Top Skills to Look for in a Financial Advisor

CWT Blog | Top Skills to Look for in a Financial Advisor

Discuss the reputation and finer points of finding a financial advisor you can work with – even perhaps asking for referrals to talk to current clients, accessibility/responsiveness, consistency, obvious analytical skills, and perhaps even credentials.

Most people have a methodical process when it comes to making big decisions in life. You need information to figure out what will work best for you. Here are just a few examples:

  • When you need to find a realtor to buy or sell a house, you probably ask your neighbors who they used and why. It seems as though everyone has pretty strong opinions about their real estate agent!
  • When you’re buying a car, you might read reviews online, research different models, and look for pros and cons of different makes and models. That’s all before you start visiting dealerships to test drive.
  • Or maybe you’ve needed to find a physician. You may rely on research and reviews (how’s their bedside manner?) as well as personal recommendations from friends. There’s even an “ask for recommendations” feature on Facebook now just for these kinds of things! Depending on your need or the level of skill for a surgery, you might interview a few doctors to find the right one.

Finding a financial advisor is another one of those tasks that involves a great deal of responsibility. There must be an element of trust, an ease of communication, and definitely a degree of confidence in that person’s ability to understand your situation and give you quality advice that at best, will lead to your financial success. We’re talking about hundreds of thousands or millions of dollars, and your future in your retirement.

But it’s not always so easy. Finances are a complicated matter, and a personal recommendation isn’t always enough.

For instance, let’s say you heard from a neighbor couple down the street that they just started with Joe the financial advisor. He’s with a substantial, well-known firm and so far your neighbors have had a great experience. They both work for big companies and have been at their respective jobs for 10+ years. They own their home, and have one child.

You might think that Joe could be the right advisor for you. But let’s say you’ve changed jobs three times in the last ten years and you’ve got pensions and accounts all over the place. You’ve also recently started a very successful business and are struggling to manage both your personal and business finances. ​

Your situation could be drastically different from your neighbors. It might require different levels of skill. Finding a financial advisor is a tremendously personal decision. Use our guide to help find the right one for you.

What to Look for When Hiring a Financial Advisor

Education

You wouldn’t trust a surgeon without a degree right? That would be crazy! Pay attention to the education (and credentials) of any advisor you’re considering. Nearly anyone can utilize the term “financial advisor” but terms like “Certified Financial Planner” (CFP)” or “Chartered Financial Analyst (CFA)” are a bit more rare. These certifications convey an additional level of coursework and exams, and often require the advisor to adhere to rigorous standards. These terms are industry-recognized and also signal a level of ethical and professional practices.

Accessibility

This might surprise you, but a lot of financial advisors only meet with clients once every year. That’s pretty standard across the board in our industry. But, what if you want more than that? What if you have questions or want more of an involved relationship? Is your advisor willing to give you accessibility that you need or desire? If your financial advisor’s office is serving hundreds or even thousands of families, they may not accept random meetings for various questions. Do you have your advisor’s direct line? What is their average response time? These are things you might want to ask. ​

Experience

Complicated situations require a track record of success. If you are a business owner, does your financial advisor have experience with other business owners? If you are looking for help within a certain area, do they have a history of demonstrated ability? Does this financial advisor specialize in one expertise with additional certifications or education? With investing, estate planning, tax planning – if you have a particular need, make sure their experience aligns with what you need. And don’t just look at years of experience – many advisors come from other industries that provided them with valuable perspective. ​

Reputation

Just like you’d ask for referrals for a surgeon or a real estate agent, ask for referrals from any potential advisors you’re considering. Ask how long the client has been with the advisor, what they specifically like about working with them, if there is anything they don’t like, and ask about their relationship (how often they see their advisor, do they feel they get adequate answers to their questions, etc.) Getting first-hand experience from other clients is a great way to get a feel for how advisors conduct their business with clients. ​

Compatibility

There is something to be said for simply liking and getting along with an individual. Your advisor is somebody you’re going to talk with about some real life, serious issues. It’s pretty imperative that they don’t drive you crazy! Ask them questions; get a feel for who they are as a person. Do your values line up? You want to feel heard and understood. Everything else could be perfect, but this last element is really what makes or breaks the client and advisor relationship. Take the effort to find the best fit for you. This relationship is ideally one that you’ll have for life. If you get it right the first time, you’ll have a better experience and a foundation for trust. Here’s where you also want to feel out their transparency. When you ask about cost – is it something that you can easily understand? Ask how they get paid and expect an honest answer. Is it a flat fee? Is it a commission? This should be an easy conversation to have with your potential advisor. If they shy away from this conversation, it may be a red flag to search elsewhere. ​

What do YOU look for when you’re trying to find a financial advisor? Which one these do you think is the most important? Let us know! And if you’re looking for an advisor, we’d love to be considered. Set up a no-pressure meeting with us today.

Protecting and Transferring Your Family’s Wealth: Don’t Wait to Plan!

CWT Blog | Protecting and Transferring your Family’s Wealth: Don’t Wait to Plan!

Having children is one of life’s greatest joys. Planning for their future and protecting them starts the day they are born. As life moves forward, your concerns may shift to their financial wellbeing as adults and keeping the wealth you have built within the family. This is one financial step you don’t want to overlook. Be intentional and vocal about your wishes, and work with a financial expert to ensure your wealth is maximized and protected! It’s never too early to start thinking about a successful transfer of your wealth to the next generation.

Setting your children and grandchildren up for success really involves two initiatives: one is protecting your family wealth and creating a tax-efficient plan for its successful transfer, but there’s a second piece many families forget to think about. Part two is ensuring your children are adequately prepared to manage their inheritance according to your wishes.

One other thing to remember is that family wealth is not simply bank accounts and investments. There may be long-held pieces of valuable property, and family treasures like jewelry or other priceless heirlooms. All of these pieces should be considered when working on your wealth preservation plan and your estate plan.

 

Goals of Estate Planning

​Every family is different. You will need a customized estate planning strategy that takes into account your specific situation, your heirs, and your assets. This is particularly true if you’re a business owner. Overall, there are three broad goals of an estate plan:

  1. Protect Your Wealth from Taxes
    Who wants to pay more than they have to? This goal goes beyond income taxes to taxes on any charitable gifts (see below), estate taxes, and generation-skipping taxes. With an expert, you can minimize your tax obligation and strategize accordingly.
  2. Avoid the Probate of Your Estate
    This is a slow, costly, very public process that can result in holding up the distribution of your wealth and even worse, yielding a portion of the estate to the court in fees.  Probate can be avoided with a proper trust structure and communication.
  3. Safeguard Wealth from Legal Issues
    Again, this goal is tied to the structure of any trust selected to secure your estate. You want to shield your assets from potential lawsuits and creditors, especially if you are in a profession prone to more risk (doctors, etc.).

A skilled financial advisor partnered with an attorney can work together to put together an estate plan designed to meet your needs.

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There are hundreds of complex estate planning strategies but these are just a few your team may explore:

  • Annual Gifting
    Charitable gifts can help to reduce the amount of your taxable wealth and increase opportunity for significant tax advantages. Gifts may be given directly to individuals or in a trust. You can maintain control over assets if a designated charity is a family foundation or other such entity.  Gift your money to your heirs while you’re still alive in the amount of up to $14,000 per year, to avoid tax liability.
  • Update Beneficiaries
    Not all assets are distributed via a will. Your retirement accounts and insurance policies must be updated with current beneficiaries if you want to avoid these accounts going to probate! Many people don’t know that most states allow beneficiaries to be named for bank accounts as well. Any life event will necessitate updating your designated beneficiaries.
  • Check into Laws about Homesteads
    Each state has different regulation regarding homesteads, annuities, and life insurance. These are potential vehicles that can protect cash. An expert will know which assets are protected by your individual state and can advise you on placing funds in sheltered vehicles.
  • Consider Asset Ownership
    Keeping assets in your own name leaves them susceptible to risk from creditors and lawsuits. Placing your assets under the ownership of a trust or an LLC (if you have investment properties or rental properties) can be an effective protection strategy.  As long as assets are in a trust, they belong to the trust and not to you, but you do maintain control by placing stipulations and managing it through an appointed trustee.

 

​Talk to Your Family About Your Plans

Many issues that arise with a transfer of wealth are the result of confusion about the wishes of the deceased. Talking with your family about your decisions might be a difficult conversation to have, but your children will be thankful that you did! You have the opportunity to explain your decisions and let your children know who will be responsible for various tasks (who will hold power of attorney? Who will be the executor of your will? Who will hold the trust assets or be responsible for managing any interests of minors?) Finally, let your loved ones know where you plan to store your estate planning documents and if you wish, give them access.
 
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Key Takeaways to Remember in Planning for Transfer of Wealth

  • Keep your specific goals in mind, and share them with your financial advisor and estate planning attorney. Do you want to leave an inheritance for your children? Keep a piece of property in the family? Pay for your grandchildren’s college tuition? Communicate your intentions and help your team build a plan to accomplish your goals.
  • Review your plan as your circumstances change. Every life transition – a death, job change, divorce, or birth – warrants a second look at your estate plan! Consider setting a date each year to make sure your affairs are in order.
  • Talk to your family. Tell your children and grandchildren why protecting your wealth is important to you, and ask them to be responsible stewards of the legacy you are leaving.
  • Be sure to consider and plan for your own healthcare, living expenses and philanthropic efforts. It’s also a good idea to let your loved ones know your wishes should you become ill or unable to make decisions for yourself.

If you need assistance with planning for the transfer of your wealth to the next generation, give us a call at California Wealth Transitions.

Reducing Taxes For High Income Individuals

CTW Blog | Reducing Taxes For High Income Individuals

Yay! I love preparing taxes!

Wait, we’ve never heard anyone say that before. Except perhaps a CPA who really loves their job.

Why should you care about your taxes when it’s not even the tax season yet? For high earners, this is one area of your finances where you could significantly lose or save money if you have the right knowledge. The more money you earn, the more important your tax planning strategies become.

Tax law is complex, and constantly changing. Unless you’re that CPA we mentioned, you might have trouble figuring out exactly what applies to you and what strategies you could take advantage of to your benefit. A financial professional who has your best interests in mind could help you with tax planning – a financial strategy that starts long before the month of April.

California Wealth Transitions is not a CPA Firm; always consult with your CPA professional regarding the strategies discussed below.
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These are situations that can make reducing your taxes a priority when it comes to managing your finances:

Do you have a higher-than-average salary?
Do you own a profitable business or are you self-employed?
Do you own real estate or have real estate you have inherited?
Do you have capital gains?

Pay attention if you want to reduce your income taxes.
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Strategies for Reducing Income Taxes

Utilize the Right Retirement Accounts

How you save for retirement can significantly impact your income tax levels. Obviously you want to fully fund any retirement accounts offered by your employer, but if you are self-employed, set up the proper accounts. Anyone can set up a traditional IRA, deductible or non-deductible and you may also be eligible for a ROTH IRA depending on your level of income. If you’re self-employed, consider setting up your own SEP IRA or Solo 401k and contribute as your own employer. This is fully deductible as a business expense.  Which one is right for you depends on your Modified Adjusted Growth Income (MAGI) and whether or not you have employees.

Many high income earners already have their basic retirement accounts covered. The question is what accounts to prioritize with your additional saving strategies to make every dollar as tax efficient as possible. Anticipate medical expenses and potentially long-term care expenses by utilizing a Health Savings Account (HSA). A financial professional can analyze pre-tax, backdoor strategies, and after-tax contributions to help you determine where to put your additional funds.

Know What You Own and What You Owe

This sounds like a basic idea, but high earning individuals tend to have many different streams of income and assets in many different forms from insurance policies to real estate. Do you have a statement of net worth that lists all your assets and their value? Is it up-to-date? This is really where tax planning starts. This can also impact your future estate, too – so it’s important!

Use Charitable Donations

Are you inclined to contribute to your favorite charities and gain the tax benefits? You can deduct up to 60 percent of your adjusted gross income each year for these gifts. And guess what…don’t think of charitable donations as cash only. You can donate stock and this could be an advantageous strategy for you especially if you have stocks that have increased in value since you purchased them.

Know What You’re Entitled to as a Business Owner or Real Estate Investor

Ever heard of the 199A deduction? This is a significant deduction that can make a big difference in what you owe. You can deduct up to 20% of the profits of your small business or your rental real estate, allowing sole proprietors, partnerships, and S corporations to reduce taxable income. These are tax deductions, not tax credits and there are certain limitations so check with your tax professional.

Consider Donor-Advised Funds (DAF)

Consider establishing a donor-advised fund, or DAF, which is essentially a personal charitable savings account. A donor can create a fund with contributions in many forms including cash, stock, or other assets and receive an immediate tax deduction for the gift.

To Defer, or Not to Defer … That Is the Question

Many high earners wonder if it’s better to pay taxes now or later. The truth is, if you’re in a top-tier tax bracket now, you most likely will be during your retirement. Deferring taxes now might be taxed at a higher rate in the future. However there are many caveats and nuances to tax deferral. Many high income individuals can benefit from tax-deferred annuity options and life insurance policies as savings vehicles. It really just depends on your individual situation. There is no “one-size-fits-all” answer to this question but it is worth discussing with your financial team.

Protect Your Estate

Do you want to keep as much of your wealth in the family as possible? Of course you do. Consider a Grantor Retained Annuity Trust (GRAT), which can allow you to pass your wealth to the next generation without a significant tax impact. We’ll cover more on protecting your estate to transfer your wealth in our upcoming blog.

Tax planning encompasses a lot of fine tuned strategies that can hold big impact. Our final thoughts on taxes for high earners?

Don’t make panicked decisions at the end of the year in an effort to reduce your taxable income. This is rarely a good move. Consult a professional and start early – get your tax strategy together before the end of the year!

​Remember that the IRS isn’t likely to tell you that you’ve overpaid.  Perhaps you have your taxes pretty well in line. But have you explored ALL of the options? Trust a professional who has resources at their disposal to get all the pieces of your financial life working together.

Top Five Financial Mistakes to Avoid in a Divorce

CWT Blog | Top Five Financial Mistakes to Avoid During a Divorce

Even in the most amicable of situations, divorce is a complicated process. Going through a separation means changes for your personal life but also for your financial circumstances. Have you thought about what this transition means for your future? Even if you feel uncertain about this next phase of life, there are steps you can take to protect yourself and plan for a positive outcome. The most important thing to remember throughout the process of divorce is to be honest and knowledgeable about your finances.

The worst thing you can do if you’re facing divorce is stay in the dark about your financial situation.

What’s the best thing you can do? Become educated on the finances of your household before the split is final; better yet, before it even has begun! Has your spouse handled the finances for years? It’s time to start collecting all the information you can. You’ll be glad you did when you start making decisions about your finances in your divorce settlement and preparing for life beyond.

How can you prepare for your life after divorce? Get your hands on information. Make copies of financial documents, take inventory of all financial records – think about account statements, credit cards, retirement accounts, and even tax returns so you have income information. Don’t forget about life insurance policies.

If you’re facing a divorce, avoid making these top five financial mistakes.​

Making Financial Decisions One at a Time

It is imperative that you look at your entire financial situation when you’re making decisions in a divorce. Each one is intertwined and could have a number of outcomes, either positive or negative, for both you and your spouse. There are tax ramifications and all kinds of other situations to consider with every decision no matter how small! Looking at only one account or asset at a time without considering the big picture is like building a house without a blueprint. You’ll only end up with disaster.

Assuming that Equal Division of Property and Assets is Fair

“Fair” is such an important part of a divorce settlement. But how do you evaluate the settlement without understanding the true value of property and assets? There are lots of factors to consider like inflation, taxes, and the long-term appreciation or depreciation of property. While no one really knows exactly what the future holds or what the markets will do, it’s important to get a fair evaluation of the value of ALL your assets before dividing them appropriately. This usually requires an outside expert.

The house is often one of the most divisive assets in a divorce. Many couples think – “she/he gets the house, so I get the other assets…” but this isn’t always an advisable solution. The house may be worth less than what is owed, and houses also cost a lot to maintain – there’s the mortgage, the upkeep, the taxes, etc. Think about your future situation, and your budget, to determine if keeping the house is a sound financial decision. Want to get a good assessment of how to divide property and assets? This brings us to our next mistake…

Not Consulting a Professional

We understand that not everyone is a finance guru. Do you really have the time to sit down and figure out what each asset is worth and the skill set to understand what the situation could be five years down the road? No! Get a financial professional, an estate attorney, or better yet – work with somebody like California Wealth Transitions who can coordinate with other professionals on your behalf. It’s part of getting the whole picture together so your financial future is as secure as possible. These professionals will look at every side of your finances and consider both the risks and rewards to ensure you are set up for success.

​Emotions are powerful but are not always the best factors to consider when making decisions. An objective third party can help you view your situation appropriately and make decisions for your individual situation.

Only Focusing on Short-Term Details

The goal here is to ensure that you are prepared for your future financial expenses. Divorce can be messy and tedious, but it’s important to nail down the details all the way to the fine print, and think of the long term. You need a post-divorce financial plan. Your life is going to look very different, and your finances will too. This includes taking an accurate (honest!) look at your budget and what your life will be like after the divorce. You will have an independent household now, and one thing that can significantly ease the transition is being adequately prepared so you can enjoy your clean slate. Set new financial goals and work with a professional to help you design a realistic plan.

Not Checking into Debt and Liability

​Many couples have a joint financial strategy. Their names share titles, estate documents, credit cards, and more. Separating these appropriately and updating documentation is a key part of getting your financial life in order. Nobody wants surprise calls from creditors after the divorce, and there could be serious consequences if you fail to update beneficiaries for all of your policies and accounts. Think about what you are liable for now, and how these accounts will factor into your responsibilities in the future.

Need an advocate in your divorce for your finances? Contact our team at California Wealth Transitions today.