Running the Numbers…..Why Cash flow is King

caused a lot of problems with estate and wealth transfer plans.

Over the past two months we have looked at a number of plans that have been implemented and found that the market has, at best, reduced the advantages of many of these plans and, at worst, created significant cash flow problems.

So what's going on?
In some cases, the advisors counseled on using a strategy or combination of strategies without running the numbers. In many of these cases, the results are not pretty. Now you may say that I am biased since InKnowVision gets paid for running numbers, among other things. But I would say that if you intend to be in the wealth transfer and wealth strategies business, you need to have all plans vetted not only legally, but also financially.

One advantage to this approach is that you help to insure that your clients have enough assets in their own name to adequately provide for them the rest of their lives, thereby avoiding a potential retained interest attack for “over funding” funding the plan.

You also will be able to perform sensitivity analysis if you and your clients desire so you can see what happens to the plan if growth rates and income rates go down or as we are all praying for, go up.

Another advantage is to be able to help clients who are stuck and afraid to do business with anyone. You can help them make sense of their investments and cash needs while allowing them to think more about advanced planning, philanthropic planning, investments or life insurance.

We wrote a few months back how important this is in real life. In that article we wrote clients who about were the beneficiaries of a trust worth over $40M. But at their current rate of spending, it looked like they were going to be out of money long before they died.

The cash flow analysis exercise was a real clarion call for the family. Once they identified the real problem, they had us run a number of scenarios on spending and investment returns so they could see what they needed to do to start building a war chest of assets for their future. To paraphrase an old saying, cash flow is king. The analysis showed them that they needed to build an estate and gave them a picture of how to build it. In turn, it allowed them to understand that they needed to take advantage of at least some team recommended planning strategies.

So why doesn't every run the numbers? Usual answers we get are: