Averting State Estate Taxes With Non-Grantor Trusts, Transferring Digital Assets At Death, And The Portability Election: An Update On Estate Planning For Financial Planners
Monday, December 02, 2013 21:35
I'm pleased to be invited to participate as an A4A blogger. I plan on updating you on estate planning and asset protection matters as they develop. I also look forward to sharing my thoughts on A4A webinars, including the session on December 13. See you there!
For this first post, let’s focus on three timely estate planning topics for financial planners.
This Website Is For Financial Professionals Only
Using Incomplete Non-Grantor Trusts To Avert State Income Tax On Capital Gains
Recently, the IRS issued a private letter ruling (PLR 201310002) after several years of silence on the issue of incomplete non-grantor trusts. By way of background, individuals who live in high tax states and who have significant appreciated assets have used a technique, commonly referred to as a DING trust (Delaware incomplete non-grantor trust). By structuring the transfer as an incomplete gift to a trust governed by the laws of a state that does not impose a state income tax and using a distribution committee consisting of adverse parties (typically beneficiaries) they were able to avoid state income tax on the capital gains. This is most useful where a client may be selling a business at a substantial gain. The IRS issued a revenue ruling in 2007 which led to uncertainty as to some tax consequences of such a structure effectively chilling further transactions. But now with this favorable private letter ruling (which, however, cannot be used as precedent by other taxpayers) there is renewed interest in this. Because the requirements for a transfer to be an incomplete gift require the settlor to retain not only a testamentary power of appointment but also, under this ruling, a lifetime power, the only three states that presently provide creditor protection (which is necessary to avoid grantor trust status) are Alaska, Nevada and Wyoming.
Transfer Of "Digital Assets" Upon Death
A subject gaining media attention is the transfer of "digital assets" upon death (or disability). Law on this emerging issue is being developed at the state-level and the topic is under study by a drafting committee of uniform law commissioners. Uncertainty often results related to the different contractual policies social media companies like Facebook, Twitter, and LinkedIn require users to agree to accept. Who can be given authority to access digital media, sell or exploit it has emerged as a major issue. For example, who is entitled to your iTunes downloads and domain names when you die? See Arden Dales's recent WSJ article to for details on this.
Over-Reliance On Portability In Their Estate Planning
Finally, though not new news, many married couples may be placing too much reliance on portability of the estate-tax exclusion in their estate planning. Though there are many benefits of portability, there can be detriments. Each client's situation requires a careful review of the pros and cons.
I will be discussing these three topics in more detail at my upcoming A4A webinar. If you have questions please feel free to email me at
The Insurance Industry Doesn’t Know Fee-Only Fiduciaries Exist; Observations And Attendee Reaction To Bob Keebler’s Webinar About Retirement Income Planning
Wednesday, November 27, 2013 22:24
Retirement income planning has always focused on reaching a wealth accumulation goal by the time of a client’s retirement date, but managing assets after retirement to maximize income is ultimately what’s most important.
That was the subject of Bob Keebler’s recent webinar session
. At a rapid clip, Keebler ticked off pitfalls, problems, and solutions -- why distribution planning is so important, the five-dimensional tax world practitioners must suddenly navigate, the effect of asset allocation on tax minimization and a wide range of other issues.
Because Keebler is so steeped in the CPA world, his approach and perspective is different from that of a CFP, CIMA, or CPWA professional. It's an unbiased approach to optimizing after-tax returns on retirement income.
A4A members can get CFP, CIMA, and CPWA continuing education credit and view the replay
for free. The slides for Bob's monthly sessions are available for $25 a month (annual commitment). You can use the slides in meetings with clients, conducting your own webinars, as well as in in blogs or newsletters you send to clients. Buy it here
This Website Is For Financial Professionals Only
While Bob covered a lot of ground, a major takeaway from the session is the growing need for annuity products targeted to fee-only RIAs and fiduciaries.
Many of the comments below mention a Jefferson National product and a couple of other commenters mentioned other products. I am struck by the dearth of choices.
The income distribution phase of financial life is spreading across thousands of Baby Boomer households daily. Advising this growing segment of potential clients is increasingly important to clients and practitioners.
Diversifying an income stream beyond a securities portfolio — into annuities — is prudent because it mitigates risk in generating retirement income. Fiduciaries will want to offer clients diversified income streams—that is, a stream of income derived from multiple sources. Annuitization of a 15% to 25% portion of a client’s assets in income-generating annuities is being recommended by leading academics, and Keebler is saying the same thing.
For fee-only advisors, advising clients on annuities is a sticky issue because you have to do what’s in a client’s best interest always. You are obliged to recommend a client place assets in an annuity, even if it means you will no longer be able to charge a client for managing those assets.
RIAs working on a retainer basis are well-positioned to deal with this challenge to professional ethics and net income. Retainer-based RIAs, of course, get paid a fixed fee regardless of which products they recommend.
“Jefferson National Monument Annuity is great,” according to one attendee. “Only $20 per month. If a prospect already has a variable annuity, it is much better if they transfer it to JeffNat—usually saving 1-4% per year depending on the cost of the VA they are currently in.”
What strikes me is the dearth of choices. As comments below from attendees show, there are only a small number of annuity products that fee-only advisors can utilize and count as AUM. Clients, ideally, would diversify across different annuities to reduce the risk of a default by an insurer.
It seems like the insurance business doesn’t know fiduciaries exist.
Put another way, fiduciaries, who are supposed to be setting the standard for how financial advice professionals practice, are totally underserved with annuity products, especially since it is arguably imprudent for a fiduciary not to put some assets under management in annuities. It will be interesting to see how long it takes for the insurance companies, product manufacturers, and consultants to fill the void and provide fiduciaries with more choices.
Here are the unedited comments from attendees. Proving once again that you people can never be satisfied, Bob received a 4.5-rating out of five.
- Keebler is an amazing teacher!
- You have some of the best content here...
- Great job Bob. Excellent slide materials, as always. Thank you for the service you provide to advisors.
- Very interesting
- I wished Bob Keebler had time to do some case studies to show how tax planning can help clients increase their income in their retirement.
- Always love Bob Keebler. Never enough time. What I'd love is if we could get more specific. Let's have a webinar that really digs deep on just NUA, just ROTH conversions, just Oil & Gas, just annuities -- etc.
- Too much material for short amount of time.
- Always greatly appreciated...
- He really tried to cover a lot in a short time and did a pretty good job!
- Seemed to be at various levels of expertise - sometimes glossed over the more complex stuff at the same pace as he went through the simpler stuff.
- Really good. Wish it could have been longer to go thru some more case studies to really show the value of tax planning on withdrawal strategies.
- Great info I have not seen organized anywhere else like this.
- Very good
- Great stuff
- Great as always.
- Overall it was excellent but there was too much "heavy" material presented in too short a period of time.
- Very good
- Bob Keebler is so brilliant!
- Excellent. I thought the perspective for using annuities for tax planning was. useful info for an RIA
- My question was not answered regarding paying caps gain vs loss of step up for person who does not need money from annuity but wants to leave the money for heirs
- I wish he would complete his presentation rather than just refer to the remaining "mystery" slides.
- Complex material to cover in 60 minutes. I think the subject needed to be narrowed down for the time slot.
- Good presentation.
- Andy and Bob, I think the comment about the fee-only annuities may pertain to variable annuities offered by Vanguard, Fidelity, etc. which are on our advisor platforms institutional
- JeffNat has 400+ fund choices and includes many good low cost funds from DFA and Vanguard.
- Andy, I think Jefferson National Monument Annuity is great. Only $20 per month. If a prospect already has a variable annuity, it is much better if they transfer it to JeffNat...usually saving 1-4% per year depending on the cost of the VA they are currently in.
- Andy, Check out Lincoln Financial Distributors, they have a RIA specific annuity...
- Jefferson National has a fee-only annuity that RIAs can charge fees.
How Advisors Can Help UHNWI Clients' Children With The College Selection And Admissions Process; Plus: College Inflation Rate Is Even Worse Than Everyone Thinks
Tuesday, November 19, 2013 20:18
The cost of a college education at a four-year state school rose just 2.9% from 2012-13 to 2013-14 was 2.9%, the smallest one-year increase since 1975-76. After adjusting for inflation, the increase was 0.9%, the lowest inflation-adjusted increase since the 2000-2001 school year.
At private four-year colleges, meanwhile, the 3.8% increase in college costs in the 2012-2013 period, was slightly lower than the increases of recent years.
And, in the decade ended with the 2012-13 school year, the average annual increase in tuition and fees at private four-year colleges was 2.4% beyond inflation — lower than in either of the two preceding decades.
It would seem that the soaring cost of college has finally been starting to moderate.
This Website Is For Financial Professionals Only
These statistics on the cost of college come from the College Board
, an association for 6,000 of the world's educational institutions. College Board’s annual Trends Reports is relied upon by financial planners and the press as the “gold standard” for measuring college inflation.
However, the statistics don't tell the full story. They actually mask a hidden price increase at U.S. colleges.
According to Bruce Neimeyer, of Global Search Associates, a consultant who helps the children of advisor clients with the college admissions process, colleges have begun boosting revenue by accepting fewer advanced placement credits from applications coming out of high school and toughening academic standards, which increases the number of students who need an extra semester or two—beyond fours years—to graduate.
Neimeyer, an Associate Vice-Chancellor for Special Programs at University of Illinois at Chicago who has worked as a manager in the financial aid and admissions departments of several colleges over the past 25 years, provided detailed analysis, including some of which was frightening, about the rising cost of college at our webinar last Friday
, and he also focused on the importance of matching students with the right college programs.
Advisors serving the mass-affluent, who are hit hard by college costs, should listen to Neimeyer's presentation, but Neimeyer's approach is ideas are probably even more important to advisors who work with high-net-worth individuals (HNWIs) and ultra-HNWIs.
Neimeyer’s experience and knowledge make him an excellent collaboration partner for financial planners advising high-net-worth individuals (HNWIs) and ultra-HNWIs. These people often have children with serious issues because they must face the problems as well as the opportunities that comes with wealth. Plus, having successful parents puts pressure on the children to succeed and outdo or at least keep up with the accomplishments of parents. Point is, clients of advisors can afford Neimeyer’s college admission consulting services and are good candidates to benefit from them. Bringing in a consultant with PhD in Social and Comparative Analysis in Education to help your clients’ children find the right college program for their interests and career goals is a really great way to help clients.
This was not a topic I expected to attract a lot of attendees because it seems far afield. But the 4.4 star-rating (out of five) tells you that Neimeyer’s ideas resonate with advisors, and look at the comments received:
- I liked it.
- Good Topic
- Wish there were more specific tips on career options. Admissions best practices, more info on financial aid
- Good general info on challenges and approaches to educational planning
- The webinar clarified many issues surrounding the college application process as it exists today. It is obviously a much different system than existed when the baby boomers went to college. I was not aware of the gravity of the situation pertaining to college financial viability. Also, seeing the exact dollar outlays being faced by college students and their families in today's world is alarming and should be understood clearly by competent financial advisors. Thank you.
- Very insightful and beneficial. I have a 5 year old and college is something I think about frequently.
- I thought the speaker was well versed in his expertise. I wish he would have gone a little slower
- Disappointed. Not much substance.
- Would've like to heard more about how Global College Search can help and what exactely they do to help
- Very helpful to have this kind of allied colleague available.
- I thought it was very well done except that it felt too "salesy" towards the end.
- I like everything except for the slides, I prefer power point slides over the way Bruce did it
- Rather sobering statistics
- Outstanding. One of the better presentations.
- Andy, Thanks. This is helpful. The information has given me a lot to think about. I have 12 years to prepare. OMG
You can view all of A4A's weekly professional education videos for financial advisors and get CFP Board or IMCA continuing education credits for most sessions if you have paid A4A’s $60 annual membership fee.
Commenter On Retirement Income Planning Session: “This Webinar Allowed Me To Begin Outlining A Method Of Addressing My Client's Question Directly”
Monday, November 11, 2013 16:58
Thanks for the positive feedback about last Friday’s webinar about retirement income planning. That headline captures the most poignant of many comments from attendees.
At the session, which is available for replay and continuing education credit, Manish Malhotra of Income Discovery, a sophisticated new retirement income modeling app, shows innovative and intricate ways to find optimal retirement income solutions. The session and CE credit are free to A4A members.
In an exit survey asking attendees to rate and review of the session (see all the comments below), an advisor said he got a call from a client earler in the day with a question that matched one of the case studies covered in the webinar. The client asked the exact question asnwered during the webinar! Now that's pretty cool because it tells me A4A is giving you real practical and timely ideas. While advisors tell me that all the time, it is nice to get such real-world evidence confirming it.
This Website Is For Financial Professionals Only
Being able to model different Social Security start-dates for two spouses, for example, is easy. Plus you can add bond ladders to portfolios and make what-ifs based with start dates for annuitizing an income stream in forecasts.
Look at the variation in comments from attendees and the valuable feedback. Manish received an overall rating of 4.2 out of five, and the following comments:
- Very informative and will help my business
- Good, hard to digest with so much info, but very helpful
- Definitely worth my time. We use a different social security software so it was good to see the differences in what this offers.
- Good. Stuff . Retirement income generation is a area that cannot be talked about too much. I'm always willing to listen to new ideas.
- The topic was very relevant but I found it a little difficult to keep up with the pace of information.
- Not too helpful for my practice
- Great software and really gets at the income needs of retirees in a practical way!
- Powerful tool, but out of the reach of many small advisors
- Very good. Great product
- This was more of a sales pitch than I was prepared for.
- Very good.
- Good. Actually MGP does some of this. But not quite as well.
- I thought it was valuable to me as an advisor focusing on retirement income planning strategies.
- Fairly complex issues that apparently can now be more analyzed more rationally for our clients to produce better client recommendations. Interesting + useful.
- The software fills a gap that is really needed in this time when many people are retiring and don't have pensions.
- Nice piece of software, but not sure if it gives you the ability to drill down in reports to see how results were arrived at.
- Well worth the time spend to watch this presentation.
- This was an excellent webinar. It was well-organized and very informative in terms of showing advisors the tools available to make and understand social security election decisions on behalf of clients. I received a call from a client earlier in the day, higher-net worth type, and he posed this exact question to me, as he had just turned 66 last month. This webinar allowed me to begin outlining a method of addressing my client's question directly, and gave me some superlative talking points to utilize now.
An Open Letter To Clients
Friday, October 25, 2013 18:34
With continued economic and political uncertainty, how do we convince our clients to stay the course? Ongoing communication is critical. Here is an excerpt of what I sent to my clients with their third quarter reports:
This Website Is For Financial Professionals Only
I hope that this letter finds you and your families doing well and that you enjoyed your summer.
I’m starting to sound like a broken record when I say that this past quarter was once again marked by volatility and that news out of Washington was the root of much of that uncertainty. This past quarter was a period affected by debt-ceiling concerns, squabbling in Congress and a bond market hinged on announcements from the Fed. Despite some rather significant swings in the market around those headlines, the equity markets were a bright spot over the last three months.
I feel it’s a good time to mention, as I’m sure you’ve heard me discuss in the past, the importance of proper diversification. Diversification helps take the guesswork out of investing, since we never know which markets will outperform from year to year. The chart below illustrates the unpredictability of returns by plotting annual returns (%) of various asset classes from 1998 – 2012:
The returns we’ve seen recently are no different from the randomness depicted above. Investors previously swarmed to emerging markets stocks when they were riding high, but so far they’ve been rewarded with negative returns this year. US REITs out-performed domestic stocks of all sizes from 2009 through 2012, but now that trend has reversed itself. We don’t know what the patchwork quilt of returns will look like in the future, but by holding a globally diversified portfolio, you are positioned to capture returns wherever they occur.
Another benefit of diversification is that you may improve your risk adjusted return by adding additional asset classes that are less correlated to each other. As you can see in the chart below, the addition of multiple asset classes to a sample portfolio helped increase returns while dampening the overall volatility (i.e. producing a lower standard deviation), over an identical time period.
Sometimes it can be tempting to deviate from a disciplined diversified asset allocation strategy, especially when certain asset classes are underperforming others. It can be uncomfortable checking your account statement only to see that one asset class has lost money while another is riding high. While it may feel good to move your money to something that’s doing well, that is the quickest way to lock in a loss in the pursuit of performance. It’s important to not follow your emotions and instead remain disciplined.
This has been particularly challenging this year as we’ve watched bond prices fluctuate. It may be helpful to keep in mind that even if a bond price is down, the bond itself will still continue to pay interest and the full principal amount will be paid out when the bond comes due at the end of the contract. The only way that a lower price will cause an actual loss of principal is if it is sold and the lower value is locked in - even if interest rates increase. In order to lessen the potential volatility in your bond portfolio, we avoid holding longer-term bond funds, which tend to be more volatile and more sensitive to interest rate changes, and instead hold shorter-to-intermediate term bond funds, which tend to fluctuate less. Bond fund managers can also take advantage of rising interest rates by buying higher yielding bonds as the shorter-term bonds mature.
The market rarely moves in a straight line and portfolios are divided among the different asset classes to cushion the ride. An informed investor will keep in mind that the various sections of their portfolios will move in different directions but to not use the returns of one portion to judge another.
As always, please remember to reach out to us if there are any changes in your financial situation. If you have any questions about your accounts or investment strategy, please don’t hesitate to call or email me or any member of my team.
Sheryl Rowling, CPA/PFS
<< Start < Prev 1 2 3 4 5 6 7 8 9 10 Next > End >>
Page 1 of 73