below anyone’s passing score.

this year’s predictions highlight three areas we’ll be watching that should give us some answers.

Continued on page 30

Continued from page 29

The primary response from world leaders was central bank asset purchases, or quantitative easing. They hoped to stimulate their economies with low interest rates and easy money to create demand and lift growth. These policies powered a strong bull market in bonds and propelled stocks higher. As we enter 2017, the U.S. expansion enters its eighth year, making it the third-longest in post-war history. Which raises the question: Are we nearing the end of the current cycle or is there room to run? Monetary policy showed its limits in 2016, but we saw signs the global economy was stabilizing. While far from returning to robust growth, it looked like we had finally escaped the deflationary forces in control since the crisis. Fundamentals pointed to higher markets, and investors could justify a longer cycle given the adjustments needed for the financial crisis. Making the question uncertain, though, is the populace’s response to secular stagnation. Low growth in the U.S. and abroad has stirred frustration about income inequality and a perceived lack of jobs. Many people have lost faith that their children will enjoy better opportunities than they experienced. The result played out as Brexit, Italy’s “No” vote, and Donald Trump’s election as U.S. president. These votes created skepticism of the value of globalization and led to a focus on domestic policies that could more immediately impact growth.

Low growth in the U.S. and abroad has stirred frustration about income inequality and a perceived lack of jobs. Many people have lost faith that their children will enjoy better opportunities than they experienced. The world today is at a turning point. We find ourselves emerging from a prolonged period of debt payback at the time we’ve decided to try something new. Although fundamentals support a positive view on the markets next year, the future seems uncertain and clouded with policy unknowns. However, while the path may be more uncertain, the strategy is clear. We’ve laid out three key themes that we believe will drive market performance for the next year.

The Great Handoff It has only been a few months since Donald Trump was elected 45th president of the United States, and markets have responded to expectations of fundamental policy change out of Washington. Trump’s move toward expansionary fiscal policy is a seismic shift, ringing in a post-monetary-policy era in the U.S. Even just the prospect of this shift has profoundly affected portfolio returns. And this is just the beginning. For investors, this shift in policy marks a major moment and has considerable portfolio planning implications. While monetary policy has dominated the post-financial-crisis economic landscape, the next few years may flip the script. The combination of expansionary fiscal policy, deregulation, tax reform, and a stabilizing global economy should generate improved growth in the coming year — and also the prospect of higher inflation. Already the U.S. economy is showing signs of emerging inflation, driven by a tightening job market and rising oil prices. With a boost from more government spending and tax cuts, the flicker of inflation could become a full-on flame. This means we are leaving a period friendly to stocks and bonds and entering one that could be stock-friendly — but may be unfriendly for bonds. Investors should favor stocks over bonds and look to add inflation-resistant assets to portfolios. We have also seen a regime change occur within the U.S. stock market. Yesterday’s losers have become winners and vice versa in industries from energy to financials to pharmaceuticals. This is a theme that will continue. The past several years’ market leaders — stocks like Amazon, Netflix, and Alphabet (formerly Google) — may struggle to keep up as investors’ preferences change.

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We think investors should look for value stocks. Many value sectors receive heavy regulatory scrutiny that may be lifted under the Trump administration. Small-capitalization stocks could also outperform. They, too, bear a higher regulatory burden than their large-capitalization peers. On balance, the combination of government spending, deregulation, and tax reform should be positive for U.S. stocks in 2017. It could also put a cap on bond market returns. Market leadership change will be a story this year, but inflation could be the biggest story. While modest inflation would be welcome after years of low inflation, flat-to-declining corporate earnings, and low wage growth, a flicker of inflation that turns into a flame could undo many of 2017’s positives.

It is unlikely that the world will deteriorate into all-out conflict, but events unthinkable only a few years ago can now be imagined. Geopolitical risk affects business confidence, although that too can take time. Most people are slow to recognize changes in geopolitical cycles, which are much longer. Most likely, the U.S.’s move toward self-interest creates investment, which causes the U.S. to grow and the dollar to further strengthen. Given the dawning of this new era and a maturing U.S. business cycle, now is not the time to take big risks, but a time to start taking position sizes down. We expect volatility this year driven by geopolitical events, and we want to ensure we’re able to capitalize on opportunities when they present themselves. Continued on page 32

Geopolitical Risk and a Leaderless World Up to this point, we’ve talked about potential tailwinds resulting from pro-growth economic policy. While the wave of populist advances that ushered in these policies across the globe may catalyze growth in the short run, it also marks a shift in risk. If risk over the past ten years was characterized by the potential to fall into a deflationary spiral and another financial crisis, the risks going forward are very different. Today, the primary risks we see affecting markets are the lack of a global leader and an uncertain geopolitical world. A prominent geopolitical research firm recently wrote that investors often think of the economy in cycles lasting seven or eight years, but that they don’t think about geopolitical ones. Geopolitical cycles exist too, but they go on much longer, often for decades at a time. Since World War II, we have been living out a cycle called Pax Americana, a term political scientists use to describe relative peace around the globe. American leadership in trade and security, and the promotion of democratic values define this cycle. President Trump’s “America first” promise marks a clear departure from this cycle’s tone and decades of foreign policy. We are entering a world where America no longer feels the need to shoulder the burden of world leadership and pursues its interests first. In this world, the leader who has served as the cornerstone for global stability will no longer play that role. When the U.S. pivots away from its leadership role, we will enter a period of uncertainty as political norms and trust forged over the past 70 years fade. With the U.S. off its watch, we expect emboldened leaders around the globe to pursue opportunities more aggressively in their regions, especially within Asia. Maneuvering from these countries further increases geopolitical uncertainty and risk to markets.

The Great Handoff 1. Position for a rising inflation environment • Look for opportunities to favor stocks over bonds, and position defensively within bonds • Inflation-resistant assets offer protection against higher-than-expected inflation 2. Look to capitalize on market rotation driven by new policy direction • Seek income through fixed income opportunities outside traditional areas (e.g., structured credit) • Look for value opportunities • Small-cap stocks could benefit from a move toward deregulation

Geopolitical Risk and a Leaderless World 3. Position for a stronger dollar based upon investment in the United States. 4. Reduce position sizes to manage portfolio risk

Higher Bull and Higher Bear Cases 5. Maintain liquidity to capitalize on opportunities in either direction 6. Favor active management in areas that can react aggressively to market shifts 7. Look for strategic opportunities insulated from extreme outcomes and that provide uncorrelated returns • Volatility and reinsurance strategies are attractive • Select opportunities within private credit are also appealing

Continued from page 31

Higher Bull and Higher Bear Cases Our final prediction for 2017 involves the path of potential outcomes. We are optimistic as the global economy exits eight years of stagnation but see the chance of extreme outcomes, both positive and the negative. Monetary policy exhaustion, a still-fragile world economy, and rising political risk point to a potential overshoot to the downside. Meanwhile, positive economic policy change that leads to a larger sentiment change could unleash investors’ animal spirits and an upside surprise. In our downside case, we see a number of problems that could unfold for the global economy. The main one involves the policy choices that could reassert the U.S. and attract capital as it returns as a growth opportunity. While this would be positive for U.S. investors and businesses, it would most likely strengthen the dollar. A strong dollar could literally “break” other economies unable to manage weaker currencies and dollar-denominated debt payments. In this scenario, pressure imposed by U.S. strength could lead to a sharp decline in emerging markets, especially China. Political uncertainty also looms large in 2017. Notably, China holds its 19th National Congress of the Communist Party in the third quarter. China last held these meetings in 2012. Chinese President Xi Jinping is expected to consolidate power further this year. And he’s going to be sensitive to anything that would create the perception of weakness. Given the importance of these meetings, we see a chance of a policy overreaction in response to either political or economic volatility, where unnecessary steps are taken to ensure perceived stability and authority. Political uncertainty also exists in Europe this year with French and German elections. The outcome of the French election, in particular, could start the clock on the end of the European Union if the populist wave makes its way to France. The potential for these outcomes to weigh negatively on sentiment figures into our assessment. On the positive side, there is a path to a larger than expected upside surprise. Years of accommodative policy that pushed up financial

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asset prices largely never made its way into the economy. These stockpiles of cash sitting at banks could act as kindling, fueling a surge in U.S. growth as banks start to lend and companies begin to invest again. The U.S. consumer also appears ready to spend and re-lever after years of retrenchment. This could serve as a positive catalyst. Should business and consumer confidence rise in tandem, we could see a surprisingly positive scenario and a rise in stock prices. The U.S. consumer also appears ready to spend and re-lever after years of retrenchment. Should business and consumer confidence rise in tandem, we could see a surprisingly positive scenario and a rise in stock prices.

Given the large divergence of outcomes, we believe investors should maintain liquidity and take advantage of opportunities on either side. Active management and selection of managers with specialized expertise will be critical to success in asset classes such as fixed income and U.S. smallcap and international stocks. Lastly, investors should search for uncorrelated areas of return that are not path dependent on either outcome and can make money regardless of future world state.

MARKETS CLOSE OUT A GOOD YEAR While the fourth quarter was mixed, all asset classes moved higher last year. In the end, 2016’s headline events and periodic choppiness masked slow-but-steady economic improvement that supported markets and produced solid results for the year. • Buoyed by an improving economy, U.S. stocks notched another quarterly gain, adding to their gains for the year.

12.0%

11.8%

• International stocks slipped in the fourth quarter but eked out a small gain for the year. • Bonds fell in the fourth quarter as interest rates reached their highest levels in more than a year. They managed a small gain for 2016. • Real estate slumped in the fourth quarter due to rising interest rates but finished the year in positive territory. • Commodities rose again last quarter and finished off a year of strong gains fueled by rising oil and gas prices.

Real Estate 7.6%

• Strategic opportunities struggled again in the fourth quarter as hedge fund managers were dealt another tough year.

MARKET INDEX PERFORMANCE (as of 12.31.2016)

Strategic Opportunities

International Stocks

3.8%

U.S. Bonds 2.7%

2.7%

1.5%

-0.4%

0.3%

-0.7%

-3.0%

-3.1% Commodities

U.S. Stocks

2016

LOOKING FORWARD After raising interest rates in December, the Federal Reserve indicated that more hikes could occur in the new year depending on the strength of the U.S. economy. Meanwhile, investors will be taking policy cues from the Republican-led Congress and the Trump administration. While their policy changes should result in higher U.S. growth (and inflation), a few wildcards could offset the positive trend. A stronger dollar could hurt U.S. earnings and emerging market stocks; trade policy under President Trump is another area of uncertainty. While U.S. stocks have rallied since the election, we expect periods of volatility as it becomes clearer what the new administration in Washington will be able to accomplish.

Asset class returns are represented by the following indexes: U.S. large-cap stocks (S&P 500 Index), international stocks (MSCI EAFE Index), hedge funds (HFRX — Absolute Return Index), U.S. bonds (Bloomberg Barclays U.S. Aggregate Bond Index), commodities (Bloomberg Commodity Index), and real estate (Dow Jones U.S. Real Estate Index).

TRANSITIONING TO RETIREMENT: MUST-HAVE MONEY CONVERSATIONS by kathleen burns kingsbury

Transitioning to retirement is a big life adjustment, one fraught with mixed emotions and moments of uncertainty. The goal is not to deny that you are having these feelings, but to proactively address these concerns and discuss them with your partner. Advisors who view retirement holistically see this as part of their role. “If we can take the financial burden off their plates, then we have done our job, allowing them to focus on the other aspects of transitioning to retirement,” says Aaron J. Morris, a CAPTRUST financial advisor in Des Moines, Iowa. The biggest question for couples approaching retirement is: What does each person want out of this next phase of life? It is a big inquiry, and chances are partners won’t agree on all aspects of what the ideal retirement should look like. This is where working with a trusted advisor can make a difference. While most advisors are capable of crunching numbers and putting together a retirement plan, look for professionals who go one step further. “I am as much your financial therapist as I am your advisor. There is a lot more than alpha, beta, and standard deviation to helping a family set, reach, and maintain their retirement goals,” says Kevin Simms, a CAPTRUST financial advisor in Clarkston, Michigan. How do you get the conversation started as you approach retirement? Begin by answering these five questions:

What are your priorities in retirement?

It is not uncommon for couples to have some conflicting views on how they want to use their time. It is important to discuss these priorities and come to some understanding of shared and individual goals. If you want to spend the first year of retirement sailing around the world, and your partner wants to spend more time with the grandchildren, it is important to discuss these different priorities. Often, couples can come up with a compromise that honors both spouses’ wishes.

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How much time do you spend together?

Do you want to work in retirement?

How do you typically experience life transitions?

For 40 years, you have each gone to your respective jobs and then spent time together on the weekends. You retire, and all of a sudden, you are together 24 hours a day, seven days a week. This is a big change and often causes conflict, especially in the first year. Be proactive and talk about how you can structure joint time and individual time. For example, one couple decided to spend the beginning of week with their respective friends and activities and the end of the week doing fun things together. It mirrored their working life routine and provided some clarity around how and when to socialize alone versus together.

As many as nine million Americans engage in post-retirement careers, so working in retirement is not only viable, it’s a trend, at least according to recent Wharton research. Motivations to work in retirement vary from financial need to finding a sense of purpose and a social outlet. Take time to reflect on what your current job provides — other than a paycheck — and encourage your partner to do the same. Then discuss if working might help fill those needs. For example, if working challenges you intellectually, consider how you can remain stimulated. A part-time teaching position at the local community college or a volunteer position at your local library might do the trick.

People experience life transitions in a variety of ways. Some find change exhilarating; it produces anxiety and discomfort for others. Think back to the last life transition you experienced. What thoughts, feelings, and reactions did you have during this transition? How was your reaction similar to or different than your partner’s? By identifying and discussing how you experience change, you can plan for this transition. Expect that each of you will have your own challenges, People experience life transitions in a variety of and be respectful of these differences.

What type of support do you need as you transition?

ways. Some find change exhilarating; it produces anxiety and discomfort for others. Think back to the last life transition you experienced. What thoughts, feelings, and reactions did you have during this transition? How was your reaction similar to or different than your partner’s?

In addition to working with a holistic financial advisor, consider hiring a retirement coach, marriage counselor, or family wealth consultant to help you talk through the transition. These professionals are skilled in communication and understand the emotional aspects of retiring. If conflicts arise — or if you just want a safe place to talk through these issues — a neutral party is useful. Decide what type of support you two are interested in pursuing, then ask your advisor for referrals in your area. Like most money conversations, discussing how to transition to retirement is not a one-time event. It is series of dialogues that help you understand yourself, your partner, and how to best prepare for the next leg of your life’s journey together. Be proactive, and know that these conversations will pave the way for enjoying what you have worked so hard to save for all these years.

WHAT YOU SHOULD KNOW ABOUT PROBATE, TRUSTS, AND BENEFICIARY DESIGNATIONS by nanci hellmich

It pays to plan ahead. Creating an estate plan that avoids probate is an extra gift you can leave your beneficiaries. It can save them time and trouble, reduce costs, and protect everyone’s privacy, says attorney David A. Burns, a board-certified specialist in estate planning and probate law in Raleigh, North Carolina. Most of his clients don’t want their estates to go through probate — the court-supervised process that validates wills and appoints someone to manage estates and distribution of assets to beneficiaries. They know it can be complex, expensive, and time-consuming. “In North Carolina, the probate process usually takes about a year to complete, but it could be longer if there are complex assets and issues involved or if beneficiaries disagree,” says Burns, a partner at Wyrick Robbins. He is working on a case right now that has been in probate for almost three years because the deceased had no will or trust. Probate is more complicated in some states than others, but even in states that don’t have a complex process, it’s too much for the average person, says University of Missouri law professor David M. English, co-author of two books on wills, trusts, and estate planning. English, also vice chair of the trust and estate division of the American Bar Association Section of Real Property, Trust, and Estate Law, explains how probate works: • The attorney files the will with the court, where it becomes a matter of public record. “Some clients don’t like this because it means their private business becomes public after their death,” he says. “They may have been prominent people in the community, and they don’t want their assets and financial information available to everyone.” • After filing the will, the attorney applies to the court to have it approved and to appoint a manager or personal representative. Also called an executor, that person pays the deceased person’s bills, sorts out the assets, and distributes what’s left to beneficiaries.

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• At the conclusion, most states require some kind of accounting or financial report that may be made public. Probate records are public to at least some extent everywhere. “The issue is how much and whether the general public has access to sensitive information,” English says. • The size and complexity of the estate determines the cost. For instance, selling real estate or a business can be time consuming and expensive. The larger and more complex the estate, the greater the The size and complexity of the estate determines benefits of avoiding probate.

the cost. For instance, selling real estate or a

There are several ways to bypass this process. One business can be time consuming and expensive. way is to create a revocable or living trust, which is The larger and more complex the estate, the a method of distributing assets after death. Revocable trusts are popular with people who greater the benefits of avoiding probate. want more control over how their assets will be distributed, including those who want to protect the interests of children from a prior marriage, those who are making arrangements for underage children, folks who have a family business, and people with large estates who want a reduction in federal and state death taxes. “It’s important to make sure all assets subject to probate, including homes, other real estate, investments, and businesses, are in the trust,” English says. “The revocable trust requires some diligence and lifetime attention, but if you do the work now, it makes it much easier on the family after your death than probate.” “With a revocable trust, there is usually no need for the court to get involved in the administration of the deceased’s assets,” Burns says. The successor trustee can distribute the assets to the trust’s beneficiaries. Those assets are known only to the recipients and not the public. As a safeguard, people should also sign a pourover will, which directs any assets held outside the trust — that would otherwise be subject to probate — to go into the trust after their death. After the trust is set up, the costs to administer it are minimal. The trustees control the assets, and they don’t need the ongoing involvement of an attorney.

Continued on page 38

Continued from page 37

“Some people choose to establish an irrevocable trust for reasons other than probate avoidance, such as creditor protection and tax advantages,” Burns says. “In this case, people are really giving away assets,” he says. Generally speaking, once an irrevocable trust is established and funded, the grantor, the person who transfers ownership of property to the trust, can no longer get the assets back, and the terms cannot be changed. On average, it costs about $3,000 to set up an estate plan, including funding of the trust. “The price tag varies based on the area of the country and complexity of the estate,” English says. Besides a trust and will, an estate plan usually includes power of attorney and medical directives. Another way to steer clear of probate is through beneficiary designations and titling of assets. Married couples can avoid the probate process by designating their spouse as joint owner or survivor beneficiary of all their assets. People can also set up payable-on-death or transfer-on-death bank or brokerage accounts. For this type of account, the owner names a survivor beneficiary on the signature card or brokerage agreement. Beneficiaries receive these assets without going through probate. Plus, insurance policies and retirement accounts, including 401(k)s, 403(b)s, and individual retirement accounts (IRAs), pass to beneficiaries outside of probate if the

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owner has signed the appropriate beneficiary designation forms. “People need to periodically update these. They should look at them during major life events, including marriage, divorce, death of a spouse, and the birth of a child. It’s prudent to look at them at least every five years,” Burns says. Kyle Tucker, a CAPTRUST financial advisor in Raleigh, North Carolina, agrees that people should make sure they have listed beneficiaries on their retirement accounts, life insurance policies, annuities, and other investments. Sometimes when checking their accounts, they realize their beneficiaries are incorrect. “People have a lot going on. When they have to cover every detail, things can fall through the cracks.”

“People have a lot going on. When they have to cover every detail, things can fall through the cracks.” Kyle Tucker CAPTRUST Financial Advisor

Many of Tucker’s clients opt for a revocable trust because it reduces the hassles for their beneficiaries and protects their privacy. Although setting it up can be more expensive than a simple will, “You have to pay the piper at some point, so do it on the front end with a trust and save your family from probate,” he says. “Not only will you be confident that your assets will be distributed according to your desires, but you’ll save them a lot of time and stress during what can be a difficult period.”

READER Q & A In this issue, we examine the impact of potential tax reform on the municipal bond market, steps to take as you enter your retirement homestretch, and creative ways business owners can use insurance.

I have been hearing about the possibility of tax reform. How will the proposed tax law changes affect municipal bonds? In the weeks following the election, investors sold billions of dollars of municipal bonds, driving prices down and yields up. Headlines claimed that investors reacted on fears that then-President-elect Trump’s proposed tax changes, if enacted into law, would undermine the municipal bond market. As always, market behavior is more than meets the eye. With a Republican-controlled government, tax reform appears likely, but we believe its impact on municipal bonds will be small. Municipal bonds’ taxable-equivalent yields will remain attractive — even if the income-tax-rate cuts proposed by President Trump pass. The negative impact would be reduced further if Congress passes a watered-down tax bill. Second, while tax rates affect the attractiveness of municipal bonds, the bond-market environment plays a larger role. The Federal Reserve’s recent comments about multiple interest rate hikes in 2017 likely played as big a role in municipal bonds’ performance as any other factor. As it does whenever tax reform is taken up in Washington, the tax-exempt nature of municipal bond income may come into question. Cutting or capping the exemption would make municipal bonds less attractive. However, it would most likely not impact existing municipal bonds. Further, while removing the tax exemption would provide federal tax revenue, that amount is dwarfed by many other deductions and would come at a great cost to the states. So far, President Trump and the Republican leadership have been silent on plans to cut or cap the tax exemption. We remain positive on municipal bonds in 2017. Municipal bonds became expensive last summer as markets priced in a Clinton presidency with higher taxes. The recent sell-off has made valuations more attractive, which should cushion returns from volatility. However, if tax reform comes during a period of weakness, we would expect municipal bonds to underperform as prices reset to appropriate levels. All else equal, we would view this kind of pullback as an opportunity to add to municipal bond allocations. Continued on page 40

Continued from page 39

I’m planning to retire in 2017. I feel like I am prepared, but are there any specific actions I should be taking? First of all, congratulations. Getting to the point where you’re comfortable that you can retire is a long journey and a big decision. There are number of ways to look at your question that take into account the many domains of your life, ranging from the financial and family to the health, social, and spiritual aspects of your life. A comprehensive answer to your question is probably best done as a feature in a future VESTED issue, but we can focus on the financial aspects for now. Many financial planners suggest that a typical retiree needs to replace about 80 percent of pre-retirement income during retirement to maintain his or her lifestyle. That’s a helpful rule of thumb, but as you’re coming into the homestretch, rules of thumb are not enough. You will want to perform a more thorough analysis based on the specifics of how you will live in retirement.

Savings and Investment Accounts What long-term assets can generate cash flow or be drawn from in retirement — i.e. 401(k)s, 403(b)s, IRAs, investment accounts, bank accounts, etc.? Once you’ve captured the raw materials, the analysis can begin. You — or your financial advisor — should perform a cash flow projection to determine how much you can withdraw from your savings and not run out of money — or that preserves a desired amount for your heirs or a special bequest. You’ll want those projections to include a range of rate-of-return and inflation assumptions to make sure your plan includes a margin of safety that you’re comfortable with. Along the way, you should also address a few other items:

Account Consolidation For the sake of convenience, you may want to consider consolidating your investment accounts with a single financial institution.

You will want to answer questions such as:

Living Arrangements Where do you want to live in retirement? Will you be moving or downsizing? Do you plan to keep a second home — or maybe move into it?

Budget Have you made a budget that covers both your basic needs and maybe a few wants? Did you include the cost of Medicare premiums and Medicare supplement insurance? What about taxes?

Income Sources What level of income do you expect in retirement? Do you have a pension? What is the best way to maximize your Social Security benefits? Do you plan to pursue part-time work during retirement? If so, what income and benefits do you expect?

Season || 2017 Winter 2017

Estate Plan This is a good time to update your wills, trusts, powers of attorney, advance healthcare directives, and beneficiary designations.

Insurance Policies You should confirm that the account ownership, beneficiaries, and benefit amounts for any life insurance policies you own are up to date and appropriate. A sound financial plan that includes a budget and cash flow projections is critical, but the financial aspects are just one facet of a good retirement plan. The good news is that a financial advisor can help you address the financial questions — so that you can focus on the other aspects. Don’t feel like you have to go it alone.

I own a business. Are there creative ways I can use life insurance in my business? The tax advantages of life insurance — combined with its flexibility — make it a versatile tool that can benefit businesses, business owners, and employees and their families. Business owners use life insurance to achieve several important objectives. A few of the more common uses include:

Key-person Coverage You might consider purchasing a key-person life insurance policy that covers the loss of services in the event a key employee or partner dies. The business owns the insurance policy and receives a tax-free death benefit, which can be used to cover lost profit and the cost of replacing the employee or business partner.

Buy-sell Agreement Funding Another way to insure against the death of a business partner is through a buy-sell agreement funded with life insurance. For example, three partners in a business each own the same amount of stock. One partner, Janice, dies, and her stock goes to her husband as beneficiary under her will. If the business had written a buy-sell agreement and funded it with life insurance, the two surviving partners would have received a life insurance benefit when Janice died, enabling them to buy Janice’s company stock from her husband.

Supplemental Retirement Savings Creating a deferred compensation plan for key employees to supplement their retirement savings is another option. Under this arrangement, your company buys life insurance policies on the lives of key employees and funds them with salary or bonus compensation set aside by the employees. These savings come out of the employees’ paychecks before taxes and accumulate tax deferred until withdrawn from the plan by the employees or their beneficiaries. Because the business is the owner and beneficiary of the policies, it receives the death benefit in the event of an employee death.

Group Life Insurance Adding group life insurance to your employee benefit portfolio can help your business attract and retain employees. Group insurance is less expensive than individual coverage and may not require a medical exam, depending on the size of your company. Premiums are tax deductible to your business, and benefits are paid directly to your employees’ beneficiaries.

If you have a question for the VESTED team, we’d love to hear from you and see if we can help. Please send your questions to us at VESTEDmagazine@captrustadvisors.com.

GIVING BACK Year-End Wrap Up In 2016, the CAPCommunity Foundation provided more than $225,000 of financial support to nearly 70 deserving charities around the country primarily committed to helping children in need. Included in this number was an in-person donation of $150,000 to CAPTRUST’s 2016 Charity of Choice, The Children’s Home of Easton, an organization that provides a caring, nurturing environment for children in need, as well as, assistance to their families.

Other charities supported in 2016 include: • • • • • • • • • • • • • • •

Activate Good All 4 Youth Program All Stars Project Inc. Antioch Community Church Arts for Life, Durham Chapter Autism Society of Greater Akron Autism Society of North Carolina Backpack Buddies Band Together Boys and Girls Club of Nash/ Edgecombe Counties Carolina Dance Foundation Carolina Youth Lacrosse Club Conservatory: Music Therapy Program Contemporary Art Foundation Cystic Fibrosis Foundation, Carolinas Chapter

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• • • • • • • • • • • • • • •

Duke Adaptive Climbing East Coast Migrant Head Start Project Elle Foundation Fellowship Raleigh’s Downtown Backpack Event Flint Child Health and Development Food Bank of Central and Eastern North Carolina Friendship Circle of New Jersey Gleaners Community Food Bank Great Trail Council of Akron Harris YMCA’s Y Readers Program Hope Reins House of Providence Inter-Faith Food Shuttle John Owen’s Adventure Inc. Juvenile Diabetes Research Foundation

• • • • • • • • • • • • • • •

KidsPeace Lemonade International Michigan Ovarian Cancer Alliance Mobile Meals, Inc. Model Volleyball LLC National Multiple Sclerosis Society North Carolina Foundation for Public School Children Nebula Dance Lab North Raleigh Athletic Association Olive Crest Our Military Kids Providence House Rebuilding Together of the Triangle Ronald McDonald House Charities of Central Iowa Royal Family KIDS

Foundation Board Members

CAPTRUST GROWTH

The CAPCommunity Foundation is pleased to welcome 15 new board members from six CAPTRUST locations who will serve two-year terms. They are:

New Cincinnati Office In January, CAPTRUST announced that financial advisors David Haire, Josh Haire, and Bridget Mitchell, formerly of HBK Wealth Management, have merged their practice with the firm. Based in the Cincinnati suburb of West Chester, Ohio, these advisors bring extensive experience in wealth management for high-net-worth individuals and families. “This relationship creates a distinct opportunity for both firms,” said industry veteran and HBK Wealth Management President and Founder David Haire. “There are tremendous similarities between the two firms’ culture, vision, and goals that will provide immediate value to our clients,” he added. The West Chester location brings the total number of advisor locations to 27 nationwide for CAPTRUST.

• • • • • • • • • • • • • • • • • • •

SAFEchild Safe Water Safe Homes Salvation Army Angel Tree Starfish Family Services Swim Across America Tammy Lynn Memorial Foundation Team IMPACT The Clark Memorial Scholarship Fund The Green Chair Project Theatre4Change Tragedy Assistance Program for Survivors United Way of Wyoming Valley University System of Georgia Foundation Vocational Guidance Vs. Cancer Foundation Wade Edwards Foundation: Tutoring Program Wake Education Partnership Webb Simpson Challenge Wes Helms Baseball Camp YMCA of the Triangle

Meagan Caruso

Trae Cole

Nick DeCenso

Karen Denise

Devyn Duex

Kevin Fieldman

Nyia Johnson

Wat Keys

Marcus Magyar

Brandon Martineson

Mikki Monroe

Jim Pierce

Beth Savage

Michael Sciascia

John Young

RECOGNIZING COLLEAGUES Excellence Award John Curry and Michael Knowles received the CAPTRUST Excellence Award at the company’s fourth quarter Synergy meeting held in October. The Excellence Award recognizes colleagues whose contributions consistently go above and beyond and who perform at the highest level. Curry is a senior director in CAPTRUSTs marketing department. His contributions have made a significant impact on the firm’s brand presence, quality of client collateral, branch connectivity, and marketplace outreach.

John Curry

A member of the Centralized Trading team, Knowles is described as a student of the game and someone who’s “on it and gets it.” He has enhanced our discretionary trading processes and simplified large and complex aspects of the firm’s trading platform.

Distinguished Alumni Award

Ellen Crowley

Ellen Crowley was the recipient of the 2016 Mendoza College of Business Distinguished Alumni Award. The award recognizes a graduate business alum who has demonstrated achievement in business and a commitment through leadership and service to the graduate business community. Ellen has served in numerous Michael Knowles capacities over the past 10 years, most recently as president of the Notre Dame Club of Eastern Carolina. She has also interviewed prospective business school students and helped graduates find jobs in the financial services industry.

Top 20 under 40 CAPTRUST Financial Advisor Marcus Magyar was recognized in the Northeast Pennsylvania Business Journal’s 2016 Top 20 under 40 list. The annual list recognizes top professionals within the northeastern Pennsylvania region under the age of 40 who have made substantial contributions in their chosen fields. The journal highlighted the experiences that molded Marcus into the successful advisor he is today, as well as his business philosophy and life outside of work. Marcus Magyar Courtesy of the Northeast Pennsylvania Business Journal

Winter | 2017

2016 Brick Award Winners CAPTRUST presented its annual Bricks of Success Awards at the company’s Advisor Kickoff held in January in Raleigh, North Carolina. Award nominations and final voting are employee driven, and the awards recognize employees and contributions that exemplify the very best of our core values, mission, and vision. Winners are presented with an engraved marble brick, symbolizing that our best colleagues are the building blocks of CAPTRUST’s culture and that any great company is built “one brick at a time.”

TOP WOMEN ADVISORS The National Association of Plan Advisors announced its 2016 Top Women Advisors list. The list acknowledges the contributions of a growing number of women who are making significant contributions to the retirement industry, as well as bringing excellence to the profession. CAPTRUST is pleased to announce that eight of its female advisors were included this year’s list: Beryl Ball, Patricia Bills, Erica Blomgren, Susan Clausen, Heather Darcy, Devyn Duex, Jean Duffy, and Abigail Russell.

Congratulations to this year’s winners in the following categories:

CLIENT SERVICE Gary Burleson

Beryl Ball

Patricia Bills

Erica Blomgren

Susan Clausen

Heather Darcy

Devyn Duex

COMMUNITY SERVICE Margaret Jarocki INNOVATION Scott Andrews Jeff Browning John Curry Dan Esch Kyle Gaul Rita Kiesler John Leissner MOST VALUABLE PLAYER John Curry STEP-UP Lori Dillingham ADVISOR OF THE YEAR Steve Wilt RAINMAKER Shaun Eskamani

Jean Duffy

Abigail Russell

The risk of investing is high and the consequences of getting it wrong can be significant, so it’s important to find an advisor who will focus on your best interests — without an agenda.

Mark Paccione

We know that investors are looking for experienced and trusted advisors who can provide wealth management services focused on their unique circumstances and tailored to their goals. We have gained valuable insights in over 25 years acting as a fiduciary to some of the country’s biggest retirement plans that we can apply to your wealth planning and investment challenges.

www.captrustadvisors.com 919.870.6822 | toll free: 800.216.0645 4208 Six Forks Road, Suite 1700 | Raleigh, NC 27609

Director, Investment Research