The Heartbleed security flaw : Securing Your Information

Protecting our clients’ privacy and the confidentiality of their personal information has always been important to us. As our client, you may have concerns regarding reports involving the “Heartbleed” security flaw, which is reported to have potentially affected certain online sites that employ OpenSSL software. We would like to take this opportunity to reassure you that we have confirmation that your information is not impacted with respect to the security of your accounts at our primary custodians and third party vendors. We utilize Charles Schwab, Fidelity and TD Ameritrade as our primary custodians, AdvisorProducts Inc. (API) for the secure client login-only portion of our Coldstream website and Satuit as our Client Relationship Management Software (Satuit).

Please refer to the attached links for responses to this security threat from each of these Coldstream business partners.

Should you have any questions, please do not hesitate to contact your Relationship Manager at (425) 283-1600.

The “Heartbleed Bug” is being called one of the biggest security threats the internet has ever seen.

For information on major sites affected by the encryption flaw, and how it may affect you please refer to the table The Heartbleed Hit List: The Passwords You Need to Change Right Now

Wealth Management: The Role of the Investment Policy Statement

When our clients begin a wealth management relationship with Coldstream, the first thing they do is sign a stack of paperwork.  This generally includes an Investment Advisory Agreement – our formal contract with you, authorizations to trade your accounts, move assets and shop bonds from multiple brokers, and so on.  All of these items are valuable and necessary, but we try to highlight one particular document that otherwise might get lost in the shuffle: the Investment Policy Statement, also referred to as your ‘IPS’.  We believe the IPS is truly at the heart of what we do for our clients, and so it deserves a little extra attention.

Simply put, the IPS is our way to capture the goals you want to achieve with your wealth and the tools we use to attain those goals.  It should give you a clear picture of how we see your objectives and constraints, what you can expect for your portfolio’s asset allocation, and how your personal situation has changed and will change over time. When drafting an IPS, the most important input for us is learning as much as we can about you and your household: your lifestyle, cash flow needs, family situation, and generational or charitable intentions – these all help us determine your requirements.  Our New Client Risk Questionnaire focuses on particular topics which could impact your peace of mind, an important part of risk tolerance, and learning about your mix of account types, essential in allocating specific investments to the most tax-efficient vehicles. We include a review of any trust documents to ensure we understand the purpose of a trust and who its beneficiaries are, since a trust established for the benefit of future generations might have very different investment objectives from a client’s own personal accounts.

In most cases, thoughtful inquiry and patient listening is required to help us complete the picture.  Even casual conversation almost always provides valuable insights into IPS components.  For example, when a prospective client describes her rental homes in Kauai, Whistler, and Sedona, we begin thinking about the size of real estate in her overall asset portfolio and implications this has for our investment strategy.  Caring for an elderly parent or supporting grandchildren’s college education might require the portfolio to generate additional cash flow for a certain period of time.  In short, any factor that affects your relationship with your investment portfolio is potentially relevant to an IPS, and should be communicated to your Relationship Team.

Additional dialogue and coaching over time are sometimes required, as realistic expectations are critical to the success of any investment plan.  Risk comes in many forms beyond a simple decline in price; other factors like liquidity, potential loss of purchasing power due to inflation, legal and tax exposure, and the complexity of an investment strategy must be taken into account.  When a client’s return objectives and risk tolerance are in conflict, it is our responsibility to raise these issues in a sensitive but up-front way.  Similarly, if a client wishes to place certain restrictions on his portfolio for ethical, financial, or other reasons, we need to communicate the potential impact in terms of returns, volatility, taxation, etc. so that the client may make fully informed decisions about the management of his wealth.

Lastly, it is important not to view the IPS as a static, rigid document that is established once and never changed.  Since the goal of the IPS is to capture the relevant factors of our wealth management relationship, it should be a living document that evolves as your needs, goals, and resources change.  Key life events like marriages and divorces, the purchase or sale of a home or business, receipt of a bequest, or retirement can have a huge impact on an IPS and may sometimes require a nearly total revision.  However, even the simple passage of time and the evolution of a client’s portfolio may prompt certain updates or changes.  For this reason, we ask clients to formally revisit and re-sign their IPS at least every two years.

Like a good road map, spending a few minutes from time to time to review your IPS can pay large dividends.    An accurate, comprehensive, and up-to-date IPS is vital to a strong relationship with Coldstream, enhancing our ability to manage your wealth as we navigate the road to financial success and beyond.

Polar Vortex : A Freeze on the Bull Market?

“As a newsman, I want to salute whoever came up with the term ‘polar vortex,’. It is terrifying but still sounds all science-y. A lesser meteorologist could have overreached with ‘arctic coldnado’ – Stephen Colbert 1/06/14

Hyperbole aside, while the polar vortex of freezing temperatures may have frozen most of the US, it had only a minor effect on market and broader economic activity in Q1. After a very hot year in the markets in 2013 it is reasonable to expect a cooling-off period.  In our last quarterly update our Chief Investment Officer, Bob Frazier, forecasted a 5-10% correction in the S&P 500 – he was spot on. Over the first few weeks of 2014 the S&P 500 dropped 6% before recovering to close the quarter atChart1 new highs. Some of 2013’s biggest losers rebounded strongly in the first quarter; municipal bonds rallied 3.37% on lower interest rates and a calming of nerves following Detroit’s bankruptcy last year. Commodities also staged a rally of nearly 7% after a tough year in 2013. International markets were roiled when Russia annexed Crimea and the threat of a trade war loomed. That crisis has ebbed but is not over; cooler heads appear to be prevailing for the time being, but that can change at any moment. Asian emerging markets were soft on continued fear of a Chinese debt bubble bursting with an attendant hard landing.

Despite record low temperatures across much of the eastern United States the economic data continued to come in strong in Q1 2014. Unemployment continued at a 6.7% rate, just a shade over the official 6.5% target of monetary authorities. Inflation remained very low with a trailing 1 year CPI of 1.1%, and 1.6% excluding food and energy.  Low inflation is driven primarily by lower energy prices, a result of the shale oil and natural gas boom.  The minutes from recent Federal Reserve meetings indicate that the governors anticipate ending quantitative easing in 2014 and increasing short-term rates in the latter half of 2015, on the back of improving fundamentals in the US economy.

Our base-case global forecast for 2014 remains the same.  We expect stocks will continue to grind higher, with European stocks taking the lead, while interest rates also move up modestly with the taper of Quantitative Easing and in anticipation of rising short-term rates.  Absent an invasion of Eastern Europe by Russia or deepening trade war, we feel Europe should continue its climb out of recession.  Two years of austerity and labor market reform by governments across Europe have set the stage for natural expansion across the Euro Zone. We expect European stocks to begin outperforming their domestic counterparts, as valuations revert to parity with the US and economic momentum swings. We feel investors are cautiously awaiting the effects of Japan’s increased consumption taxes. If Japanese consumers maintain or increase their spending we could see renewed positive action in Japanese stocks, whose valuations remain tame despite last year’s big climb. Emerging markets are still a question mark. Valuations are at record lows for the index, but investor sentiment is very negative and outflows continue to be significant. We expect emerging market stocks to begin improving later this year as fears about the magnitude of the Chinese slowdown abate. We also expect greater return dispersion within emerging markets, the result of drastically different economic policies and trade balances between developing nations.  The outlook for commodities remains in question, China’s outlook being the dominant factor. Our best estimate is that Chinese authorities will be able to manage the slowdown with the policy tools at their disposal: managing the currency exchange rate, their pile of foreign currency reserves, and the authority to punish many bad investments and investors, while propping up others.

Trust Basics

Introduction to Trust Basics

We find it beneficial to occasionally review the basics of trusts so our broader discussion of planning is more helpful.  There are numerous types of trusts, however all trusts share a common structure and generally share similar treatment by the law.


The concept of trusts go back to ancient Roman law, but personal trust law as we know it was developed and expanded upon in England during the 12th and 13th centuries.  Land ownership in England was based on the feudal system and it became customary for a landowner to convey his property to a caretaker to maintain the property during the owner’s absence.  Upon the owner returning, however, the caretaker at times would refuse to convey the property back to the rightful owner, wanting to keep the land for himself.  The courts in England began consistently finding for the original land owner, each case establishing foundational case law against the caretaker.  From these land dispute cases, the principle of equity was born as well as the concept of “use of land”, hence establishing the idea of trust.


A trust is a legal entity that holds assets for the benefit of another.  This entity has three basic parties involved:

  1. Grantor/Trustor/Settlor: The person who creates and funds the trust with whatever asset he chooses.
  2. Trustee:  The person who holds legal title to trust assets, administers the trust, and has a duty to act in the best interest of the beneficiary.
  3. Beneficiary: The person who receives benefits from the trust, such as income or the right to certain assets.

A trust is created through execution of a written agreement, which lays out the names of the beneficiary and trustee, the trustee’s duties, details about the beneficiary’s benefits, and when the trust will end, among other things. Many people discuss setting up trusts to save on taxes or pass property and money to the next generation.


An important consideration is the location, or situs, of the trust itself.   The state where a trust is established can make a big difference in how much estate and income tax liability is incurred.   State laws, not federal laws govern trusts. While there are many similarities in states’ trust laws across the country, you should be aware of some important differences.

One primary difference in state laws is the presence of a state income tax.  Setting up a trust in California for example, where state income and capital gains are taxed, is much different than setting up a trust in Nevada, where neither income nor gains are taxed.  Careful forethought and planning should be taken to establish a trust in a state that is appropriate for your situation.

State laws can also differ in how long a trust may last.   Historically trusts were governed by the rule against perpetuities. The law we inherited from Medieval England frowns upon what was called “dead hand control”; they wanted trusts to end after a certain period of time and didn’t want perpetual trusts.  However, some jurisdictions such as Alaska and Delaware now allow, given the right circumstances and planning, for trusts to run much longer, even into perpetuity.  Allowing property to remain in trust sheltered from transfer taxes for the benefit of descendants over potentially hundreds of years (called dynasty trusts), can provide the ability to create vast amounts of wealth, protect assets from creditors, and save on taxes.

One additional difference among state trust laws is the ability to set up a directed trust.  In many states, the law requires the trustee to manage everything having to do with the trust and the assets it holds.  This encompasses the administration of the trust, paying taxes, and properly investing and managing the assets. Sometimes a trustee has the requisite combination of expertise and education to do the job alone. However, sometimes a division of duties with a third party, such as an investment advisor or board member of a family business, may be needed. These are called directed trusts and not all states allow this arrangement.  Delaware, Alaska, and Nevada are examples of states that do allow them.  If a directed trust is ideal for your situation, consider the appropriate jurisdictions prior to establishing your trust.


The taxation of trusts is an issue much deeper than the scope of this article; however, we can briefly touch on some high level characteristics of trust taxation.   Here are a few basic concepts:

  • Generally, taxation of trusts is determined in the same manner as an individual with some modifications.
  • Trusts receive a deduction for taxable income distributed to beneficiaries.
  • The beneficiaries report and pay tax on the distributions of taxable income to them.
  • What is left represents taxable income retained by the trust, on which the trust must pay taxes.
  • All taxable income will be taxed at its final situs (location).

One primary difference between the taxation of a trust and the taxation of an individual is the compressed tax brackets.   It only takes a trust $12,150 of income to reach the top income tax bracket of 39.6%, whereas it takes a married couple filing jointly $457,600 of ordinary income to reach the same top income tax bracket.  This explains why many trusts, especially testamentary trusts (formed through a Will at death), provide for the mandatory distribution of all income to beneficiaries where the tax treatment will likely be more favorable.


Above are just some of the issues that need to be thought through when considering the use of trusts in your planning.  Trusts can be a powerful tool in obtaining control, creditor protection, and reduction in tax liability. Understanding some of the basic concepts will go a long way in helping you understand trust planning discussions with your team of advisors.

IRS Circular 230 Notice: To insure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including attachments) is not intended or written to be used and cannot be used for (1) avoiding penalties imposed under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein unless the communication contains explicit language that it is a tax opinion in compliance with Circular 230 requirements.

About Coldstream

St. Patrick’s Day Dash 2014St Paddys Dash 2014

The soggy Seattle rain didn’t stop “The Coldstream Team” of 38 strong from making it to the Finish Line along with close to 10,000 participants in the 30th annual St Patrick’s Day Dash on Sunday March 16, 2014 at Seattle Center.   We had a half dozen corporate team challengers with F5 Networks Team winning First place with close to 200 runners participating in the Dash, followed by Outerwall and Brooks Running.  All in all it was a festive and fun day; a great way to kick off our 2014 health and wellness initiative. Congratulations to all that participated!

New to the Coldstream Team:

We are pleased to announce that Phil Platt has joined Coldstream and our affiliates as Chief Operating Officer. Phil has extensive, highly relevant work experience that will allow him to ‘hit the ground running’ with us and we feel he will enhance our already strong  company wide ‘team’ culture.  We welcome Phil and look forward to a fantastic 2014!

Coming Event:

Coldstream will be celebrating 18 years in business this year. On April 24th we will be closing our offices early in honor of this milestone, and our employees will partake in cooking up some tasty treats at “Sizzleworks Cooking School” in Bellevue.

Coldstream in the community

Coldstream team members Detlef Schrempf, Hilary Clark, Vince Lee & Kurt Biederman attend the 2014 auction in support of St. Thomas School.

Grit and determination

Courageous people with disabilities supply the grit, determination, and hard work to continue to ‘do life’.  We’re proud to support them with specialized expertise in planning and careful management of resources through our Disabled Advisory Services platform.–250711261.html


  FOR IMMEDIATE RELEASE: March 4, 2014  BANNER BANK AND COLDSTREAM CAPITAL MANAGEMENT, INC. ANNOUNCE RELATIONSHIP WALLA WALLA, Wash. -Banner Bank, a wholly owned subsidiary of Banner Corporation (NASDAQ GSM: BANR), announced today that it has entered into a business relationship with Coldstream Capital Management, Inc., a Bellevue, WA based independent wealth management firm. The…

2014 St. Patrick’s Day Dash

As part of Coldstream’s Employee Health & Wellness Initiative, we are once again sponsoring the St. Patty’sDay Dash Challenge!  Accept our challenge and join us in Seattle’s largest single-distance run, walk, jog or crawl.  There are two ways to participate! Join the Coldstream Team (click the link above!) Select Team Member Registration Enter Team Registration Code: ColdstreamFriend…

The 12th Man

 Celebrating “Blue Friday’s” at Coldstream. GO SEAHAWKS!