Fall 2025 Newsletter: Estate Planning, the Fed's Rate Cut, and Gold's Strong Year

While the weather is still serving summer sizzle, Q4 has crashed the party with a pumpkin-spice vengeance. This edition covers the importance of a complete estate plan, what the Fed's rate cut means for your wallet, gold's standout year, and year-end planning opportunities.

Welcome to the latest edition of our Swan Quarterly Update. Each quarter, we are committed to bringing you timely topics from recent conversations with clients and actionable strategies to help you navigate the ever-changing financial landscape. In this edition, we cover: the importance of bulletproof estate planning, what the Fed's rate cut means to your wallet, the best performing asset class in 2025, and end of year planning opportunities.

As always, our goal is to provide you with the tools and knowledge to make confident, informed decisions. We're here to help you stay ahead, no matter what the markets or life may bring. Thank you for allowing us to be part of your financial journey. Let's dive into this quarter's updates and opportunities!

Estate Planning 101

Spoiler alert: "My will says everything goes to my spouse" does not cut it as a master plan.

The holiday season is rapidly approaching, which means more time to get together with family and friends. And speaking of family, let's talk about the importance of bulletproof estate planning. Your estate plan is more than just a map of where all your possessions will go, it also helps dictate who'll care for you if you are unable, who will manage your affairs, and how your final wishes are honored. Its importance stems from its ability to provide clarity, reduce financial and emotional burdens during a time of hardship, and align with personal and tax-related goals.

Every family has an estate plan, some just let the court write it for them through a process called probate. In the absence of an air-tight estate plan, probate is a court-supervised process of distributing a deceased person's estate. It can be extremely time-consuming, often taking 6 to 18 months, expensive, with legal and administrative fees averaging 3 to 7% of total estate value, and all information becomes public, exposing sensitive financial details to scammers, like names, addresses, and assets passed to family members. Avoiding probate is a critical component of effective estate planning, as it streamlines the transfer of assets, reduces costs, and preserves privacy for your loved ones. We've had the pleasure of experiencing the probate process firsthand, and let us tell you, it's about as fun as a root canal performed by a sloth. Don't let the government decide your legacy once you're gone!

Everyone's estate plan is different, but let's cover the basic documents typically needed: A last will and testament lays out your wishes for who will receive what after you pass away. You'll also select someone as a guardian for your children. A will does not help you avoid probate like many people think, the court uses it as their guide to splitting up your estate. A living will or healthcare directive specifies your wishes for medical treatments, such as life-sustaining measures, if you're incapacitated. It guides your healthcare proxy and doctors, reducing guesswork during critical moments. A power of attorney names someone to make the financial and legal decisions for you if you're unable to. Without it, a court may appoint someone, potentially leading to delays and disputes. Beneficiary designations are the titles on accounts like investments, life insurance, or bank accounts that direct assets to specific individuals or charities upon your passing. A living trust is a flexible tool that holds your assets during your lifetime and allows seamless transfer to beneficiaries without going to probate. You can manage the trust while still alive or appoint a trustee to oversee it.

Understanding Tax Implications in Estate Planning: Federal and Minnesota Rules

At the federal level, the estate tax is a tax on the transfer of assets from a deceased person to their heirs or beneficiaries. For 2025: the exemption is $12.92 million per individual, or $25.84 million for married couples, adjusted annually for inflation. If your estate's total value is below this threshold, no federal estate tax is owed. For estates above the exemption, the federal estate tax rate is progressive, ranging from 18% to 40%. The top rate of 40% applies to the portion of the estate exceeding the exemption amount by more than $1 million. For example, if your estate is worth $15 million, only the $2.08 million above the $12.92 million exemption is taxed. For married couples, the portability rule allows the surviving spouse to use any unused portion of their deceased spouse's exemption. Minnesota is one of 12 states that imposes its own estate tax (lucky us), which applies to estates above a certain threshold. Minnesota's estate tax exemption is $3 million per individual, significantly lower than the federal exemption. Yes, we are forced to cheer for the MN Vikings and get a lower estate tax exemption... Minnesota's estate tax rates range from 13% to 16%, applied progressively, and unlike the federal system, Minnesota does not offer portability for unused exemptions between spouses, which makes planning especially important for married couples to maximize both spouses' exemptions.

Estate planning is an extensive topic with a wide range of solutions depending on your situation. Many of us are reluctant to have these difficult conversations (must be the Minnesota nice), but we've seen firsthand the repercussions of not having a proper plan in place. If you have questions about your current plan, want to add or update documents, or would like a second set of eyes on what you have, we're happy to help, and we can also connect you with attorneys we know who focus on elder law and estate planning.

The Fed's Rate Cut and What It Means to You

The Federal Reserve has two primary mandates: maximum employment and stable inflation. Its main tool for both is the federal funds rate, the benchmark rate banks use to lend to each other overnight, which in turn influences most other interest rates in the economy.

The Fed recently cut the federal funds rate by 25 basis points to a target range of 4% to 4.25%, reflecting a softening labor market alongside inflation that remains elevated but is gradually declining, around 3% on the Fed's preferred PCE measure, and an unemployment rate of 4.3%.

For everyday clients, the impact is mixed but generally modest. Borrowers with variable-rate debt, such as credit card balances or adjustable-rate mortgages, may see some relief, on the order of $20 to $50 a month on a $10,000 credit card balance, or $100 to $200 a year on a $300,000 mortgage. Fixed-rate loans are unaffected. Savers holding cash in high-yield savings accounts or CDs will likely see somewhat lower yields going forward.

Lower rates are often viewed as generally supportive of stock valuations, though a downside risk is that easier policy could make the final stretch of bringing inflation back to the Fed's long-term target more difficult.

Gold's Strong Year

In the financial landscape of 2025, gold has emerged as the standout performer among asset classes, outpacing traditional investments such as U.S. and international stocks, bonds, and other commodities throughout the year, up almost 50% year-to-date as we write this.

Gold's primary advantage lies in its ability to enhance diversification due to its low correlation with conventional equity and bond holdings. Historically regarded as a safe-haven investment, gold tends to outperform in times of economic instability. If gold is a "safe-haven investment," why is it outperforming every asset class this year? Many investors, both professional and amateur, confuse low correlation with negative correlation.

It's worth noting that low correlation is not the same as negative correlation. Low-correlated investments like gold can perform well at the same time as stocks, not only as an offset when stocks decline. This year's strength has several possible explanations, including rising geopolitical uncertainty, continued inflation concerns pushing investors toward a traditional hedge, and a stretch of unusually strong performance following years of more modest returns. As always, this is a reminder that no single asset class stays on top forever, which is exactly why we build portfolios across a range of asset classes rather than chasing whichever one is leading in a given year.

End of Year Planning Opportunities

A few things worth considering before December 31: maximizing retirement account contributions if you have earned income and available cash, including HSA contributions; accelerating deductible expenses, whether that's prepaying business expenses, making charitable gifts of appreciated stock, a Qualified Charitable Distribution, or a contribution to a donor advised fund; contributing to a Minnesota 529 plan to capture the state tax credit, up to $1,500 for joint filers; tax-loss harvesting to offset gains and up to $3,000 of ordinary income; considering a Roth conversion in a lower-income year; updating your estate plan if it's been a while; and reviewing your health, life, and long-term care coverage to make sure it still lines up with your goals.

If You're Still Reading...

We're bringing back our annual Pie Day giveaway for clients and friends again this Thanksgiving, watch for details in November. And on a personal note, Don got married this fall, we had a wonderful time celebrating with him.

Don Stewart, TJ Bruce, Mike Mahalich, Paul Klein