Transcript
Intro
Stephan Shipe: Welcome back to the Scholar Wealth podcast. This week we begin by discussing how to think about concentration risk after significant gains in large cap tech and AI-related stocks, and what disciplined rebalancing really means in that context. Next, we examine healthcare planning after financial independence, including whether pairing catastrophic coverage with concierge medicine is a rational balance sheet decision. Finally, we’re joined by Ellen Morris, Chair of Fiduciary Litigation at Cozen O’Connor, for a conversation on how thoughtful planning, documentation, and communication can help families avoid some of those common trust and estate conflicts. So let’s go ahead and get started with question number one.
Question 1 – Rebalancing a Concentrated Tech Position
Stephan Shipe: So question one here, “about three years ago, I had roughly 25% of my $6 million portfolio allocated to large cap tech. After the recent run-up in AI-related stocks, that sleeve is now closer to 42%. I’m long-term oriented and don’t want to react to headlines about an AI bubble. But that level of concentration makes me uncomfortable. How do I trim this back without feeling like I’m trying to time the market?”
So this is a question that keeps coming up more and more, especially as the market keeps going higher and higher. And you’re not wrong to be a little worried about all this. If you look at any historical metric or any of the economic indicators around market valuations, they’re all high. This is a concern. But the problem is that the market can stay high for a long time. So it’s not necessarily market timing. What you’re talking about is rebalancing to what you started with for your allocation. It just so happens that you haven’t done that in the past few years. So now it’s gotten out of whack. So your risk is actually increasing in the portfolio, which is exactly why you want to rebalance regularly.
So I would go back to that original target allocation and say, does it make sense for me to have 25% in large cap tech? And if that is still yes, and you agree with the overall allocation — the big pie that you have that you’re dividing up — then I’d say it’s not a market timing decision, it’s a rebalancing decision. You’re just going and pulling back to 25%.
I think the issue here, and where you’re getting some of that discomfort, is because you could have taken 25% and then a year later paired it back down to 25%. And then it went up again, and then you keep pulling it down to 25%. Unfortunately, what ends up happening is if we let it run for a long time, it starts to get so far out of whack where it starts to feel more like market timing, because now you’re going to rebalance at a time when the market’s high. So it’s not that you’re not rebalancing — I think there’s a little bit of market timing in here that you’re dealing with. But I think the market timing aspect is more like rebalancing timing.
And you don’t want to feel like you’re going against your core investing values, that you’re a long-term investor and you don’t market time. So if you want the permission to do that without feeling like market timing, I think you’re good to go and rebalance the portfolio back to that 25%, as long as you feel that 25% still makes sense. That’s where you start — from the basics. Look at that allocation. And when you build out that allocation, I always look at allocations as turning a cruise ship around as opposed to a jet ski. You don’t just go from 25% large cap growth to 40% large cap growth on a whim. That’s got to take a really good economic thesis for why you would want to make that big of a shift in your portfolio.
The problem you may run into — and I don’t know based on this where your assets are located — but based on that $6 million and this move from 40% down to 25%, you’re going to have to cut about 15% here. There’s a significant amount of money you’re looking at — $900,000 or so — that we’re going to be dealing with in this scenario for rebalancing. That worries me a little bit if these assets are being held in taxable accounts, which based on the account values probably is the case. So you’ve kind of got yourself into a little pickle in that scenario where you’re going to have to carefully evaluate whether or not it makes sense to just go today and sell all of those stocks and take the tax hit — or does it make sense to do so slowly, or use any tax-deferred accounts that you have to balance out some of those growth holdings.
One thing I’d tell you to look into is some different types of index funds that would give you exposure to large cap growth and large cap value to balance that, to get you to the S&P 500, which sounds like you probably already have. So I don’t think it’s necessarily a bad thing. I don’t think there’s any issue with you rebalancing. I wouldn’t call it short-term market timing as much as it is going back to what you already agreed upon was a good allocation for your portfolio.
Question 2 – Healthcare Planning After Financial Independence
Stephan Shipe: And for our next question, “my wife and I are in our late 40s and reached financial independence with about $11 million in invested assets. We left traditional employment a few years ago and no longer carry a comprehensive health insurance plan. Instead, we have a high-deductible catastrophic policy with a $25,000 deductible and a $1 million coverage cap, and we self-pay in cash for everything else. We are considering moving to a concierge practice with a joining fee and a $9,000 annual retainer per person, which would bring more direct access to physicians and longer appointments. Is this a rational trade-off in our situation?”
So we have a couple of different things going on. We definitely want to take this apart a little bit. One thing is the combination of concierge medicine with a catastrophic health insurance plan — very common. I don’t see any issues there. I don’t think that you having concierge medicine is necessarily a risk transfer situation. In other words, you’re not changing your insurance coverage there. What you’re doing is just adding different types of services or a higher quality of service that’s a little bit more flexible, a little bit more personalized. So all of that sounds good. And it’s a very common move, especially at that above $10 million mark for investments.
The $25,000 deductible also not a concern. That’s going to be normal. I don’t see it as an issue, especially for a high deductible plan and for your level of net worth and assets. $25,000 can be a rounding error.
Out of all of this, the concern that I have is the million-dollar coverage cap. A million-dollar coverage cap tells me that this is not an ACA-compliant plan, because you can’t have coverage caps there. Which means you’re likely dealing with one of these healthcare-adjacent situations — like health sharing ministries, where basically everyone’s pooling together this risk sharing: you submit your medical payments and then everyone else in the group pays for them, and when they have medical payments, they submit and everyone else pays for them. Those sound good at first. The problem you run into is there’s no legal obligation to pay, and they typically have caps, just like you’re seeing with this million-dollar catastrophic cap.
That’s what worries me. Because could you handle a $350,000 hospital bill? Absolutely. Could you even handle maybe a close-to-million-dollar cancer treatment? Absolutely. But the problem is, if you’re truly wanting catastrophic coverage, what would absolutely wreck your finances is three to $4 million of multi-year care for a health condition. That’s what will absolutely take this $11 million down really fast. And that million-dollar cap — you’re going to blow through that without a problem.
Whenever you’re dealing with any type of insurance, you’re always looking at the probability of that event happening and the cost or severity of that event and trying to pull those two things together. Think of this as a flood insurance type scenario — major event, low probability. That’s something you insure. You don’t take that on personally. Low probability of something major happening, but it would be absolutely catastrophic to your entire finances.
Now, if this was not $11 million and you were at $50 or $60 million, then I’d say you could probably evaluate what that risk looks like. But the reality is you could go and pick up an ACA plan off the marketplace, pay your $20,000–$30,000 a year for premiums. Still have your high deductible, but you don’t have the cap. And then you throw the concierge medicine on top. So that way you don’t even have to use the network that you’re going to be dealing with from the ACA side of things.
That’s the cleaner way to do what I think you’re trying to do here, and it’s the more common approach to how you handle health insurance at this level of wealth. You’re going to go with something that’s straightforward — big deductible to lower your premiums, you’re also young so you have that going for you — and then you stack that with unlimited coverage, no cap, covered by the ACA. And if you want more options for doctors, longer visits, better access — wonderful. Put the concierge medicine on top of that and stack those two together. A lot cleaner, a lot simpler. And you truly avoid that cap for catastrophic coverage.
From the Field – How Thoughtful Planning Can Help Families Avoid Trust and Estate Disputes
In our From the Field segment, we explore what causes trust and estate plans to unravel when family dynamics and ambiguity collide. We’re joined by Ellen Morris, who focuses on trust and estate litigation and has extensive experience handling complex estate disputes.
Stephan Shipe: Welcome to the Scholar Wealth Podcast. Why don’t you give us a little bit of the background here — how you got into this and what are the types of things that you end up doing?
Ellen Morris: Sure, thank you for having me. Happy to be here. Well, I was a prosecutor when I first graduated law school for Janet Reno in Miami-Dade. And when I left there, I was a felony A prosecutor, so extensive litigation experience. When I came back after being home a little bit with the kids — I have three girls — I got into elder law. And a natural progression from elder law, I’m a past chair of the elder law section of the Florida Bar. So a natural progression was litigation involving issues in areas of law that affect seniors. A lot of times that’s guardianship, estate, will contests, and trust litigation. So we call it by the broad term of fiduciary litigation.
Stephan Shipe: So when you get into all this experience you have on the litigation side — what are the common types of disputes that come up? What are things that you see over and over again?
Ellen Morris: So let’s just say when the individual — a vulnerable adult, and believe it or not, the exploitation statute for a vulnerable adult in Florida is anyone age 60 and above. So if we’re talking about during the lifetime of a vulnerable adult, we’re talking about fiduciary litigation that involves durable power of attorney, breach of agency under that durable power of attorney, a healthcare surrogate, breach of agency under the healthcare surrogate, guardianship if there are no documents, living will litigation — I believe the plug should be pulled versus I believe the plug should not be pulled. So that’s, in a nutshell, during-life litigation.
And then after death, it’s will contests and trust contests.
Does a Revocable Trust Protect Against Disputes?
Stephan Shipe: When you start to see these trust disputes and disputes of wills, one of the most common things that gets thrown around is — if you have a revocable trust, then you don’t have to worry about those types of concerns. Because if you have a will, it could be contested, you have all these issues. But as long as you have this revocable trust, then all problems go away. Can you talk a little bit about why that’s the common thought, and whether there’s any truth to it?
Ellen Morris: So no, there’s really not. I think it’s more about avoiding probate and also creating a succession process for your successor trustee to seamlessly take over the administration of your trust. And avoiding probate is a good thing, but I always say probate is not a four-letter word. There are a lot of reasons and situations where we actually want a probate — we want a court order. People think probate is just the devil. And yes, it can delay the distribution of assets. And yes, it can cause a dispute. But that’s not always the reason to avoid it.
I’ll give you a perfect example. For a qualifying special needs trust — this is a little technical — but for a qualifying special needs trust, when one of the spouses is going onto Medicaid, that qualifying special needs trust must be contained in a will. If the surviving spouse who was supposed to be the healthy spouse dies first, there’s a probate. And that’s how you still achieve Medicaid for the surviving spouse.
To answer your question about trust disputes — trusts do a lot of things like avoid probate and include a mechanism for a successor trustee to seamlessly take over. But what they don’t do is protect you when a trustee is breaching their duty. In addition, trusts are still subject to the allegation of undue influence — you know, my brother or my sister took my parents to a lawyer and had my parents sign this trust when they didn’t understand what they were signing, and that person benefited. So the other sibling might bring an action saying this trust is invalid because it was subject to duress, coercion, undue influence, or lack of capacity.
Stephan Shipe: Do you find there’s more internal disputes between families on the trust distribution? And with the privacy benefits of the trust, do you see fewer disputes from outsiders or extended family because of the privacy aspect?
Ellen Morris: So I’d say yes, most of the disputes are inter-family disputes. If you were another family member or a neighbor or someone else who was potentially a beneficiary of a prior trust document, you could still have standing and you could still bring the lawsuit, and you then would still in discovery potentially obtain a copy of the trust document.
Trusts are great from a privacy perspective as far as the terms of the distributions — because your will, even if you don’t have a probate, must be deposited with the clerk under Florida law. But if your will doesn’t say a lot and it just says everything that I own in my name pours into my trust, and all the terms for distribution are contained in the trust, those terms will not be publicly available. Wills are available to the public. Trust terms are not.
Stephan Shipe: Gotcha. So if you’re out there saying Susie’s going to get a million dollars from my estate, that’s the privacy you’re going to lose. But if everything’s just going to the trust and divided out there, you can still gain that privacy aspect from the will.
Ellen Morris: Correct. So if your will says Susie is getting $100,000, a creditor of Susie’s may be very interested — they might think she may be inheriting this money. If that’s not in the will and it’s all contained in the trust, the trust is not filed.
Early Warning Signs in Estate Documents
Stephan Shipe: What are some of those early warning signs where you’re looking at a trust or a will and saying, this is going to be a problem in the future?
Ellen Morris: So I’m in a unique position because I’m a planner as well as a litigator. There are some who are just planners and others who are just litigators. I actually think it’s very beneficial, no matter what you are, to have some knowledge of the other.
The early warning signs: a child or individual completely immersed in the planning conversation is one. For instance, that child choosing the lawyer — which is a different lawyer maybe than mom or dad had for years — setting up the appointment, holding the documents. These are called the Carpenter factors. They’re based on a case, In re Carpenter, which is a seminal Florida case that listed seven factors where the burden of proving undue influence would shift to the alleged undue influencer.
Let’s say your sister lives close to your parents and she convinces your parents to change the trust — gave her 70% and you 30%, or even 100% and you zero. And all of this planning happens behind closed doors. You find out after your parents die. Now you’ve got to go back and prove that your parents were subject to diminished capacity during that time. You’ve got to prove your sister’s active procurement.
If enough of those Carpenter factors are there, then the burden of proof shifts to your sister to prove that she didn’t unduly influence your parents. And that shift is huge.
So those factors are what planning attorneys or litigators who are also doing planning should take into consideration. Make sure that the testator or the grantor is speaking to you freely. Make sure there’s no one in their ear or in the room, and make sure that they speak back to you what they want. I even do a very basic capacity test — I ask verifiable fact questions, and I train my younger associates and junior partners to do the same.
Making a will is the lowest form of capacity required. As long as you know who your kids are, the natural objects of your bounty, and approximately how much you have — that’s enough to execute a will. But it may not be enough to execute a trust, right? Because the trust is a much more complicated contractual document. And then if you’re really not sure, get a doctor’s letter. A primary physician or neurologist or neuropsychologist, very close in time, who’s going to say: I know this patient, I’ve examined this patient, and I believe they are capable of executing these documents.
When One Child Manages Everything
Stephan Shipe: Let’s say you have multiple children and one child is more in touch with finances, doesn’t mind looking at the legal stuff, and they end up as the trustee on everything. Then post-distribution, other siblings come out and start to have this real or perceived unfairness. How do you get away from that? Or is this just a necessary burden that gets put on the child running the finances?
Ellen Morris: So if Billy is not inheriting more and is not benefiting from the position — it’s a 50-50 split between Billy and Susie, Billy’s the trustee, but he’s not even taking any compensation for serving as the trustee — then no problem. That to me would be like the utopia. The perfect family. Billy and Susie get along, everyone agrees, no one’s pointing any fingers.
But there are ways that you can bring everyone into the fold. Sometimes I’ll say to the parents, hey, how about we invite Susie to the meeting? And you don’t shrink away from that hard choice where you say in front of Susie: hey, we’re including you in the meetings, but just so you know, we’re naming Billy to be the trustee. You know, you have had a lot of trouble with spending. You have a lot of Gucci purses. And Billy is more in line with our values, or he’s a financial planner or he’s an attorney.
And we’re making it fair, but we want to include you. So it depends on the bravery of the settlor. If they’re my client, I try and empower them to be brave because it’s their decision. Susie may not like it, but it’s almost better to flush it out early when mom and dad are completely capacitated and they’re expressing to Susie in front of the lawyers and Billy what their reasoning is.
Stephan Shipe: Yeah, I think you have people squirming in their seats right now thinking about having that conversation. But I completely agree — having that out there up front, it’s a lot easier to potentially avoid or at least mediate those disputes while you’re still living.
Ellen Morris: Or at least try to. And let’s say they don’t want to do that, or Susie gets angry. At the end of the day, it’s still their decision. As long as they’re capacitated and there’s no undue influence, it is their decision.
And we do the same when it comes to tangible personal property — artwork or even things that aren’t of financial value but are of sentimental value. My advice to all my clients: take your kids, walk them around the house, and see if they can agree. We use those little colored dot stickers — red, yellow, blue, green. All red would have an E for Ellen, all blue would have an S for Stephan, and you go around and put them on what you want. And then you just make a little list. Because you’d be surprised how much tangible personal property — which isn’t even the most valuable part of any estate — causes the most in attorney’s fees and the most litigation.
Stephan Shipe: Yeah, completely. It’s where the sentimental value starts to come in a lot. Or the vacation homes.
Ellen Morris: Sentimental value. And it’s Billy saying I don’t like how Susie called me names on the playground when we were seven. So yeah.
What Families and Advisors Most Underestimate
Stephan Shipe: What are some other areas where you typically see the disconnect happen between intent and the disputes? Looking back at all the cases you’ve done, what do families and advisors most underestimate when it comes to how these disputes unfold?
Ellen Morris: I think families and advisors probably underestimate the angst between siblings — sibling rivalry — and how strong it can be. Parents definitely underestimate. They say, my kids, they’ll be fine, they’ll work it out. Or Billy will take care of Susie, I trust him. And advisors also sometimes not digging a little bit deeper — maybe not knowing that Billy or Susie have a disability, some form of a disability that’s the reason for the disparate distributions. Maybe Billy had a disability to the point where he really wasn’t able to get as good a job or as well-paid a job as Susie. And parents were helping him along — and documenting that.
Because when you can show the pattern, and you can show one of the Carpenter factors — the reasonableness of the provision, the reasonableness of the change — if you’ve got the facts documented to support that reasonableness, that is key. That is clutch.
So advisors and families should speak to each other about all of that and not underestimate sibling rivalry or sibling jealousy. The green-eyed monster — to quote from a Berenstain Bears book that my kids and grandkids read.
Stephan Shipe: This has been a great conversation. I really appreciate you sharing some of this and hopefully extending some bravery out there to those who are looking at having these conversations or trying to prepare for them. So thank you so much for coming on today. It was a pleasure.
Ellen Morris: My pleasure. Thank you for having me, Stephan. Good to talk to you. Take care.
Outro
Stephan Shipe: And that’s our show. Thanks for listening and we’ll see you next week!
Disclaimer: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.