At Schultz Financial Group, we look forward to springtime for several reasons: warmer temperatures, budding trees and flowers, and financial planning conferences. In May, we were fortunate to partake in two conferences in San Diego with a variety of educational sessions, keynote speakers, and networking opportunities. Alyssa and Kaleigh attended the Institute of Wealth & Investments (IWI) annual ACE Academy, and Vicki and Clarissa joined them a few days later for the National Association of Personal Financial Advisors’ (NAPFA) bi-annual conference.
The NAPFA conference was even more memorable this year as the organization celebrates 40 years of service. Vicki and Russ have been NAPFA members since 1985 and are pioneers of the fee-only financial planning industry. At the conference, Vicki stood as one of two attendees who have been part of the organization since the beginning. To celebrate this milestone, the conference closing party had an 80s theme with a cover band and nostalgic décor, and the SFG ladies partook in the suggested attire.
Below are some of the educational highlights from our time in San Diego:
TAX, RETIREMENT, AND ESTATE PLANNING
With the Tax Cuts and Jobs Act of 2017, current tax law will sunset in 2025 unless action is taken by Congress. There are various proactive tax, retirement, and estate planning opportunities to consider over the next few years. Some significant changes to expect after the law sunsets are higher income tax rates as well as a 50% reduction in the estate and gifting lifetime exemption amount. With current and expected market and economic conditions, several speakers reviewed various family and gifting strategies to consider when experiencing lower asset values and rising interest rates. They also emphasized utilizing the opportunities that are available now while hoping for the best and planning for the worst. With shifting legislation with the SECURE Act 2.0, we believe it is important to review beneficiary designations for retirement accounts and consider Roth conversions as traditional IRAs may no longer be ideal to leave to your heirs. Our team at Schultz Financial Group regularly considers these and other tax and estate planning strategies for our clients.
Another session Alyssa and Kaleigh attended focused on estate planning strategies for those with multigenerational wealth, like utilizing one spouse’s lifetime estate tax exemption amount first or the generation skipping transfer tax exemption to move assets outside of one’s taxable estate. While there is complexity involved with these planning needs, we were reminded not to forget the basics which may be applicable to more people if the lifetime exemption amount, currently about $12.9 million per person, is reduced in 2025. These basics include spending money for things like experiences rather than assets that add to your estate value, paying for children or grandchildren’s college tuition directly to the school, or paying for medical expenses or premiums for a loved one as a means of gifting more without exceeding the annual gift tax exclusion limit. Another basic strategy is the ability for an individual to gift up to $17,000, the current annual gift tax exclusion amount, to another individual without utilizing their lifetime exemption amount. The goal of Schultz Financial Group’s Family Office services is to understand your desires for your wealth to endure beyond your lifetime and across generations. A shocking statistic is that about 70% of wealth transitions fail, and the main reasons are due to a lack of communication within the family and heirs not being properly prepared.1
One type of property transfer that may not be addressed sufficiently is our pets. Pets are considered personal property in the eyes of the law, and a verbal agreement between you and your desired pet caregiver is likely not enforceable. Including our pets in estate planning documents like a trust or will may direct who and how to care for our pets at death and perhaps leave a sum of money to that individual to cover the costs of pet care. But what about the time between when your pet is alone and when the appointed caregiver can get to your pet, particularly in an emergency? A pet protection agreement may give the right to a few trusted people, such as a neighbor or close friend, to enter your home that a trust or will may not address. Pet alert stickers for your doorways, indicating the number and type of pets you have in your home, could help saves their lives in case of a fire. A combination of estate documents and pet agreements may help achieve your wishes for your beloved pet in the event of your death or an emergency.
Whether an employer is public or private, some companies offer receiving or purchasing company stock within an employer plan. Generally, withdrawals from a tax-deferred account are taxed as ordinary income, which is a higher rate than long-term capital gains. A distribution strategy that is often misunderstood relates to Net Unrealized Appreciation (NUA), which is the difference between the purchase price of company stock and the current market value of the shares. If using the NUA election, one can distribute the shares in-kind and receive preferential long-term capital gains treatment at the time of withdrawal as well as on potential capital gains at the time of the ultimate sale of the stock. There are various complexities and rules to follow to ensure the transaction receives this treatment, so working with your financial advisor is key when evaluating and executing this strategy.
Depending on the company stage, private companies may grant equity compensation as part of their overall compensation package to attract and retain talent, such as nonqualified stock options, incentive stock options, restricted stock units, or qualified small business stock. Particularly if the company may go public in the future, there are various planning considerations as an employee, and the optimal time to seek advice is before the initial public offering (IPO) is announced. A financial advisor with experience in equity compensation can help you understand your trading restrictions, your budget, and your tax situation leading up to and after an IPO.
Equity compensation can be a significant portion of total compensation, and you may be subject to concentration risk. A concentrated position is when single stock exposure is greater than 10% of your portfolio. Individual stocks tend to be more volatile compared to a diversified portfolio, so an employee could be taking on much more risk than they realize compared to the potential reward. Trading restrictions or waiting for a particular stock price may lead to a larger exposure, so a diversification strategy is important for your financial health. A financial advisor can analyze your company stock; help you understand the value and risks involved; and develop a proactive approach to diversification.
At Schultz Financial Group, we approach wealth management differently by focusing on our clients’ Four Capitals – Financial, Physical, Intellectual, and Psychological – and multiple sessions highlighted practical tools to help you with all Four Capitals. While we believe it is paramount to find a financial advisor with the technical skills necessary to manage your wealth, it is equally important to connect with an advisor who possesses the soft skills to care for you through life’s ups and downs. After all, it is the human element that differentiates us from ever-changing technology like artificial intelligence.
Finances are consistently one of the tops stressors in the United States, and this stress can have an impact on one’s physical and mental health. One of the sessions we attended concentrated on a model for integrating financial advising and financial therapy as well as understanding the importance of exploring and addressing psychological influences on financial well-being. This can be applied by asking certain questions during the financial planning lifecycle to help gain an understanding of one’s background and beliefs around money, which can lead to more effective goal-setting and habit-forming. Finances can also be a topic causing disharmony between couples, and a different session showed us how we can navigate these conversations. Discussing finances can be vulnerable, and being aware of clients’ family and financial backgrounds as well as observing certain patterns can help us create a space for non-judgmental discussion between couples.
MARKETS AND ECONOMY UPDATE
Both conferences brought exceptional and inspiring keynote speakers, but it is no surprise that half of these sessions centered around the financial markets and economy. While each of these speakers has their own areas of expertise, there were common themes throughout their presentations. Their overall consensus – despite turbulence in Q1 of 2023, the U.S. banking system is sound and resilient, and the market saw broad gains. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation, but the extent remains unknown. A recession could be possible in the next six months or so but is apt to be mild as there is still a high demand for workers. LaVaughn Henry, Senior Policy Analyst for the Federal Deposit Insurance Corporation (FDIC) and former Senior Economist on the Council of Economic Advisors in the Executive Office of the President, confirmed technology has brought industrial production and capacity utilization above pre-pandemic levels. Technology creates efficiencies that create new jobs, so, while many jobs are available, job seekers’ skillsets may not match. Henry explained a revision in our immigration policy is needed to build our economy by bringing a variety of talents including highly skilled workers and students. David Kelly, Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management, said global growth has slowed as global central banks increase monetary tightening. He expects the U.S. dollar to continue to fall, but not drastically, supporting the possibility international will outperform again in 2023. Jeremy J. Siegel, author of Stocks for the Long Run and the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, emphasized the power of holding stocks in a portfolio when asked to summarize his book in one sentence: “Stocks are the most volatile asset class in the short run but the most stable asset class in the long run.”
1Roy Williams and Vic Preisser, Preparing Heirs, (San Francisco, Robert D. Reed Publishers, 2003)