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Rudolph with Your Nose So Bright

Investing 2021

If you don’t recall the most famous reindeer of all, Rudolph, the Montgomery Ward creation possesses the special characteristic to guide Santa’s sleigh among a fog that would have otherwise canceled Christmas. Like Rudolph’s nose, I’m going to highlight a couple of macroeconomics bright spots that we like right now, that will surely support markets and guide us through the fog of 2021. Enjoy the holiday season and may you have a prosperous new year. 

Unemployment – I think it’s fair to say that the spike in unemployment (fastest spike ever) and the subsequent drop in unemployment (fastest drop ever) have given politicians the hyperbole they need, but the rate getting back to 6.7% means a couple of good things going forward. Firstly, the “easy to lose” and “easy to return” jobs were flushed out in the spike, and the jobs that could easily return have. This means that while each percentage point from here on out is going to be harder and harder, the headline risk of massive jobless swings has likely settled for now. Unemployment in the +6’s has been the recent peaks for prior negative economic swings. In 2003, we peaked at 6.3%, 1992 7.7% even the economic crisis in 2009 only saw a peak of 9.9%. So at least the unemployment figures have gotten back to “normal bad” and not “historically bad”. But here is the good news for 2021, from this point forward we will get positive headlines for employment. I think we have crested, the liquidity in the markets has helped, and near term the unemployment outlook is stable. This pandemic is different than a cyclical recession, this can be resolved as quickly as the damage was done, and for between 4-8 quarters we can see a routine and constructive print for joblessness. This will be a supportive series of headlines for markets. 

Inflation – Inflation will be a headwind for bonds and cash but will be constructive for some assets. Those invested in equities will see an increase in capital chasing the same number of assets. This inflation will be constructive for stocks and other hard assets from 2021 but will cut into the expectations for the buying power of dollars going forward. Expect long term dollar weakness. Additionally, we’re not alone, this pandemic is global and I anticipate every central bank to prefer adding liquidity to their economies over the risk of inflation. Expect countries that emerge from the pandemic quickly to see a major tailwind from global inflation, those whose course is slower and shutdowns longer to be hampered by it.  

Debt – Record low borrowing costs should tee up leveraged companies for success. This is absolutely a situation where “zombie” companies will be created, so investors should be aware of the health of companies they are buying, but long term, allowing companies that have been historically highly leveraged to restructure at amazing rates, or even granting companies that have healthy balance sheets more cheap capital to take on more cap-ex projects for the at least a decade or more will be supportive for the market on the whole. As I write this, the 2-10 spread is .8%, in my opinion giving corporate CFO’s carte blanche to begin issuing new debt and extending all maturities on existing debt. Seeing these companies become so tenacious in the debt market normally would spook investors, but it’s hard to imagine a more supportive environment for borrowers than sub-2% borrowing costs for AAA companies and sub-4% for high yield borrowers. Debt was low for the recovery after 2009 and is now bargain-basement prices. These are rates that are likely to persist through 2021 and with Janet Yellen (Dovish) at the treasury, and no change in the attitude of the Fed I’m not seeing a change in sight. This will likely mean yields will be below inflation for some time as central banks try to juice the recovery at the expense of inflation. 

Earnings – Companies have broadly been able to understate their earnings projections through the pandemic. The science of slow-rolling their debts, and lowering the expectations of analysts has been fantastic. Companies across sectors have been able to step over the lowered bar without major disruption this year. Now while, for the most part, the pandemic has given them top cover to have earnings below their historic figures, the companies in the S&P 500 have done a fantastic job this year of collectively using this window to reset the expectations of investors without sounding alarms. Managing expectations lower, then beating them has been a theme in 2020, that in 2021 will look like a great trajectory for earnings as we emerge from COVID-19. This is going to be a fantastic and virtuous atmosphere of rising earnings. The usual suspects for this earning improvement cycle will show up, banks, technology, and consumer discretionary investors will like this reset in the cycle and the aforementioned upswing in earnings these groups are poised for.

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Kevin Taylor

How to Invest in Opportunity Zones (and Why You Might Want To)

If you’ve just sold your business, sold a property, or made a fistful in Crypto—congrats! That’s a huge milestone. But now you’re staring down a different kind of challenge: capital gains taxes. What if there was a way to defer those taxes, grow your wealth tax-free, and reinvest in communities across the country—all at once? That’s where Opportunity Zones may come in. Let’s walk through how they work, what you need to qualify, and why they’ve become a go-to tax strategy for entrepreneurs and investors alike. 🌆 What Are Opportunity Zones? Opportunity Zones (OZs) are designated areas in the U.S. that could benefit from economic investment. In exchange for directing your capital gains into these communities, the IRS offers incredible tax incentives. Think of it as a triple win: you defer taxes, build wealth, and spark impact. 💸 What Are the Tax Benefits? If you meet the requirements, here’s what you could unlock: Capital Gain DeferralDefer taxes on your business sale until December 31, 2026, or when you sell your OZ investment—whichever comes first. Tax-Free GrowthIf you hold your OZ investment for 10+ years, any gains from that investment are tax-free. Do Good While Doing WellYour money helps fund businesses, housing, and infrastructure in underinvested communities. ✅ What Are the Requirements to Qualify for Opportunity Zone Tax Benefits? To take advantage of the powerful tax benefits tied to Opportunity Zone investing, there are strict eligibility requirements you’ll need to meet. Here’s a deeper dive into each, and links to official government resources so you can verify the details yourself. 1. Capital Gains Only To qualify, you must invest capital gains, not ordinary income. This includes gains from the sale of a business, stock, real estate, or other capital assets. Key Point: If you don’t reinvest a capital gain, your investment in an Opportunity Zone fund will not qualify for the tax incentives. 🔗 IRS FAQ on Qualified Opportunity Zones – Q&A #2 “Only capital gains are eligible for deferral under the Opportunity Zone tax incentive.” 2. 180-Day Deadline You must reinvest your eligible capital gain into a Qualified Opportunity Fund (QOF) within 180 days of the gain being recognized. Important: The 180-day clock typically starts on the date of the sale, but it can vary (e.g., for gains from partnerships or trusts). In some cases, you may have the option to use the end of the partnership’s taxable year as the start date. 🔗 IRS Opportunity Zone Final Regulations Summary – Page 11 “The final regulations generally retain the 180-day period… The final regulations also retain special rules for partners in partnerships, S corporation shareholders…” 3. Use a Qualified Opportunity Fund (QOF) You must invest through a Qualified Opportunity Fund, not directly into a business or property in the zone. A QOF is a corporation or partnership that self-certifies with the IRS by filing Form 8996 annually. The QOF is the vehicle that ensures your investment complies with the Opportunity Zone rules. 🔗 IRS: Instructions for Form 8996 “A Qualified Opportunity Fund is an investment vehicle… organized for the purpose of investing in Qualified Opportunity Zone Property.” 4. 90% Investment Standard (a.k.a. the 90% Rule) The QOF must hold at least 90% of its assets in Qualified Opportunity Zone Property (QOZP). This includes: Qualified Opportunity Zone business property Equity in a partnership or corporation that operates a Qualified Opportunity Zone business Real estate or tangible assets located within an OZ This rule is tested twice per year and is reported on Form 8996. 🔗 IRS Opportunity Zone Regulations – Page 6–7 “A QOF is required to hold at least 90 percent of its assets in qualified opportunity zone property… tested semiannually.” 5. Improve or Create: The “Substantial Improvement” Rule If a QOF acquires an existing property (not new construction), it must substantially improve the property within 30 months. This means the fund must invest at least as much in improvements as it paid for the building itself (excluding land value). Alternatively, the fund can develop something entirely new, like building from the ground up or launching a startup. 🔗 IRS Final Regulations – Substantial Improvement Rule – Page 152 “Property is treated as substantially improved… only if, during any 30-month period, additions to the basis… exceed the adjusted basis of the property at the beginning of the 30-month period. ✅ TL;DR Requirement Summary Source Capital Gains Only Only capital gains qualify—ordinary income is not eligible IRS FAQ 180-Day Deadline You must reinvest within 180 days of recognizing your gain IRS Final Regs Qualified Opportunity Fund Must invest through a QOF that files Form 8996 with the IRS IRS Form 8996 Instructions 90% Rule QOF must hold 90% of assets in Opportunity Zone property or equity in qualifying businesses IRS Regs Improve or Create Must substantially improve acquired property within 30 months or start something new IRS Regs 🧠 Real-Life Example: Selling a Business Let’s say you sell your business and walk away with a $500,000 capital gain. Rather than paying capital gains tax right away, you invest that $500K into a Qualified Opportunity Fund within 180 days. Here’s what happens: You defer the tax on the $500K until 2026. Over 10 years, your investment grows to $1 million. You pay tax on the original $500K in 2026, but the $500K in new gains is completely tax-free. That’s half a million dollars kept in your pocket, not sent to the IRS. 🚧 Heads Up The step-up in basis (10–15% reduction in deferred gain) is no longer available for new investors as of the writing of his article, but the 10-year tax-free growth still is. This is a part of the current tax discussions in congress. QOFs have compliance requirements, so it’s worth working with a CPA or advisor familiar with the rules. 🚀 Should You Jump In? If you’ve recently sold a business, property, or any asset that causes capital gains and are exploring ways to defer taxes, diversify your wealth, and make a lasting impact, investing in an Opportunity

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Kevin Taylor

Looking for Peace of Mind? Here Are 10 Estate Planning Gaps You Should Know About

In the complex landscape of 2026, high-net-worth individuals and families face an increasingly intricate regulatory and tax environment. While many believe a standard will or a basic revocable trust provides sufficient protection, the reality for estates exceeding $1 million in assets is far more nuanced. True peace of mind is not found in a static document, but in the rigorous, ongoing synchronization of one’s legal, tax, and investment structures. At InSight Financial Planners, we utilize our proprietary InSight-Full® planning process to identify and rectify the technical oversights that frequently compromise even the most sophisticated wealth transfers. For the discerning client, understanding where these “gaps” exist is the first step toward securing a lasting legacy and ensuring fiscal efficiency. Below are 10 critical estate planning gaps that demand the attention of high-net-worth families today. 1. The Portability Election Oversight The concept of “portability”: the ability of a surviving spouse to utilize the Deceased Spouse’s Unused Exclusion (DSUE) amount: is a cornerstone of modern federal estate tax planning. However, a frequent gap occurs when a surviving spouse fails to file a timely federal estate tax return (Form 706) because the initial estate did not meet the filing threshold. Failing to elect portability permanently forfeits a significant tax shield. In a high-inflation environment where asset valuations are volatile, preserving this exclusion is a critical leading indicator of long-term estate stability. The InSight-Full® approach ensures that these regulatory filings are treated as non-negotiable components of the estate’s administrative cadence. 2. Inadequate Generation-Skipping Transfer (GST) Tax Allocation While portability applies to the basic exclusion amount, it does not apply to the Generation-Skipping Transfer (GST) tax exemption. This is a common pitfall for families utilizing “dynasty trusts” or making direct gifts to grandchildren. If the GST exemption is not explicitly allocated to a trust at its inception, future distributions to “skip persons” could be subject to a flat tax at the highest federal estate tax rate. Properly structuring multigenerational transfers requires a high level of sophistication to ensure that each spouse’s non-portable GST exemption is maximized through strategic trust design. 3. The Digital Asset Disconnect As wealth becomes increasingly digitized: ranging from cryptocurrency and private keys to sentimental cloud storage and monetized social media accounts: many estate plans remain anchored in the physical world. Without specific language authorizing fiduciaries to access digital assets under the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), heirs may find themselves locked out of significant portions of an estate. A comprehensive inventory of digital holdings, coupled with the appropriate legal “keys” within trust documents, is essential to prevent the permanent loss of both financial value and personal history. 4. The “Empty Vessel” Trust Problem Perhaps the most prevalent gap is the failure to properly fund a trust. A trust is merely a legal framework; if assets such as real estate, brokerage accounts, and business interests are not retitled into the name of the trust, the document remains an “empty vessel.” Assets left outside the trust are subject to probate, leading to unnecessary delays, public exposure, and administrative expenses. The InSight-Full® process emphasizes the continuous monitoring of asset titling to ensure that your legal structures and your balance sheet remain perfectly aligned. 5. Inconsistent Beneficiary Designations High-net-worth individuals often possess numerous qualified retirement accounts (IRAs, 401(k)s) and life insurance policies. These assets pass by contract, meaning the beneficiary designation on file with the institution overrides whatever is written in a will or trust. Outdated designations: naming former spouses, deceased relatives, or individuals who should now be receiving assets via a protective trust: can derail a meticulously crafted tax strategy. Regular audits of these designations are a core component of disciplined financial management. 6. Exposure to State-Level Estate and Inheritance Taxes While federal exemptions remain high in 2026, many states maintain their own estate or inheritance taxes with significantly lower thresholds. Individuals residing in or owning property in “decoupled” states may find that while they are exempt from federal tax, their estate faces a substantial state-level liability. Coordination across jurisdictions is required to mitigate these “stealth” taxes, often through the use of specific trust provisions or strategic changes in domicile. 7. Improper Ownership of Life Insurance Life insurance is frequently viewed as a simple liquidity tool, yet if the policy is owned by the insured personally, the death benefit is included in the taxable estate. This can inadvertently push an estate over the tax threshold. Utilizing an Irrevocable Life Insurance Trust (ILIT) allows the death benefit to remain outside of the taxable estate, providing the necessary liquidity to pay taxes or settle debts without diminishing the legacy intended for heirs. 8. Failure to Plan for the Sunset of Tax Provisions The current transfer-tax landscape is subject to legislative change. For individuals with estates near or above the current exemption levels, failing to model the impact of “sunset” provisions: where exemptions may drastically decrease: is a significant risk. Leading indicators of a successful plan include the proactive use of Spousal Lifetime Access Trusts (SLATs) or other irrevocable gifting strategies that “lock in” current high exemptions before they potentially expire or are reduced by future legislation. 9. Inefficient Charitable Gift Structures For the philanthropically minded, leaving assets to charity through a basic bequest in a will is often the least tax-efficient method. Charitable Lead Trusts (CLTs), Charitable Remainder Trusts (CRTs), and Donor-Advised Funds (DAFs) offer opportunities to minimize income and estate taxes while maximizing the impact of the gift. Integrating these vehicles into the broader InSight-Full® process ensures that charitable intent serves both the community and the long-term efficiency of the family estate. 10. Fragmented Business Succession and Coordination For business owners, the estate plan and the business succession plan are often treated as separate entities. This fragmentation creates a gap where the value of a closely held business may be frozen or lost upon the owner’s death or incapacity. A lack of coordination between Buy-Sell agreements, operating agreements, and the owner’s personal trust can lead to litigation among heirs and surviving

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Kevin Taylor

Using a 1031 Exchange as part of a divorce

During the course of real estate ownership, there are instances where the transfer of property title occurs involuntarily. One such situation is when a couple goes through a divorce, which often leads to the sale of the property to a third party or the transfer of the property from one spouse to the other. Additionally, if a spouse passes away between the sale of a relinquished property and the purchase of a replacement property, it also affects the dynamics of a 1031 exchange. Let’s explore the impact of these changes in legal ownership on 1031 exchanges in more detail. When a divorced couple intends to sell an investment or business use property to a third party, there are typically no major issues for a 1031 exchange. Despite having been joint tenants and filing taxes jointly, each spouse has the opportunity to pursue their own exchange or opt for a cash-out. Generally, the joint tenancy would have been legally severed as part of the divorce proceedings. Alternatively, the title can be severed prior to a divorce, where one joint tenant signs a deed that designates the grantor spouse as the recipient of the one-half tenancy-in-common interest. In some cases, as part of a divorce settlement agreement, one spouse may transfer their interest in the property to the other spouse. According to IRC Section 1041, when a spouse conveys property to the other spouse as part of a divorce, there is no taxable event for the party transferring the property. The basis of the transferee (the recipient) becomes the adjusted basis of the transferor. However, if the transferee wishes to sell the property in the future and carry out an exchange, they would need to exchange the entire value of the property to achieve full tax deferral. An essential requirement for any 1031 exchange is that the taxpayer must hold the property for investment or business use. Even though the party receiving the other spouse’s interest assumes the former spouse’s basis, it does not mean they automatically inherit the other spouse’s holding period. In these situations, it would be advisable to hold full ownership of the property for a significant period before selling. Ideally, holding the property for two years or longer would be ideal, but at the very least, it should be held for a period longer than one or two tax reporting periods to satisfy the holding requirement. On rare occasions, a taxpayer involved in a non-divorce situation may pass away between the sale of the relinquished property and the acquisition of the replacement property. While the heirs may desire a stepped-up basis in the property, unfortunately, that is not the outcome in this particular scenario. However, there is some consolation in the fact that, according to several IRS Letter Rulings, the heirs or the estate may proceed with the 1031 exchange transaction and achieve tax deferral, if not a stepped-up basis.

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