Biggest Financial Risks Facing High-Net-Worth Families Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Thanks for joining us. My name is Dominic Guerrero and I’m the director of wealth transfer here at Savant. Joining you live from our Manasses, Virginia. Today we’re going to discuss the biggest financial risks facing high net worth families. I’m joined today by one of my esteemed colleagues, financial advisor Joel Kundik, joining us from the Vienna, Virginia office. Welcome, Joel. Good to be with you today, Dom. You know, I was thinking before we ran started the webinar this afternoon. It’s a couple weeks away from us knowing each other 11 years. Dom was one of the first gentleman who welcomed me to the Savant environments when our firm became part of Savant in 2015. So, it’s great to be joining you today. Thank you so much, Joel. It’s always a pleasure to work with you and I’m really excited to hear your insights today that you have to share with everyone. Now before we get started, just a quick update. This webinar is recorded and we hope to get the webinar out to all of today’s participants and those that have registered within a few days. So, look out for that. It should get sent to your email address and you can find today’s webinar as well as past webinars that we’ve done on our website and our corporate YouTube page. So, check out www.savantwealth.com to see those the library. A lot of great stuff out there, a lot of good topics that you might find interesting. Also, we’re going to have time at the end of our presentation to cover questions that you ask live. So, you’ll notice at the bottom of your screen, there should be a Q&A box where you can type in your questions live. We’ll be able to see them and at the end of the presentation, we’ll answer as many of your questions as we can. So, look out for that as well. All right, let’s dive in. I think we’ve got a great program. When Joel and I were putting these slides together, we really tried to think about the common issues, risks, and concerns that we encounter when we work with families that are high net worth. So, I think you’ll really enjoy the content today. We’re going to cover some income tax issues, concentrated wealth issues, market and behavioral risks, very interesting stuff. Health care, long-term care concerns and costs. Those are always something I think we all think about, right? Especially for those of us that are aging or have parents that are aging. We’re going to cover estate and legacy planning, my specialty, and round out with some general thoughts on coordinating all of this with your team of professionals. So, Joel, if you wouldn’t mind getting us started on some income tax thoughts. Also, we’re going to have time at the end of our presentation to cover questions that you ask live. So, you’ll notice at the bottom of your screen, there should be a Q&A box where you can type in your questions live. We’ll be able to see them and at the end of the presentation, we’ll answer as many of your questions as we can. So, look out for that as well. All right, let’s dive in. I think we’ve got a great program. When Joel and I were putting these slides together, we really tried to think about the common issues, risks, and concerns that we encounter when we work with families that are high net worth. So, I think you’ll really enjoy the content today. We’re going to cover some income tax issues, concentrated wealth issues, market and behavioral risks, very interesting stuff. Health care, long-term care concerns and costs. Those are always something I think we all think about, right? Especially for those of us that are aging or have parents that are aging. We’re going to cover estate and legacy planning, my specialty, and round out with some general thoughts on coordinating all of this with your team of professionals. So, Joel, if you wouldn’t mind getting us started on some income tax thoughts. Yeah, thanks Dom. And I think it’s good to point out a lot of times people come and ask questions like the ones we’re going to focus on today at around the time when retirement is looming. It’s not necessarily the year they retire, but they’ve started to contemplate, oh, we might have a big change coming and we should probably think of things there. They’re actually risks that are present persistently throughout you’re the arc of your career, but they become much more noticeable maybe as you approach retirement. So, let’s start out with tax. Like I say, you’ll hear how some of this changes at retirement, but tax planning itself is always a risk that should be watched out for. I mean, and then it’s always easy to think, well, I’m just going to handle this next year. Push it one year down the road because this year, well, we just, you know, got the return stuff in a little bit late and the preparer got it back to us late and we just kind of got everything done and wow, look at that. Summer’s ahead and I got a busy schedule. So, why don’t I just do some tax strategy work with my accountant in later in the year or maybe early next year? And it always keeps on getting pushed down the road. I’d suggest once you’ve submitted your return for the prior year, you know, now that you’ve got hopefully most of us have the 2025 return done, there’s some lingering K1s undoubtedly out there, but it is time to be thinking about tax planning for the current tax year. And you don’t want to be waiting until next February when you’re gathering all the documents to prepare your taxes to be mindful about tax risk. You have to be thinking about it within the tax year if you want to make any changes that will impact tax savings. That said, when you’re in your working years, oftentimes there’s not that much you can do about taxes. You get a W2, maybe you get some K1s from a business that you run, you kind of find that you’re in a flow and the tax liability just kind of is what it is. Are there things we could do? Sure. Could we be saving money into our 401k better? Yeah, potentially. Should we look at deductions if we’re running a business? Oh my goodness, yes. If you’re running a business, make sure you’re not waiting till retirement. But a lot of things are going to trigger and change as you approach retirement as a high net worth investor that we have to be especially mindful of. Also, want to point out that tax planning is very different from tax preparation. And all of us kind of intuitively know this somewhere. We’re paying someone to do our return for us or we’re doing them ourselves in TurboTax and we kind of get this sense of shouldn’t there be something here I can do about it? Maybe we do a Google search. We end up on a Reddit page where everything’s kind of confusing and we’re oh never mind, you know, and if you can sit down with a professional who knows what they’re doing and knows how to be strategic about tax and ask the right questions, that’s going to make a big difference.

So, here’s a good illustration of the kinds of risk tax risk there can be. This is maybe particularly appropriate to somebody who is a business owner. They started it from scratch. They really have zero basis in that business. They built it from nothing and it’s now worth in this example $10 million and they’re going to sell it. There’s maybe ways we can spread that sale over multiple years. Of course, that is going to involve risk because, right, if it’s not a present amount for the business and you’re truly spreading it out over years, there is risk to you of a pay or not paying. But let’s say you’re going to sell it all in this year. Well, if you’re not careful about taxes, just looking at federal, you’re probably going to owe 23.8% capital gains tax on that sale. So, instead of starting your wealth accumulation bar in the gold line at $10 million, you’re going to start it at the blue bar at $7.6 million. And we have, like I say, I haven’t count contemplated even whatever state effect there might be. You know, if you’re Florida versus California, there’s going to be two very different scenarios there, too. But what we can do is if we think about this sale in advance, there’s ways number one, like I referred to at the beginning, structuring the sale so the tax can be experienced over years. But also ways to bank losses potentially against a future sale that would allow you to pay substantially less taxes in the year of the sale. This is not something that you want to be thinking of together with drafting the documents for the sale with the attorney, right? If you’re 90 days out from selling the business, you’re too late to do the tax work that could have been done to structure this differently. So, if a business sale is in the next few years for you, there is a t tax risk out there that can be mitigated. There are some newer tools that have come out in the last 5 years that can make a substantial difference, even potentially get putting you in a position where you would owe zero taxes at the time that you sell the business. So, let’s be strategic about events like this. You may be someone who has a small number of stocks that have done amazingly well, an Apple and Tesla and Nvidia investor, for example, and you’ve accumulated a great deal of gains in those stocks, but you understand that there is risk when there’s that degree of appreciation. And it would maybe be good to diversify the portfolio. What holds you back? It’s the winner’s curse, right? You’re going to have to pay taxes when you sell those holdings. Well, maybe not. There are again a number of vehicles that you can use, but if you’re not careful about the taxes, then you’re going to end up owing far more than you should. So, what do we pay capital gains on? First, I mean that anytime we’re paying capital gains, we’re happy relative to the other option, which was ordinary income tax, right? So, capital gains tax rates are lower than ordinary income tax rates. They happen on sales of stocks, mutual funds, ETFs that are in a brokerage account. They happen on real estate or business. And they can also be due on internal mutual fund capital gain distributions. If you have those if it seems like your tax bill jumps without a reason and all you have is a W2, it’s probably happening because of mutual fund capital gain distributions. And there’s something again that you can do about that. You just want to be mindful about the type of funds you hold and be tax aware in your method of investing. We’ll have some ideas we can talk about later on today about that as well. But like I said, if we can even avoid the capital gains rate, we’d love to do that. You know, if you’ve set up a business in the last few years and it doesn’t have too much of value yet, you may be able to structure it as qualifying small business stock where you just intrinsically by the nature of the way the government incentivizes the forming and growth of small businesses, you may be able to not pay capital gains tax on the sale of that business. And what you don’t want to be is in a situation again where you’re in the process of selling and you look back and realize oh there were lots of things we could have done. Another idea I’ll give to you here with regard to taxes is donor advised funds. If you’re looking at selling a business and you have not finalized that contract, there’s still a good deal of uncertainty the deal. You could give a portion of that business into a donor advised fund in advance of the sale. And by doing that, if let’s say you frontload the next 10 years of charitable gifts that you were planning on doing, you could avoid the capital gains tax on the portion of the business you put in and you get a charitable deduction that would help you offset taxes on a great deal of a more a larger portion of the business sale. So, don’t think that, oh well, I just have to pay taxes. There are things that you can do in many cases. So, it is a preferential rate. You look at the ordinary income rates there on the first column on taxable income, the long-term capital gains rates. I mean, if we’re under $100,000 of income married filing jointly, we can be in a 0% capital gains bracket. This is brings up a point that’s really important. I’ve sat across the table from people talking about their situation where they are very happy that they’ve paid zero taxes for the last two, three, four years. They retired in 2022 and their number one goal was to make sure they didn’t pay a dollar in taxes. And by golly, they have not paid a dollar in taxes. And they’re proud of it. And I actually kind of went a little bit because what you do when you put yourself in a situation where you’ve paid zero taxes for years is you probably haven’t taken advantage of opportunities that could have been there that are going to trigger bigger taxes later in retirement. Roth conversions is one of those examples where you could drip money out of your traditional IRA, expose it to income taxes at maybe a 12 10% bracket and avoid a situation where you’re spiking into a 32 or 35% income tax break bracket later on or similarly if you have embedded gains in a portfolio and you are thinking of closing out a tax year without having looked at your gainers and harvesting some gains. You think, why would I harvest gains if you have zero income? You may be able to harvest up to $100,000 of gains tax-free before the end of the year. So, again, I you’d have to look at your individual situation, but this really matters in utilizing the low tax brackets when they’re available each year. Then we want to build a tax efficient portfolio. And for many people, what they find is yes, they’re retiring. They expected their income tax to go down and actually their income tax stays quite high in retirement. This could be because of a pension because they filed for social security in early years. It could be because of executive deferred compensation plans that are paying out to them in the early years of retirement. If we’re in a high income tax bracket in early retirement, we want to start or in working years for that matter, we want to look at high-quality municipal bonds, right? Could we build a municipal bond portfolio that would pay out tax-free bond income to it? You can end up in a situation where you wanted to have bonds in your portfolio because they were defensive. The bonds that you have are considered ordinary income when they pay interest to you and you’re paying way more on your taxes than you need to. We’d want to consider municipal bonds that have no tax at the federal level and potentially at the state level as well. If depending on state law and if we do it right and we can really bring down again your taxable income that you’re reporting on your return that can have knock-on effects to other portions of your portfolio and income tax return as well. The other thing that I want to mention here though that goes the opposite direction. Sometimes we’ve been implementing a municipal bond strategy and then our income takes a large change and when it takes that large change we don’t move away from the municipal bond strategy. And this has the opposite problem because municipal bonds because they don’t have taxes on them. They pay a much lower yield and so they’re very effective for people in the 32 35 37% brackets. They’re not great for people in the 10 and 12% brackets. And so you can again put yourself in the opposite problem where you work so carefully to build a tax efficient portfolio in your working years while your income was high. Your income has dropped substantially and you still got those MUN bonds out there that are paying now what is a lower than after tax effective yield should be for you. The other thing we can think about in a tax efficient portfolio is just looking through some investment statements earlier today that made me think about this. Consider an asset location strategy. The idea here is if you have Roth monies, traditional monies, and taxable brokerage monies, those accounts should not be invested the same way as each other. And it’s very easy for them to be. It’s just a mixture of funds that you have as you approach retirement that just kind of all popped up on their own. You have different employers, you have different brokerages you worked with, maybe you did an annuity with a friend’s you know, adviser back in the day. You can end up in a situation where you’ve got a whole great series of investments, but they’re not located in the right accounts. And I mean, one of the biggest red flags for me I see is if somebody comes and they have bond funds in their Roth IRA, generally not a good idea. Maybe you if you want to be really defensive and there’s nowhere else for it to go, maybe, but generally that Roth IRA should be in the most aggressive investments that you have because it all the growth in it is tax free. So, there’s things we can think about to mitigate taxes in our portfolio.

What’s changing? So, this year there’s been some changes on itemized deductions. One is that if you’re a high income earner, you are going to be capped to how much you can save on your itemized deductions. It used to be that whatever bracket you were in, that was what you saved on when you deducted, right? Your itemized deductions applied to whatever your highest rate was on your return. There could be something like the peas limits that were in place back in the past where that could limit your standard deduct I mean your itemized deduction if you cross certain income thresholds but now replacing all that is just a simple straightforward you can never benefit more than 35% on your itemized deductions. If you cross over into the 37% tax rate, your itemized deductions will still only help you on the 35% bracket. This is a two cents on the dollar difference, but in situations where we have large charitable givers or large medical expenses, things like that, we can end up in situations where, you know, we’re costing ourselves on deductions. And then we want to look at the timing of deductions. Could it make sense to be using the standard deduction in certain years and then pushing itemized deductions bunched into different years where maybe our income isn’t as high? So, well, one of some things to be mindful about.

Another is this state and local tax cap. So, for years we’ve been capped to $10,000 in state and local tax. This is property taxes, state income taxes, some cases state sales tax. Starting in 2025, the salt cap was lifted for people who earned less than $500,000 married filing joint to $40,000. So, instead of a $10,000 cap, you now have a $40,000 cap. But if you cross over $500,000 in income, that trickles down. So, again, let’s watch where our income is. Is if we have any control of shifting income between years, we want to be looking at years where we’re close to that $500,000 number, keep ourselves under it to maximize potentially what we could get in a state and local tax deduction, okay, on our itemized. So, many people have been using standard deduction for years because they were limited to that $10,000 cap. You may be in a situation where you can itemize again. Okay, great insights, Joel. One thing that really resonated with me is don’t wait to think about your tax planning and also think about the long term. Don’t view each tax year in isolation because of those knock-on effects. That was fantastic. What about concentrated wealth, Joel? Yeah. So, again, when we’re in our working years, we really just kind of put our nose to the grindstone one, make the money that we can, hopefully invest well, maybe we have some very successful investments, and we’re not really looking at when the tax bill is going to come due. There’s a big shift that happens as we enter retirement because all of a sudden now instead of a W2 or even, you know, a distribution from our annual business we were taking, we’ve now sold the business. We end up in kind of bizarro world where we’re looking around like whoa wait a second where’s my income coming from and we have a lot of choices about where to take that and I mentioned earlier that we could just choose well take it from the zero income tax sources right let’s sell things that are at no gain let’s draw from our cash accounts let’s make sure that we keep our income at zero and I hope I convinced you all from my earlier missive on this don’t do that we want to make sure that we are using up some degree of income each of those years. Now, we may not have a choice on some fronts, right? We may have executive deferred compensation plans where we already set how they were to pay out. We may not like the choices we made. If we’re in our working years and we’re still going to work for at least five more years, look at your executive deferred compensation plan because you may be able to change the distribution payments. And there may be much better systems you can set up for yourself. Oftentimes those changes have to be made at least five years before the payment was going to be made or else it defaults back to what you selected. But we want to spread income out over many years. We don’t want this concentrated wealth to create concentrated tax in a single year that eats up a substantial amount of what we’d like to have in retirement. Conversely, we don’t want to grow, keep taxes super low and have a major concentrated wealth effect in our traditional IAS or 401ks that are going to kick out either when we turn 73 or when we turn 75 depending on when we were born. But that’s the two required distribution ages that we’ve got to be mindful of. We don’t want to be in a situation where we keep ourselves to the 22, 12, and 10% brackets now, and now we’re going to spike to the 35% tax brackets later. So, concentrated wealth can create concentrated tax and we want to mitigate that where we can. So, Roth conversions are valuable. Sometimes we gain harvest in low income years. Sometimes we defer out of current years if we can. A lot of individuals I’ve talked to who are 60 years old or so and have a large executive deferred compensation plan available at work. We really take advantage of those. You know, kids have made it through college, expenses have really dropped. We don’t need to be taking everything from our paycheck that we are. And we could push that income out of very high income years, probably the highest of our career into what otherwise might be low-income years. What we don’t want to have is a situation where taxes fall substantially in early retirement only to rise substantially in later retirement. We want to smooth out that tax window and that’s what you know the concentrated wealth risk we’re still is kind of a tax question. Okay. We want to look at how our wealth is composed because we could be in a situation where a lot of our wealth is in a few things and u I’ve heard it said many times maybe you’ve heard this you concentrate to create wealth you diversify to defend it concentrating your investing in your business if you’re a doctor or if you’re an attorney or if you’re you know a tradesman it can have a huge amplifying [clears throat] effect on your wealth because you’re investing in yourself. You’re very good at what you do. You grow it substantially. The risk to you as you approach years where you’re going to be drawing from the portfolio is what is the variability of that income and the variability of that value of that investment you have. Right? And to illustrate this, we just have a table here of 10 of the largest companies around the world and what kind of dispersion of investment return they had over the last five years only. So, it’s just five years. You take a look at Nvidia, Broadcom, and Meta, three of the big real big ones. In each of those cases, their returns varied by as much as 50% annually from each other over only a five-year period. And that is not a problem when we’re accumulating and we have high degree of confidence in investments. But when we’ve the stakes have grown higher, we’ve accumulated a lot of wealth in a small number of positions, all of a sudden that amplitude has major problems. And we think the stock market itself has problems. But take a look at the risk of the stock market on the far left here, the blue bar. The MSCI all world had a standard deviation of 15% over the last 5 years. So, substantially less risk even in just saying let’s invest in all stocks, right? And we haven’t even looked at what you could do then if you build a like a 70% stock, 30% bond or alternatives portfolio where you compose it even more carefully. You can end up with even lower standard deviation of return. What does a lower standard deviation result in? It results in higher probability of the outcomes you want. And one of the things gets really hard to make sense of when you’ve you worked your whole life on the mindset of maximize every dollar. Make the most you can off of every dollar. You can lose sight of the fact that all of that was in the interest of goals that you have for yourself over your retirement. And the priority at least from a known experienced financial adviser lens would be is to make sure you get your goals. Not sure that you not so much that you maximize every dollar once you retired. You could still have the mindset of maximizing every dollar, but what if that puts the goals that you really wanted to reach in jeopardy because what if you know you have a lot in your business and your business goes through a prolonged downturn now all of a sudden it’s lost 50% of its value. Does that jeopardize the goals that you had? Because if it does, it’s time to look at what we could do to get out of some of that concentrated wealth. I play the game of life with my 13-year-old at home. She loves the game of life. I am not a big fan of the game of life, but I’m a big fan of my 13-year-old. But what I will tell you, as I’ve played this game consistently, it’s emerged to me that many people are treating their actual life like the game of life. That the goal is to earn every dollar possible, maximize every dollar possible, get yourself the million acres, have more than everybody else. And the issue that arises when you’re a high net worth investor and you’ve done a great job with that over an arc of a lifetime is that you can put yourself in a position where you continue to think that way and you miss out on spending some of that money on all the high priority goals that you had. Even though that spending is going to take you away from those higher levels of wealth, it may be the very appropriate thing for what the initial goal of all of it was. So, we want to play life. We don’t want to play the game of life is my comparison I make there for folks.

Well, let’s look one more thing here that is in context of that, right? Is this market and behavioral risk because again the mindset can change as the wealth accumulates and the stakes grow higher. So, many people on this call today were investors in 2007 to 2009. They were investors in 2000 to 2002. They look back they say I know me. I don’t spook easily. I leave everything in place when markets drop. What has not happened is a market drop this close to you spending money or in your early years of spending money. It affects you differently behaviorally. And so we want to still rely on evidence and data, but it becomes much harder to do that in the face of big drops. I think of folks who were who had retired in January of 2020 and then had to watch the S&P 500 drop 35% over the arc of 35 days. That changes your ability to stay the course potentially unless you partner with a professional who can help you ground your decisions in logic and evidence as opposed to make split-second decisions based on major events where you’re seeing potentially significant portions of wealth seemingly evaporate in a short period of time. So, we’ve got a couple slides on that can help us here. You know this is just a truth about investing right we started a period of optimism there’s the excitement thrill and euphoria of markets rising if you don’t think that you experience that then you’re not listening to your body when you open up your investment statement over you know and see your accounts go up you know you some of you are checking your accounts every day at times they you see the market rise you think I wonder what that did to my investments that can be euphoric obviously we get into a situation where markets drop that turns and we can get all the way you know kind of to this period of despondency. This is what you know Warren Buffett refers to right as being doubtful when others are excited and excited when others are fearful right we actually want to at a time when markets are at all-time highs be cautious and make sure that we are pulling out investments that we might be needing in the next few years to stockpile in a sense against potential decline. You’re not doing it because you think markets won’t continue to go up. You’re doing it to be prudent. Similarly, in times of market downturns, we do not want to be drawing from the stock portions of our portfolio. We do not want to be moving those portions to cash. The rationale is you feel like it’s the right time to move to cash. But what you forget is that the only way that will make sense, that will benefit you at all is if you repurchase at a time when markets are lower than they currently are. And I can pretty much guarantee that when markets are lower than they currently are, it’s going to feel scarier, not less scary. So, if you wait until the time that it feels better to that time of relief on this chart here, you very well may well end up having cost yourself permanently on some of the goals that you could otherwise have achieved. Lots of this I mean, we probably got some folks in their 40s and 50s on this call today saying, “Yeah, duh, of course.” But everything’s different when you’ve accumulated the wealth and you’re needing to make sure that it stays there. It that your psychology can easily change. And these things that you learned and you knew when you were younger all of a sudden come to bear again when you’re an ultra-high net worth investor. We take a look at market history. Market history is a good set of evidence that we can always say what if this is the fall of Rome? Whatever comes next, right? Well, then all bets are off. But we do have, you know, here 85 years of evidence that we’re pointing to on this chart. We can go back farther in other versions. You can see a pretty wide dispersion of results, years, three years in which the S&P 500 ended somewhere between -20 and negative 30% just for a calendar year. There are certainly time periods November of 2007 to March of 2009, for example, where the S&P 500 lost more than that. It just did it over more than 12 months. 55% to that particular doozy. But you can also see there’s a lot of years where the S&P 500 gained 30 to 40%. Interestingly enough, some of those end up being paired after the biggest losses, right? So, you don’t want to take big action on a portfolio, particularly if you have a large amount of embedded gain in the taxable brokerage account, for example, to trigger taxes if you’re not being careful about making sure that your goals and your assets are still in alignment.

And inflation has a really strong impact on things. It’s interesting because currently 30-year bonds are over 5% yield, which is a fascinating thing where you start looking at, well, isn’t that all I would need? And that’s a trap you don’t want to fall into because sure, 5% sounds great and wonderful until you realize that 20 years into your retirement, the cost of goods is going to have risen by a substantial amount. And that 5% payout that seemed so attractive 20 years ago has not moved. It has not risen with inflation. Inflation is the secret killer to all of this. Right? We want to make sure that we are mindful of that in our methods for investing. And interestingly enough, what is the best hedge against inflation? At least in public markets, you look at stocks. Not a great hedge against inflation in the short term. You have a big spike in inflation, stocks are probably going to take a hit. Over the longer term, what the evidence would suggest is that stocks are a much better hedge against inflation because look at what T bills have averaged over 20-year time periods over the last 100 years or so. And you can see it’s anywhere from plus 3% to -3%. What does that mean? It means that you actually lost money inflation adjusted by staying in T bills for many 20-year time periods. Have you ever had a 20-year time period in which you’ve lost money investing in small stocks or large stocks in the last hundred years? This chart would it would indicate not. And that’s a great point that when inflation kicks up, what happens? Companies get more profits. They distribute more of those profits in dividends. Those higher dividends drive higher stock prices. And over time, stocks are going to act as a reasonable hedge against inflation. That’s that means that we probably want to have some degree of stocks in a portfolio as we head into retirement. I don’t know each of your individual situations. It’s why it’s probably a good idea to sit down with someone and have us have a look at your goals in context of this, but I can tell you that if we just think, oh, I’ll just put it in cash and I’ll take the interest that I’m going to get from CDs, that works really well for years 1 through five. Years 20 through 25, not so much potentially. This is a great chart that just reflects that there this is actually Nobel Prizewinning chart from many years ago that talks to the optimal level of return for a given allocation. And you can see that a 100% bond allocation is actually not a great allocation. It has a high higher degree of standard deviation than a 33% stock portfolio would. So, you the chart says that for any additional level of risk you’re taking on, you should expect extra return. And we want to be somewhere on what’s called the efficient frontier where we’re optimizing the level of return we’re getting for the degree of risk we’re taking in a portfolio. There’s many portfolios that we can take a look at and see like they’re actually under the efficient frontier. They have a high degree of risk and a lower degree of expected return. But we can see from this chart that typically we would not want to go more conservatively than a 33% stock portfolio because we tilt back up on risk. We end up taking additional risk that’s in the form of inflation risk, right? That is actually going to lower return versus other potential portfolios that we could have a similar level of risk but a much higher level of return. So, this is something that matters as we enter retirement. We want to be thinking of optimizing risk versus return in our portfolio. We can only do that with a diversified portfolio. If we stay with a concentrated individual stock or three, we’re going to have with you know company specific risk that is unavoidable whether that’s our company or someone else’s. What diversifies broadens that out is by get in a bigger basket of securities whatever type of securities make sense. Joel this is great. Thank you for the wisdom and all your expertise. I think this next section is going to be very interesting. You know, income, asset location, you know, diversification, they all sort of, you know, go together, right? When you’re when you’re constructing a portfolio doing projections, but, health care, it’s a little bit different discussion. What are your thoughts on healthcare and long-term care planning risks? Yeah, it is a different discussion, Don. I appreciate you making that point. I think that in particular it is a risk that gets overweighted by ultra-high net worth investors. Right? I know folks who continue to work at age 62 when they have far more than they need for retirement and their exclusive reason for why they are working is because they want to make sure they have health insurance until they reach age 65. So, this is actually one of those risks that most people are overly tuned into. That we want to be careful and balance it against the other risks that potentially that are out there. To me, particularly in that situation I just outlined, I want to avoid a risk of somebody working years they are not enjoying when they have a wealth level sufficient to stop working altogether and spend years earning money they are never going to spend over the rest of their lifetime in the interest of saving on health insurance. It’s it comes from a very natural place. People come by that honestly, right? And we come from a world prior to the Affordable Care Act where if you had an individual health care policy, you could be dropped for coverage, right? So, you’d be 61 years old, retired, got your own individual plan, got a very significant form of cancer where the insurance company decided to cover you, they had to for the rest of the plan year, and then you get to the end of the plan year and the insurance company says, “Never mind. You’re a risk that we don’t want to take anymore. We’re not going to renew your coverage. That is not the world that we live in now. One of the most important things that the Affordable Care Act, regardless of your politics, put in place is this inability of an insurance company to cancel that kind of relationship. If you were paying premiums when you were a healthy individual and everybody agreed that this was a fair amount of premium, you are guaranteed coverage ongoing if you pay your premiums, right? You might have a premium spike, but you’re not going to have a premium spike to the point that you’re going to debilitate yourself if you’re a ultra-high net worth investor, right? And so what we want to do is we want to make sure we are putting in context what could go wrong with what we think in our minds what could go wrong would cost. I’m not going to say that the cost of healthcare is insignificant. You have too many articles telling you otherwise. And they’re right. The cost of healthcare can be significant. But if we quantify that, we can make a big difference in what we think that might cost and still alleviate concerns and say that retirement is possible potentially even in a situation where you have not reached 65 and guaranteed coverage through Medicare. Okay. We want to also think about long-term care. Well, this is let’s go here first. I like this. Dom, we’ll go back to that other slide. [clears throat] We want to be mindful about long-term care. Long-term care is something that’s generally going to pop up late in retirement, right? Oftentimes 85, 90 years old. The much more debilitating instances of long-term care where the need is early, right, at age 70, an early dementia diagnosis. We can quantify what those risks are, though. I mean, the expenses are generally known. We have a good idea of how much those expenses could cost. And so and we actually also have an ability now because the numbers are so good coming out of actuaries where we can take a look at someone’s individual health profile and have a reasonable set of assumptions to plug into a financial plan on how much the cost of care might be and for how many years it might be for an individual. We’re not obviously going to nail it perfectly, but if we can get a more customized set of advice to an individual about what their cost of care might average being, we’re going to have much better outcomes in the retirement planning income analysis. Right? So, we do want to protect our independence. We want to maintain our quality of life. We want to reduce burdens not just on our spouses or partners, but our children. And we want to make sure that our wishes are met. So, it’s important. This bridges a little bit into what Dom’s going to be talking about, I think. Right. Exactly. We want to get our plan right, but we also want to articulate the what the expenses could be and not continue working many years in the interest of a long-term care cost that we’ve already saved for, we’re already self-insured for, right? And that’s what we want to be careful of. That’s the risk there. Now, I was just going to add because we’re going to cover this towards the end of our discussion, but that’s just one of the values of working with experienced professionals is that all of these concerns and risks are important to think about, but having someone help coach you so you can dedicate your energy to the ones that are most important to you objectively, right? And then have a plan on how to address everything so you can you know have better outcomes is hugely important and I like what you said right we know these things are risks but am I spending just too much energy and you know and time on this area when really I should be focusing on this is much more important and that’s something that can definitely you know be addressed with coaching and yeah and that’s part of the risks that we are when we have risks that we’ve seen happen to others, what we’re going to tend to do is overvalue the cost of what those risks would represent. And sometimes there’s unrecognized [clears throat] risks, like what about if you got sued? Do you have umbrella liability insurance? Often times we’ve really fixated on long-term care and we’ve missed the fact that we’re attorney in a field that there’s a high risk of lawsuit and we don’t have s sufficient liability insurance. Right? So, so we want to help be a little bit more objective and evidence-based in our approach to any of these things. There’s a slide here that talks about health insurance prior to age 65. This is important that if you’re at a company that’s large enough now, if you have a very small number of employees, you have to check this, but most companies in the country, you can be covered by co COBRA for the first 18 months of retirement. So, already we just moved your retirement potentially from 65 to 63 and a half. Maybe you weren’t aware of that. If you have a partner who is going to remain on insurance, you can change over to be on their insurance. You can get an ACA plan as I was referring to before. You can get some kind of part-time in health in well, you can work part-time for certain entities and get health insurance benefits. This is possible like through many schools, right? If you’re even at a point four or six employee, they may make health insurance available to you. The these are things to think about. And then we want to be mindful about health savings accounts. These are great vehicles if we’re in a high deductible health plan to accumulate funds that could be used towards care in the event of need. So, there’s tools out there that we can use to our benefit to mitigate health care and long-term care risk. We want to be mindful what those are, but particularly we want to be mindful about what the cost could be and have we oversaved for that.

Yeah. So, the great chart here, explaining the different considerations you want to make on health care, an estimate based on your current family history, looking at your retirement assets, your health savings accounts, what insurance you have, what benefits you might qualify or not qualify for, and what level of care needs you might have. This could apply to you, this could be applied to someone you love. You certainly want to make sure your loved ones are provided for in these instances, too. And start those conversations early, right? Right? When you have parents in their 80s, for example, who are in great health, great time to be talking about, hey, mom and dad, are how are things structured for you for your care? Is that in good order? Right? We want the better the answer generally on good financial planning is communication. Communication with a great advisor, communication with adult children, communication with parents. We want to be communicating between generations. That leads to better outcomes. That’s fabulous, Joel. Bravo. Thank you. My pleasure, Dom. And I think you’re now going to walk us through all these estate risks that we can have that we encounter as we age in life. Yes. Yes. And I’m actually going to use your story about playing the game of life with your 13-year-old daughter because that’s really what this next section is all about is how do we preserve and protect wealth in an appropriate manner for our loved ones? And I’d be curious, Joel, when you were playing the game of life with your daughter, were you trying to instill wisdom, you know, turn by turn? Are you sure you want to do that? Right? Were you did your parental instincts kick in or did you just let the game I could tell you I told her not to play the lottery and the game of life completely mess misses that? I mean, you win the lottery way too often in that game for what a financial adviser would like it to be. Unrealistic expectations. But yeah, estate planning is just so personal to everyone. And it’s often an underappreciated or just you know, an area that we don’t give enough attention to in financial planning. And there’s really two broad issues that we start with. One of them is do you even have a formal estate plan? And you’d be shocked, you know, you might not be alone to discover and find out that a lot of couples or individuals that have accumulated significant wealth just don’t have an estate plan. I don’t know that it was done deliberately. I think there’s a lot of explanations. A lot of it is, you know, you’re busy, you’re focusing on your career, your business, what’s important to you, and it’s hard to contemplate your death in the future, right? So, don’t put it off. Oftentimes estate planning could use this example, right? There’s these triggering events that happen in life that cause you to think about these planning areas. Often one is losing a loved one, whether that be a parent or a spouse or a sibling and finding yourself in the position of executive or trustee. So, that’s one issue, right? Not having an estate plan. The second broader issue is let’s say you have an estate plan in place but just based on the passing of time right by virtue of time you’ve outgrown the parameters within the estate plan your net worth is much different your children are older you’ve moved to a new state you know you may have unfortunately had a divorce or another marriage right there’s key life events that will cause you to review your estate plan, make sure it’s still appropriate. So, in this next section, we want to introduce you to some of these concepts because these are great conversation starters with your team of financial advisors and just good introspective things to think about when you’re thinking about your own estate plan. So, what are let’s start at the basics, the core building blocks of any estate plan. Wills dispose of your probate property. Revocable living trusts are post-deaf distribution vehicles that allow you to avoid probate. Which is a big advantage in a lot of states that have arduous processes. And I started with those two at the bottom of the screen because that’s typically where our minds jump when we think about estate planning. What happens when I die? How are my assets distributed? And a lot of folks have, you know, really basic plans if they’re even informal, right? And there’s sometimes an avoidance of just incurring legal expenses, right? Totally reasonable. And they might say, “I’m good. I have power of I have transfer and death instructions, POD instructions on my accounts. I have beneficiary designations. Like, I don’t really need the state planning documents.” And I think that’s a misnomer because the two top circles power of attorney for property and healthcare these are absolutely critical documents that could be caught as a catastrophic and embarrassing non ideal situation. These two documents are incapacity planning documents. So, said differently, when you create a financial power of attorney for property and health care, you the principal, the person that creates the document appoints an agent who can make financial and health care decisions when you’re alive but are incapacitated. Do you have a health issue, an accident? And that avoids a court appointed guardian or conservative situation. So, I say these things not to scare you, but it’s really, you know, the time, there’s no time like the present to make sure you have base estate planning documents at minimum. And then, from there, we, you know, with your counsel, your legal counsel and advisor, you can craft and hone the estate planning documents to best meet the needs of your family. So, just a basic thing there. Okay, here’s another topic that often comes out up and this gets to the you know, have I outgrown my documents? Is there a change in my family situation? But this is a great one. Joel and I like to start here. Who’s going to be in charge when you’re no longer with us? When you put your plan in place initially, if you’re married, a lot of times you’re naming your spouse, it is a backup. Maybe it’s an it’s a parent or other relative who’s often older than you, especially your parents, right? That’s how it works naturally. But as time goes on, your documents get stale. It’s good to go in and look at that fiduciary succession, right? Who did I name as my executive and my trustee? Because those people that you named may no longer be in a position to effectively act as an executive or trustee because they’re an advanced age and they might actually be relying on you to serve that role, right, in their own estate plans. Also, important to think about, you know, that depending on the structure of your estate plan for your loved ones after you’re gone, what the ideal long-term trustee relationship should look like, and there’s a lot of options. Do you name a family member, a corporate trustee? There’s pros and cons. This is meant to be introductory to get you thinking. So, that you who’s going to be in charge administering your estate after you’re gone. Holding monies for your loved ones, whether that be a spouse, whether that be a child, a young child or adult child, is the starting point. And this feeds into our next topic of asset protection concerns. This is a common gap we see all the time. I have an estate plan in place. You know, my children were very young, you know, two and four years old when I did this. At the time I, you know, 25 seemed like a good age for them to have access to their inheritance. You’re in the accumulation phase that Joel had described. You know, you have life insurance, house, mortgage, you know, starter 401k. Fast forward 20 years, you know, you’ve got you’ve got three, four, five million. You know, something happened to you and your spouse in a common disaster. Are your children who are now 25 or approaching 25 equipped to handle a significant amount of wealth and what does that do to them? Is that a healthy thing to leave restricted unrestricted wealth to a young person? So, part of this is let’s review your current documents, help you better understand how your asset will trans how your assets and wealth will transfer to your loved ones. What are your concerns? Do your documents address those concerns? Do we need to strengthen those asset protection provisions? Do we need, you know, is 25 the right age? Do we want to start at 35 or 40? Or does a lifetime trust make sense based on what you know, what your concerns are about your children, descendants, and other loved ones. The distribution standards also very important. How can money be distributed from the trust? It could be a health education maintenance support standard meant to supplement accustomed to standard of living. It could be a broader standard if you want an independent trustee. You know a certain dollar amount coming out of the trust annually. You really have a lot of options and it’s good to understand how these options can be employed in your own estate plan depending on what your objectives are. Trusts can provide a lot of benefits for loved ones, you know, especially young beneficiaries if structured properly. And keep in mind, your mileage may vary depending on your state of residence. These rules are different and can vary. So, we always wanted to be coordinating with your council. But trust can provide protection from outsiders and provide some oversight and guard rails for the beneficiary themselves. So, you can plan for future estate tax minimization. You know, creditors of a beneficiary. Assets held in trust can also provide divorce protection. And that’s really a common concern. A lot of times when we’re dealing with parents with adult children, they’re not necessarily concerned about the child themselves being good stewards of the assets, but really what about other people trying to access these funds, the this wealth that we’ve built that we want to pass on to our children. So, just some things to think about. Taxes were the first box on our screen. So, another risk in this sort of conversation is unanticipated or unplanned for estate tax risk. Joel, earlier you covered income tax issues. I think that was fantastic. Another tax that’s really important to be mindful of that impacts family like yours, high net worth families are estate and transfer taxes. So, so quickly there’s two estate tax systems in the US. There’s the federal system and then depending on the state that you live in, your state of domicile, there may or may not be an additional state estate tax. Now, of course, you do get credit for deduction on the federal level for state tax paid, but it’s often something not at the forefront of most people’s minds because the federal tax gets most of the headline. So, federally in 2026, thanks to the One Big Beautiful Bill Act, each taxpayer has a $15 million per person estate tax exemption. So, not that many families, even high net worth families, have to worry about federal estate tax. But again, from a state standpoint, this is where Joel and I are seeing a lot of planning opportunities. Especially with our clients in on the East Coast in the North Atlantic. The state estate tax exemption is often far lower than the federal. Maryland, for example, has a $5 million per person estate tax exemption. If we go out to the West Coast, I believe Oregon has a $1 million per person estate tax exemption. And the take some of these exemptions are go back to the first dollar. Like Massachusetts, you get an exemption, but if you cross over the exemption, then you’re taxed down to back to the first dollar. And some of them, the estate taxes are not portable. So, you have to be very careful about the way that you do your estate plan. Absolutely. Yeah. New York has a cliff effect where if you exceed the base exemption by more than 5% you lose the entire benefit. And that’s really the gap that we identify outside of does my estate plan properly address asset protection concerns for my young beneficiaries or loved ones is are there just inefficient tax planning parameters? Here’s the scenario and I see this a lot of times. Estate plan is in place but everything is just distributed to the spouse outright and free of trust. Joel, you mentioned portability. That’s a disaster in those states where there’s a low estate tax exemption, no portability, meaning that the spouse can’t add the unused exemption to their own base at their death. So, so credit shelter planning comes to the forefront. Do your estate planning documents fund trust properly at the first death to make sure that you’re not paying more estate tax at the state or federal level than you absolutely need to. Okay. Yeah. And are you implementing all the gifting provisions that you should be using in life to head some of this off before even death? So, there’s lots out there. Yeah. Yeah. Yeah. Yeah, if you have a tax if you have a growing estate, you’re approaching the estate tax thresholds, we have to discuss lifetime gifting opportunities to freeze the value of your estate and remove future appreciation. Absolutely. Here’s just a few common pitfalls. Whether that be in your own planning or you know you’ve recently experienced an inheritance and it’s kind of triggering this thought, but IRA and 401k accounts are a larger increasing portion of people’s wealth. You covered that earlier with concentrated account risk. So, making sure that you have your beneficiary designations properly aligned. Make sure that you’re planning for future income taxes within your estate plan. Very important. You know if you’ve inherited assets, be mindful of co-mingling those assets with your own assets for divorce planning purposes. So, don’t sleep on estate planning, right? It might not be your number one priority, but it should be a high priority. And then the last area is really how do we tie this all together? And we allude to some of this. You know look you all are busy and you have priorities in your life, right? You focused on building your wealth, instilling good values in your children, future generations, right? Having good relationships with people in your community and you know you if you’ve been successful, kudos to you. Bravo. Give yourself a pat on the back. But often times despite success, people just aren’t necessarily trained or have the relevant experience to act as their own financial coach or financial quarterback to quote you Joel. I like that term. So, aligning yourself with a financial advisor that can help you prioritize all of these risk areas and goals extremely important. Savant has a process that we employ that really allows us to methodically focus on each of the key financial planning areas and then assign priorities based on what is you know what you need to focus on what’s going to have the biggest impact on your life. That way you avoid that lost energy you know focusing on something that’s important when we were speaking about healthcare but maybe not the biggest priority and you don’t you know you don’t understand you don’t see these things unless you can see the big picture. You’re still going to have your team of professionals, your legal counsel, your CPA, your insurance agent, but your financial adviser is really that person that has a holistic view on your entire, you know, financial life and they know your values, right? What’s important to you. So, they’re going to be able to effectively work with your team of professionals to make sure you have a coordinated effort and that you’re not, you know, doing overlapping or inconsistent things, right? Help with that communication. I know we got time for questions here in a moment. But you just want to make sure that someone has your finger on the pulse, sees the big picture is the takeaway there. All right, we’re end we’re nearing the end of our presentation. We appreciate everyone’s time. If you’re interested in speaking with one of our financial advisors, we’d love to schedule a complimentary 15minute call, with you. So, in the there’s a message box that’s popping up right now with a link. If you’re interested and you’d like to speak with one of Savant’s financial advisors, you can do that via that link. There’s you can click the link and it’ll open up a window for you to schedule a call. So, please thank you for your time today. And then Joel. Yeah, I think we have some questions. So, I’m gonna and several of them have to do with fees. I think it would be a good idea for those to have those fees to just click on that link and schedule the conversation because it’s going to be variable depending on your situation. What I will tell you in answer to one of the questions we do navigate these issues as part of one fee there’s not you don’t you don’t have to worry about well is there a fee for this or a fee for that or a fee for that. There’s one fee. And the logic behind that centers very much around the idea that people’s questions interreact with one another. You can’t answer one without answering others. And as a result, we want to be working on the whole picture to help you out. We want to make sure we’re giving you estate planning advice. We’re giving you tax advice. I think back to just when I was graduated from college and knew with all my heart I wanted to be a financial adviser. Interviewed at a couple of the big shops and they said that I was going to be talking to folks from day one and I looked at them and I said, “How is that possible? I don’t know what I’m talking about.” I took one class on financial planning at college. They said, “Well, you know more than most of us then.” And that just was not the answer from my perspective. You want much more of a methodical, well-resourced, broad quarterback, as Dom said, who is aware of the way that things interact with one another and can bring in professionals as appropriate. Estate attorneys, CPAs into the conversation to get you the help you need. Go ahead, D. Can I take this one? I think this one’s for me, but when do I need to file an estate tax return? When u when my spouse passes away, even if I don’t have an estate tax issue. And I think this really gets to that portability concept you raised earlier, Joel. Even if you don’t have federal estate tax or state estate tax exposure, it’s often a good idea to file an estate tax return so you can make a portability election so you don’t lose the benefit of that deceased spouse’s exemption. Again, it’s $15 million in 2026. That’s often a gap for a missed opportunity we encounter that comes back to haunt that survivor in the future. Yeah, there was a question that was kind of along the lines of that about help with the Illinois $4 million estate tax by tweaking pay on death or to transfer on death or trusts. Yes, potentially you want to work with some that’s a very detailed question and that is something you definitely want to sit down with someone on. It’s definitely something that needs a lot of planning around. Yeah. And one of the pitfalls with those TOD and POD you know forms are they’re great for probate avoidance, bad for planning for estate tax, bad for contingency and asset protection potentially. Yeah. Thinking about potential trust planning. Yeah. The last one we’ll have time for today just I see a question here about wealthy people being able to potentially never sell stock and take loans. Yeah, it does sound pretty straightforward and there are gotchas. The person indicates yes there are gotchas. Predominantly the risk that is involved that you need to quantify. You need to understand how diversified is your bucket of risk that you’ve got in that those concentrated stock positions you have and are there other tools that could be brought to bear that could allow you to diversify and still not pay taxes. And so there’s lots that can be done. Yes. But most of the headlines you see about the wealthy being able to just take loans against their portfolio involve people with a billion dollars or more where yeah then maybe we’re not talking about that. You it’s surprising to find that people 30 40 $50 million. You can still put yourself in a world of difficulty if you decide all you’re going to do is take loans against your portfolio for retirement. Yeah, great input Joel. Great stuff today. It’s always a pleasure working with you. Thank you everyone who joined us today for your time and participation. We certainly enjoy putting these on and I hope they’re valuable to you. Again, if you’re looking for more information about Savant, the services that we provide. We invite you to check out our website at www.savantwealth.com.

And if you really do want to sit down with someone for that complimentary, it’s free. It’s a complimentary 15inute consultation with one of our advisors. There should be a link for you in the I think it’s the chat. The chat. Yeah. And if we didn’t get time to your question today, make sure that you copy that right now and paste it into the what is it the feedback questions we’ll give you after the session. You can paste questions there and we will make sure to have somebody answer that question for you there. Okay, very good. Thanks everybody. Have a fantastic day. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books, checklists, and other useful financial resources.