Wealth Management Case Studies
At Ambassador Wealth Management we are very fortunate that we have some of the most fascinating people in the world as our clients. They are intelligent, hardworking, successful people that want to be good stewards of their financial assets. Their diverse nature and the diverse nature of their needs, desires and financial situations drive our passion daily.
Orange County Financial Advisor Case Study #1 - Retirees
Corporate Executive was offered early retirement with a severance package paying full salary for 1 year. Given 2 options for pension account 1) Lifetime annuity paying income 2) Lump Sum Distribution.
The clients didn’t fully understand the ramifications of each option, so they pursued guidance in making the decision. Based on family medical history, it was highly plausible that the wife would outlive her husband. They were unaware of how annuity payouts worked and we explained the ramifications of the options available. During our fact finding they said it was important to leave an inheritance for their children and grandchildren. They had substantial cash to live off of in addition to the continued salary for one year; therefore, they wouldn’t need to begin distributions for at least 3 years. By opting for the lump sum distribution they were able to take control of the investment, prevent triggering income in years they didn’t need it, and allow the funds the opportunity to grow for an additional 3 years. With prudent investing, the account is designed to provide a lifetime of inflation adjusted income along with an inheritance for their heirs. Lifetime income is provided by an annuity with benefits subject to the claims paying ability of the insurance company.
Furthermore, the discussion of their family’s medical history raised an important concern for their absence of long term care coverage. A catastrophic event requiring the need for Long Term Care can derail the best of plans. The client said they would rather spend their last dollar on professional care before putting the burden of their personal care on their spouse. Shortly after, we had them underwritten and approved for a joint policy.
Lastly, we noticed that their trust did not have any provisions for their grandchildren. As was, their children would have received an outright distribution. While they love their children, they did not feel they were capable of responsibly handling a sizeable financial windfall. We provided them an introduction to a local estate planning attorney and sat in on the meeting to ensure their needs for the trust amendment were met.
Orange County Financial Advisor Case Study # 2 - Legacy
An existing client called with concerns of the repeal of The Bush Era Tax cuts resulting in the reduction of the Estate Tax Exemption. In late 2012 we did not know if the exemption would remain at $5.12 million, or be lowered to the previous exemption of $1 million. They had valuations of their assets completed to determine the overall estate tax exposure; the business was valued at $9 million, commercial property worth $2.2 million, primary residence worth $1.3 million, along with investment accounts worth $3.4 million, for a total net worth estimated at $15.9 million. Even at that time the current $5.12 million estate tax exemption combined for a couple at $10.24 million; they had a tax exposure of $5.66 million. In 2012 the top estate tax rate was 35%, equating an estate tax bill of $1,981,000.
The client had an existing family living trust that was in good order, but we recommended meeting with an attorney to discuss more complex planning techniques. We made the introduction and sat in the meeting to determine if a Family Limited Partnership (FLP) would be a good resolution to their risk exposures. The FLP is a joint venture between family members achieving 3 very important wealth preservation goals 1) Protection of assets from litigants and creditors while discouraging potentially severe lawsuits 2) Eliminating potential estate taxes that would be due upon the demise of both spouses 3) Reduce the income tax liability on the income received from the commercial property. The FLP allowed them to transfer non-voting shares to their children at a discounted price, while retaining full control of the assets; thus achieving the aforementioned goals while eliminating the $1,981,000 estate tax bill if they were to pass away in the current year.
Orange County Financial Advisor Case Study # 3 - Divorce or Loss of Spouse
We were introduced to a recently widowed woman with two children who lost her husband at a young age. The tragic loss would cripple the psyche of most people; however, it was clear from the beginning that she was strong willed with a driven personality. Fortunately they had done some prior planning and had a $5 million life insurance policy, but she didn’t know if it would be enough to maintain their existing lifestyle. This led to further questions which we discussed in great detail together. Would she be able to continue as a stay at home mom raising her children, or would she have to go back to work? Were they better off continuing to rent the home they were living in, or purchase a permanent residence? What would happen to her children if subsequently something was to happen to her? While she was ready to begin investing on day 1, we were adamant that there were far more pressing issues to address prior to making investment decisions.
The most glaring issue was the lack of an estate plan, which led to further questions of who she would prefer raising the children should anything happen to her, and how to care for them financially. We made a recommendation for a local estate planning attorney and followed up on the progress regularly. Our next step was to create a projected budget to determine their annual cash flow needs. We then ran analysis to determine if we could generate enough income with the insurance funds based upon her risk tolerance. Using the projections and cash flow data, we were able to help her qualify for a home mortgage providing the stability she was looking for in a permanent residence. With everything in place, we had the reassurance to invest her money with confidence we were doing what was right for her and her family to help them reach their goals, which included funding for the children’s college education. Furthermore, we provided her with the tools to start a side business that she was passionate about along with the joy of an escape to direct her driven personality, as opposed to the obligation of working a 9 to 5 job that prevented her from the enjoyment of raising her own children.
Orange County Financial Advisor Case Study # 4 - Business Succession Planning
We had a routine annual review with an existing client and began discussing how their family dynamics were changing, along with the desire to retire. He had been considering retirement for a few years, but had not contemplated the resolution of the business. The business had been established for over 30 years, they had well-known brand name within their trade of business, and there was a consistently reliable customer base. We suggested a follow up meeting to discuss alternative solutions to closing the doors and walking away from the business, recommending he speak with his key employees to see if they have the desire and passion to take over the business when he is gone. He was concerned they didn’t have the capital, but we informed him there were several alternative solutions including a phased payment sale, which would allow the purchaser to make installment payments over time.
He discussed the opportunity with a few of his employees regarding purchasing the business; however, they did not have the entrepreneurial spirit that he had, nor were they willing to take on the risk of being a business owner. We suggested he meet with a business broker as it was likely someone would be looking to expand their business through an acquisition. Within one year he received a financed offer from someone; however, the purchaser was having difficulty working with their financier, so we referred them to our local SBA business partner. Within a few months they had the business valued, the credit deal was underwritten for the buyer, and our client had a check for the sale of their business. We invested the proceeds of the sale to supplement the other sources of their income for retirement. The client was happy to know that their existing clients would be taken care of and he was able to successfully walk away from the business with an unanticipated financial windfall.
Important Information: Case studies are provided for general education only and do not indicate that working with any financial advisor can produce satisfactory results. The products, services, and strategies mentioned are for illustrative purposes only and do not indicate that any can lead to a successful outcome. Any financial products mentioned are specific to that client and case and do not constitute a solicitation for any product. Only you and your financial advisor can determine a course of action suitable for your particular situation.