Know Your Options: A Team Approach to Financial Planning

Know Your Options: A Team Approach to Financial Planning

Accumulating wealth offers a sense of security. A healthy income means affording daily necessities and some luxuries, with enough remaining for emergencies, a childs education and, of course, retirement. Wealth can also introduce a number of complexities, particularly when considering its various forms.

Business owners and executives often are awarded equity shares in their respective companies as part of a compensation arrangement. As circumstances change, these equity holders may find themselves in a perplexing position as they seek to turn that concentrated wealth into a cash stream. Working collaboratively with a financial planner and an attorney may provide the best chance for preserving that hard-won wealth for present and future generations.

Once any individual or family net worth reaches certain levels, income and estate taxes must be considered. If net worth is concentrated in the company stock, strategies and recommendations become more complex. Amassed equity in a company may represent an individuals life-long career or one of their strongest passions. At the same time, those holdings may appear highly lucrative with potential for compelling growth. However, liquidating those assets may trigger fear of a significant tax hit or an appearance of losing faith in the companys prospects.

Together, a financial planner and an attorney can provide clients with a more complete picture of how certain strategies will impact their financial situation. For example, high net worth individuals might be advised by their attorneys to take certain steps to reduce a tax burden, such as gifting assets during life. A financial planner can then provide the cash flow and investment analyses to reassure clients that theyll have enough to live on in retirement, by employing such tools as asset transfers, charitable trusts, deferments and other liquidity tools.

By collaborating, attorneys and financial planners can share data and calculations to provide multiple scenarios that demonstrate how everything comes together. Creating an effective long-term retirement and estate transfer strategy considers several factors, such as estate and income taxes, charitable giving intentions, deduction limits, and comfort level with allowing heirs to have assets. But most importantly, it ensures the client will have enough for themselves to live comfortably. An estate planning attorney and a financial planner working together can run numerous cash flow scenarios and use the resulting projections to establish thresholds for gifting and/or selling concentrated equity positions. Having this data at hand helps all parties confirm that a selected strategy is affordable for a client, which can be particularly important from a retirement cash flow angle. In addition, clients may realize that they can afford to let go of some of the assets to charities and family trusts to reduce taxes and potentially maximize assets for generations down the road.

Collaboration between a financial planner and an attorney is essential and can prove very rewarding. Even if clients come to realize that theyre not ready to pull the trigger on advanced planning strategies, they have the benefit of understanding their situation and when the right time may be.

About Greg Owens

Greg Owens is a vice president and senior wealth advisor with the Wealth Management team at the western Washington offices of Washington Trust Bank. Owens has more than 20 years of wealth management and planning experience. Owens can be reached at [email protected]. You can find more information about Washington Trust Bank at www.watrust.com.