The Junkyard Dog Attorney Foundation: The Result of Effective Values-Based Financial Planning
The Junkyard Dog Attorney Foundation: The Result of Effective Values-Based Financial Planning
Summary
By Johnne D. Syverson
Johnne D. Syverson, CFP, AEP, MSFS is a principal in the fee-only planning firm of Syverson, Strege, Sandager and Company in West Des Moines, Iowa. Mr. Syverson serves as a resource to other professionals in the area of charitable tax planning. Mr. Syverson is past president of the Polk County Estate Planning council and is a board member of the National Association of Philanthropic Planners. He can be reached at jsyverson@fin-advisors.com.
When my clients, John and Judy Hill, were referred to me for financial planning last year, they were looking for "typical" financial advice. John was age 56 and Judy was age 52. They wanted help answering the question, "Can we retire from our business in six years when John is 62 on an income of $120,000 per year, or do we need to continue working beyond that point?" Under normal circumstances, this type of question would be easy to answer for an experienced planner.
For the last 20 years, I have been collecting financial data from new clients like the Hills, inputting their data into the computer, crunching the numbers and coming up with the answer to my client's retirement question. But in this particular case, I decided to hold off on the number-crunching and do more investigation into the client's real objectives.
At this point, I had been enrolled in the Strategic Coach Program1 for about two years. As part of that training, I learned to ask more probing questions before giving out any pat answers. Asking the right kind of questions, claimed The Coach, would draw the potential client into a closer relationship with me than just using the traditional "by the numbers" approach. After 29 years in financial planning, I had determined that I wanted to be in the long-term relationship business, not the transaction business. My two partners and I made the decision earlier in the year to go totally "fee-only" in our planning firm. We had been "fee and commission" up to that point.
So when prospects John and Judy Hill came in for their initial consultation, I asked them the questions Dan Sullivan2 recommended. "If we were sitting here six years from now and looking back to today, what would have had to happen to make you feel happy with your progress, both personally and professionally?" Here were their answers:
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We would have a $120,000 annual retirement income in today's dollars without touching the principal.
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We would have enjoyed good health.
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We would have a happy family.
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We would have continued to own and enjoy both our current residence and our new lake home.
- We would be able to travel some.
I then continued with some follow-up questions suggested by Dan Sullivan. The first was, "What fears or dangers do you feel might stand in your way of accomplishing your objectives over the next six years?" They gave two answers to that question:
- Failure of our business in the next 6-12 months
- Health challenges for John (who was overweight by his own admission)
The second question was, "What opportunities do you foresee in the next six years that might help you accomplish your objectives?" They could think of none.
So I finished the questioning process with a third question, "What strengths do you bring to the table to accomplish your objectives over the next 6 years?" They had two answers to this final question:
- Our past experience in our business should be a real asset to help us navigate the troubled waters that lie ahead.
- Our good work ethic and family values have brought us this far and should carry us home.
Prior to meeting with new prospects for the first time, we ask them to complete a short data questionnaire and return it to us, so I already knew that John and Judy had a $2.5 million net worth. From my years of experience, I also knew they should be able to meet their retirement income goal in six more years as long as they did not make any major mistakes between now and then. So after asking my initial "relationship-building" questions I shared with the Hills how our values-based planning process works. My partners and I had just completed some professional training on how to do "values-based" planning, which integrates a huge discovery process in front of our traditional comprehensive financial planning process. I quoted the Hills our fee for doing both the in-depth discovery process as well as our traditional comprehensive planning process. John and Judy decided right then to go ahead with both.
The first step in the discovery process, which would lead to a finished deliverable called a family financial philosophy (or family mission statement), was to schedule a date to conduct a one-day "client retreat" for them. I asked John and Judy to block a whole day out of their schedule when they could be away from the phone and other distractions to meet with me for several hours. They chose to meet in the comfort of our spacious conference room at my office, but the client retreat could just as easily have taken place at their lake home or some other comfortable venue. I brought to the client retreat three items:
- A high quality cassette tape recorder and a supply of blank cassette tapes
- A list of 300 open-ended questions that I could choose from to steer our discussion
- My "listening ears"
During the client retreat, I took no notes. I simply asked a few open-ended questions about John and Judy's family background, then I sat back and listened to them share about their individual family heritage stories and their stories of growing up. Over the next six hours, I asked questions and John and Judy responded. Out of my list of 300 questions I actually asked only about 15. John and Judy did the rest. We took a break every hour on the hour to get up and stretch, but then came back to our conversation, picking up right where we had left off.
My list of open-ended questions was devised by a well know professor of sociology at Boston College named Paul Schervish3. Dr. Schervish and his staff are responsible for the latest research regarding the tremendous transfer of wealth that will take place in this country over the next 50 years. He interviewed over 160 wealthy families to learn what is important to them about money and the transfer of both their wealth and their values to the next generation. As I conducted my client retreat with John and Judy, it was uncanny how I found them actually answering questions on Dr. Schervish's list before I had even asked them! Obviously, he found when you get people talking about themselves, their families and their values, the conversation flows quite freely and openly and tends to follow a certain pattern.
It was during the client retreat process that I first learned of John's passion, to help physically and mentally challenged people who are confined to institutions. His desire is to improve their treatment and living conditions by being an advocate for the institution itself. John told me that he has found many of these institutions spending inordinate amounts of time and money fighting the government bureaucracy that has overwhelmed the management of these institutions.
Thus, when I asked him how he wanted to be remembered, he said, "I'd like to be remembered as the creator of a Junkyard Dog Attorney Foundation that could fund the fight for survival of caring institutions that find themselves overwhelmed with unreasonable government regulation." John went on to explain that most institutions providing services for the physically and mentally challenged cannot afford to fight the legal battles which arise out of the over-regulation of their industry. While this may sound like a strange "passion" to some, the discovery process helped me to understand how John's passion was born.
It turns out when John was a youngster growing up in Tennessee, his mother made him go along with her when she would make her weekly rounds to the various homes for the infirm in their area as a "cheer giver." She used her musical talents and her love for the handicapped to bring a little joy into the lives of many who were disadvantaged. She would play the piano and sing hymns and other songs of joy to people who rarely saw the outside of the institution's walls where they were confined. This had a lasting impact on young John, and the passion that his mother instilled in him as a young boy was now looking for a chance to express itself and be used for the greater good of those who are disadvantaged.
The next step in our process was now in my court. I sent the six hours of cassette tapes out to be transcribed so we could see in black and white what was said and discussed at our retreat. Once the transcript came back, my staff forwarded a copy to John and Judy so they could edit it for accuracy. This document then became the official family biography of John and Judy Hill, taking its place at the front of their family financial philosophy (FFP) document. The balance of their FFP was created by a series of philosophical questionnaires which John and Judy had filled out prior to their client retreat. Through a special software package my staff was able to create a 47-page family financial philosophy document. The FFP contained not only the Hill's nine-page family biography, but also affirmations regarding their sources of wealth and their attitudes toward money. This document has now become the source document to be shared with John and Judy's family, as well as their virtual advisory team including their accountant, their attorney, their insurance agent and their trust officer. It is to be used as a resource by all advisors before making any new financial decisions or implementing any new strategies. All future recommendations are required to be consistent with John and Judy's stated values as written in their FFP Document.
The values-based family financial philosophy was a great help to me when I subsequently took the Hills through our traditional comprehensive financial planning process. Using the FFP as a guide, we quantified the Hill's monetary objectives for three realms of their planning:
- their own financial independence
- the family legacy or inheritance they want to leave to their two sons
- their social capital legacy, or how much they want to leave to the community in the form of voluntary philanthropy (charitable gifts) or involuntary philanthropy (taxes)
Current Plan
Our assessment of these three areas under John and Judy's current plan is illustrated below.
Financial Independence
To achieve their financial independence goal in the next six years, it would require total capital of $2,300,000. They are currently on track to achieve a total capital base of $2,700,000 by that time, so they will actually have a $400,000 surplus above what they need to secure their own financial independence.
Family Legacy
In our discovery process we learned that John and Judy want to leave their two boys a total of about $1,000,000 between them. This amount of inheritance will give the boys a good start on life, but will not allow them to loaf. John and Judy's current estate plan would provide an after-tax inheritance of $3,200,000, including their life insurance. So John and Judy have $2,200,000 of excess capital after the boys inheritance.
Social Capital Legacy
For their social capital legacy (tax versus charitable gifts), John and Judy felt that 90 percent of what did not go to the boys should go to charity, with the other 10percent going to the government. But under their current plan, nothing was going to charity; it was all going to the government.
Recommendations
We gave them a large number of options regarding ways to restructure their investments for proper asset allocation, restructuring their life insurance into an irrevocable life insurance trust (ILIT), converting their C-Corp into an S-Corp, etc. But these types of recommendations had little to do with John and Judy's core values. They only addressed tax and financial issues.
Charitable Remainder Trust
The recommendations that hit home for them emotionally had more to do with their core values and how they wanted to be remembered than it did their financial bottom line. With the background on their values that we uncovered in our values-based discovery process, it became clear that charitable remainder trust (CRT) was in order to help them dispose of their highly appreciated development property during life. This move would certainly help them achieve their financial objectives while they are living, i.e., increase their future retirement income and avoid capital gains tax on the sale of the property. But it would do more than that. At John and Judy's death, the CRT would pass to a family foundation they formed to continue to support work they thought was worthwhile.
Charitable Beneficiary for IRA Assets
Once we discovered how much they wanted to leave as their social capital legacy versus their family legacy, it wasn't difficult to make the recommendation to name a family foundation as the contingent beneficiary on their substantial IRA accounts at the second death.
Family Foundation
In our process of creating their family financial philosophy, we discovered that John and Judy wanted to leave any excess over the $1,000,000 that was designated to go to their boys in the following manner:
- 20 percent to their local church
- 80 percent to a foundation to help mentally handicapped and developmentally disadvantaged individuals
But rather than have the funds go outright to a specific institution that provided these services, they wanted to help in a slightly different manner. They wanted to establish a foundation that could fund the legal expenses incurred by any institution for mentally handicapped or developmentally disadvantaged people, that might be facing a legal battle over regulations that prohibited the institution from doing their best work for their patients. In John's words, "When most of these institutions find themselves in a situation where the regulators are putting form over substance, they cannot afford to fight the legal battle necessary to route the unfair regulators. I want them to be able to afford to hire an attorney that is 'meaner than a junkyard dog' who can help them win the fight against bureaucracy that has run amuck!"
And so we did just that. We helped them establish an empty donor advised fund (DAF) at a national community foundation. The empty DAF would be there waiting for the funds to come in from the charitable remainder trust (CRT) after John and Judy's death. This same DAF would also be the contingent beneficiary on their IRA accounts, allowing their IRD assets to go to work for their favorite cause rather than share 75 percent of their IRA accounts at death with the government before sending the 25 percent balance to their boys. The boys' role in the DAF would be to assist the community foundation in identifying those nonprofit institutions who needed a "junkyard dog attorney" to fight the good fight for the benefit of their patients. Thus, the boys would be carrying on their family legacy with the substantial funds left by John and Judy from their CRT and their IRAs.
Conclusion
When my partners and I read Mark Hurley's white paper4 on the changes he predicts for the financial services industry in the coming years, it became apparent that we should either consider selling out to a large financial organization and losing our autonomy, or differentiating ourselves from the "average" financial planning firm by taking a different track that would be difficult to commoditize. We decided to do the latter and learned how to assist higher net-worth individuals discovering their core values before deciding what to do with their wealth.
The values-based financial planning process has been helpful for us in learning how to get in touch with our clients' core values and in drawing us into closer relationships with them. We believe it will keep us competitive and unique in the challenging financial services marketplace. It's not about the money--it's about how clients use their money to live a value-filled life.
This article first appeared in the December/January 2001 issue of The Journal of Practical Estate Planning by CCH INCORPORATED.
Copyright ©2001 by CCH INCORPORATED ("CCH"). Selected journal articles/columns from the Journal of Practical Estate Planning are provided under a license from CCH. All Rights Reserved. Copying without permission of CCH is prohibited. To order or obtain information regarding the Journal of Practical Estate Planning, please call 1-800-449-8114 or visit http://tax.cchgroup.com.
About the Journal of Practical Estate Planning
The Journal of Practical Estate Planning is a bimonthly periodical from CCH INCORPORATED ("CCH"). It features topical articles as well as regular feature columns including Philanthropic Estate Planning, Advanced Planning Strategies, Valuation Adjustment Strategies, Practice Management, Estate Tax Procedure, Elder Care and a time saving Technology Corner.
The Journal of Practical Estate Planning merges insightful coverage of substantive, legal aspects of estate planning with discussions on the philosophical, emotional and psychological factors that are crucial to the planning process. The Journal discusses valuable estate planning strategies along with strategies to incorporate client centered and valued based planning in an existing practice. Every issue offers practical advice from experienced and renowned practitioners who offer guidance on how to meet your client's estate planning objectives.
Editor-in-Chief, Barbara A. Culver, CFP?, CLU, ChFC, is a principal of RESONATE, Inc. and is a nationally recognized financial planner, speaker, author and consultant known for her expertise in values-based estate planning. In addition to advising select private clients, Culver has appeared on CBS This Morning, CNBC Money Talk and National Public Radio.
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The Strategic Coach Program? is a three-year workshop held once a quarter in locations across North America that provides an opportunity to join a community of peers to learn, share and focus on issues unique to successful entrepreneurs (www.strategiccoach.com).back
Dan Sullivan is the President and CEO of The Strategic Coach?.back
The list of 300 open-ended questions was developed by Dr. Paul Schervish for use by trained advisors who have gone through a proprietary Values-Based Training program offered by The Legacy Companies, Boston, Massachusetts. The Legacy Companies provide training and methodology for applying Values-Based planning principles which are used in developing the Family Financial Philosophy (www.legacyboston.com).back
The Future of the Financial Advisory Business and the Delivery of Advice to the Semi-Affluent Investor is a research report written by Mark P. Hurley and his staff in Sept. 1999. Mark Hurley is President and CEO of Undiscovered Managers, LLC, Dallas, Texas. The report is available in its entirety on their Web site at www.undiscoveredmanagers.com.back
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