As your life journey unfolds, it is not unusual to outgrow the capabilities that an individual advisor can offer. In fact, the intricacies of your financial world may require an integrated team approach to insure you’re gaining the most benefit from your hard work.
For many high-net-worth individuals, the concept of a family office may be familiar, but not without questions on which pieces of your financial life this type of consultant should handle.
Oftentimes, many business owners and high earners receive fragmented guidance that results in conflicting advice. This disconnect can come with a significant price tag as a lack of collaboration between financial advisors and tax planners can lead to detrimental loss of face value for your retirement fund. The true value of a financial partner lies in helping clients realize their potential by providing a big picture view.
John Scott leads this live discussion between Tom Gibson and Brian Shey during which they will discuss:
Transcript (edited for clarity)
John Scott: Hi. I’m your host, John Scott. Welcome to Your Future Family Office. I’m joined by two gentlemen that you’re probably very familiar with, Mr. Tom Gibson – hello, Tom.
Tom Gibson: Good morning, John. Good morning to everyone joining us for the webinar.
Scott: And also, we have Mr. Brian Shey. Hi, Brian.
Brian Shey: Hello, gentlemen. Good to be with you. And welcome, everyone.
Scott: Today we’re going to discuss what a family office is and what it is not. There are two phrases that you might want to look for that really get to the heart of what a family office is and what it is not. And those phrases are ‘mature simplicity” and “sophisticated confusion.” We’ll speak more to those as we unpack.
Brian, Tom, tell us, who traditionally has access to a family office and what are the foundational principles of a family office?
Shey: Traditionally, if you do any type of research regarding what a family office is, you’ll find they began with one of the wealthier families in the United States of America, the Rockefeller family. Traditionally, family office really pertained to the ultra-wealthy families in this country. Probably, the low end would be a $50 million net worth all the way north of $500 million. But there’s a large population in the United States of America that does not fit into this category. So when you think of a family office, think of a collaboration of professionals that are meeting on the behalf of a client all at the same time, that are in tune with what the needs of the family actually are. And when I talk about a collaboration of professionals, I mean an insurance professional, an investment professional, a tax professional, a legal professional, and someone that deals in the banking industry. Those five or six people sit down in a conference room and meet collectively on the behalf of the client and look at all of the financial aspects of the client at one time. Tom, do you want to expound on that?
Gibson: Absolutely. There are two fellows that I know back in Tennessee – we went to junior high school together – both of are CPAs. I don’t know what was in the water, but out of out of five of us who ran around together, four became CPAs. These two particular fellows run the family office for two very wealthy folks in Chattanooga area. And it’s exactly as Brian described. They’re kind of the quarterback to make sure that everything that’s in place for the family is working as it should be.
One of the things that we’ve done at TSP for years is take some of the ideas that are prevalent with successful, wealthy folks, and cut them down to size so that they become accessible to our clients.
Scott: Many of our clients over the years have assembled different experts including attorneys and insurance professionals. That cohesiveness and collaboration, I think, is a critical piece to what we’re offering at TSP. And that, in and of itself, is huge as somebody looks to develop their plan for their legacy, for their family, their finances, their future. As we know, most of our clients are business owners so that balance between working on your business and trying to be the quarterback for your planning is really a challenge. That central collaboration and that quarterbacking is really, really powerful. A lot of people have found it – as you described Brian – out of reach. Family offices are set aside and only available for the Rockefellers.
That being said, Brian, you were touching on some of what I call the foundational legs to a family office. We’ve got protection, we’ve got investments, we’ve got the legacy piece, you’ve got banking, you’ve got tax. How does somebody go about prioritizing what should be done and when? Talk a little bit more. Tell us a little bit more about your thoughts on that.
Shey: John, one of the terms that we talk a lot about here at the TSP Family Office is the conventional wisdom. Tom and I have spent the better part of a couple of years now working exclusively together with our clients, and we talk about how the conventional wisdom is wrong. Let me dial that down a little bit.
The conventional wisdom of retirement planning, estate planning, financial planning, investment planning in the country is wrong. We talk about whether or not people believe marginal income tax rates will be higher in the future. And then we ask, “Does it make any sense to defer paying taxes today so you can pay them later on in life?” What’s always remarkable when we talk to clients and ask those questions – if we ask 10 people about tax rates in the future, most of the time we get 9 answers of, “Yes, they’re going to be higher.” Then we’ll ask, “Well, if you believe they’re going to be higher, what would ever cause you to defer paying taxes?” There’s then a long pause, very quiet, and then the light bulb comes on and they say, “That doesn’t make any sense.” So we start looking at the conventional wisdom.
Let me pivot here and just talk about the majority of our clients, specifically. Let’s say they take it upon themselves find an investment professional, and then maybe they have a financial advisor, and then they find an insurance professional, and then they probably have a CPA or an enrolled agent that is completing their tax return, and maybe they have a banking relationship somewhere out there in the United States. But they’ve taken it upon themselves to find those five or six different individuals. As Tom always says, everyone’s trying to do the right thing. Most professionals have the client’s best interest in mind. However, I feel that if you have five or six people that are working for a client – well, individually and independent of the other five or six professionals – they may be trying to do the best thing, but they have blinders on. The insurance guy doesn’t know what the investment guy is doing. The investment guy doesn’t really know what the tax implications are for the client outside of that one investment. Or you take people that have investment accounts at one brokerage house, but then also have a number of investment accounts that they’re managing themselves, and they actually have no idea that their portfolio is overlapping and they’re too heavy in equities in one or too low in fixed income in another.
When you look at the legs and what we’ve been able to do here at the Family Office, it’s just that simple. We’ve been able to take a group of professionals that are highly skilled, put them in one room – take Mr. and Mrs. Jones as the client and they’re not even in the room – and our Family Office is collaborating together on their behalf. When I’m talk about maybe a permanent life insurance policy for the Jones’s, Tom’s saying to me, “Okay, let’s look at the tax implication of that. Or should they take a long-term capital gain this year? Let’s, again, look at the tax implication of that.” None of us have blinders on and none of us are in a funnel. Everything’s above the table and we’re looking at everything together. The legs of a family office, when you boil it down, is a collaboration of professionals that are all on one page looking at all of the different consequences that possibly could affect the client.
Scott: And contrasting that – I mentioned it at the beginning of our chat here – basically, the phrase that you like to use, Tom, and Brian, you coined, is sophisticated confusion, right? What you’re describing, Brian, is the ideal situation. The other side of that is, without that, you have the sophisticated confusion. Tom, your thoughts?
Gibson: I want to reinforce something that Brian said. It’s not that anybody is setting out to create a problem, potentially, down the road. It’s not that any of the professionals are. But they don’t know what they don’t know, and that’s the Achilles heel. And there’s a tendency sometimes to make things that are actually relatively simple, much more complicated.
When we were talking about this webinar, it reminded me of an American cartoonist named Rube Goldberg. You’ve probably heard the term Rube Goldberg machine. Rube Goldberg was famous for taking things that were relatively simple and making these wildly complicated machines to accomplish a relatively simple task. This is, I believe, an automatic napkin wiper. People can inadvertently make things more complicated. They think the more complicated something is, the more effective it’s going to be. And typically, the converse is true.
We spend a lot of time early on with our client, understanding what their goals are. That’s step one. Step two is getting all the information together about where they are in the process. If it’s legacy planning, do they have a will? That’s kind of a big deal. What are the investment accounts? What do they look like? What does the current retirement savings look like? And then we come back with some suggestions about ways to get to the goals they told us they have, hopefully in a fairly tax-efficient, but also a fairly simple, way.
I have found that if you make things too complicated, folks just throw their hands up and they don’t do anything. Doing nothing, by the way, is a choice. You’re making a choice when you don’t do anything.
Brian talks about mature simplicity versus sophisticated confusion. My version of that is our goal is pretty simple. We want everything to turn out the way that you expect it to. We don’t want there to be any surprises 20 years, 30 years down the road in retirement. We certainly don’t want there to be surprises for your spouse or your children or your heirs when you pass away because everyone didn’t have a complete picture of what you wanted to happen.
Scott: I have a question. What are the most important things for me to put in place in 2022 relative to family, finance, and future? How would you respond to that?
Shey: Let’s start here. There are several reasons we have spent a lot of time developing and building out the TSP Family Office. Some of that has to do with clients that came to us with certain professionals that worked in the sophisticated arena. Some clients brought professionals in that believed in the conventional wisdom of tax planning that we don’t agree with.
Let me say it this way: if you pick up any kind of financial planning book, okay, a textbook, you’re going to find something similar to the food pyramid of what you should eat and what quantities you should have. If you look at any financial planning pyramid, what you’re going to find is the foundation of someone’s overall plan has to start with the protection component of the plan. I boil it down to, there’s protection, investment, and tax. The world is complicated planning, and it’s not complicated. Without properly laying the foundation of protection, it’s very difficult, almost impossible deal with investments because it’s like building a house, starting with the roof. Not sure how you can do that.
It’s not just about 2022. You may start in 2022, and let’s get through the Merry Christmas and Happy New Year and all of those good things, and then let’s hit the ground running. But without properly laying the protection component, you really can’t deal with the other ones.
In Tom’s world, tax has an implication across all venues of your plan. I think this is probably a good time to bear repeating, Tom and I are in unique chairs because we get to see clients every day, every week. We get to see the client who is mid-30s, who just finished medical school and residency, and now is starting to make money, and is married with the kid and a half. And then the next meeting, we’re dealing with someone in their 50s who, now that he’s made some money, he’s saved some money, he’s put money away, he’s starting to think about just different avenues of his life. Then we deal with somebody who is in his mid- or late-60s who is now really not looking to make anymore, but looking to try to transfer wealth. And when all of our professionals can get in one room, then we can start dealing with that. So when I talk about protection, I’ll just go real pointed, you need to have a disability policy, you need to have some life insurance, you need to do your living will, durable power of attorney, healthcare directives. If you have got some risk – I have a child that’s turning 16, so I just called my insurance guy and said, “Hey. I need to increase my umbrella policy from a $1 million to $3 million because my kid’s going to start driving.” That’s the protection component. Then we can start dealing with investment and help you get your estate documents also done. Tom, do you want to piggyback that?
Gibson: To my thinking, we’re about to go into a brand-new year. You have to start where you are. Part of what we do is look and see what do you have in place, what is working, what do you not have at this point, what maybe do you need if not now, in the relatively short term. But I know Brian and I have, over the last couple of years – and I say this as someone who has four kids – been shocked by how many folks who have young children under 18, and we find out they don’t have a will, we find out that they don’t have enough protection in place. There are some fundamental things that everyone needs.
Now, past that, people’s next steps are going to look different, depending on a lot of things: their age, their circumstances, their net worth, and so on. But my goal for next year is, again, to continue what we’ve been doing, assess where you are, make recommendations, and make recommendations that are going to have you buttoned up as best we can.
Back to the sophisticated confusion thing. We tend to err on the side of simplicity, which I think is the smart thing. Your situation is going to change. For 30-year-olds on this call, your situation is going to be very different 30 years from now. Maybe Brian will still be around to talk to you about it. I’ll probably be gone by then. But your situation is going to change. A mistake, I think, we can make is to try to do planning for a 45-year-old like they’re a 65-year-old, because it is not one-size-fits-all.
To add the other curveball into this, the tax law changes every once in a while. And by every once in a while, I mean constantly. I mean every two or three years. And we really don’t have to think back any further than the SECURE Act of a change that, through an awful lot of planning that had been done up to that point, just kind of threw it out the window because they changed the rules. We want to make sure that the bases are covered. We want to make sure that if something were to happen tomorrow, things would be in good shape. But obviously, it’s a work in process, and will be as long as you’re around either as a cloud or as a living human being.
Shey: John, let me pick up the baton here, because Tom got my head thinking a little bit.
First of all, let me address the protection component. The three gentlemen here on the screen are no different than everyone out there. What I mean by that – and everyone’s heard me say this if they’ve ever been in a meeting with me – is that we’re all perfectly healthy, psychologically well-adjusted human beings. We’re all in denial of our mortality. It’s the way we’re built. If we weren’t in denial, we’d never get anything done because we’d be too paralyzed with the fact that we could die at any second. Denial is an extraordinarily powerful tool because it allows all human beings to function as members of society. It’s a very, very bad thing because it makes all human beings believe we have more time. So, if you take the fact that all human beings are in denial – then let’s deal with the insurance industry.
The entire country has a negative, stereotypical image of the insurance industry. That industry has spent the better part of 100-plus years continuing to validate the negative stereotypical image that people have of it. They try to sell a product that nobody wants in a way that irritates everyone. And the insurance industry’s response to is to try to make a product that nobody wants better. There are no motivated buyers for that stuff. But when you start dealing with mature simplicity, the protection component of your overall plan is very, very easy to put in place, and then you review it every year.
Now let’s deal with the investment side. That’s an easy conversation because if you take X amount of money and you compound it and you grow it by interest over 10, 20, 30 years, it becomes very sexy. People look at those numbers and they get really excited about what they’re doing.
However, without proper tax planning, those investment accounts can take an enormous hit. I wanted to bring that up because we talk a lot about the protection component, but make no mistake, we come at it from a completely different angle than what most people are getting. We talk about the Human Life Value. We talk about legacy transferring wealth.
Let me move into the legal aspect. Tom mentioned that the tax laws are going to change all the time. I’m not knocking on an attorney, but you can get very, very sophisticated confusion on an estate plan. You can get a GRIT and GRAT and revocable living trust and irrevocable living trust and irrevocable life insurance trusts, and you can pay an attorney a good chunk of money to put those things together.
But the tax laws always change because Congress is always moving – what I call moving the goalpost on us. As a result, your estate plan may become antiquated every couple of years. The insurance industry is extremely powerful on the lobbying steps of Washington, and it’s rare that the insurance industry takes a hit by Congress.
I say all of that to, again, go back to your initial question, what do we do in 2022? Again, start simple, reach out to your Relationship Manager and get a meeting with our Family Office so we can start looking at all of the components. The people walking in that just sold a practice are different from the client that just finished their residency. Those seats that Tom and I sit in every day, we get to roll our sleeves up and go to work on the behalf of a client. And every client is in a different position than the next.
Gibson: The other thing that makes it even more difficult is say you have three children under 12 and you’re trying to make sure that they’re taken care of if something were to happen to you. You may or may not know how those kids are going to turn out at this stage of life. We have clients who have children who have special needs. We have clients who have adult children, who have their own set of issues that require that some guardrails be put into place on them inheriting assets.
What do you do if your spouse remarries after you’re gone? Your kids are going to be your kids forever. Your spouse – I’m not saying that’s a bad thing, but I’m saying that’s a possibility. You certainly don’t know who your kids are going to marry and what they’re going to be like. There’s lots of things to take into account. And those are things, again, that’ll change over time. But it is simple if you take it in steps. If you try to eat the whole elephant in one bite, you’re going to come up with something, probably, that’s not going to do nearly as good a job for you over the long haul as if you took an incremental approach and deal with things as the general principles are going to apply. There are things that are always a good idea. But there are some specific situations where you may not at this point have enough clarity about things to make the perfect decision. You can always make a good decision. And if you need to modify that down the road, you can.
Scott: I think of my son-in-law. He’s a medical professional, as many of our clients are. Now, he’s just beginning his profession. Tom talked about life insurance and how much is right, and I think of the approach that was used with him of determining what type of policy and how much it should be. Can you tell us a little bit about what the best way to approach that is, Brian?
Shey: If somebody can describe to me the circumstances surrounding their death, then there’s no reason to need any type of protection. But because no one can describe the circumstances surrounding their death, that’s why the insurance industry exists. We’ve all heard the definition of insanity, doing the same things over and over, expecting a different result. I’m not sure who thought of that, but I think maybe they came out of the insurance industry. I say all the time that the industry continues to try to improve a product that nobody really wants, and even fewer understand.
That’s a long answer to a short question. When you come to the need for protection, everybody walks in in different areas. Again, the 30-year-old guy or gal that just got out of residency and is just about to have their first child has a different need than the cardiovascular surgeon that is in year 25 of his practice and is married with five children at home. The need is different.
But I can tell you what the answer is not. The answer is not your automobile insurance carrier or agent telling you to go buy $500,000 or go buy $1 million. That’s not the answer. There’s a little bit of a better way of determining that number. We call it Human Life Value, or we call it capital needs. There’s nothing mystical about life insurance. It’s a promise between some company that has a lot of money and has spent 100 or 200 years doing actuarial science that if I don’t make it home tonight, my wife and my three boys need X amount of money per month for the next 20 or 30 years. If that can be grown at 8% or 10%, and take 4% or 5% out for inflation, then someone can look my wife in the eye and say, “Everything is going to be fine because you’re going to get X amount of money per month, every month for X number of years.” Again, we have the expertise to determine those numbers for the different clients that fit into the different categories and the applicable time of their life.
Scott: One of the things that we often have aspirations for is being financially secure, being properly protected, making sure that the day-to-day lifestyle suits our needs. But we also look longer term, we think generationally about what’s going to happen. Too many times, the cardiologist who is at the top of his game and stops practicing, that’s often the end of that business, that can be the end of that legacy. Same thing for many business owners. We’ve seen where maybe their children don’t go into the same field. Maybe they’re not the same business people. If you could talk to us about protecting and approaching planning that leads to generational wealth to avoid what we often see: wealth last for a generation at best.
Gibson: Some of the traditional things that we’ve been using for decades now, like gifting, particularly if a person has an estate tax issue, a lot of those things still have the same utility that they always had. Now, currently, of course, the exemptions are very high. Those are set to come back down to around $5.3 million per spouse at the end of 2025. But right now, we have fairly high exemptions for estate tax.
I’m going to take a step back. The stated purpose, the sole purpose of the estate tax is to penalize people for having done a good job. That’s what it boils down to. Those of you who worked with me for a while have heard me say, “Look at the Internal Revenue Code as a tool to reward people for making bad decisions and penalize people for making good decisions.” Anything that we can do to move wealth from one generation to the next in a tax-efficient way is an effort to try to avoid the death tax – people get mad when you call it that, but that’s exactly what it is – then we definitely want to put those things in place.
The other issue, of course, is whether or not your kids want to be in the same business that Mom and Dad were in. That actually kind of makes things a little bit easier if that’s the case. But again, it’s a facts and circumstances based question. I wish my clients who have a two-year-old could tell me how they’re going to do in medical school. If they could, it’d make my job a lot easier. But we want to monitor that. We want to make sure, again, that as things develop, that we’re on top of it.
Shey: John, I’ll piggyback on that. Tom brings up the unified credit. Again, if you’re one of the prototypical clients out there or one of the prototypical United States citizens and you fit into the 95th percentile, then you’re running around trying to build your own family office by finding five or six professionals that you think have your best interest at heart. Or you can work with a family office like ours, where we already have the professionals ready to go.
When you start talking about estate planning and the unified credit – and currently that unified credit is right around $23 million for a married couple as Tom mentioned – just a few years from now, whether or not the current administration does anything, that number is going to drop down to a little north of $5 million per person.
John, your question was generational wealth, creating multi-generational wealth. A couple of months ago, we ran numbers in regard to the amount of protection that our clients at TSP have put in place, specifically the life protection, over about a two-year period, and it’s north of $100-plus million. Not to belabor the point on life insurance, but if every time a United States citizen passed away $1 million dollars showed up for the family, there would be a lot less problems in the country. When you start talking about generational wealth – and Tom brought it up earlier – Congress is going to mess with it all the time. If you don’t know what the SECURE Act of 2019 is, it blew up almost 40 years of estate planning by the stroke of a pen when Congress passed the bill.
One of the worst places you can have money when you pass away is inside of a qualified retirement plan like a traditional IRA. If I ask 10 people if they know what provisional income is, all 10 of them will have a blank stare. But there’s a reason that Tom and I talk every day about getting money converted out of an IRA over to a Roth, because Roths sidestep provisional income. There’s a reason that we use permanent life insurance as a tax strategy, because it happens to be one of the greatest ones still left in the IRC Tax Code. So generational wealth requires a good plan.
This is a good time for me to say this, there is no perfect plan. Perfect is the enemy of good. Your plan has to be reviewed every year. I tell people it this way: I don’t know what’s going to happen. After we’ve done the protection and done the investment and done the tax planning and we have the attorneys involved and they create the documents, the client will say, “Wow. Finally, I’m done with all that.” And then I say, “Well, listen, I don’t know what’s going to happen in the next 12 months. But this is what we do know, something’s going to happen. You’re going to sell something. You’re going to buy something. You’re going to have another baby. You’re going to have a child leaving the home and going into practice. I don’t know what’s going to change, but something will change within a 12-month period. And when you think of your investment advisor, your insurance advisor, your banker, your CPA, whoever, when’s the last time all of those people got in the room and looked at your entire comprehensive plan all without blinders on, looking at it from the tax component?”
The last thing I’ll say is this, when you start talking about generational wealth and creating it, that’s where the tax component of this comes in. Tom and his team do a phenomenal job saving people $50, $70, $80, $90, $150 thousand on taxes on an annual basis. When you start taking that type of tax savings and employing it in other areas, like investments and insurance and things like that – do that over a 10- or 20-year period and then start compounding the wealth that you can transfer from to your kids, to your grandkids, to your great-grandkids.
Scott: Before we get to the close, what do you consider some of the most significant things or takeaways as it relates to the difference that a family office approach makes as opposed to, obviously, the lack of communication between providers and professionals?
Gibson: If you don’t have a situation where your professional team is communicating with one another, you’re just borrowing trouble. You’re going to have a problem at some point, it’s just a question of how severe it’s going to be and how much it’s going to cost you or cost your heirs if you’re not there. And like so many things in life, it’s something, again, that’s relatively easy to remedy.
Brian touched on this, it’s never quite on folks’ front burner, some of these things, and it should be. Just firsthand experience with this, my dad was a hard worker, and he taught me how to work hard. I’m glad I didn’t have to work for my dad. But he had a high school education back when a high school education actually meant something. He was a very bright man. I remember – he passed away relatively young – when he passed away, going to talk to the folks at the bank and at the insurance company and so on and so forth with my mom, and them saying, “You don’t have to worry. He took really good care of you.” That’s what you want. And that’s what we want to help you get to.
Shey: John, the question there is, for the people that are tuned in and that are going to see this, you have two options. One option is to have five or six different opinions that really don’t know what the other person’s doing or work inside of a family office – in a market, by the way, again, that if you’re under that $50 million, just hasn’t been accessible to people.
That’s why we’re so excited about the Family Office. We’re bringing something to the market that just does not exist for most people. I have these little one-liners that Tom always laughs at me for and tries to figure out where I came up with. But I say to people all the time, “If you believe something that wasn’t true, when would you want to know?” And, for the sharper people out there, they say, “Immediately.” But there’s a certain amount of the population out there that doesn’t want to know. They’d rather put their head in the sand and not deal with it. When we say that the traditional 401(k) plan really became obsolete in 1986, that’s a head-scratcher for a whole lot of people because they’re still maxing out their 401(k) plan with their employer, and then we have to show them why that’s not in their best interest.
What I would say is look at the time that it takes to put together a plan when you’re dealing with six people that aren’t on the same page, the expense of that, the tax implications of that, the probability that you’re under-protected, the estate plan. How about this one? When we talk about pension, Tom always says the CPA always wants to talk about the pension. How about what box did you check on the survivorship option? A lot of times people ask, “What’s a survivorship option?” Should you be gifting? Should you not be gifting? The government legislation that is always changing. I think I have a list of about 25 things that the conventional plan of getting those professionals out there for you, it doesn’t check the box the way that we check the box, where we’re in the conference room working on your behalf.
I’ll close with this. The thing that I would say is, you get peace of mind when you have a team of professionals working on your behalf. You get another set of eyes looking at your overall plan, and sometimes it’s a number of sets of eyes looking at it. Then think of it this way: if you’re providing junk, if you’re providing bad data, bad data in gives you bad data out. Or junk in gives you junk out. Tom does a phenomenal job in tax forecasting, but if the client’s giving us bad P&Ls or bad numbers, we’re not magicians. We can’t make good numbers out of bad numbers.
Scott: Thanks, Brian. Thanks, Tom. We are looking to the future. We’re looking for plans that, as both of you have stated, are designed specifically for the individuals where they’re currently at in their stage of their career, their stage of family, and what their ultimate goals are.
Gibson: It appears, from every indication, that the Build Back Better Act is dead for this year. And I think there’s high likelihood it’s just dead in the water. Senator Manchin, I believe, is trying to let his party down easy, but I don’t think with the surge in inflation – the Fed already coming out and saying we’re going to have three interest rate hikes next year to try to rein in – it’s not historically high inflation, but it’s certainly past what we’ve had since early in the Reagan administration. When we had very high inflation under President Carter and they tightened up the money supply and kind of ran the inflation out of the economy, we’re about to get another round of that. So if you missed it the first time, buckle your seatbelt. But because of that, I don’t think there’s any real way that legislation is going to pass even the first part of next year, which means that we probably won’t get any tax legislation next year because it is a midterm election year. I think it’s five seats that the Democrats have in the House. There are 20 Democrats who’ve already announced that they’re not going to run for re-election. So there’s a very high likelihood Republicans are going to retake the House. They may well pick up a couple of seats in the Senate as well, which means we’re back to my favorite type of government, absolute gridlock. And again, that would be the case, probably, until the next presidential election.
So that’s good news. The bad news is we’re still on a five-year timeline for Roth conversions. Under the current law, we’re able to work on those up until the end of 2025. Past that, we don’t know. So it really didn’t change anything as far as the timetable that some of you were on for your Roth conversions, but we’re not going to get, at this point at least, it doesn’t look like we’re going to stretch that any further than the end of 2025. Or at least, we can’t count on being able to stretch it any further than that.
Scott: Tom, you mentioned inflation. I know there’s no silver bullet, but inflation is something to contend with. How can we protect ourselves? Or what can we do to offset its impact?
Gibson: Well, one, if the government would just stop printing money, that would help a lot. But at a personal level, appreciating assets are a good bet in inflationary times. If you are in an adjustable-rate mortgage right now, you might want to think about converting that to a fixed rate. And make more money. That sounds really crass, but based on the government’s numbers, inflation’s running at about 9.6%. If we were using the same scale that we were using in the early ’80s, it’s more like 13%, so it’s not hyperinflation yet. But again, it’s something that folks have been saying for going on – what? – 40 years now. We’ve had loose money, low interest rates for a long, long time. \For business owners, again, it may not be as easy to get financing. It certainly won’t be as cheap to borrow money as it has at this point, which, again, is something that mitigates in favor of having another vehicle in place that you control that you can borrow funds from and that you can pay yourself back at a reasonable interest rate, which is the personal family financing strategy.
But we will see how long the inflation lasts. We’ve had it very good in that regard for a number of years. I’ve always said there are two kinds of people in the world, those who remember what the Carter administration was like and those who are about to find out. And that’s where we are.
Scott: Thanks for sharing that.
We’re really excited for this year. We’ve been working on this approach and the family office approach really for quite some time. It becomes official in January. But we truly are excited about it. We invite everybody on today’s call, to work with us, take advantage of the planning and the approach, the bigger picture, if you will, and most importantly, the collaboration that’s involved. With that, do either of you gentlemen have any other closing thoughts that you want to share before we part?
Gibson: It has been a year full of uncertainty. Every year is to a certain extent, but certainly from the tax standpoint, we’ve had a tremendous amount of uncertainty. Next year we’ve got so many factors still on the table, the pandemic, elections coming up next fall, it won’t be a cakewalk. But I hope for everyone on this call that 2022 shapes up to be a great year in every respect.
Shey: What I would close with is, it’s exciting times right now. It’s end-of-year. Everyone gets feeling good about moving into the new year and hitting some goals and getting out the legal pad of paper and writing some things down or whatever. We’ll be reaching out to all of the people who we have working relationships with all over the country. But moving at your speed, reach to your relationship manager, get something scheduled, or we’ll be reaching out to you. There’s a lot of different strategies that we’re bringing on board that give you access to, again, offsetting taxes and putting better plans in place.
I think I’ll leave it with, create an environment for you, your family, your extended family, the next generation, and the next generation, and create peace of mind. And with that, I will just say Merry Christmas to everyone and thank you for being with us today.
Scott: Thank you, Brian. Thank you, Tom. I want to thank our clients. We certainly appreciate you. We look forward to working with you as the gatekeeper of your best interests and, obviously, a continued long, prosperous relationship. Have a safe and blessed holiday, a Merry Christmas, and welcome to your TSP Family Office.
If you have any questions regarding our family office services or would like to learn more about how you can protect and grow your legacy, call us at (772) 257-7888.