CEOs Fail Personal Finance
Based upon Wilmington Trust Company and Chief Executive's personal finance survey, indications are that Corporate America's lead executives are better at maximizing their companies' profits than their personal and family finances.
Specifically, they're leaving millions on the table -- unprotected from taxation and uninvested by not using aggressive estate planning methods.
Senior executives are not as aggressive as they could be about minimizing their taxes:
| * IRA/401(k) contributions | 78% |
| * Professional Planning and Tax Advice | 59% |
| * Maximum Deductions (Below the Line) | 57% |
| * Offsetting Capital Gains with Capital Losses | 49% |
| * Tax-deferred Investments | 46% |
| * Maximizing AGI | 45% |
| * Municipal/other Government Bonds | 40% |
| * Minimizing/deferring Ordinary Income | 28% |
Similiarly, executives are lax in using more complex wealth transfer methods to ensure the legacy of their estate:
| * Life Insurance | 60% |
| * Irrevocable Trusts | 36% |
| * Revocable Trusts | 34% |
| * Family Limited Partnerships | 17% |
| * Charitable Trusts | 15% |
Executives ranked six financial goals in terms of importance:
| Financial Goala | Importance | Confident in Meeting the Goal |
| * Saving for Retirement | 64% | 55% |
| * Family Protection | 45% | 66% |
| * Build Sizable Portfolio | 32% | 39% |
| * Fund Children's Education | 17% | 53% |
| * Minimize Taxes on Investments | 16% | 20% |
| * Leave an Estate | 11% | 45% |
Top executives were asked if their retirement needs will remain comparable to their current income level:
| * Remain Comparable | 48% |
| * Anticipate Needing Less | 40% |
| * Anticipate Needing More | 9% |
Fifty-five percent of top executives said employer-sponsored retirement
plans will cover less that 40 percent of their needed retirement income.
These executives plan to rely on the additional resources for income during retirement:
| * Personal Savings | 94% |
| * Social Security | 81% |
| * IRAs | 71% |
| * Tax-Deferred Investments | 42% |
| * Inheritance | 12% |
Top executives were asked how much they rely on professional advice to help them meet their financial goals:
| * Very Heavily or Fairly Heavily | 41% |
| * Somewhat | 38% |
| * Not Much or Not at All | 20% |
Top executives who "Rely Heavily" on professional advice are more confident than "Those That Don't" about meeting most of their financial goals:
| Meeting Financial Goals | Rely Heavily | Those That Don't |
| * Saving for Retirement | 63% | 51% |
| * Family Protection | 71% | 65% |
| * Build a Sizable Portfolio | 45% | 36% |
| * Fund Children's Education | 53% | 54% |
| * Minimize Taxes | 23% | 19% |
| * Leave an Estate | 52% | 41% |
Perspective from Wilmington Trust's Tony Guernsey:
"There's an old adage that doctors don't take their medicine and
lawyers fail to write their own wills. I know people that are 62 years old, worth $50 million to $100 million, and never even created a will. In the
same vein, there are top executives running major corporations that aren't doing a good job planning for their retirement, saving enough in taxes, or planning for their estate to be passed on."
"Inevitably, the answer is that they didn't have enough time to do it or the issues were so complex that they just didn't feel like dealing with the intricacies of estate planning, for example. The sorry thing is that it's usually the death of the patriarch that triggers people to go into planning mode, and that's usually too late because you're going to have a lot of your money going to the government. Too many executives feel like it won't happen to them, that they won't die, and then something unfortunate happens and their families are left in the lurch. Often it's the spouse who forces the other to get sound financial planning. I know one executive whose wife wouldn't go on a trip with him until his accounts were in order.
"There are too many executives not focusing on asset allocation. Many of them are completely tied into their own company's stock. One day, an executive finds that he's got $50 million in his company's stock and $5 million in other investments. That's just not a sound strategy. One client we had in the technology industry was making $120,000 a year but had stock in his own company worth $80 million. Because his company was constantly making significant corporate announcements, he was too often restricted in selling any shares. He had no idea what to do until we set up a blind trust for him, which allowed the trust to sell stock on his behalf, and eventually developed a comprehensive plan for him.
"Many of these senior executives are grandfathers and want to pay
for their grandchildren's education. They often don't know that there are
tax-free ways to do that so their grandchildren don't end up paying any gift tax on it. It's just an example of one of the many ways these people or their family members aren't saving as much in tax as they could."
"Executives eventually realize that they need professional advice to help them through complicated issues. How could a busy executive find the time to figure out the complexities of the new tax law? Just because someone holds a CEO position or is in the top salary bracket doesn't automatically mean that they are aware of many strategies to preserve their wealth. For example, we recently helped a top executive substantially reduce his current income tax liability, and provided him with an enhanced tax-deferred retirement investment program. We recommended that the executive and his company establish a salary deferral plan to supplement or "mirror" his 401(k) plan, sometimes referred to as a 401k mirror plan.
Under the plan, the executive and his company agree to defer a certain amount of the executive's compensation-which can be an unlimited amount-that is credited to a tax-deferred investment account and is ordinarily distributed over a long period of time starting at retirement, at which point the distributions usually are taxed at lower marginal income tax rates."
