Multi-Generational Planning, With Amar Shah

For those planning to leave assets to future generations, a thoughtful estate plan goes far beyond minimizing the tax bill.

Amar Shar joins Michael to discuss taxes, unintended consequences, and his unlikely path to becoming a financial advisor.

Watch On YouTube

Episode Highlights

Amar’s thoughts on the relationship between investments, taxes, and estate planning.
Discussion of frequent opportunities for advisors to add value through tax strategy.
Myriad of considerations for wealthy clients looking to leave wealth to future generations, including “sphere of influence” possibilities.
Coordination between advisors and other professionals when serving high net worth clients.
Amar’s path from electrical engineer to founding Client First Capital.

Today’s Guest: Amar Shah, Client First Capital

Today’s Episode: Resources

About The Uncommon Advisor Podcast

The Uncommon Advisor podcast features insights from advisors who are embracing a modern and holistic approach to wealth management. Learn how the most creative minds in the industry are innovating their practices to deliver superior client results, generate new business, and maximize retention.

Transcript

Michael: Welcome to the show I’m Michael Johnston. Joining me today is Amar Shah. Amar is the founder and the CIO of Client First Capital. Amar, thanks for joining me today.

Amar: Thanks for having me.

Michael: So I want to dive right in here. I want to start with the way that you describe your approach to to wealth management. I’m just reading from your website here. You describe it yourself as being at the intersection of investments, taxes and estate planning. Can you explain what you mean by that? I think it’s a great way to kind of summarize a more holistic approach to financial planning and wealth management.

Amar: Yeah. You know, we follow the Doug Lennick intelligent advisor model and essentially the investments, taxes, estate planning and also risk planning are the core of the wealth planning that we work on. But we tie that in with values and family dynamics. And but really, this is the wealth planning component. And the wealth planning component tied in with your values really determines your legacy. And the wealth planning component tied in with your family dynamics really creates harmony within the family. And one of the other benefits, you know, multi-generational planning and impact on community. So when we look at wealth planning, investments and taxes, you know, they go hand in hand. You know, we’re looking at after tax return, right. And then when we’re looking at estate planning with investments, you know, part of that is what is your cost basis. Right. And how do we transfer some of that those gains onto generation two and three of their balance sheets rather than it being on your balance sheet. So really the intersection of those are things that are most important to people in the second third of their life where they’re looking at, how do I maximize my wealth? How do I do legacy planning? And those three, just where they intersect is where there’s a lot of advice opportunity.

Michael: Yeah. Agreed. I think that that visual you presented is a great summary. So let’s kind of tackle the pieces of that one by one. Let’s talk about taxes first. I mean this is you’re you’re seeing my speaking my language here. I love talking about tax efficient investing. You said essentially what matters is what you keep. Right. Like after after taxes. And I think a lot of people don’t realize this, but taxes are essentially their biggest expense in life, right. Like it’s it’s not the mortgage on your home or your car payment or your grocery bill. Taxes are your biggest expense in life, and there are a lot of legal and even encouraged ways that that investors and individuals can reduce their lifetime tax bill. So, you know, without getting into kind of talking more broadly, getting into too much specifics, what are some of the strategies that that are kind of in your go to or in your playbook that that you’re able to add value for clients who maybe aren’t thinking about taxes that way, and maybe you’re able to kind of turn that light bulb on for them, or help them have that moment and realize the importance of their taxes on ultimately what they’re able to keep or what they’re able to transfer.

Amar: You know, that’s great. You know, I can think of just three examples off the top of my head here that that made me illustrate the broader conversation of why taxes are important. So the first thing I would say is asset location, right? So most people have their taxable account, their IRA or 401 K and maybe they have a small Roth IRA. Right. And so kind of looking at within those three buckets, what assets do you want to hold where. Right. So if you’re looking at a portfolio holistically, you’re not going to own the same things that each one of those accounts. Right. So typically your transactional type investments would be in your IRA because you’re not paying you know, ordinary income on short tum capital gains or you know, income interest income on, on bonds. Right. For example, you’re buying hold securities. And, you know, I would argue in almost every single model that that people invest in, there’s a sleeve that is large cap, that sleeve that’s large cap most of the time is essentially the S&P 500. Right. So you could buy the S&P 500 index, buy and hold in a taxable account. And you have more favorable treatment for long Tum capital gains and whatnot. So so for for so example one is just where do you own what you own. Right. Example number two is just in your income taxes that you have, you know they’re going to be events where you’re going to have to itemize and then they’re going to be events that your standard deduction for a majority of the time. And, you know, with the Tax Cuts and Jobs Act have done is made this standard deduction so high that almost a majority of people in retirement will be using.

Amar: And standard deduction. Right. So how do we plan around this. Well there’s three parts to this. There’s the modified adjusted gross income. There is your charitable contributions and there is your Irma for, for Medicare. Right. So ideally what we want to do is every year create these buckets. And on these buckets what we have is what is the most where’s your current income and where is the next tax bracket. And in between that where is the next Irma threshold. Right. And so we want to kind of take advantage of doing Roth conversions to, to be at the the upper end of the lower tax bracket, so to speak, right or upper end of the lower Irma threshold. And the advantage of this is that you can delay your Medicare Irma increases to later in life. Right. Also with the Roth conversions, you know, if you really look at the biggest tax bill that a family will have is really when one spouse passes away, right? Or for those single individuals out there that, you know, they’re already in a, in a not so favorable tax situation. So if you think about it, if you’re married filing jointly, you can lose a standard deduction and your tax tables will shrink. So on your surviving spouse, they’re inheriting a tax bomb. Right. And so some of these Roth conversions, when we look at the calculators that you find online, they’re only looking at it is when do you break even and when do you get ahead. Right. But they’re not looking at it from the whole time spectrum of your dollars. How do we save the most amount in taxes.

Amar: So so the second option there is really looking at Roth conversions and reducing your overall tax burden from from that standpoint. The third option. And you know there’s many examples that I have, but I think I’ll just go with the theme here. We talked about married couples. And most single individuals are have it the hardest. Single individuals are also the ones that are at the end of life, are pretty much the most charitable in terms of what we found is that, you know, nieces and nephews may get some dollars, but a significant amount of these dollars will be going to charities. And beyond doing a QCD and all that. From IRA accounts, the one thing that becomes a greater concern is that if we’re distributing these assets at the end of life. How do I get some of that tax benefit now while I’m alive, where it impacts my income taxes rather than my overall estate? Right. And so one of the things that we can look to is charitable remainder trusts. We can look to even when you’re rebalancing, taking a stock that has high capital gains, transferring that to a donor advised fund so you can itemize this year and bind that same stock if you like, that company to, to just increase the cost basis. Right. So, you know, there are many ways that taxes affect one’s retirement experience. Taxes are the largest expense in retirement. And so managing that through proactive planning is what helps clients get ahead. Yeah. So I don’t know if I answered your question originally, I think it was on tax sensitive investing. But I think we look at taxes more holistically.

Michael: Yeah. No. And I think, you know, if I were to to kind of pare back what I just took away from, from what you said, a lot of people, they spend a lot of time thinking about how do I get the most money possible into tax advantaged accounts, how do I do a backdoor Roth? How do I max out my 401 K? So they think a lot about how to get money into these accounts. You also spend a lot of time, it sounds like thinking about helping clients think about, well, how do you get money out of these accounts? That’s actually kind of the the, you know, that’s ultimately what you can spend in retirement is how do you do these smart withdrawals so that you, as you said, you can kind of go up to the top of a marginal tax rate. But but how do you set yourself up for success? And, you know, for some people are fortunate that accumulating assets is is relatively easy de accumulation or kind of withdrawing from those accounts in retirement can be can be pretty darn complicated. Right. And I think a lot of people don’t don’t appreciate that. You talked about asset location and just some of the different nuances of of withdrawal strategies.

Amar: Yeah. Michael, I’ll just give you an analogy. I’m an endurance athlete. So I like to go in the mountains run and stuff like that. Triathlons, rock climbing, etc. when you’re climbing a mountain, brute force going uphill, it just takes brute force. There’s no technical skill involved, right? And for most business owners, corporate executives that are really good at their job, saving money is a equation of just brute force. When you’re coming down the mountain and you got to watch where you’re stepping, you know, if you step right, there’s a rock. If you step onto the left, there’s a sand pit that’s a little bit slippery, right? That’s more technical. Skills become involved. And and, you know, you want to save your knees when you’re going down a mountain, right? Just like the same way you want to save your nest egg on the way that you’re spending. Right. And so really setting up the right structure has probably a larger impact than just brute force of just withdrawals. Right? So yeah.

Michael: I love that analogy. You know, I’m not an endurance athlete like you are running these, these crazy races up and down mountains, but everyone’s run down a hill and you appreciate that. It’s in some ways it’s harder than than going up. Or at least there’s more potential pitfalls along the way. Yeah. So I love that analogy. I’m going to take that. But I will give you credit. So let’s talk about the kind of the second piece of that you alluded to a couple times of multi-generational or passing on assets, transferring wealth. I view there as kind of a couple of, of ways that this can go wrong. One is, I guess, more, more quantitative in that you end up paying way more taxes than, than maybe you could have if you, if you done things correctly. But the second which in, in my mind is, is potentially more devastating, is you pass on assets in such a way that just to be blunt, that the next generation hates each other or they’re at each other’s throats. Right? Or you cause these conflicts and there’s all these stats about how quickly the second and third generation lose wealth that’s that’s passed on to them. So am I thinking about that the way that you do that, there’s kind of a quantitative and then a softer, more, more qualitative way for for advisors to help their clients talk through their their estate strategy or their, their giving strategy.

Amar: Yeah, absolutely. You know, this is a great question, Michael. And as part of the reason why I got in the industry you know, my background is electrical engineering, computer science coming into a financial advisor role, I was kind of like Dilbert, right? Pretty square. Didn’t really kind of make the the dots connect. But one thing that I’ve really enjoyed in this profession is really getting to know clients and what they want to accomplish and why they want to accomplish it, and kind of just peeling those layers back to to finding out what what would work for them and what would be totally devastating. And through my career since 2004, you know, I found the individuals that have more than enough wealth for their needs. It’s not so much about the money, but. About their family and generation two and generation three, and kind of seeing those layers of impact gives a new definition to what family actually is. When we’re doing estate planning and when we’re looking at planning for multiple generations, what we do not want to do is have a situation that we’re trying to maximize the tax benefits to save money, but then incur unintended consequences with our children and grandchildren that totally negate the impact that those dollars were supposed to have. So when we’re doing planning, I think there’s three things to be cognizant of. Number one is what are the unintended consequences.

Amar: So I give you a good example, Michael. We’re coming up to the sunset of the the Tax Cuts and Jobs Act. Right. And people with a lot of wealth, their tax professionals, the estate planning professionals and even financial advisors are telling them that, hey, you should give, you know, the maximum amount now to your children or into a spousal trust, a slot or something like that, because you know, these exemption amounts may go down and you’re not going to be able to take advantage of it, right? I mean, you know, if you get somebody that’s making $100,000 and you put $10 million into our trust for them and you have to distribute income, you know, you’re like for axing their gross annual income, right? Yeah. That can create a lot of unintended consequences. And so, so, so the first thing there is just, you know. The best financial solution may not be the right answer for your family, right? So. So that’s one thing that I would tap into is, is probably the most important. The second is, is that. We have to work on the. The sphere of influence on generation two and three is probably more important than the actual dollars that generation two and three have in their estate planning vehicles. You know, it is you hear the story over and over again that, you know, somebody gifted their children x amount of money to buy a house.

Amar: They didn’t set it up correctly or whatnot. Then that child is going to go potentially going through a divorce, and that house is being subject to being part of that divorce. Right. Or you get the story that, you know, the child, you know, we started doing the annual gifting and now we’ve done irrevocable trusts. And, you know, my my child was working gainfully employed and had had a good career and now is, you know, just hanging out at home playing video games. Right. So, you know, you got to tie some incentives to, to what you’re looking to accomplish, right? This could be as as simple as like a savings goal. Like, hey, you do a family meeting have have the communication of like planning is important. Savings is important. You know the bank of mom and dad is going to match your savings, your W-2 savings, your business savings, whatever you want to call, but so that there’s some incentive. Right. So so, so so the the second point that that I’m trying to make is that this working on the sphere of influence is equally as important as, as the dollars. Right. Sure. And then the last thing is like, you know, we want to make these documents flexible. We want to make these documents broad enough where there is some flexibility. And I can tell you that.

Amar: While you’re in the moment of making these documents that the mindset may be to be more restrictive, but then ten, 15 years down the road, you you may not be able to undo those restrictions or you may have passed. And now those are set in stone for for your children. And they don’t have the flexibility that they need. Right. So. You know, when we look at these documents, one of the things that we’re looking at is the language. Right. And is that language super restrictive. So just a basic example. And most trusts it says that all income must be paid to the beneficiary. Right. Well, I know why they set that up is because if the income stays in the trust, it’s taxed at the highest tax rate at 13,000. But you could have a situation where your child is a doctor and is married to another doctor. They’re already in the highest tax bracket. So it doesn’t matter if that money stays in the trust or is paid out from a tax perspective. But for your child, if those assets stay in the trust, it provides a lot more protection for those assets within the trust because technically that’s not their money. Right? So right. So so so those are those would be my three things. I don’t know if I’m going overboard here, but really it’s just. Go ahead. Yeah.

Michael: No, I think that’s a that’s a great summary. And I think that there’s, there’s, there’s a huge spectrum there. Right. And there’s a lot of options of what that, that looks like. I was just talking with someone the other day and he was he’s one of ten kids. And he said that his parents set up a trust. And what it does is it funds a family reunion every two years. And that’s that’s that’s what that’s what his parents wanted. And he said he said it’s been incredible. Like every two years they get together this year, I think he said they had like 90 or almost 100 people. And they get together close to close to Denver, usually someplace centrally located. And it’s this like it’s this incredible family event. And he’s been able to to keep in touch and grow relationships with not only his brothers and sisters, but the extended family as it’s grown. And I never heard of that before. But, you know, for this family, it was it was the perfect thing. Right? And that’s not going to be the perfect thing for for a lot of families. But kind of highlights, I guess, the importance of actually getting to know people and actually understanding what their motivations are. And you use I like that turn the sphere of influence as well. Yeah.

Amar: Yeah, no, I agree. I mean, there are there are a lot of creative things that I’ve heard clients want to do in their trust. And for some it works. And for some you know, there could be unintended consequences.

Michael: Yeah. So I want to ask you, we’ve talked about taxes. We’ve talked about estate planning. I want to kind of ask you how you view your role as a financial advisor. You know, I’m guessing that you’re not signing tax returns. You’re not the lawyer who’s drawing up these estate planning documents, but yet you’ve got to interface with with these other service providers. Do you view yourself as like the quarterback or are you the point guard or, you know, maybe that’s not a good analogy here, but, you know, it’s kind of a it can be a delicate process managing these these folks who have, you know, potentially different incentives and different inputs. But but how do you think about adding that value, I guess indirectly for your clients? Even if you’re not the one who’s drawing up the contract, but you’re kind of coordinating the process.

Amar: Yeah, yeah. I mean, that’s a great question. And I know a lot of advisors are like the quarterback of their financial situation for their clients and stuff like that. We kind of operate kind of like a family office in that standpoint. So we have resources here to work with clients as well as we work with their CPAs and the state planners. And really, the biggest way that I describe it that, that I found that resonates with our clients is that we’re simply to be a sounding board to make better financial decisions. Right? You know, we’re the third party that can see your picture, as well as a thousand other clients that are in similar situations over the last 20 years. And what they’re facing to see what you’re going to potentially face and what bottlenecks you’ll have. So we are a sounding board to make better financial decisions. And one thing that I’ve noticed is that when we’re working on a multi-generational basis, you know, we have one client where we’re working with for generations. We were at one point now, now it’s down to three. But It is something that you need to be able to resonate with generation one, two and three, right? And sometimes I kind of find that we’re like Goldilocks, right? Because we’ve we’re young enough to understand the methods of communication, of text messaging and memes and whatnot. And we also get that clients like paper statements. Right. So, so there’s a wide spectrum in terms of connecting with clients. Yeah. And so yeah, I think how I describe what we do is we’re just simply a sounding board for you to make better financial decisions.

Michael: You’re the sounding board. Great. So I got two more questions for you here. One, I’m curious, you mentioned you’re an electrical engineer. So how does an electrical engineer end up as as a financial advisor?

Amar: Yeah, yeah, this is a funny story. Yeah. So, you know, back in the day when cars would reverse, there was no reversing camera. There was. Yeah. You know, we were developing the sensors for BMW on when cars backed up, and it would make that beeping noise like beep, beep, beep, beep beep. We got closer. So so that’s how I got my education in electrical engineering and computer science, specifically RF design. I worked for Qualcomm which is a San Diego based company. And then my job got outsourced to India, and I’m Indian. So it’s kind of ironic, right? It’s like and my college buddy was a manager at American Express Financial Advisors, and and little did I know, as you know, I was entering a sales role, right? I thought, oh, I’ll be analyzing portfolios, making recommendations on what asset classes to buy and sell. And it turned out to be a real sales role, and I started I struggled I got better then I went to work on Wall Street. So I was in New York for a while for JP Morgan. And then going full circle. My job not getting outsourced, but was becoming digitalized. Meaning, you know, we were going to a zoom based environment, right. And and the clients that I were working with at that time you know, our average age is, you know, in the mid 70s. So They prefer working face to face. And then I decided to kind of start my own firm at that point.

Michael: Yeah, it’s a that’s a great story. My dad’s an electrical engineer. He’s not a financial advisor. But I can appreciate how the way that an electrical engineers mind works translates to kind of this very analytical, data driven.

Amar: Very analytical and thought process. Yeah. It’s kind of I view this job as problem solving 2.0, right. Where it’s like for as an engineer, it’s kind of black and white, right? This is the problem. And then this is the best code, the least the best solution. Right. Whereas in financial planning is you can have the best solution. But if a client is not comfortable or doesn’t feel like implementing or doesn’t feel safe in that recommendation, then you haven’t gotten the client to where they need to be, right? And so. So financial advising is partially finding the the best answer that your clients will implement to to get them closer to their goals. Yeah.

Michael: Yeah. That’s that’s right. As you mentioned earlier, you know sometimes you’re not only optimizing for the smallest tax bill, but you’re optimizing for, well, what’s, what’s most appropriate for the family is going to check those harder to quantify boxes to, to make sure that that everyone is being set up for, for future success. Okay. My last question for you, Ma, is where can folks go if they want to learn more about you and more about your firm?

Amar: Yeah, I think that the easiest place to go is just client first cap comm. Right. Which is our website. On the bottom, it has our phone number, and you can just give us a call. That’s the easiest way to get in contact. We also have a YouTube channel. It’s called Client First Capital Learning. And we take conversation topics and we just post them online. And it’s a way for you know, people to kind of see kind of the depth of work that we do.

Michael: Perfect. We will make sure that all of those links are in the show notes for this episode. Amar, thanks so much for coming on. This is a great conversation. I appreciate your insights. I appreciate your time.

Amar: Thank you for having me.