We are not quite finished with 2021 yet!  What steps could you take for your year-end investment before we cross over to 2022? In this session, we will discuss the following topics:

• Tax Code Refresher
• Retirement Accounts
• Health Savings Accounts
• Tax Loss Harvesting
• Asset Location Optimization
• Charitable Donations

Guest:

Jeremy D Witbeck, MBA, CFA, CFP® is a Partner with Polaris Wealth Advisory Group, LLC. Before joining Polaris Greystone, Jeremy worked as a Portfolio Manager at a Registered Investment Adviser in the greater Los Angeles area where he built customized portfolios for high net worth clients and developed client relations. Jeremy has an extensive background in the financial service industry and holds the Chartered Financial Analyst (CFA®) charter and Certified Financial Planner (CFP®) designation.

Host:

Chia-Li Chien, Ph.D., CFP®, PMP®, CPBC, is an Assistant Professor and Director of the Financial Planning Program of California Lutheran University. Before her academic role, she held several senior management positions in Fortune 500 companies, including Diageo, ABB, CIGNA, and RSA Insurance Group. Dr. Chien is a frequent speaker about succession planning at national conferences and has published three books, including her most recent publication, “Enhancing Retirement Success Rates in the United States.” She publishes research on succession topics in a variety of academic and practitioner research journals. Dr. Chien serves on the boards of various national financial service associations. She holds a doctorate in financial planning and is a Certified Financial Planner (CFP®) as well as Project Management Professional (PMP®). Chia-Li Chien is pronounced Jolly Jan.

There are a lot of priorities from the Biden-Harris Administration Immediate Priorities, American Rescue Plan, and the American Jobs Plan, just to name a few. Attorney Carcone will help us to break down what changes are expected in the next few years.

Guest:

Colleen Carcone J.D., CFP®, is a professor at California Lutheran University, as well as an Income Tax and Estate Planner, and author. Colleen is a tax attorney with more than twenty years of experience who has escaped practicing law and now works in-house for a financial services company partnering with high-net-worth individuals. Colleen has been teaching estate planning and income tax planning for various programs for twelve years. An estate planning expert, Colleen co-authored Principles of Estate Planning, the third edition of which was published in 2018 and has been quoted in many articles. Colleen has served as a Director of Wealth Planning Strategies for TIAA for more than 14 years, where she has been serving the firm’s high-net-worth families with specialized advice and sophisticated financial, income tax, and estate planning strategies.

Host:

Hossein Salehi, Ph.D., CFP® is an assistant professor in Financial Planning at California Lutheran University. He has a doctorate in personal financial planning and is a Certified Financial Planner (CFP®). He also has an M.Sc. in Personal Financial Planning from Texas Tech University, an M.A. in Economics from Texas Tech University, and an M.Sc. in Financial Management from Tehran University.

Dr. Hossein Salehi gains his global perspective in finance from his experience living in Iran, Italy, and the U.S. Dr. Salehi is passionate about teaching and working with students at California Lutheran University, “I like helping people as a whole, that’s why I actually chose financial planning because I really wanted to help people make better financial decisions and teach the younger generations. I really like helping the students pick the right career for the rest of their lives that isn’t just financial but fits their personality,” he said.

Finding His Path to Financial Planning 

Dr. Salehi teaches financial planning courses both to undergraduate and graduate students. His biggest inspiration to find his passion for financial planning came from his father when he lived in Iran with his family.  

As an undergraduate, he followed the footsteps of his father and earned a degree in computer engineering in Iran. After university, he worked as a program developer for different computer applications in finance and accounting much like a software developer for games, he explained. However, after seven years in the industry, he decided it was time to change his career to finance which is more interested in.  He earned his master’s in finance in Iran before deciding to move across the world to dive deeper into his education. As he is most interested in financial markets and investing, Dr. Salehi decided to move to the United States. “My father helped me a lot with the concept of studying abroad at an American university,” he said.

While waiting for his American university admission, Salehi attended university in Italy to study. His decision to move to Europe was fueled by wanting to learn more about financial markets. In Iran, the financial diversity and market are limited, he explained, “I knew that I needed to go somewhere else like Europe.” He spent around nine months in Italy to learn more about theories and financial models. It was also during this time he began teaching and found a passion for it.

In 2011, Salehi moved to the U.S. to study a Ph.D. in Economics as “economics is the base and the foundation of finance,” he said. After finding interest in microeconomics and finances in households, Salehi realized that he enjoyed financial planning the most. Nearly finished with his Ph.D. in Economics, Salehi said it was a hard decision whether he should pursue another Ph.D. in his area of interest in financial planning. After deliberation, he decided to turn his economic Ph.D. into a master’s of economics and pursue a financial planning Ph.D. instead at Texas Tech University, which is one of the top financial planning programs in the country. “I had to start from the beginning and start learning from scratch as the laws are totally different from other countries. It was worth it because I’m a certified financial planner now,” he said.

The Role of Being a Professor

Over the years, Dr. Salehi has had multiple teachers and mentors to help guide him where he is today. Now he spends his time teaching and researching at California Lutheran University. His most liked areas of interest in financial planning are investment and retirement planning. Dr. Salehi doesn’t only teach those inside the classroom, but he thinks it is important to help others. “I like to help people understand what’s happening around them and it doesn’t only apply to my students. It could be a friend or a family member that needs help to understand the concept. I like teaching and I like educating people with my knowledge and experience of what I learned over these years from three different education systems, Iran, Italy, and the US,” he said. 

In January 2020, Dr. Salehi took financial planning undergraduate minor student Zach Bullard to attend the National LINC 2020, January 29-31, 2020 at Hytall Regency Orlando, FL. At the conference, students had some training and teaching sessions to learn about the industry. It was an opportunity for financial planning students to meet thousands of advisors and talk to them about internships and jobs. A conference like this gave student Bullard a number of opportunities and he said he was extremely grateful for Dr. Salehi for providing it and going with him. 

Another undergraduate financial planning minor student, Jared Martin, said his favorite part of California Lutheran University is the professors and experience offered. In particular, Dr. Salehi is one of his greatest influences within the financial planning department. 

Qualities of a Good Professor

“Being able to teach in the most understandable and digestible way is the best. If you know a topic or a concept well enough you should be able to teach it in very simple words,” he said. Personally, he enjoys this method for learning and tries to follow the same structure for his students to learn from. Other qualities that he believes are important are being able to balance connecting and understanding with the students but also being firm at the same time. 

Learning from a textbook versus learning from a real-life scenario are two very different concepts. Dr. Salehi believes real-life scenarios help the students understand the different concepts and technologies in class, therefore he likes to incorporate them when teaching. “I really like it because it’s very applicable and students can see what they’re learning and apply their knowledge in real-time by using these applications,” he said. Dr. Salehi believes it helps provide realistic outcomes for the student when they take the theories outside of the classroom and it is his favorite part of teaching.

Qualities of a Good Student

Dr. Salehi believes that students shouldn’t rely just on course material or class notes, but rather be looking and learning from other sources. “As a student, try to learn as much as possible from different resources,” Dr. Salehi said. “This is really important for students in finance because finances are changing every day, you have something new that can happen that can influence the market,” he said. He encourages students to use different resources and know what is reliable versus misinformation. 

Finishing his second year at California Lutheran University has been a challenge as most of his teaching has been online during the pandemic. “Teaching in Zoom is pretty challenging not just because I don’t know how to engage the students but because it has challenges of not being able to see the students and not recording the classes with the student’s faces,” he said. However, Dr. Salehi tries his best by using other types of material and engaging students with videos, and by sharing his screen to look at stocks.

Other Interests Outside of Finance

Before the pandemic, Dr. Salehi enjoyed traveling particularly around Europe and learning about the history of the different countries. He also enjoys being active by cycling and swimming as well as reading non-financial planning books. “One of the reasons I chose California is because it’s a really nice state to go outside and do activities,” he said. He is hoping to start surfing soon. 

About Dr. Hossein Salehi: 

Dr. Hossein Salehi is an assistant professor in Financial Planning at California Lutheran University. He has a doctorate in personal financial planning and is a Certified Financial Planner (CFP®). He also has an M.Sc. in Personal Financial Planning from Texas Tech University, an M.A. in Economics from Texas Tech University, and an M.Sc. in Financial Management from Tehran University.

About the Author:

Rosie Baker is an undergraduate student at California Lutheran University, graduating in May 2021. She is studying Communication with an emphasis in PR and Advertising and has a minor in Creative Writing. In July 2020, she published her first book, Mirrors & Windows: Unlocking a New Framework to Envision Your Success, with New Degree Press. 

The generation-skipping transfer could be subject to two potential taxes, the gift tax and the generation-skipping transfer tax (“GST tax”). And therefore, a generation-skipping transfer is very expensive. In many cases, the total cost of making a generation-skipping transfer can equal or exceed the value of the gift. In 2020, each person has an estate and gift tax exemption of $11.58 million, and a GST tax exemption of $11.58 million (IRS, 2020). Assume a grandfather gives $2 million except the annual gift exclusion to his grandson, and that the gift tax and the GST tax are triggered immediately. Assume he has used both of his gift tax and GST tax exemption. The GST tax is $800,000 ($2million times 40%); the taxable gift is $2.8 million ($2million plus $800,000 GST tax) because of the GST tax that the grandfather pays is treated as a gift. Therefore, the total tax is around $1.87 million, which almost equals the value of the gift.

Given the severity of the GST tax, how to allocate the GST exemption to avoid GST tax is very important. Setting up a generation-skipping trust (“GST” trust) is an efficient strategy in GST planning. Generally, the GST trust receives the transferor’s property for the benefit of the transferor’s child and grandchild. The child of the transferer will receive the income of the trust, and the grandchild will receive the remainder interest of the trust. The GST tax is not paid until the child’s interest ends, and the property is transferred to the grandchild. When a grantor allocates a GST exemption that matches the amount initially transferred into the trust, then no GST tax is due when the property is transferred to the grandchild. Keep in mind that the GST tax exemption will be automatically allocated when a property is transferred to a GST trust unless the donor elects otherwise. 

For those who have used their GST tax exemptions, paying compensations to the generations through a private foundation rather than gifting the property to them would be an alternative strategy to avoid triggering both gift and GST tax. 

To learn more about the Financial Planning Program at California Lutheran University contact Graduate Admission at clugrad@CalLutheran.edu or visit us at https://www.callutheran.edu/academics/graduate/financial-planning/​. 

About the Speaker:

Hratch J Karakachian, CPA, ESQ, is a senior adjunct faculty member in California Lutheran University School of Management.  He has been teaching in the MBA in Financial Planning Program since 2013.  He has taught Principles of Estate Planning, Income Tax and Strategy, Managerial Accounting and Foundations of Accounting and Finance courses.

About the Host:

Dr. Chia-Li Chien is a succession program director at Value Growth Institute, a succession consulting practice dedicated to helping business owners increase the equity value of their firms. Before her private consulting practice, she held several senior management positions in Fortune 500 companies. Dr. Chien is a director of the financial planning program in the School of Management at California Lutheran University. Dr. Chien is a frequent speaker about succession and retirement planning at national conferences and has published three books, including her most recent publication, “Enhancing Retirement Success Rates in the United States.” Dr. Chien serves on the boards of various national financial service associations. She holds a doctorate in financial planning and is a Certified Financial Planner (CFP®) as well as Project Management Professional (PMP®). 

About the Author:

Jade Zhang is a graduate student at California Lutheran University expecting to graduate in July 2020. She is studying for a Master of Science in Financial Planning. 

References:

IRS. (2019). Instructions for Form 709 (2019); United States Gift (and Generation-Skipping Transfer) Tax Return. Received from: https://www.irs.gov/instructions/i709

IRS. (2019). Instructions for Form 706-GS(T) (11/2019); Generation-Skipping Transfer Tax Return for Terminations. Received from:https://www.irs.gov/instructions/i706gst

IRS. (2020). Estate tax. Received from: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax.

Tomin, C., & Carcone, C. (2018). Principles of Estate Planning (3rd,ed.).  P335. Erlanger, KY: The National Underwriter Company.

Designating Trusts as Beneficiaries of IRAs

Financial planning practitioners can help clients plan for intended IRA’s transfer in the events of the IRA owner’s death. The IRAs are transferred by contract, which avoids probate that are payable to the named beneficiary(ies). Reviewing a client’s beneficiary designations of their IRAs could help a client meet estate planning objectives.

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law as part of the Further Consolidated Appropriations Act, 2020. One of the SECURE Act’s is eliminating the so-called stretch IRA by requiring non-spouse beneficiaries of inherited IRAs to distribute the entire balance from inherited accounts within ten years. The new rule applies to the owners of retirement accounts who die after December 31, 2019 (IRS, 2020). Before the SECURE Act, non-spouse individuals who inherited an IRA could defer the distribution of the inherited accounts over their life expectancy. The SECURE Act stipulates that non-spouse beneficiaries of an inherited IRA must receive the full balance of the retirement funds at the end of the ten years after the owner’s death.

However, there are several exceptions to this 10-year distribution rule for non-spouse beneficiaries of the inherited IRAs. Exemptions include the following:

• a surviving spouse
• a child who has not reached the age of majority
• a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner (IRS, 2020).

Therefore, in certain circumstances, the clients may benefit from designating a trust as a beneficiary of the IRA, even if the assets in the account have to be distributed to the trust within ten years. For example, the beneficiary is spendthrift or addicted to drugs or alcohol, or the beneficiary is a qualified beneficiary of disability or chronic illness; If the trust is properly drafted, these beneficiaries will be able to take the distribution over their life expectancy.

Holding Community Property Assets in a Trust

Community property laws generally provide that all property acquired by a married person during a marriage is communal in nature. Currently, there are ten states that recognize community property laws in the United States, including Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (Tomin & Carcone, 2018). By holding appreciated community property assets in a trust that may, in some cases,  provide tax advantages to meet a client’s objectives than titling the community property by Joint Tenancy of the Right of Survivorship (JTWROS).

When a husband or wife inherits a community property which is titled by JTWROS from a deceased spouse, he or she could only get a step-up basis of the fair market value (FMV) on his or her half share of the property. If a community property asset is held in trust, the inherited basis would be the entire FMV of the property, which would provide more step-up basis advantages than the JTWROS, especially for the highly appreciated community property assets.

To learn more about the Financial Planning Program at California Lutheran University, please contact Graduate Admission at clugrad@CalLutheran.edu or visit us at https://www.callutheran.edu/academics/graduate/financial-planning/

About the Speaker:

Hratch J Karakachian, CPA, ESQ, is a senior adjunct faculty member in California Lutheran University School of Management.  He has been teaching in the MBA in Financial Planning Program since 2013. He has taught Principles of Estate Planning, Income Tax and Strategy, Managerial Accounting and Foundations of Accounting and Finance courses.

About the Host:

Dr. Chia-Li Chien is a succession program director at Value Growth Institute, a succession consulting practice dedicated to helping business owners increase the equity value of their firms. Before her private consulting practice, she held several senior management positions in Fortune 500 companies. Dr. Chien is a director of the financial planning program in the School of Management at California Lutheran University. Dr. Chien is a frequent speaker about succession and retirement planning at national conferences and has published three books, including her most recent publication, “Enhancing Retirement Success Rates in the United States.” Dr. Chien serves on the boards of various national financial service associations. She holds a doctorate in financial planning and is a Certified Financial Planner (CFP®) as well as Project Management Professional (PMP®).

About the Author:

Jade Zhang is a graduate student at California Lutheran University expecting to graduate in July 2020. She is studying for a Master of Science in Financial Planning.

References:

IRS. (2020). Estate tax. Received from: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax.

IRS. (2020). Retirement Plan and IRA Required Minimum Distributions FAQs. Received from: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions.

Tomin, C., & Carcone, C. (2018). Community Property Overview. Principles of Estate Planning (3rd,ed.).  P41. Erlanger, KY: The National Underwriter Company.