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.
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.
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.