May 2018 JD Supra
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Financial Planning Season: A way to evaluate your Provider was published by JD Supra on 5/22/18.

After the tax filing season, many Taxpayers realize that this is the right time to think about financial planning; given the fact that their financial records are updated and handy.  The information contained in a Taxpayer’s Tax Return can be instrumental in developing a plan to achieve financial goals.    Many Taxpayers also realize that there are unknowns regarding the 2017 Tax Cut and Jobs Act (TCJA); which has prompted them to think about financial planning and the impact of the Tax Reform on their finances.  

Providers including CPAs, Attorneys, Life Insurance Agents, Bankers, Brokers, Investment Advisors and Certified Financial Planners often are viewed as the first “go to person” to discuss a Taxpayer’s financial planning strategy as  “trusted advisors”.  Effective Financial Planning ought to have a holistic scope and embrace all the “financial” aspects of an Individual’s life such as taxes, estate planning, retirement, investing and borrowing. 

The American Institute of Certified Public Accountants (AICPA) suggests that Financial Planning ought to be an exercise of the CPA Provider asking questions.  In addition, life changes events such as marriage, divorce, having children, retiring, or getting ill or becoming disabled can have a significant financial impact on a Taxpayer and trigger unforeseen tax obligations that should be taken into consideration when establishing financial planning.  At the end, it all boils down to getting to know to know the client, understand their financial concerns, how they make decisions, what is important to them, what keeps them up at night, where they see themselves in the future, and what would they like to accomplish.

It is all about asking the right questions

Asking the right questions is necessary for establishing a financial plan.  Many providers are eager to “fill out a prescription” or “make specific recommendations” on the first meeting and end up losing the client or prospect.  Confusing the client, making assumptions on behalf of the client or trying to “close the deal” too quickly are mistakes that Providers can make that will raise red flags to a potential client.  

Here are some Financial Planning Questions per Category:

A) Estate Planning: This category covers Wills and Living Trusts, Titling of Assets, Irrevocable Trusts, Advance Directives and Gifts and Charitable Planning.  Questions in the Estate Planning category ought to include:  

⦁    Do you understand the importance of having a will? Do you have a will? Has it been updated since the last major life event?  
⦁    Are you and your spouse U.S. citizens? Have you created a living trust?  Have you properly designated beneficiaries on all retirement accounts and life insurance policies? Have you used such designations on bank accounts, brokerage accounts, and automobile title documents? Do the beneficiaries have copies of these designations so that they’ll be able to quickly transfer assets if needed?
⦁    Have you considered and, if appropriate, established Credit Shelter Trusts, Qualified Personal Residence Trusts, Grantor Retained Interest Trusts, and Special Needs Trusts?  
⦁    Have you considered health care proxies, durable powers of attorney for financial decisions, HIPAA Authorizations, and living wills?
⦁    Is it important for you to leave assets to your loved ones and/or charity? Have you considered your strategy for gifts to loved ones?

B) Investing:   When Investing, asset allocation, diversification, benefits, tax planning and cost minimization ought to be taken into account by asking:

⦁    Have you identified the time frame within which you’ll need the funds from various investment accounts?  Have you determined your risk tolerance and the returns you’ll need to achieve your goals?  Have you developed an overall investment strategy? Are you satisfied with your investment performance? Have you reviewed existing allocations in light of recent significant life changes?
⦁    Have you identified any concentration of investments that may be placing you at unnecessary risk?
⦁    Do you fully understand the employee investment programs available to you? Are you participating in your company 401(k) plan and taking advantage of employer matching contributions?  Have you identified all government benefits to which you may be entitled?
⦁    Have you determined the appropriate allocation of investments between taxable and tax-deferred accounts?
⦁    Have you chosen cost-effective ways of making and holding investments?
C) Risk Management:   Managing risk entails the analysis of Insurance:  Health, Life, Umbrella Coverage, Property and Disability/Long-Term Care.  Indicative questions for insurance coverage are:
⦁    Have you determined the necessary business liability protection? Have you obtained solid coverage from a reliable carrier? Have you estimated the umbrella coverage needed for personal assets? Have you obtained the necessary coverage?
⦁    Have you determined the amount of life insurance coverage required for loved ones? Have you determined the proper type of life insurance to acquire?
⦁    Do you have adequate replacement cost coverage of assets?
⦁    Are all your family members covered for catastrophic health care costs to the extent possible?
⦁    Have you considered obtaining long-term care insurance?
D) Spending:   This category boils down to how much is being saved.  Find out by asking:
⦁    Are you saving enough to achieve your financial goals?
⦁    Have you calculated what your non-discretionary monthly expenses are? Do you have 3 to 6 months of cash to cover expenses if you were to lose your job or another unexpected event occurred?
⦁    Do you know how much you spend each month? Have you identified expenditures that provide little real value?
⦁    Are you holding the appropriate amount of cash needed to cover expected payments, allow maximum deductibles on insurance, take advantage of opportunities to purchase items at bargain prices, and sleep peacefully when investments are down?
⦁    How do you manage your debt?  Have you eliminated any debt?  Do you know your credit score?  

Find out what the Goals Are
Providers ought to focus on what the Client’s Financial goals are.  Is it financial independence, retirement, planning for college, paying off a mortgage, helping others, funding charities?  What moves the client and how do they make decisions?  

Don’t be a Victim of your Own Making
Material Possessions or Financial Freedom?  Financial Independence gives Taxpayers Options.  Taxpayers ought to reduce debt, save Money, cut expenses, consider making lifestyle changes and build Wealth over time.  Saving early, often, as much as possible is key as well as sticking to a budget.  

Consult your tax specialist in order to lead the way to financial freedom, independence and become your own Boss.