Just a few days ago, I was sitting with a client, two of his grown-up children, an auditor, a lawyer, and my accomplice, the other Free Money Guy, Mark Perkins. We struggled with possible changes to tax laws, particularly the changes to capital gains and inheritance taxes discussed in Washington.
Don't get me wrong – I have no problem addressing the massive wealth differentials that are the norm in this country today. The idea that 400 families increased their wealth by trillions of dollars while millions of people lost their livelihoods – and in hundreds of thousands of cases their lives – is obscene. I think it is perfectly appropriate that the subject be addressed.
The thing about the proposed tax changes is, it is not. In my opinion, the proposed changes are a direct attack on the upper middle class, and that is toxic.
In this particular case, a working class family came into the business. They started with a small sheet metal workshop that grew into a multimillion-dollar business through hard work and some skill. In the end, the founder managed to sell it for millions of dollars and they had a wonderful retirement.
With the Tax Cut and Jobs Act, they saw an opportunity to pass most of their wealth on to their adult children, grandchildren, and great-grandchildren.
Now they are not so sure anymore. Should these proposals become law, my clients will lose half of their property. That brings us back to the reason for our meeting: we had to develop a strategy to avoid a devastating tax break because we did nothing but be good, productive citizens who are in the bad shape of being people with limited lifetimes.
We met for almost two hours and thought about all kinds of strategies. Should we transfer assets to an irrevocable trust? That would take away assets from the estate, but it would also cut off my clients from their property. Perhaps a spouse lifetime access trust, or SLAT, which is very similar to a credit protection or bypass trust, except that the spouse still has limited access to the assets.
Many ideas were spread. But what I did notice was that despite all the experience (almost a century) at this table, we were still struggling to come up with an answer, even though we got off to a good start.
But I'm sure of one thing: none of us have found the optimal solution ourselves. We all needed the intellectual juice that came with a team of knowledgeable professionals who knew and trusted one another.
What's my point Many people I deal with on a regular basis initially believe that they can do everything themselves. You may think you know the best way to deal with a potential long-term care need, or figure out the best time to start social security, or the best choice for your retirement, or the best way to grow, or even more dangerous, to spend their money in retirement.
Each of these decisions often only offers one chance to get them right, with consequences of the decision that could last for decades.
I get a desire to save money by reading and studying and making my own plan. The problem is who do you believe? And the vast majority of what you read, including this column, simply cannot provide the answers you need to help you make the best decisions for your particular circumstances.
It takes a trainer. And it often takes a team of coaches to provide the right answers to your needs. Often times the answers seem obvious, but are filled with numerous landmines that can seriously damage your retirement. Sometimes you don't even get the right questions, let alone the right answers.
Here is an example from my estate planning meeting mentioned above. It is unclear, among other things, whether these laws will be made retrospectively or will begin sometime in the future. One bet is that they will be written to take effect once passed. We just don't know.
As the debate about and how it could influence our decisions grew more energetic, I drew on a lesson I had learned long ago in college. I was a bridge fanatic then. I would routinely skip classes to stay at the table in an intense game. It turns out that bridge is full of life lessons if you are open to it – at least that's what I told myself when I decided to skip a class.
There is a movement in Bridge called finesse. It's basically a way to turn a potentially losing card into a winner. Suppose you won the contract, have a queen, a jack, an ace and a few small cards of one suit on the board and several small cards in your hand. The problem is, the King is out there somewhere and you want to catch him instead of letting your opponents down. This is where finesse comes into play. If you assume the player to your left is holding the king, all you have to do is lead from your hand, and if the king doesn't fall, play the jack or queen from the board. If the player to your right has the king, he will win the trick. But if the player on your left has it, it's trapped. All you have to do is pick it up again and run the finesse all over again.
But if the player on the right has it, you lose. The point is, if that player has the king you always lose him unless it's a singleton and you're running the ace (a very low percentage game). But if the player on the left has it, you win. So the correct game is to assume that the player on your left has it to play the hand as if they had it and you win 50%.
What about estate planning? The bottom line is that we lose if these laws are made retrospectively. We can not do anything. But if it doesn't, there is still a lot we can do under applicable law, so we have to assume that it will work that way and plan as if it did.
And that's the key to financial planning: think about what can happen and make all the adjustments you can. If it doesn't, most of the time there was no damage, or there was nothing you could do anyway. But if it does, you can greatly increase the chances of a more desirable outcome.
But you need someone who understands the problems to make it work. You need a trainer.
Stephen Kelley is a recognized leader in retirement planning. Based in Nashua, N.H., it serves Greater Boston and the New England areas. He is the author of five books, including "Tell Me When You're Going to Die and I'll Tell You How Well You Can Live," which addresses the problem of unknown lifetimes for retirement planning. It and his other books are available on Amazon.com. His radio show "The Free Money Guys" can be heard every Sunday at lunchtime on WCAP. He also leads planning workshops at his New England Adult Learning Center in Nashua. Initial consultations are always free of charge. Call 603-881-8811 or visit www.FreeToRetireRadio.com.