Sweetwater Investments, Inc personal financial planning
Case Study - The Collectible Heiress
The client in this case was a single woman in her mid 60’s who was retiring from her position as Professor of Physiology at the University of North Carolina. She had been an only child and had no children of her own and therefore no heirs.
Her wealth consisted of a defined benefit (pension plan) from the State of North Carolina, a defined contribution plan (like a 401k) from the state, social security benefits, and a portfolio of cash, mutual funds, some stocks and a non mortgaged house.
In addition to her financial assets she had inherited from her parents very substantial collections of art work including Native American jewelry, paintings by several well known American Artists, a collection of rare glass, and a large number of items including furniture which had been created by the Shakers.
The advent of retirement crystallized for her that she had done little planning about her financial picture.
After a discussion of the range of our services and being engaged by the client we began the process of creating a financial plan which progressed in several phases.
We like to begin by collecting information on all the client’s assets and categorizing them as to purpose. Accordingly we collected brokerage and bank statements, insurance policy data, description of the home along with a tax assessment, benefit booklets covering the state retirement plans, social security benefit statements and complete inventories of the collectibles.
As a second part of the materialization we provided her with a form on which she could enter her monthly spending by category.
Vision and Goals
In this guided process we work with the client to define what they desire the future to look like. For many people this is a difficult process but we find it is absolutely necessary for there to be a clear understanding between the client and ourselves as to what the client wants to achieve and the time frame available to accomplish the goals. We also spend time determining their priorities such as ”if the plan falls behind its goals do they want to accept higher, risk, make larger contributions or extend the time frame”. The goals the client establishes become the base of the asset allocation.
Areas of concern
This part of the process involves our review of the data already supplied to determine if we see any issues that require immediate attention and the client discussing with us any areas of particular concern to them (long term care etc.)
In this case our materialization discovered 8 different brokerage accounts for which she was being charged account maintenance fees and a number of bank accounts. We also discovered that her home was in a newly created flood danger zone which might have made her homeowners policy inoperative, her will was probably inoperative as she had appointed representatives who were deceased or incapable of performing the duties. She was however incredibly well documented regarding the provenance of her collectibles.
The client indicated that in some cases she would be willing to sell some the collectibles and in other cases she wished to donate them. The largest donation both in terms of number of items and value was the Shaker collection. The client had already selected a Shaker Village museum in New Hampshire as the recipient but it was necessary to get an appraisal of the items, and determine the schedule of donation. We worked with the client and the village to find an appraiser who came to the client’s home. We also researched and engaged a conservator to pack and move the items and we worked with the village on the proper documentation.
In the case of the Native American jewelry we had had previous contacts with an appraiser but we found that the market for the pieces was far below the purchase price and the client made the decision to hold the items.
The glass collection was sold at auction after we contacted and worked with the auction house on commissions, reserves and procedures.
The final part of the collection was paintings and other art work which the client decided to donate to a local art museum.
2. Financial Assets
After identifying all the accounts we began the process of consolidating the accounts to one broker and two banks. The result of the consolidation was to eliminate $1,300 per year in account fees.
3. Legal and Tax Assistance
Once the plan of distribution for the collectibles was in place it was imperative to update her Will to reflect new representatives and her wishes concerning the ongoing gifts. We helped her to find a new attorney and tax advisor and worked with them to restructure her taxes and legal documents. A good deal of our effort in this regard was educating the client about the reasons for the changes and their ramifications.
4. Retirement Income
The client had five sources of retirement income, personal investments, self directed retirement plans (IRA), state defined benefit plan, the state sponsored defined contribution plan and Social Security. We studied the options available for the timing of distributions noting the dates for the required minimum distributions and with the assistance of the tax advisor created a model of her taxes showing the effect of various combination of option.
The client decided to buy in to a retirement community that provides continuous care from independent living to medical intervention. She wanted to hold on to her house and use it as a rental property so we worked with an insurance agent to rewrite her homeowner’s policy to be congruent with the flood insurance.
6. Investment Portfolio
We created an asset allocation of her investments that had the highest probability of achieving her primary goal of preserving her capital and maintaining the purchasing power of her funds.
Throughout the process we worked with the client and other advisors to educate them as to the facts of the situation and have continued to work with the client to make changes in the investment program as he circumstances have changed.