Rattiner's Secrets of Financial Planning

JEFFREY H. RATTINER, CPA, CFP®, MBA, is a renowned author, speaker, and educator with over 31 years of experience as a trainer, mentor, industry liaison, tax professional, and financial planner. He is the recipient of numerous financial planning industry awards and is a leading innovator on financial planning educational programs. He is best known as the "lively and entertaining instructor" through his nationally acclaimed CFP® educational program, Rattiner's Financial Planning Fast Track©.

• Foreword xxiPreface xxiiiAcknowledgments xxviiAbout the Author xxixChapter 1 Today's Financial Planning Profession 1Overview 1Financial Planner vs. Financial Advisor 3What Are the "Expectations for Change" in Our Profession? 4Financial Planning as a "Profession" 5Landscape 7Developing Human Capital: Training and Recruiting Techniques for Entering the Profession 10Specific Ideas for Growing Your Skill Set in Our Profession 13Compensation 15Technology 16Growth and Entry Into Our Profession: Buy vs. Build 18Change in Regulation 20Holistic Financial Planning 21Changing of the Guards: The Expanded Family Base and Addressing Additional Needs 21Planner Approach: "Cause vs. Effect" 23Behavior Patterns: Making Sure the Client "Gets" It 24Communication and People Skills 28Chapter 2 How to Structure Your Practice 31Office Procedures Manual 33Office Expectations Strategies 35What we expect from each other: 37Accountability and Monitoring Client Progress 39Determining the Type of Practice You Are Looking to Run 40Operational Thoughts 42The Setup: Establishing Your Business Entity 43Development and Follow-Through of Your Business Plan 44Strengths 45Weaknesses 45Opportunities 45Threats 46Development of a Marketing Plan 47Life Coaching and Changing Behavior 47Intellectual Capital/Structuring the Model Firm for the 2020s 50Marketing 51Know your target market 52Set up a professional advisory board 52Set up a client advisory board 53Be dedicated in getting to know, understand, and motivate your clients 54Find a qualified mentor 55It's all about referrals! 55Obtain a professional certification 56Host a client event 56Send out birthday cards, personal notes, and thank-you letters 56Write articles, be featured in industry/trade publications, and speak to industry/trade groups 57Make your website professional 57Become an industrywide consumer speaker, starting with local employers 58Start a blog 58Chapter 3 Developing a Well-Thought-Out Personal Financial Plan 61Getting Through to Our Clients: Making Sure We Are on the Same Page 63Relating with Clients 64Communicating with Clients 67Nonverbal Behaviors 67Listening Skills 68Steps in the Personal Financial Planning Process 681. Learning and Understanding the Client's Personal and Financial Circumstances 69Engagement letter 72Our Tenets: 73What We Deliver: 74What We Expect from You: 75Our responsibilities to you 76Scope of engagement 77Your responsibilities to us 78Other considerations that are part of this engagement letter 782. Identifying, Evaluating, and Selecting Objectives 803. Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action 84Statement of financial position 84Statement of cash flow 85Effect on Financial Statements 874. Developing the Financial Planning Recommendations 915. Presenting the Financial Planning Recommendations 936. Implementing the Financial Plan 947. Monitoring the Financial Plan 95Chapter 4 Dispensing Advice on Cash Flow Management and Budgeting Concerns 99Cash Flow Planning 100Budgeting 102Change in Cash Flow Alignment 111Emergency Fund Planning 112Debt Management Ratios 114Consumer Debt 115Housing Costs 115Total Debt 116Savings Strategies 116Debt Management 117Secured vs. Unsecured Debt 118Buy vs. Lease/Rent 118Mortgage Financing 119Types of Mortgages 120Home Equity Loan and Line of Credit 122Refinancing 122Chapter 5 Dispensing Advice on Insurance 125Risk Management 126How much insurance is necessary? 129Life Insurance 130Types of term insurance 131Types of cash value insurance policies 132Whole life insurance 132Nonforfeiture options 136Long-term care rider 137Settlement options 137Disability Income Insurance (Individual) 138Benefit period 140Elimination period 141Benefit amount 141Continuation provisions 143Taxation of premiums and benefits 143Health Insurance 144Long-Term Care Insurance (Individual) 145ADLs 146Services covered 146Benefit period 147Elimination period 147Homeowners Insurance 150Policy coverages 151Section I Coverages 151Section II Coverages 151Homeowner policy types 152Terminology 154How much coverage does a homeowner need? 155Calculation for benefits paid from partial coverage paid from a loss 155Automobile Insurance 156Coverages 156Personal Umbrella Liability Insurance 159Professional liability 161Directors and Officers (D&O) Liability 161Chapter 6 Dispensing Advice on Investing 163Investment Risk 165Systematic risk 165Unsystematic risk 168Standard deviation 169Covariance 170Semi-variance 171Other Issues That May Impact Investment Decisions 171Tax risk 171Investment manager risk 171Liquidity and marketability 172Risk tolerance 173Time horizon 173Diversification 173Appropriate benchmarks 174Investor Returns 174Expected return 174Realized or actual return 175Total return 175Taxable equivalent yield (TEY) 175Correlation coefficient (R) 176Coefficient of determination (R2) 176Use of R2 in portfolio evaluation 177Risk-Adjusted Performance Measures 178Minimum required rate of return 178Capital asset pricing model (CAPM) 179Sharpe ratio 180Sharpe Performance Index (Si) 181Treynor ratio 182Treynor Performance Index (Ti) 182Jensen ratio (aka "alpha") 183Jensen Performance Index (α, alpha) 183Investment Policy Statements 184Asset Allocation and Portfolio Diversification 186Strategic asset allocation 187Rebalancing 188Practical Approaches 188Modern Portfolio Theory (MPT) 188Efficient Market Hypothesis (EMH) 189Behavioral finance 189Strategies for concentrated portfolios 190Bond duration 190Capitalized earnings 191Fundamental analysis 192Probability analysis/Monte Carlo simulation 193Passive investing/indexing 193Buy and hold 194Dollar cost averaging 194Dividend reinvestment plans (DRIPs) 195Tax Efficiency 195Wash sale rule 197Qualified dividends 197Tax-free income 197Chapter 7 Dispensing Advice on Income Tax 199Filing Status Issues 200Tax implications of marriage 200Seven Steps to Calculating Income Tax Liability 203Step 1: Gross income 203Step 2: Adjustments to income: above-the-line deductions 205Steps 3 and 4: Determine the higher of the standard deduction or itemized deductions 206Step 5: Tax liability is calculated, credits are a way of reducing that liability 207Step 6: Tax credits 208Step 7: Comparing amounts paid in through estimated payments or federal withholding tax against tax liability will determine gains and losses 211Business Entities 211Section 199A deduction for qualified business income 211Sole proprietorship 212Advantages: 212Disadvantages: 213Partnership 213Advantages: 214Disadvantages: 214Limited partnership 214Advantages: 215Disadvantages: 215Limited liability company (LLC) 215Advantages: 215Limited liability partnership (LLP) 216Advantages: 216S corporation 216Advantages: 216Disadvantages: 217C corporation 219Advantages: 220Section 1244 stock (small business stock election) 220Advantages: 221Disadvantages: 221Personal capital gains and losses 222Basis 222Section 179 Deduction 223Tax Planning Strategies 225Accelerated deductions 225Deferral of income 226Like-Kind Exchanges 227Section 1031 227Sale of personal residence 229Vacation homes 231Income Recognition 231Cash vs. accrual basis taxpayer 232Active income 232Passive income 232Portfolio income 234Installment sales 234Chapter 8 Dispensing Advice on Retirement Planning 237Shift in The Definition of Retirement Planning 238The Stages of Retirement 240Retirement Needs Analysis 240Accumulation Stage 244Types of retirement plans 244Qualified Plans 245Differences between defined benefit and defined contribution plans 245Relevant factors and limitations affecting contributions or benefits 246Multiple plans 247Defined benefit plan 248Cash balance plan 249Defined contribution plan 250Money purchase plan 251Target benefit plan 251Profit-sharing plan 252Section 401(k) retirement plan 252Solo 401(k) plan 254Age-based (profit-sharing) plan 255Stock bonus plan 256Employee stock ownership plan (ESOP) 256New comparability plan 257Thrift (or savings) plan 257Personal Retirement Plans 258Traditional IRAs 258Deductibility 258Roth IRAs 259Converting a traditional IRA into a Roth IRA 259Five-year rule 260Simplified employee pension IRAs (SEP IRAs) 261SIMPLEs 262Section 403(b) plans (aka "tax sheltered annuity" or TSA) 264Section 457 plans 264Nonqualified deferred compensation 265Conservation Stage 266Distribution Stage 266Distribution options 267Premature distributions 267Reverse mortgages 268Required minimum distributions (RMDs) 269Inherited IRAs 269Qualified domestic relations orders (QDROs) 269Net unrealized appreciation (NUA) 270Social Security 270The basics 271Eligibility and benefit 272Retirement benefits 272Disability benefits 273Survivor benefits 273Family limitations 274How benefits are calculated 274Working after retirement 274Taxation of Social Security benefits 275Chapter 9 Dispensing Advice on Estate Planning 277Estate Planning Mistakes 281Property Titling 283Community property versus noncommunity property 283Common law 284Community property 284Quasi-community property 286Sole ownership 286Joint tenancy with right of survivorship (JTWROS) 286Tenancy-by-the-entirety 287Tenancy-in-common 287Probate 288Ancillary probate 289Wills 289Types of wills 289Modifying or revoking a will 290Avoiding will contests 290Powers of Attorney 291Trusts 291Simple and complex 292Revocable and irrevocable 292Types and basic provisions (of trusts) 294Marital Trust (Type A) 294Bypass Trust (Type B) 294Qualified Terminable Interest Property (QTIP) Trust (Type C) 294Pour-over trust 295Spendthrift trust 296Special needs trust 296Qualified domestic trust (QDOT) 296Sprinkling provision 296Trust beneficiaries: income and remainder 297Estate and gift taxation 297Gifting strategies 298Inter-vivos Gifting 298Gift-giving techniques and strategies 299Tax Implications 300Income 300Gift 300Estate 301Education and medical exclusions 301Marital and charitable deductions 301Gross Estate 302Inclusions 302Exclusions 303Sources for Estate Liquidity 303Sale of assets 303Life insurance 304Loan 304Valuation Issues 304Estate freezes 304Minority (interest) discounts 305Marketability discounts 305Blockage discounts 306Key person discounts 306Powers of Appointment 306General and special (limited) powers: 5 and 5 power 307Crummey power 307Distributions for an ascertainable standard (HEMS standard) 307Deferral and Minimization of Estate Taxes 308Exclusion of property from the gross estate 308Lifetime gifting strategies 308Inter-vivos and testamentary charitable gifts 309Charitable Transfers 309Outright gifts 309Charitable remainder trusts (CRTs) 309Unitrusts (CRUTs) 309Annuity trusts (CRATs) 310Charitable lead trusts (CLTs) 310Generation-Skipping Transfer Tax (GSTT) 310Intra-Family and Other Business Transfer Techniques 311Installment note 311Self-canceling installment note (SCIN) 312Private annuity 312Intentionally defective grantor trust 312Intra-family loan 313Bargain sale 313Gift or sale-leaseback 314Family limited partnership 314Limited liability company 314Asset protection 314Grantor retained annuity trusts (GRATs) (qualified interest trusts) 315Grantor retained unitrusts (GRUTs) 315Qualified personal residence trusts (QPRTs or house-GRITs) 315Postmortem Estate Planning Techniques 317Alternate valuation date (AVD) 317Qualified disclaimer 318Deferral of estate tax (IRC Section 6166) 318Corporate stock redemption (IRC Section 303) 319Special use valuation (IRC Section 2032A) 319Chapter 10 Dispensing Advice on Niche Planning 321Education Planning 322Analyzing the education issues 322Education needs analysis 324Education savings vehicles 325529 Plans (Qualified Tuition Programs (QTPs)) 325Advantages: 325Coverdell Education Savings Account 326Divorce 327Analyzing the divorce issues 328Alimony and child support 330Pre-2019 Alimony Deductibility Criteria 330Property settlements per IRC Section 1041 330Marriages, cohabitation, and remarriages 330Prenuptial agreement (marital property agreement) 331Closely-Held Business Owner (CHBO) 331Analyzing the CHBO issues 331Buy-sell agreements 332Buy-sell agreements – estate planning context 333Buy-sell disability income insurance funding 334Key-employee life insurance 335Split-dollar life insurance 335Strategies for closely-held business owners 336Index 339