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Estate Planning Experts Archives

Paul Jacobs

Shane: Welcome to Estate Planning Experts. I am here with Paul Jacobs. Paul, welcome to the show.

Paul: Thank you, thank you for having me.

Shane: We are very pleased to feature you and learn more about what you do and how you help clients. I’d like to take you back in time a little bit and get you started by asking you, what inspired you to get into financial services?

Paul: Well, that’s a good question. I guess I would say that coming out of college I knew I wanted to do something that would involve helping people but at the same time would take advantage of my quantitative skills. I interviewed with a lot of different types of companies. And when I interviewed with Palisades Hudson Financial Group, it seemed like a really good potential match. Twelve years later, I’m still here and pretty much every day the work I do I can really see the results because I’m working with people and doing the best I can to help them. So it’s really satisfying just to see the results of my work and how it’s being used to help people.

Shane: What do you like best about Palisades?

Paul: What I like is that the advice we give is really what is in the client’s best interest. We really aren’t conflicted or trying to sell a product that isn’t really the answer for a client. So the advice I give my client is the same as what I would do for myself or what I would recommend to family or friends.

Shane: We see a lot of financial advisers who tend to be more like let’s say general practitioner physicians where they do a whole lot of everything as opposed to like the brain surgeon who is very, very specific and a very, very specialized skill. So what prompted you to start working in the estate planning niche?

Paul: Well, just to take a step back, I think that’s another thing that differentiates our firm is that while we are knowledgeable in a variety of different areas. There is a lot of specialization in each area. It’s not like there’s only one person at the firm who’s familiar with one area. So while I help my clients with their estate planning, I also manage investment portfolios for them. I sign their tax returns as the tax preparer. And I’m knowledgeable in all these areas. If a client has a question in this field, I don’t say, “Oh let me get back to you. That’s not my expertise.” It’s a challenge to find people who can become strong and all these different areas but we have a number of people who can do all these different things for clients. So while there’s a lot of expertise when it comes to estate planning, I’d say that we still are able to help in a lot of different ways.

Shane: And if a lay person were to ask you, how would you define estate planning?

Paul: I would define it as the transmission of assets and any other goals or messages that should be included as part of one’s plans when that person is no longer here.

Shane: And what do you like most about it?

Paul: I mean it’s a delicate subject but what I like most about it is when I’m working with a client on their estate plans, there’s such a sense of relief when it’s over, when they know that they have thought this through and created a plan that will really address their needs and get rid of any uncertainty when it comes to what happens when they’re no longer here.

Shane: What are some of the most common mistakes you see clients making when planning their estate?

Paul: Well, one thing that comes to mind quickly is for younger clients, a lot of the time younger people just don’t think about this and they’re more caught up in other issues they have to deal with in their day-to-day lives. But while we recommend that everyone with assets have a will, it’s extremely important that parents with young children make sure to set up an estate plan and draft documents. And the main reason is actually not to decide who receives assets after they die. It’s to appoint guardians in the event that the parents precede their child.

Shane: That makes a lot of sense and I would bet you there are probably a lot of folks of that generation out there who aren’t even thinking about it that way. They might not think what happens if I don’t make it home tonight.

Paul: Definitely. It’s something that after I had a child about a year and a half ago I realized I need to go back to the drawing board with my own estate plans because what worked when it was just me, it didn’t work anymore now that I have a family.

Shane: Right. I have three kids under the age of eight so I totally understand. How do you solve some of those problems? How do you work with clients? Do you make them realize what they’re potentially facing and how you can fix it and positively affect their situation?

Paul: Well, that’s a good question. And just to clarify, while we work with clients on estate planning, we’re not attorneys.

Shane: Right.

Paul: And so generally, when we are assisting clients, we’re working with them and the attorneys in order to make sure all the documents are drafted appropriately. And in terms of how to make them see the light and motivate clients to take action, it can be a challenge. I find that in addition to just reminding them in case it fell off their radar, another thing that’s helpful is to really either quantify or spell out what happens if they don’t take action.

So for example, with young parents, once you explain what happens if they don’t create documents and how the decision of who would take care of the child would be left to the state, that usually does the trick. Also, for people who may be subject to estate tax and for those people quantifying the potential savings for different strategies, it can be very helpful because while talking about different strategies is something we can do for a long time, being able to put dollar amounts on these different strategies can be very motivating. Just to say that this strategy will save you X and this strategy can save you Y, that’s something that can also motivate people to action.

Shane: Yeah, I bet. If you said, “Hey, you do option A which is do nothing and you spend $750, 000 to the IRS that you don’t have to or option B which might cost you a couple of thousand dollars to get done but save that $750,000 the IRS doesn’t get anymore” you and I are biased, I would think that would be a no-brainer.

Paul: Definitely. And unfortunately, estate planning is one of the more gray areas where it’s not as simple as, it’s not just simple mathematics or something like a tax return where someone has their income and their deductions and it just all gets plugged in. With estate planning two people with similar situations could end up making very different decisions just because there are so many options and strategies out there. So it is important to understand the consequences of different strategies before making a decision.

Shane: Absolutely. I would agree with that. What area of estate planning or estate planning technique do you use that you wish more clients knew about?

Paul: Let’s see. One strategy that we really like is GRAT, Grantor Retained Annuity Trust. With interest rates being still very near all time low, it’s a strategy that’s particularly attractive. For someone who is not likely to be subject to estate tax, it may not serve much purpose. But for those that are looking at potential estate tax down the road, it’s a great way to basically free the value of your assets and get future appreciation out of your estate and shift it to future generations. And one of the best things about GRAT is that if – there’s really minimal cost to setting them up and there’s really not much in terms of ways that they can backfire.

Shane: For the civilians out there who are listening, the consumers who are listening to our interview and hopefully reading the book who don’t know what a GRAT is, without needing charts, graphs and PowerPoint, what would be a simple explanation of what a GRAT is?

Paul: Sorry about that. Sometimes, there’s a lot of jargon when it comes to estate planning.

Shane: Yes.

Paul: So it’s always important to make sure that with any terms that you understand what they really mean. Let’s see. Simply put, a grantor – someone who establishes a Grantor Retained Annuity Trust puts money into a trust and then receives payments from that trust for a period of time. The amounts of payments that are made are often tied to current interest rates. So like I said, with interest rates very low, you’re often looking at very low payments from the GRAT. And while there can be some actuarial assumptions involved, basically over a period of time, the GRAT is going to make payments to the person who created the trust. And then at the end, whatever is left in the trust after the term of the GRAT is over is out of the grantor’s estate.

So for example, if I put a million dollars into GRAT, I may receive substantial payments from that GRAT over a period of time. However, money that is left in the GRAT at the end is out of my estate. If I’ve structured the GRAT correctly, I will not have to report a taxable gift or a gift tax return. So this is a way to shift money out of your estate without having to report that taxable gift and use up any of your lifetime exemption for estate tax.

Shane: That can be very attractive to the right person.

Paul: It can be a challenge to explain this in a very simple way. It’s not the simplest strategy. But again, it’s a great way to lower estate taxes without sacrificing anything in the short term.

Shane: Yes, absolutely. Now obviously, you have confidentiality policies that protect the privacy and the identities of your clients. So without revealing any names, could you give me an example of a hypothetical John and Mary Jones, recent estate planning clients, what they came to you for and what you’re able to do?

Paul: Let’s see. So we’ve been working with several clients. They’re actually part of the family. They own a family business. It is illiquid and there are limits on what they can do with the family business. However, the family business does pay out dividends. While the business is illiquid, there is a fair amount of liquidity for each of these clients, just brokerage accounts, things like that. And what we have been working towards with them is getting some of that liquidity out of their estate so that the future appreciation won’t be subject to estate tax. And there are a lot of ways that you can do that. You can do the GRAT that I previously discussed.

There are other strategies as well. You can put money in an irrevocable trust. You could do a family limited partnership. You could just make gifts to younger generations. You could make loans to younger generations. So we haven’t nailed down the complete plan for every single person but that’s an example where you have these illiquid assets that’s hard to do anything with and their limitations on transfers. But then you’ve got the liquidity that each of these clients pretty much do whatever they want with. And so that’s where we see an opportunity to shift the assets out and lower their estate taxes down the road.

Shane: Okay. That’s a great example. And for the folks listening who want to get more from Paul, who is an ideal client for you?

Paul: Well, we work with a broad range of clients around the country. I’d say our sweet spot is really someone either approaching or recently retired who has accumulated wealth and is now looking to create a plan for the future. Estate planning is a big part of what we do but as I mentioned we do other things as well. There’s a lot of ways we can help our clients. Not every client uses us for everything we have to offer but I think the more that we do for an individual client, the more it helps us understand what the big picture looks like and how everything really fits together.

Shane: That makes sense. For our listeners who want to get in touch with you and maybe take that first step which I would imagine will probably be a consultation in your office, how should they best get in touch with you? Is there a phone number you want them to call? A website? An email address?

Paul: Sure. We have our office in Buckhead, Atlanta, Georgia. And the phone number for the office is 678-500-8620.

Shane: Okay. This is the Estate Planning Experts Atlanta podcast. We’ve been here talking with Paul Jacobs. Paul, thanks so much for being on the show.

Paul: Thank you. Thank you for having me.

Kavanaugh Tucker Interview

Shane: Welcome to the Estate Planning Expert podcast. I am here today with our very special guest, Kavanugh Tucker. Kavanugh, what inspired you to become a financial adviser?

Kavanaugh: Well, ironically, I was actually probably tricked into the industry. I had some good friends that had been in wealth management as they told me when I first came out of college and they duked me into coming in. And then little did I know, I’d actually spend the next about 18 years now in the industry. But actually all kidding aside, it was these friends that got me into the industry. And I’m glad to be here ever since.

Shane: So did you stay with the same firm for all 18 years? Or did you start someplace else and then switched?

Kavanaugh: No, not all. I started out with a national life insurance company. I kind of went through their training program early on. I spent about a year with them and then have kind of been really more on what they call the life insurance brokerage side of the arena ever since really kind of focusing on the advanced markets and advanced estate planning concepts.

Shane: That’s a perfect segue. We talk to experts every week about estate planning and obviously they all sometimes give us different answers. How would you define estate planning?

Kavanaugh: Well, you know, estate planning – I guess a lot of people kind of break that into different segments. One being the ultra affluent, meaning the clients with estates in excess of 10 million that are doing estate planning around tax avoidance. Most practitioners might look at that as more global estate planning and estate planning just being about directing assets where you want them to go and getting those assets into the right hand as efficiently as possible. Relevant to what we do, it probably is more in that ultra affluent space. Many times, we are trying to create structures that will avoid any unnecessary taxes and transfer assets in a very efficient manner and preserve much of the wealth that our clients have built up over the years.

Shane: What do you like most about estate planning?

Kavanaugh: It’s interesting. We’ve had, I guess, the gratification of – it’s interesting to see I guess the migration and how people look at estate planning. What I mean by that is clients that might be in their 50s or 40s even still kind of in their accumulation phase, they’re not really thinking about it. They’re going and growing and not really thinking about distribution of assets. They may have some basic planning tools in place but it’s interesting. As you move on down the road, we work with several clients in their 70s or 80s and it really is interesting to see their perception of how that changes and what sort of legacy they really want to leave. And it’s interesting the way that they start to think about that and plan that.

Listen, it’s not always about preserving tremendous amounts of wealth for their kids or even their grandchildren. They may want to set aside or fund some sort of private foundation or have a university building named after them or contribute to some sort of medical research. So it’s interesting as people go to their progression of life how they perceive estate planning. And I think what’s most fulfilling is kind of when they do get to that point where they decide to do some planning, where they really identify what sort of legacy they want to leave. And when we help them do that, I think that when we implement planning, they can see how much further the dollars that they’ve built are going to go versus having done nothing and the estate being eroded by either unnecessary taxes or spendthrift funding some beneficiaries, things like that.

Shane: That makes total sense. Mostvanilla financial advisers don’t necessarily specialize in estate planning or don’t know how to do it properly. How did you find the niche? How did you get into estate planning in the first place?

Kavanaugh: I think it was really more just a function of where I wanted to work. I enjoyed working in the affluent market. I’ve always had a passion for not so much, not as much tax avoidance but efficiency. There are many benefits that are available that people are just not aware of. I’ve always kind of have not an engineering background but I went to an engineering school. I just kind of always had an engineering mentality. And so structuring is a big part of estate planning. So I’ve kind of enjoyed that as part of my practice. But I think kind of to answer your question I think it’s just really been, I guess, gravitation on my part to the affluent market.

Shane: What are some of the most common mistakes you see clients make when planning their estate?

Kavanaugh: There are so many. I think that with anything, number one is just taking the steps to do it. And some people feel that they have done it but some of the things they’ve done are so outdated that they’re really not even relevant with tax law changes, with changes in their life or lifestyle or if someone may have gone through a divorce or descendants may not be around or the initial intent may have changed. So many people think, oh, I’ve done that. And in reality they haven’t. And so they make a mistake of just assuming that all that is in good order. And it’s very problematic. So I’d say that’s probably the number one issue. It’s just taking the steps to sit down with your advisers and review all that and making sure it’s in good order.

The second I would say is once we’ve kind of taken this step and you sat down with the attorneys and we’ve set up various entities, many times, I don’t see a lot of follow-up in actually taking the steps to put those assets and those entities or retitle those certain assets. So for example, attorneys may set up certain trusts to hold certain assets and they never retitled that property or things don’t just fall through. So a lot of times, that stuff is left very open ended and bonded up. Those are probably two of the most common mistakes I see.

Shane: So not getting it done in the first place. And then once it’s done, not following through and actually implementing the advice you were given to pull off what you’re trying to accomplish.

Kavanaugh: Right. You’d be surprised – I mean I see a lot of clients who pay a lot of money to some very good attorneys that help them put some creative and solid structures in place but all that is useless if you haven’t put the assets in those entities but to take advantage of it.

Shane: Yeah. I mean it’s common sense to you and I. We write the trust and then they don’t transfer their assets in. So it’s useless. You’re absolutely right.

Kavanaugh: Sure.

Shane: So obviously we try and stay on top of our clients and make it as easy as possible for those transfers to happen and to remind them to do it. How are you solving those problems?

Kavanaugh: I mean specific to what we do – I mean again we’re very specific on the preservation aspect. So a lot of that one has to do with some sort of life insurance structure. So we actually have admin platforms in place that give clients annual reporting. It’s almost like a report card of the assets that are in these trusts. They tell them how the assets are performing, what the longevity of those assets is going to be. There’s a constant update on how things are titled. We’re constantly sending our clients reminders or checklist of hey, has your beneficiary situation changed? Or has this or this or this changed in your life? That’s nothing too intrusive or too difficult to do. I mean a lot of times these are four-page reports that clients are getting and then maybe a one-page questionnaire. But there are a lot of things that I think practitioners can do that they can automate that process a lot for them. And just kind of specific to our industry, we’ve employed a lot of these practices to help with notifications, reminders, administration, things like that.

Shane: It sounds like a great way to use technology to help your clients achieve the results they hired you for in the first place. That platform that you talked about with the report card, is that something that is proprietary to you that you built? Or is that industry software that anyone in your position hypothetically could get?

Kavanaugh: No, it’s not proprietary to us. We looked at it and we’d looked at doing something on our own and realized that it was a whole another career almost for us.

Shane: Yeah.

Kavanaugh: And so we luckily were paired with – there are a few firms out there that do things like this. And we luckily were paired recently with a group that does it and we’ve actually been through two or three different iterations of firms that do this and then with this one actually for quite some time now to a point that we’re very comfortable with them. And we’ll probably keep them to administer our platform.

Shane: What techniques do you – what estate planning techniques do you use that you wish more clients knew about?

Kavanaugh: I would probably say planning around IRAs and probably annuities. I think a lot of clients specially when a large percentage of their assets are IRAs or annuities and they’re looking at those assets as a way to transfer wealth. They’re kind of looking at that as their nest egg. They may be spending other assets or getting income from other assets and not really using annuities or IRA money. We kind of found that it is probably the worst way to transfer wealth.

As you well know on IRA assets basically no taxes have been paid on that money. And so there are some avoidance practices, stretches and various other methods like that but at the same time that money is still only worth 50 to 60 cents on a dollar to that beneficiary. So we have certain programs where we will put leverage in place to replace those assets or even leverage up or skip generations. And that’s applicable to the mass affluent marketplace not just the ultra affluent. But absolutely, I would probably say the inefficiency of IRA and annuity type assets is probably the number 1 problem I see.

Shane: Obviously, you keep your clients’ identities confidential and have policies regarding that as we do. Without revealing any names, could you tell me hypothetically about your most recent estate planning client and what their situation was?

Kavanaugh: I had a client down in South Florida. Then it’s very relevant to the strategy that I was last speaking of. About a 30-million dollar client had a significant portfolio of municipal bonds and also a very – he was a retired physician. And so as a result, he had been just pumping money into design benefit plans which grew and grew and grew. So he had a very large profit sharing plan balance. And it’s close to about 3 million dollars and the couple was in their 70s. And for a profit sharing plan on an individual, that can be pretty large. Well when you looked at his 3 million dollars in IRA money and you factored in income in respect of a decedent and also possible estate taxes, he was actually looking at his heirs getting about 30 cents on a dollar or less than a million of that initial 3 million.

Shane: Wow.

Kavanaugh: To just kind of oversimplify it, we were able to purchase some life insurance contracts. We were able to recognize some income on that purchase but at a much lower rate and eventually sell those life insurance contracts to a dynasty trust. And so instead of 3 million dollars, we were actually able to leverage that up into 7 1/2 million dollars.

Shane: It was going from 3 million to a million after taxes. It’s what his beneficiaries would get. Instead of losing 60 percent of his estate, you were able to more than double it.

Kavanaugh: And it sounds a little rosier than it actually was. There is some income recognition in there. But yes, at the end of the day, it was a – we modeled it out. It would’ve been very difficult to be what we were showing. You would’ve to have an astronomical rate of return inside the IRA to beat our structure. So yeah, that’s kind of an example or kind of the normal type thing that we might do.

Shane: I was just going to say, I bet you that makes for a happy client.

Kavanaugh: They were really pleased.

Shane: How did they find you?

Kavanaugh: We had a relationship with their wealth manager down in South Florida.

Shane: So now they’re hypothetical for lack of a better term. So it’s almost like you’re the financial adviser for financial, the estate adviser from a financial side or financial adviser because their “wealth manager” obviously didn’t do the estate planning aspect. They may just have managed the portfolio.

Kavanaugh: Yeah and we see that a lot. We know and they recognize it as well. A lot of the firms have done a great job of putting resources in place but maybe those guys are so good at managing money that maybe they don’t have the ability to kind of focus on other disciplines and rightfully so. I don’t know how to manage money. So certainly, we’ve, I guess, just kind of over the years developed relationships with some of the bigger banks, some of the regional IRAs and regional broker dealers. And yeah, we do have some relationships with a lot of them where they might rely on us for certain ideas, certain structures and helping them find solutions for their clients.

Shane: Who is an ideal estate planning client for you?

Kavanaugh: A guy worth 100 million dollars who is 85 years old.

Shane: Right. We would all like that.

Kavanaugh: The sweet spot for us – and it’s interesting. With the exclusions being increased, there is kind of a void right at the end of 2010, 2011, whenever it was. Everyone kind of was in a mad rush to take advantage of the lifetime gifting exemptions. And I feel like we kind of saw a low after that for a couple of years. This year and kind of around the tail end of last year as well, I mean we’ve certainly seen – I don’t know if it’s necessarily new. We found wealth but a certain, a lot of appreciation in assets and a lot people, they are now realizing that they have a problem. Real estate’s back. The market is back. Certain people made certain moves and certain trades. MNA is up.

So we’re seeing a lot of people with liquidity events. We’re definitely seeing a lot more activity. Typically, I’m not really getting involved in a case unless they are above the exemptions so roughly in the 10-8 area. And typically as I was kind of alluding to earlier, they kind of really have to be at that point in their life where they’re wanting to set something up or leave a legacy whether it be for their kids, their grandkids or whether they do want to do some charitable planning. And again, you typically don’t see that for clients that are still in that accumulation phase. So I would probably say 65 and above and above the 10-11 million range.

Shane: Let’s say some of our listeners fall in to that category. They are in your definition of an ideal client. What is the first step you would want for them to take?

Kavanaugh: I’d actually want them to talk to their attorney first. I kind of like for them to have an idea or at least talk to their attorney about where they are, about some potential ideas there. I like them to at least have some ideas vetted. I prefer to come in as part of a team rather than kind of direct everything myself and then get approval from other parties. And to me, I think the attorneys really drive the relationship. So I guess to really answer your question, I’d like them to go to their attorney first and get some of the basic stuff out of the way and recognize where – hey, look, we want to implement some of these structures and then come in as kind of a specialist in our discipline.

Shane: So let’s say they were ready to take the next step, to have them and their attorney meet with you or they have more questions they wanted to ask you. What is the best way for them to get a hold of you?

Kavanaugh: Sure. I guess just calling our office here. In Atlanta, our office line is 404-920-4140. And we’re here quite frequently. And also, I can be emailed at ktucker@southcapgroup.com. I guess the other thing is our bios and experience and some case studies are online at our website at southcapgroup.com.

Shane: Okay. southcapgroup.com, ktucker@southcapgroup.com. Kavanaugh Tucker has been our guest here on the Estate Planning Expert podcast. Kav, we greatly appreciate you being here and lending your expertise for our listeners. Thanks so much for being on the show.

Kavanaugh: Thank you.

Shane: Thanks everybody for listening. We’ll see you on the next episode.