Wealthinking by Paula Hogan

AICPA 2014: Advanced Financial Planning Conference

Posted by Paula Hogan on Wed, Jan 29, 2014

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Last week I had the pleasure of attending the 2014 Advanced Personal Financial Planning Conference hosted by the American Institute of CPAs®. Attended by a record 1200 professionals this year, the conference is rapidly becoming a go-to continuing education venue for financial advisors.

I found the conference to be a rich resource on a wide variety of planning topics. We’ll be following up on several ideas from the conference in the office. In the meantime, I thought you might enjoy a glimpse of some key themes and how they could be pertinent to your planning.

As background, conferences are going high tech.
Instead of big paper binders of session handouts, we were given a link to a website and provided an app to download on to our phones or tablets. For most sessions, I used the app on my phone to check the agenda, view slide decks, even take notes. Swipes of the QR code on my badge entered my name for continuing education credits—and transmitted my contact information to a new acquaintance if we preferred swiping to exchanging business cards. A live Twitter feed was active throughout the conference providing a stream of contemporaneous quotes and commentary. You might enjoy perusing it: #aicpapfp.

One key theme is the upheaval in tax planning from the changes in income and estate tax law and from the Affordable Care Act:

Income tax planning now involves multi-year projections focused on bracket management and more attention to asset location. The new law creates multiple internal brackets for taxpayers to navigate, e.g. to optimally plan around limits on itemized deductions, to make good use of low tax rates in years of unusually low income (e.g. by initiating a Roth conversion), or shifting income away from years with high income (e.g. in order to lessen the impact of the new 3.8% surtax), and for savvy management of alternative minimum tax liability. Deciding whether to house investments in taxable or tax-sheltered retirement accounts is increasingly important for managing tax liability on investments. A mid-year planning appointment with your accountant is the new norm, as is careful attention to asset location.

Estate tax planning now involves close consideration of the relative merits of preserving a step up in basis at death (e.g. protecting against capital gains tax liability by using new  portability provisions instead of funding a credit shelter trust to minimize estate tax) while also managing state estate tax (which in some states still exists even though the Federal estate tax now only applies when an individual’s net worth exceeds $5.34 million). Surviving spouses may now find it advantageous to draw funds first from the family trust and then from personal accounts when drawing wealth from the portfolio for living expenses.

The Affordable Care Act removes the need to make employment decisions based on one’s need for health insurance coverage but creates tax planning imperatives because of the premium subsidies. These subsidies, typically worth thousands of dollars, are based on income, not wealth, and are only available if coverage is purchased through a health care exchange. Thus, someone with a large portfolio but a low (e.g. $50,000/year) income, could be eligible for the subsidy. But earning $1 over the income limit means the loss of the full subsidy. The planning implication is that taxpayers with that fact pattern are well advised to manage income closely. Taxpayers not eligible for the subsidy can work directly with an insurance agent; there is no need to go through a health care exchange.

There’s a flood of new research on the impact of aging on financial literacy and competence.

It’s sobering. In essence, cognitive decline is a natural (inescapable) part of aging. It happens across all cohorts at the rate of about 2%/year. (It’s not the same as dementia, which itself has an incidence of about 1 in 3 for people in their 80s.) Awkwardly, studies are showing that people with documented cognitive decline continue to express the same or higher confidence in their ability for financial decision-making. With these conditions, it is no wonder that elder financial abuse is a serious, rampant issue today. A planning suggestion is to plan ahead. Get named agents in place, informed, and empowered both legally and personally to act on your behalf.

Longevity is increasing at about one year per decade and can change your financial plan

It’s hard to save enough for retirement if employment lasts about 30 years and retirement lasts 40 years. Delaying Social Security is an obvious first response, as is perhaps increasing equity exposure gradually in retirement and/or drawing on a reverse mortgage. New research is documenting that spending, except on health expenses, gradually declines in retirement which might imply less pressure on personal finances. Bottom line: Expect to hear more about the value of working longer.

Demographics and geography are emerging as important factors for investment planning.

Peter Zeihan made a fascinating presentation—to be detailed in a forthcoming book—detailing how geography, demography, and our shale industry suggest a bright future for the US economy. The investing implication is to be alert to how geography and demographics will influence geopolitics and investment opportunities. HINT: China is now the fastest aging society and the U.S. will likely be a net exporter of energy within five years.

Data protection issues just won’t go away.

Hackers like it when you use unsecured public WiFi. You don’t own what you download from iTunes; you are just licensing it. Consider putting digital assets in a trust to keep access beyond death for heirs. Tell your attorney if you own a valuable domain name. Don’t put user names and passwords in your will; wills are public documents. Use effective passwords and consider a password manager. By the way, "Password" is no longer the most common password; it has been unseated by -ouch- "123456".

Tags: financial planning, Money Conversations, cultural trends