“Henley” was a lifelong real estate agent and investor turned mogul.* He loved buying properties, much of them vacation and lakefront, but was never too keen on selling them, as they were generating plenty of cash flow from the rental income. And he just loved his real estate! He was savvy enough to form irrevocable trusts through the years to hold a number of properties. These trusts were intended to bypass his taxable estate. Henley had two loving children and numerous grandchildren, but none who had an interest in his business passion. As Henley aged, he lost track of the trusts and attorneys who drafted them. The names of the trusts did not specifically note that they were irrevocable.
The Beatles’ John Lennon made famous the line, “Life is what happens while you’re busy making other plans,” and he was right. Life is complex and unexpected and constantly throws a curve ball at you. You can’t stop the curveballs from coming at you, but you can ready your stance to be able to hit the ball when it does come. That’s the reality behind total wealth management, our philosophy at Aurelius Family Office; it helps you see the curve ball or screw ball or slider coming and handle it.
As the opening to Henley’s tale shows, the key to understanding total wealth management is to understand that life doesn’t happen in neat little compartments. It happens all at once. Too often we overlook this fact and find ourselves in a reactive mode to sudden changes because we don’t look at our financial lives as complex, many-layered, and interdependent.
We can engage professionals such as lawyers, accountants, and financial planners to try to help us keep everything neat and tidy, but this still doesn’t guarantee that these even these professionals will be able, or interested, in connecting the dots. After all, each has his or her own business to run.
You can try to take up each of one of these important financial challenges separately and deal with it as it happens, but it’s hard to know what to prioritize. For example, do you really want to start socking away lots of money for your newborn’s college fund before you’ve saved up for a home to house that child and family? Or, if you’re looking to move into a larger home to meet the needs of your growing family, do you really want to finance this move by taking your foot off the pedal of your 401(k)? The answer may be yes, or it may be no. But until you connect all the financial dots that make up the picture of your life, you’re just guessing what it should look like.
For example, to return our story, when Henley passed, his eldest son Everett commuted back and forth to the small town in New Hampshire where Henley had his lifetime home. He connected with a local attorney who lacked knowledge in complex estate planning matters, to handle trust settlement and probate matters. Everett’s CPA was consulted for preparation of various estate return filings. The attorney recognized there was little to probate, but was perplexed by the trusts. He couldn’t locate the documents and incorrectly assumed they were all the same form of revocable trusts.
The CPA did not question the estate inventory, cataloguing all the real estate assets as part of Henley’s taxable estate. No one checked past gift tax return filings or income tax returns for evidence of transfers to the irrevocable trusts, or income generated by them. There was also no checking with past CPAs or estate planning attorneys for any history of past relationships and documents.
The problem is when a lot of people think about financial planning, they think about investments, retirement plans, and taxes. But our financial lives are far deeper than these activities. They include getting married and getting divorced; having children, raising them, and paying or helping pay for a college education; it includes getting a mortgage, buying insurance for your stuff and for yourself and your spouse; it involves saving up for retirement, which can seem like oh so far off in the future but arrives sooner than you think.
And, yes, financial planning is also about what happens when we stop living, which is a very important part of life. Once we’re gone, someone will inherit whatever unconnected dots exist in our financial picture.
Indeed, Everett’s sister Candace was overwhelmed when the CPA for the estate and trust work prepared a preliminary return for the estate with an eight-figure federal estate tax bill—plus additional taxes owed to the states in which Henley also owned property. It was then that Candace asked for a consult with Mark’s team, bringing the estate inventory and draft return with her, along with other documents she collected from her father’s files.
Candace was most concerned with raising cash to cover the whopping tax bill.
We got our first lead when we discovered a favorite cousin’s signature on one of the deeds as trustee of one of Henley’s trusts. Connecting with the cousin, we learned he recalled the attorney that drafted the trusts the cousin was connected to. That attorney had retired, but his firm had archived files on the relationship with Henley. Bingo! Those files had a treasure trove of information, including a few gift tax returns, noting the firm who filed them.
The end result was that with some reasonably straightforward detective work, we were able to uncover files and transaction histories that ultimately saved millions of dollars in federal and state estate taxes. The tax issues were not the most important issues to the two children, but their father’s legacy, hard work, and creativity where something to be respected and not squandered. The children did not understand their father’s business dealings, but Candace knew to seek assistance for Everett in settling the significant estate.
What’s the moral of the story? Life is about transitions and change. Total wealth management includes but goes beyond a financial plan that only considers current assets and investments to integrate the combined expertise of tax, insurance, and estate planning professionals to create a financial plan that represents the full span of your financial life. It’s all about managing the transitions we go through in life, the happy ones and the not so happy ones. The Aurelius team prides itself not only in helping our clients successfully contend with adverse situations when they arise, we also help them anticipate the ups and downs that make up this ride we call life. It’s something we not only do but also take great pride in doing for our clients.
Learn more about our total wealth management services and don’t hesitate to call us to negotiate life’s twists and turns.
*The names and details of the case study have been changed to protect client confidentiality, but the overall tax resolution is accurate.
Disclosure
Aurelius Family Office, LLC (AFO) is registered as an investment adviser with the SEC and Noticed Filed with the state(s) where it transacts business, unless excluded or exempted from filing requirements. This communication is for information purposes only, and it is not intended to provide specific legal, tax, or other professional advice. Investments involve risk and unless otherwise stated, are not guaranteed. Although information has been obtained from sources deemed to be reliable, we make no guarantee as to the accuracy or completeness of this data. AFO shall not be liable for any errors or omissions, or for any actions taken in reliance thereon. Be sure to first consult with a qualified professional adviser before implementing any strategy discussed herein. Past performance is not indicative of future results.