Is your Financial plan Jenga?

There's a lot of anxiety that comes along with playing Jenga. Something about the sound of those blocks coming down. Is your wealth planning any better? How sound is your foundation with your tax plan, estate plan, financial plan, as well as your business planning and retirement income planning? Join Neel for a brief look and how a quick game of Jenga can teach us about how all aspects of this planning must be interrelated. 

April 04, 2023

Transcript

 Fourth, 2023, April 4th, we are officially and four days into the second quarter. And man, what a first quarter it was. No if somebody had told you that we were gonna have the collapse of Silicon Valley Bank, we'll call it the collapse, and then we were gonna have these signature bank issues and we were gonna have First Republic Bank issues.

I know, by the way, credit Suis is gonna get bought up by ubs and after all that, the s and p 500 is still gonna close up three and 5%. It, you know, I, I can start so many videos this way, but it kind of baffles the mind, right? If you listen to the press and you listen to the media, you would think that the entire world is crashing.

When in fact that's not the case. The world has not crashed. So now granted we saw in the first quarter, like, actually I believe it was Apple and Microsoft two stocks were, were a big reason why the s and p 500 were, were basically doing well. But all that being said, Just keep in mind, stay in your lane.

Media's not your friend. Now, I am not starting my day with Jenga just because I like to cause myself unnecessary anxiety, but I'm hoping that we can learn a little bit of a lesson here together. So my partner and I were actually having a conversation, about this recently. And it came across in the case of a client.

I thought I would probably share this story with you, but it's like one story out of like four stories. That reminded me of this lesson. So we have this person, let's call it a single person and I'm gonna change the names and the facts and maybe even the gender. It's a widower who basically wants to do something different with their money, but also has this estate planning objective that assets are gonna make their way over to a charity.

And as they want these assets to go over to the charity they have, they're sitting on a fair amount of liquidity. Cash or money markets or mutual funds. So their banker, speaks to them and says, Hey, you've got a lot of cash sitting in the account right now, and we want that cash to, we wanna suggest that maybe you move that cash into some sort of annuity.

And the person says, interesting. Why, why would I do that? And the banker says, well, I think it should be a good idea to put it into an annuity because, well, you could take the money that's in a traditional ira. And move it into a Roth. And if you do that, you'll pay all the tax liability today, but there will be no tax liability in the future.

And if you do that, then you're, you don't have to worry about taxes in the future and you'll avoid probate. And you'll basically make sure that, that, your outcomes, your, your, your money's just better protected. That doesn't sound like a bad idea, right there's tax free growth. There's no probate.

So here's the thing though. She, he, he wants all of his money to go to charity when he passes away. And if the goal for him is to make sure that all of his money goes to charity when he passes away, well then what's the idea? What's the intention? What's what, what are we really doing here? And what are we talking about?

What I'm talking about is how sometimes advice is given in a microcosm or it's given in a vacuum without regard to three key components. What are the three key components to this sort of planning? Well, there's a lot of components. Only one hand you, there are a lot of components. There is your tax planning, which is obviously very important.

And then in this case, there's also your estate planning, which is extremely important. But what about the objectives? What about the long-term financial plan? You know what was not given me consideration? What are this person's financial planning goals? They've essentially sat in their deliver in age. I'm gonna say the fourth quarter of their life and the fourth quarter of their life, they've decided that there's a certain amount that they want to go to, some family members, but the vast majority of it's gonna go to charity.

So here we have a person who's been given advice by somebody who may have had good intentions, may be thinking a little bit more about a commission that might be sold about possibly taking money out of an traditional I rra. Moving it into a Roth IRA and paying all the taxes today so that there's no taxes in the future.

But ultimately, this person's goals are to ultimately give everything to a charity anyway. So when you don't have a sound foundation and you don't have all this advice being given properly, what ultimately winds up happening is you create a mess. The tax planning, the financial planning, the estate planning, it's gotta work in conjunction with one another.

And in this case, this specific case, we basically had somebody who wanted to give all this money to charity, yet somebody was suggesting that they pay all the tax, sorry, give it to the charity at their death. But they were suggesting the banker was suggesting that you pay all the tax right now, you may never have to pay that tax.

So what's the benefit of paying a tax today that may never have to be paid in the future? So it's one of those things where, you know, it might make sense, yeah, if you got money sitting in cash in an ira, does it make sense for you to pull it out into a Roth ira, move into annuity, all possibly good strategies, but it didn't work well with each other.

So instead, what you want to do is find a way to build a foundation based on the goals. Okay? If that's your intended goal, then let's find the intended the, the possible tools that might help you accomplish those goals. And it's gotta be rooted in sound tax strategies. It's gotta be rooted in sound estate planning strategies.

There has to be the proper investment tools that kind of fit in. Otherwise, you're gonna wind up cleaning this mess. All right. Now there are so many others, other ideas? Sorry. Other options. I should say. So many other, examples of how this can happen. An estate planning attorney means perfectly well, and they take a home and they put it into an irrevocable trust to protect it against things like liabilities and creditors or maybe even, protected against, things like long-term care costs.

However, that property has a really short cost, a low cost basis. And now at the, at the Grand Tour's death, there's gonna be a step up in there, won't be a step up in cost basis. So there's so many other examples of where one thing you do could absolutely mess up another part of your planning. All the more reason to make sure that it's all somewhat interrelated.

Make sure it's intentional, make sure you understand the downsides of every plan as well too. And if you're not coordinating. Your tax planning, your financial planning, and your estate planning, and let's also throw in the insurances that you might have. Let's also throw in your income needs over that point.

If you've got a business, your business side, it all has to be coordinated. It all has to work in concert with one another, and if it doesn't, one hand might not know what the other hand is doing and you might wind up with a mess. I hope this is helpful. I hope,  hope it doesn't take me too long to clean up this mess.

But I look forward to seeing you next week again, on Shah Plan-it. Don't hesitate if we can help you either clean up a mess or build it right, right from the get go. Neel s Shah, see you next week.