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The Year-End Planning Trap

Waiting for December to get serious about planning is stupid and dangerous.

Holiday classics like Miracle on 34th Street, It’s a Wonderful Life, O. Henry’s Full House and A Christmas Carol have led us to believe that December is the time for miracles to happen. Hollywood wants us to believe that suddenly, in the blink of an eye, lifelong problems can be solved. A miser turns generous, the house is saved from foreclosure or the unaffordable golden hair clip is purchased. Remember those iconic scenes? Well, those fantasies have fooled us, and they betray reality.

I’m not a Scrooge. I’m a pragmatic advisor who understands that trying to resolve all of a client’s yearlong (or lifelong) lack of tax planning in a thoughtful, low risk way in the final weeks of December is simply an exercise in frustration and futility.

Procrastination Causes Stress

This ain’t Hollywood, honey, and now you and your clients may be stuck for a while with all those important decisions you rushed to help them get off their plates before the clock struck midnight on Dec. 31.

While you may have recommended charitable lead annuity trusts, pooled income funds, oil and gas deals, or conservation easements, why did you wait until the final weeks of 2020 to assess what’s best for clients? The end of the year comes at the same time every 12 months. Sure we may have enjoyed an extra nap or two in July and September, but I must tell you that waiting for December to get serious about planning is just stupid and dangerous.

When clients feel like they have a gun to their heads, they often surrender their willingness to hash things out. They simply resign themselves to paying extra taxes just to get an unpleasant decision off their plates during the holidays.

Sound familiar?

This is exactly what happened with several very large transactions in which I was retained. One client, following a $20 million liquidity event at year-end, simply “decided not to decide.” Yes, it cost him several million dollars in forgone tax savings, but he’s probably sleeping better anyway with the knowledge he didn’t make a rash decision.

Putting too much pressure on clients to make decisions last-minute isn’t good for building long- term relationships. Yes, you may be pulling a thorn out of someone’s paw and finding a loyal friend, but you may just as likely cause an infection.

Get Your Act Together

Bottom line: Now’s the time to start you clients’ 2021 tax planning. Ask your clients what they’re expecting in the year ahead. Ask about bonuses, liquidity events and all the other questions (see below) that help you anticipate what things will look like way before December 2021 rolls around and the panic cycle starts again amid the usual holiday distractions:

  • Planning to retire this year?
  • Grandchildren on the way?
  • Bucket list travel?
  • Major medical decisions?
  • Downsizing?
  • Retirement community?
  • Exercising stock options?
  • Deferred compensation payout?
  • Selling low-basis assets?

Discuss various strategies and solutions for 2021 right now, not 11 months from now. Planning means planning; it doesn’t mean reacting. It’s in your job description!

In fact, you should be checking in with your clients every three months. For those that make quarterly estimated payments, planning now can help reduce payments in subsequent quarters.

Randy A. Fox,CFP, AEP the founder ofTwo Hawks Consulting,LLC.He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker. He is currently the editor in chief ofPlanned Giving Design Center, a national newsletter and website for philanthropic advisors. He is apast winner of the Fithian Leadership Award by the International Association of Advisors in Philanthropy.

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