Kitces.com - Advancing Knowledge in Financial Planning

The Rise Of The Spousal Lifetime Access Trust (SLAT)

May 22, 2013 11:06 am 2 Comments CATEGORY: Estate Planning

In late 2012, a new estate planning strategy emerged - the so-called "Spousal Lifetime Access Trust" (or SLAT for short). The basic concept of the SLAT was relatively straightforward: it would function like a bypass trust, but be funded during life instead of at death, with the intention of using it to take advantage of the then-current $5.12M estate tax exemption before it dropped back to $1M as was scheduled for 2013.

Ultimately, the estate tax fiscal cliff didn't happen, but the SLAT remains valid in 2013 and beyond for a new purpose: planning around state estate taxes, and the mismatch between the numerous states that have only a $1M state estate tax exemption and no gift tax, while the Federal gift and estate tax exemptions are at $5.25M. Given this "decoupling" of the state estate tax from its Federal gift tax - and the lack of any state gift tax backstop - couples have a unique opportunity to manage or avoid state estate taxes by creating "supercharged bypass trusts" in the form of SLATs funded during life.

The caveat to the strategy is the "reciprocal trust" doctrine, which can cause SLATs to become "uncrossed" and taxable in the original donor's estate. Fortunately, reciprocal trust treatment can be avoided. Unfortunately, though, the rules to avoid reciprocal trust treatment are based on the facts and circumstances of the situation, and consequently a focus for the IRS and estate planning attorneys in the coming years may be figuring out how best to avoid the reciprocal trust doctrine without actually ruining the client's financial and estate planning goals.

Nonetheless, though, the reality remains that the SLAT may be increasingly popular in the coming years, at least until states implement a gift tax, recouple to the Federal gift and estate tax system, or just repeal their state estate taxes entirely.

How To Be “No Longer Awkward” When Planning For Grieving Clients

May 20, 2013 11:02 am 1 Comment CATEGORY: General Planning

Working with grieving clients is a difficult challenge for many planners; most people simply do not have very much experience working with others who are grieving, and the uncertainty about what to say or do - or not say or do for fear of offending - leads many to avoid such potentially awkward situations altogether. Yet the reality is that experiencing loss, and grieving for it, is a fact of life, especially when we recognize that the kinds of "loss" triggering grief can encompass a wide range of circumstances, from the death of loved ones to a loss of role or routine to an outright material loss of money or even home.

Fortunately, though, a recent new book entitled "No Longer Awkward: Communicating with Clients Through the Toughest Times of Life" helps to provide guidance in navigating these difficult issues. Written by Amy Florian, who is herself an expert on grief, both academically (with 30 years of experience, she holds a Master's degree and is a Fellow in Thanatology) and sadly personally (as several decades ago a sudden car accident left her a 25-year-old widow with a 7-month-old son), the book provides guidance on exactly what to say (and not to say) in grief situations, and a wide range of templates and resources as well.

Simply put, "No Longer Awkward" may quickly become the definitive handbook for advisors on how to comfortably handle those uncommon-but-frequent-enough grief situations with clients.

Weekend Reading for Financial Planners (May 18-19)

May 17, 2013 04:07 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with an announcement by the CFP Board of a new initiative to increase the number of women entering financial planning (currently only 23% of CFP certificants), a discussion from FPA's lobbying group of the current advocacy priorities in Washington DC for 2013, and a surprising article about industry trends showing that using virtual advisors isn't just about young people as many of the new startups in this space are reporting a significant number of Baby Boomers using their technology-driven advisory services.

From there, we look at a few industry-related articles, including one discussing how often the reason why advisors merger and acquisition deals fall through is not problems with culture and philosophy but just good old-fashioned dollars-and-cents, and a review by Bob Veres of the latest Mark Hurley white paper and the insights it provides not just about the advisory firm landscape but also some good tips for buyers and sellers about how to get a deal done. In addition, there's a pair of more technical articles, the first explaining how to help clients choose an appropriate Medigap supplemental policy, and the other looking at what an unwinding of Quantitative Easing by the Fed would really look like (hint, it will be a lot more gradual than the market volatility will imply when it begins).

In addition, there are several practice management articles, including one about how to ensure any photos and images you use on your website at legal to avoid a Copyright infringement lawsuit, another with some tips about how to "wow" a client (everyone says it's good to wow clients with great service, but what does that really mean!), and a good discussion about the importance of paying attention to your office environment and decor because the impression it leaves can impact your client's perspective on the entire experience.

We wrap up with three more introspective articles: the first poses a series of 5 questions that advisors should ask themselves and be able to answer to better focus where their business is going to succeed in the future; the second reflects upon the importance of telling your own personal story to help build a client's faith and trust in you; and the last is a fascinating look at the book "Give and Take" which finds that some people are givers, some are takers, and most are matchers, but it's the dynamic between the three of them that ultimately determines who succeeds in business. Enjoy the reading!

MailBag: Tips And Best Practices For Financial Planners Building Media Visibility

May 16, 2013 11:06 am 2 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at a question about how to get started and best practices for building media visibility, getting articles published, and getting quoted in the press.

Should Financial Planners Invest Using Bucket Strategies Or Just Report That Way?

May 15, 2013 11:07 am 10 Comments CATEGORY: Investments

Financial planners have always sought to adjust their strategies and communication techniques to the realities of client needs, although the increasing volume of behavioral finance research is now beginning to document exactly how we as human beings sometimes think in very irrational ways, which in turn provides insight about how to best adapt to deliver effective advice. One common challenge area regarding investments in particular is our tendency for mental accounting - where we break up and categorize assets based on various needs and purposes, even if the underlying investments are flexible or entirely fungible - which in turn has spurred the growth of so-called "bucket strategies" that seek to allocate portfolios based on various goals, needs, or time horizons.

Unfortunately, though, recent research has shown that stringent applications of bucket strategies can potentially result in less optimal retirement outcomes, not better ones, particularly due to the "cash drag" and portfolios that can dial down too conservatively too fast; in addition, the reality is that mathematically, most of the benefits of bucket strategies are captured simply from traditional rebalancing strategies, which already ensure that stocks are bought (not sold) when they're down and that cash and bonds are used for spending needs when appropriate.

Nonetheless, from the behavioral perspective, using bucket strategies remains appealing, if only to help clients stay the course during stressful times. But ultimately, perhaps the best solution is not just to weigh the trade-off between managing with buckets (even if the results are worse) versus helping clients psychologically (which is still better than having them bail out at the worst of times), but to accomplish both by improving performance reporting to overlay buckets and goals on top of the portfolio. In other words, maybe the key is not that we need to change how we invest for clients, but simply to more effectively frame how we report the results?

CFP Board Considers Going Into Competition With CE Sponsors It Regulates

May 13, 2013 11:03 am 8 Comments CATEGORY: Planning Profession

Last week, leaders from the CFP Board, including CEO Kevin Keller, board of directors chair Nancy Kistner, and chair-elect Ray Ferrara, traveled to the FPA Retreat conference and NAPFA's national spring conference. The purpose of the visit was not just to participate in the conference itself or check out the latest growth of the organizations; instead, it was to gauge support from these gatherings of the experienced planner community for a potential new initiative: the CFP Board is considering whether it should begin to offer CFP Continuing Education (CE) credit to its certificants, going into direct competition with the CE sponsors it is simultaneously responsible for overseeing, in an effort to raise the quality of CFP CE.

Not surprisingly, given the fiduciary focus of both FPA and NAPFA members and the efforts of the respective organizations on the Financial Planning Coalition - which is currently making the lobbying case for why a conflicted organization like FINRA should not be allowed to oversee registered investment advisers - planners from both groups were negative on the proposal, citing the blatant conflict of interest involved if the CFP Board were to compete with those it regulates.

While at this point, the reality is that this is just a preliminary discussion, and not even a substantively drafted proposal issued for comment, it nonetheless raises a more substantive question: is this really the best idea the CFP Board has regarding how to improve the quality of CFP CE, or does this proposal represent a strategic first step towards something more far reaching, like going into direct membership association competition with the FPA and NAPFA themselves? Will the CFP Board back away from the proposal given the nearly unanimous negative feedback thus far, or will it further tip its hand in pursuing a new strategic initiative?