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Have you ever thought about installing an inground swimming pool in your backyard? Or have you ever considered restoring a turn-of-the-century home? Chances are if you were thinking about doing one of these projects, you’d call a professional to help you complete the task. Why then do we think we can make major financial decisions that could have severe implications without ever talking to a financial advisor? Yet, all too often I see these mistakes happen, and many times people ask for help after the fact, and sometimes the damage is done. That’s why a recent phone call led me to think about this very subject.
A good friend of mine recently called with some questions about a financial decision his grandmother was making. She was hoping to reduce her income (for various reasons), and he wanted to know if a step she planned to take was a common estate planning practice. I assured him it was. She was wanting to use some income-reducing strategies, and the strategy could save her several hundred thousand dollars over the next 15 to 20 years.
I began asking questions about her income taxes and some other pertinent information CFP’s need to know to properly evaluate the tactic they were considering. In about five minutes, I learned all I need to know to help them make somewhat of an informed decision.
Here’s the thing, his grandma is in great shape. Their family tends to live longer, so we know that she has longevity on her side. However, the problem with their plan of action was the estate tax in the state that they reside. Now, we obviously know that taxes will change at some point in the next few years, but all we work with now is the known. In running the projections of their proposed plan, I could easily see that the family was about to make an extremely costly mistake. Sure, grandma was about to pick up several hundred thousand dollars of benefit over a 15 to 20 year period, BUT the planning technique would cost the estate somewhere in the neighborhood of $1.8 to $3 million when it was all said and done. Additionally, there were immediate income tax ramifications that were going to be a problem for this family too.
The phone went silent. My friend said, “Justin, so what I called you about ultimately just went out the window and we have bigger issues to address?” I agreed.
What just transpired between my friend and me is a problem I see all too often. In our efforts to understand the options we have, people run to Google with a question. After a cursory review of the first few pages of info, the Google researchers often conclude that they’ve found the answer to all their problems. In reality, if they talk with a professional (financial advisor), they quickly realize the solution isn’t as simple as what Gooogle suggested.
Now, I love to Google just as much as anyone, however, when it comes to certain, specific questions in my life, I turn to the professionals. If my car breaks down, I hire a mechanic. When I built my home, I did a great deal of the manual labor myself, but I also turned to professionals in areas like electric, HVAC, roofing, insulation, and plumbing. When I need a root canal I head to my dentist; I don’t go to Google and DIY it!
And business owners, we are often just as bad. Many times business owners hear of a tactic that someone across the country or the state or even the city is doing in their business, and we think we need to implement it in our own business. Just because it worked in their company doesn’t mean it will work for yours. Don’t be reactionary in your business finances… every business deals with a microeconomic factor. Make sure any strategy you are about to implement includes a discussion with your team—your CFP®, CPA, and tax attorney. Let’s be specific and strategic in our business, and with help from professionals… make the journey financially simple.
