Keeping Your Money Close While Lending a Hand During a Crisis

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Welcome to Changing the Trajectory.

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Before we start, I want to let you know about a special new microsite dedicated to COVID-19. It's filled with up to date information about the virus's impact on the markets and offers deeper insight into how we might prepare for our future after the crisis has passed. Our main focus will be COVID-19, but we'll still provide you with all of our usual and helpful tips and tools for better investment management.

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You can visit it at Bernstein.com/covid-19. Historically, marginalized communities and individuals are those particularly hardest hit by the magnitude of the health and economic crisis we are currently enduring. The very spread of COVID-19 highlights the inequality that exists around this country. For the past many weeks, people have been feeling overwhelmed and many truly want to help but don't know where to begin.

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Join us today as we focus on how to structure your giving and empower you with a viable plan to help those in need. Welcome to Changing the Trajectory, where we focus on the lasting impact we can create at multicultural markets and communities. I'm James Seth Thompson, Bernstein's Head of Diverse Market Strategy. I'm joined today by Tara Thompson Popernik, CFA, Senior Vice President and Director of Research for Wealth Strategies Group here at Bernstein Global Wealth Management. Thanks for having me, James. I'm glad you're able to join me today, Tara.

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We're going to dive in to a topic that's kind of near and dear to me in the spirit of the show and this episode. We are certainly following the social distancing measures and asks. Tara and I are separated probably about two or three states right now. But that does not prevent us from having a very engaging conversation about some things that I think a lot of individuals and a lot of our listeners want to hear.

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You know, the emerging demographic information that's coming to light about the coronavirus is very astounding. And communities of color, specifically black and brown communities in particular, are being tremendously impacted by the coronavirus. These communities, in fact, my community are disproportionately impacted by this virus. The impact stems from a population that is typically underinsured and a population that's typically underemployed. This systematic and historical impact on black and brown communities is now compounded.

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And basically this is a pandemic that sits on top of a series of epidemics that have been plaguing these communities for quite some time. When you think about the health perspective, you know, many of these communities are plagued by the fact that many of the underlying conditions, right, that are proving to be more likely than not, is impacting the community. You know, those conditions are diabetes, high blood pressure, asthma, heart disease, and things like that.

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It certainly doesn't help that these are communities where you find a lack of access to quality health care. You know, from a wealth perspective and an income perspective, I think the situation is equally dire. Many of these marginalized communities are also significantly impacted as they populate many of the industries that have literally been shut down due to the coronavirus.

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And the ask of shelter in place as an example proves to be even more challenging. And we've had conversations about the disparities in education, quite simply the access to devices and the lack of access to Internet compounds. These challenges. And when you take a look at many of the things that individuals are doing around the country, you know, Tara, you specialize in helping our firm develop strategies to help our clients address this kind of unique planning opportunities and challenges.

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You also have experience and expertise on how we can help family members or communities and our own extended networks who may be in need during this time. Can you talk to us a little bit about your role and how you're helping many of our clients handle some of the opportunities and challenges here? Sure. Thanks, James. So I'm so glad that we've had the opportunity to talk today.

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Over the last couple of weeks, we've been fielding a lot of questions from our clients who are wondering how best to help their local community or just simply their friends and their family and their own networks during this crisis.

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Where's the need and how do I need it? And so what I'll say is our clients fall into a few different categories. First, we have business owners of their own right who are looking to try to get some help for their employees who are currently on the payroll. The CARES that passed just a week ago Friday created the Paycheck Protection Program, which can help businesses keep people on the payroll by allowing them to take out some very low interest loans in order to continue to pay payroll, rent, and utilities for the eight weeks after the origination of the loan.

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And some of those loans can even be eligible for forgiveness as long as those businesses keep people on the payroll. I think the second category of client is really clients who are involved with nonprofits either because they're supporters of those nonprofits or they're somehow involved with the operation of that nonprofit. Certain nonprofits are also eligible for this paycheck protection program assistance, and that can again allow those nonprofits, small nonprofits defined as having fewer than five hundred employees, access to this paycheck protection program loans.

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Very similar to the for-profit small business sector. So another program that is available are these economic injury disaster loans. Those are also available to organizations, nonprofits or small businesses with fewer than five hundred employees. They can get loans up to two million dollars that are based on economic injury. Repayment periods for those loans will be over 30 years with really the terms determined on a case by case basis.

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So we see a lot of people who are looking towards the Treasury Department to try to get access to some of these opportunities. And then finally, we have clients who are donors and are thinking through, where can I best deploy donations, whether that's to a local food bank or a community organization or religious organization, who's trying to help people who are affected by the coronavirus crisis.

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And one thing that the CARES Act additionally did here was to provide up to a one hundred percent deduction for cash gifts from individuals to directly to charitable organizations. So there's no limit on deductions for cash gifts for the year 2020. You know, there's evidence of many individuals in addition to investors, but even a certain number of celebrities and some kind of national figures who are looking and have contributed to allocating some of their resources to help some of America's most vulnerable.

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And again, early on during this crisis, the vulnerable person, air quotes, was typically a person of a certain age. But we're learning that vulnerable certainly means something else, you know, but there's this need and a significant need for an immediate response within our own networks. Right? There are necessary conversations to be had that are currently taking place with regards to assets and access, regardless of your access to assets and wealth.

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You know, some of the questions that exist are, you know, how am I going to close this gap over a period of time? And some of the concerns related to that in particular is, will the market continue to cooperate with me? But also, we still don't know what we don't know. So, if we can get a little bit more practical here, what advice can you offer that allows our listeners, investors in general, to really step in and make a difference as soon as possible?

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Sure.

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So, look, we're hearing from a number of people who may be trying to help their family or immediate community, whether that's somebody's parents who need a little bit of assistance with their rent or a relative who's lost work and needs six months of expenses to stay afloat, potentially a niece or a nephew who had to break a lease from college and come home due to the crisis and may not be able to afford to pay their school tuition for the following semester.

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First, what we tell our clients is, make sure that you have that capacity in your own liquidity to offer to your family. So we think through what your needs are for maybe the next six, 12 months, possibly even to two years, to make sure you have that cash on hand or access to that cash in some way.

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But with any excess that you may have, that's how you can help take care of those people that you love and really help them bridge those gaps. And I can talk through a couple of ways to make that happen in the most efficient way and then finally fill private capacity to give more altruistically, not just to friends and family, but to your broader community.

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So, James, I just want to take a step back and level that on the opportunities that individuals have to give to either friends or family members in their lives without incurring any gift tax on an annual basis. The first is the annual gift exclusion, and that is that you can give up to fifteen thousand dollars per person per year to someone in your family or really anyone. Now, if you're married, you and your spouse can combine that to give up to thirty thousand dollars per year to the individual.

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And that can really help if somebody needs a little bit of cash infusion this year to stay afloat, pay some of those near-term expenses. So that's called the annual gift exclusion.

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The next thing I want to cover is that if you're paying someone's tuition directly to an educational institution or covering medical expenses paid directly to the institution that provided care, that is also not gift taxable. So you can pay, say, someone in your family's tuition directly to the college they're attending or the hospital directly for a bill that a relative needs to have paid and that will not incur any kind of a gift tax.

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And finally, one of the biggest opportunities right now,

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because we are in a situation with very low interest rates, is the concept of an inter-family loan. Now this whole idea is to loan assets to your family, but it can be done today at very low rates because the rates that the IRS determines in order for it not to be a gift are set by Treasury yields. And Treasury yields are very near all-time lows. So an inter-family loan is another way to think through that. Now, the rate on that will vary depending on the length of the term of the loan, whether it's just a year or a few years or all the way up to 20 years.

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But that's another opportunity to get some assets in the hands of family members who may need some assistance today. You know, we spend a lot of time working with individuals and non-profits and, I would say at least a great deal of the nonprofits I partner with in the capacity of my role here at the firm.

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These nonprofits are, they exist because programmatically they're enhancing the lives and the well-being of the constituents who are mainly in these communities of color. Is it a much different approach to thinking how to mobilize if you are a nonprofit or individual investor or they're closely aligned? You know, relatively closely aligned.

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I think nonprofits right now can can appeal to that kind of crisis funding and requests to donors that they get what they need, whether that's in the form of in-kind donations or simply in the form of assistance via cash donations. And what I mentioned before from the CARES Act is really designed to help spur that local giving in a way that can help some of these organizations really deliver the aid to the folks in the communities that need it.

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And, you know, I really appreciate all of the input you've been able to provide. One, me and our listeners, I think in light of the COVID-19 pandemic, you know, I think it's just more important now than ever before that, you know, we take care of our communities are exceptionally vulnerable, that we need to lift each other up and certainly recognize the urgency of the situation.

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You know, the time to mobilize is now. And, you know, we're fortunate to work with some great clients and organizations who are looking to find a way to strategically organize and mobilize now. You know, our thoughts to you in a couple of seconds, Tara, just to kind of recap your top three things our listeners should take away from this to help mobilize.

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You know, but what I want to share now is a really important message about this idea of intentionality. You know, this podcast is called Changing the Trajectory, because we truly seek to change the trajectory for impact, for wealth and influence. And this is the first time in my 22 plus year history in this industry where I'm dealing with something like this, right? It's impacted me professionally. It's impacting me from a personal perspective.

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But the good thing is I think we can start to even think about the comeback. And I hope on this show to be able to have a lot of follow-up conversations around some of the other things that we can do beyond an investment portfolio. But it's going to take a lot of intentionality and deliberate acts.

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You know, when I think about the multicultural entrepreneurs and business owners who are uniquely impacted now, you know, consider what's going to have to happen, you know, whenever we break through this pandemic, intentional efforts to really organize our resources and assets to help get these individuals and these businesses and these organizations back to normal by literally being very intentional about how we spend our money, where we spend our money to help get some of these businesses and entrepreneurs, individuals and organizations back afloat.

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So with that, Tara, if you could offer some parting points for emphasis, I think that would be great. So. So it's a number one.

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I think the CARES Act includes some really helpful programs and including benefits for both small businesses and for donors to charitable organizations, as well as those organizations themselves.

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Individuals can work to funnel direct payments on behalf of friends and family members. To the extent you're giving to an educational organization or paying some of these medical bills on their behalf, as long as you're paying the organization directly, that's a very easy way to make those gifts without at all impacting any of your own ability to give down the road from an estate planning perspective. Finally, there's ways to loan money at very low rates to family members without using any estate exclusion.

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So those can be helpful vehicles right now as well. But really, it's all about seeing where you have capacity in your own plan to give and meeting that need within your own community. Great. That's awesome, Tara. And, you know, thank you for imparting your experience and knowledge today on this episode. All right. Thanks, James.

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I hope you enjoyed today's episode. We'd love to hear from you. So please e-mail your thoughts, questions and any feedback to diversemarkets@Bernstein.com. Be sure to share, subscribe, and rate us on iTunes or anywhere you listen to podcasts, and also check us out on Twitter at BernsteinPWM. Stay safe and stay home. Bernstein: Making money meaningful for individuals, families, and foundations for over 50 years. Visit us at Bernstein.com.