Simple Susan vs. Complex Carl

Water Cooler
#81

yea lol most the shit you said i have no idea. sounds like that is your added value.

nothing there tells me why you deserve 1% of aum though.

most teams just refer the business to someone they know. tax issue. there’s a contact for that. estate, there’s a guy for that. divorce. heck even stuff not finance related, doctor, dentist, etc etc.

anyways over time, most advisors need to know this shit, cuz at the end of the day, they face the same problems. and with enough clients, this just becomes a recurring thing. and hopefully the people you deal with that you overpay, will refer clients to you as well.

network = networth!

#82

That’s exactly my point. Most people are costing themselves a ton of money and they don’t even know it.

Case in point - one of my clients is doing some pretty advanced estate planning. (He’s one of the people that “complex Carl” is loosely based on. He is transferring oil & gas royalties into a bypass trust while the estate tax exemption is still high. By doing that, he thinks he can save money on estate tax.

The problem is–he transferred the wrong assets. The point of a bypass trust is to transfer assets that will appreciate in value. Oil & gas royalties are (by definition) depleteable assets that will only go down over time. So he still has to pay income tax on the income, and doesn’t get virtually any estate tax savings.

Instead, he should have transferred his non-producing royalties, high-basis stock, and small-cap stock into the trust. In so doing, the amount in the trust would be much higher, and he would have gotten significant tax savings.

EG - say you put $5m of mineral interests into a bypass trust. No tax is due today, because of the estate tax regime. When you die in ten years, that $5m is worth $3m. Since the Democrats have successfully reduced the estate tax exclusion to virtually nothing, you only move $3m out of your estate.

Had you put in appreciating assets, those assets may have appreciated to $10m. Then, you would have moved $10m out of your estate. That additional $7m in your estate translates into a $5.4m savings ($7m at Bernie’s proposed 77% estate tax rate).

In other words, these guys (both of them lawyers) just made a potential $5.5m mistake. And they’ll go the rest of their life and never realize that they could have been $5.5m richer.

To be honest, I don’t know that I deserve it either. I think investment management fees are hugely inflated. But if the guy at Edward Jones with his degree in art appreciation and his vast experience as track coach at the local middle school is worth 1%, then I’m sure as sht worth it.

#83

And as an aside note to all the young rich here–the federal estate tax climate is probably extremely friendly right now. The best way to transfer a lot of money out of your estate is to do it when it’s not a lot of money.

If you transfer $1m to an irrevocable inter-vivos trust that grows to $100m when you die, you pay gift/estate tax on $1m and get to move $100m out of your estate. That’s a $76m savings under the Bernie plan.

Downside–you’ll lose your basis step-up, but that’s okay. The estate tax savings is worth more than the basis adjustment.

Just saying. For those of you who plan to have a huge amount of money in the future. Like Ohai Capital Management Inc.

#84

G, have you considered using a real person for your example, rather than a made up example like Carl? Of course, you would change their name and details and ask for their permission first. A personal endorsement like that would be more effective than a hypothetical example, I would think. I suppose this is a chicken and egg problem.

Anyway, problem with ohai Capital is that it is built from zero using liquid assets. A portfolio like this doesn’t need a lot of complex maintenance and is usually owned by people who mistrust financial advisors. Anyway, it’s still in the “seed stages”, i.e. still mid seven figure. I’d say it is serious when we get into eight figures, which is not going to be a short term thing, meaning definitely not this year or the next.

#85

I have no doubt that you’re perfectly capable of managing it. (Didn’t you say once that it’s virtually 100% VFINX?) But that’s irrelevant for estate tax purposes.

My point exactly. Move $5m into some kind of trust now, which moves $5m out of your estate. Then, when the $5m is worth $50m, you won’t owe taxes on it, because it’s out of your estate.

Otherwise, when you die, it will be worth $50m, and you’ll owe estate tax on $50m.

This may or may not be totally appropriate for you, because it comes with other problems. You should consult your own financial professionals. (Because I don’t do New York. I only do Texas.)

#86

I think the issue is that I intend to use that money to live on, i.e. I don’t want it in some weird vessel waiting for me to die. It is primarily intended to be a future job replacement, not an inheritance.

#87

its actually pretty common for wealthy people to gift 23m as soon as possible to a dynastic estate trust. you can still be a beneficiary. you just give up control after you outline who the beneficiaries are, how it will be invested, how it will be given out.

this is perfect for a guy who just invest in etfs. you’ll minimize the investmenjt management costs. and the bank you entrust cant really fuck with you.

anyways when you have millions and more money than you know what to do, this is what you will actually do to minimize taxes that your future blood relatives will need to spend.

so they can spend money on more important things. like lambos and raris. and insta models.

#88

Hmm. Interesting. The truth is that I am not nearly rich enough for this to be a problem. Let us work on the first step before all this.

#89

When I say “you” in this context, I’m simply referring to the client in this case. You won’t ask the Accountant, lawyer etc. because you don’t even know what questions to ask. You don’t know, what you don’t know. If your overall financial situation isn’t coordinated, your plan isn’t going to work properly, and planning issues and opportunities will be missed.

#90

Ohai, you have any kids? Does your wife work? Your building up a lot of capital - I sure hope you do get to spend it someday. If you get hit by a train tonight, is your wife going to know how to access your funds? What’s the tax bill going to be? Do you have any life insurance in place? Is your wife going to have boy-toy money?

#91

I specifically avoided all the non-technical, non-quantitative parts of estate planning. But these are all good questions to ask the art appreciation major turned track coach turned Vice President at Edward Jones.

#92

I think you can get a report off the SEC website that would outline the fee structure by firm etc. This may be useful in helping you build a competitive pricing model.

Just curious, are you and the wife open to relocating at all?

#93

No, but probably will at some point. I’m in 30s.

Yes. We both have upper Ivy sort of degrees and I suppose something that would be considered high income around here.

Why wouldn’t she?

Substantial in monetary terms, but if/when I start withdrawing, the tax rate will almost undoubtedly be small compared to my current income tax rate.

I get insurance from work, but there is really no need for this at this point. What wife does after I die is up to her, but she will be fine. If either of us dies, the survivor can remarry and probably become richer. Why so concerned about wife anyay? She is not dependent on me for a living.

#94

but is she hot!

all i’ll say is the dirty 30s reallly is not lit. like i feel more mature and stable and i dont know if im about that life.

#95

Doubtful. Especially not to Canada. But I’d like to hear what you’re thinking.

#96

I think what Mike is getting at is the fact that there’s normally one dominant spouse in the financial realm. And the non-dominant spouse (usually the wife) gets left behind when her husband predeceases her.

You may have a joint bank account, but does she know who the cell phone provider is? Who the cable/internet provider is? Who the electricity provider is? Where your various financial assets (IRA, 401k, life insurance, etc) are located and how to get to them?

If the electricity gets cut off because you don’t pay the bill (because you’re dead or in a coma), who should she call? The phone number and account number are on your bill, but you probably get your electricity bill through the e-mail. Does she have access to your e-mail? If not, how does she know what to do?

Believe it or not, I’ve seen multimillionaires whose wife gets behind on bills and has creditors chasing her. Not because she doesn’t have money–but because all the money is in her husband’s name and it takes time to sort out all of these affairs after he dies.

#97

Well, if relocating were an option, and, we do have a Midland in Ontario as well, then moving to Dallas or somewhere like that (take your pick as long as its TX right?) and join a RIA firm as an Associate to an Advisor. (Probably be making at least what your making right now?) Get your foot in the door. I’m not sure if the RIA can also have approval to provide supplemental services like tax prep where you could generate some additional revenue to at least keep food on the table (and the wife happy) until you grow the investment side. Plus, there is always guys retiring, expanding, looking to sell off parts of a book, there could be opportunities.

I don’t like to sound critical but it looks like you keep making similar mistakes over and over by moving from Accounting firm to Accounting firm. ohai has a point; maybe clients see you as the Accountant and not the investment guy.

However, I do realize that it can be tough once you have a family, pushing 40, and perhaps you have other family close to where you live, ties to the community etc…

#98

Also, if your wife is dead set against moving, well that’s the kiss of death right there. Then your going to have to figure something else out. I don’t think commuting to a center metropolis would work for you?

#99

drop the dead weight and move to NYC. at worst you can hang out on ohai couch for a few years

#100

I’m guessing here, but if your wife doesn’t have any interest or knowledge in how to manage a portfolio and now your gone, what’s she going to do next? She has no clue where to even start. She doesn’t have the skill, time or expertise to manage a portfolio. Your wife may not be dependent now, but what happens after you find out she gets pregers after a crazy night of netflix and chill on the upper easat side - is she going back to work after 6 months? You hiring a nanny ft?