How to Choose the Right Estate Planning Attorney

How to Choose the Right Estate Planning Attorney

Choosing the right estate planning attorney can be important for many reasons. However, knowing who to choose isn’t always very straightforward. The best estate planning attorney in your area might not be the best one for your situation. As such, you should consider focusing on the attorney’s technical skills, personality, wisdom, and values.

Here are three factors to consider when choosing an estate planning attorney:

1. Are they are technically proficient?

First, the right estate planning attorney for you must be technically proficient. Indeed, they need to know estate and trust law inside and out. But more importantly, they need to understand how it applies to someone like you.

In addition, they need to stay current by familiarizing themselves with existing and any expected legislation changes. And they need to know how all these things apply to your unique situation and location, as state-by-state inheritance and estate laws can vary significantly.

When evaluating an estate planning attorney’s technical skills, consider the following:

Specialty — what percentage of their work pertains to trust and estate planning?

Jurisdiction — what jurisdictions and physical locations do their expertise cover?

Differentiation — what sets them apart from their competitors?

Risk Management — how do they manage and communicate the potential risks you face?

Operations and accountability — how do they ensure proper action is taken to complete the estate plan, and what’s their ongoing review process?

2. Do they work with clients like you?

Once you’ve found an estate planning attorney with the technical expertise you need, determine whether they work with clients like you.

While many estate planning techniques and strategies are common, some are not. Ideally, you want to find an estate planning attorney who works with clients just like you when it comes to attributes like net worth, asset and income types, family dynamics, and legacy goals. Ask potential attorneys what their typical client profile looks like. For example:

  • Do they work with business owners?
  • Are their typical clients part of traditional or blended families?
  • What’s the average net worth of their clientele?

If you’ve recently experienced a $10 million windfall but your prospective attorney typically works with smaller clients, it may be best to look elsewhere. Often, the strategies, considerations and techniques to plan for a six-figure net worth aren’t the same as those that are needed for a seven- or eight-figure net worth.

3. Do they feel like a good fit?

Lastly, the right estate planning attorney for you must feel like a fit.

Consider their personality — does it jibe with you and your family? Remember that your attorney will work closely with your immediate family to communicate and implement your estate plan. Therefore, find someone who is likely to be a good fit, so you can develop a healthy working relationship.

In addition, consider your prospective attorney’s values, legacy views, wisdom and personal experiences. Indeed, many attorneys will do their best to understand and implement your unique wishes. However, some may have conflicting views, thereby creating some unnecessary challenges.

You can start by identifying your own thoughts on legacy, stewardship, and multi-generational wealth, and then finding an attorney with similar ideas. This will help ensure that your wishes are fully understood and implemented in the best possible way.

Sherwood Wealth Management provides our clients with customized investment management and comprehensive financial planning services to help them organize, grow, and protect their assets. Please contact us if you’d like to learn more about how we work with affluent individuals and families in Aspen, CO and beyond.

This article was also featured in the Post Independent.

Stock Market Volatility Is Spiking, But Don’t Panic

Market Volatility Is Spiking

Markets are off to a bumpy start so far this year, and many investors are concerned about what this means for their investment portfolios. Indeed, record-high levels of inflation, the likelihood of rising interest rates, and the ongoing Russia-Ukraine conflict are causing fear and uncertainty in financial markets. But just because market turbulence is uncomfortable doesn’t mean it’s time to panic. If you’re a long-term investor (i.e., you don’t need to access your funds for at least 10 years), it’s important to keep market volatility in perspective.

What’s Causing Recent Market Volatility?

Rising inflation has been a source of concern for investors since the start of the year. Ongoing supply chain issues and labor shortages due to the Covid-19 pandemic sparked an uptick in prices beginning in early 2021. Though the Federal Reserve initially dismissed rising prices as transitory, it has since adjusted its stance. Now, it seems likely the Fed will raise interest rates 0.25% this month.

However, the Fed has been very transparent about its intention to increase interest rates. Consequently, markets are unlikely to react strongly to the news if the Fed proceeds as planned. Instead, investors remain focused on the conflict in Ukraine, which has caused a surge in oil prices and pushed U.S. stock prices lower.

Geopolitical Events & The U.S. Stock Market

U.S. stocks have been on a rollercoaster ride since Russia invaded Ukraine. And while volatility is unsettling, it’s not unusual given the many uncertainties this conflict creates. Though we don’t know how this will play out, nor do we know how long it will last, we are likely to see more volatility in the near-term.

On the bright side, stock market volatility has historically been short-lived following geopolitical events. In the United States, the median stock market drawdown due to geopolitical shocks was -5.7%, according to data from Deutsche Bank. Moreover, these drawdowns tend to take around three weeks to reach a bottom and an additional three weeks to recover. On average, the market was 13% higher from the bottom 12 months after.

Other data shows that since World War II, U.S. stocks were higher three months after a geopolitical shock, on average. And following about two-thirds of those events, they were higher after only one month.

What Does Market Volatility Mean for Long-Term Investors?

Unfortunately, volatility is the price investors pay for investing in stocks. But the good news is long-term investors tend to be rewarded for enduring these periods of discomfort. Finance professionals refer to this concept as the equity risk premium. Investors can expect to earn a higher rate of return on stocks over time to compensate them for taking on higher levels of risk.

In fact, the average annualized return of the S&P 500 Index since its inception in 1926 through the end of 2021 is 10.5%. That includes every correction and bear market since the index’s inception.

In other words, while volatility is an ever-present force, the equity risk premium endures. It’s this trade-off that allows long-term stock investors to outpace inflation and grow their financial resources for the future. Moreover, volatility often provides investors with the opportunity to purchase stocks at discounted prices, which can boost returns over time.

Bottom Line: Stay the Course

Historically, investors who stay the course during periods of uncertainty ultimately reap the rewards. We have no reason to believe this time will be different.

If you’re considering abandoning your investment plan, turn off the news and focus on what you can control instead. In addition, avoid checking your account balances too frequently. This may provoke you to make unnecessary trades that aren’t in your best interest. Lastly, consider working with a trusted financial advisor like Sherwood Wealth Management, who can help you develop an investment strategy that’s aligned with your goals, time horizon, and tolerance for risk. 

This article was also featured in the Post Independent.

How Wealthy Coloradans Can Prepare for Colorado’s Upcoming Tax Law Changes

Colorado Tax Law Changes

Earlier this year, Colorado lawmakers made significant changes to the state tax code. Indeed, the changes are expected to touch most Colorado taxpayers in one way or another. However, certain adjustments are more likely to impact the wealthiest Coloradans. Since many of these bills go into effect after the New Year, here are three tax changes that may affect your personal finances—and how you can prepare accordingly.

#1: Tax Loopholes for Residents Earning More Than $400,000 Per Year

If you make more than $400,00 annually, you’ll face a new cap on itemized deductions on your Colorado tax return. Beginning in 2022, wealthy households won’t be able to deduct more than $60,000 from their taxable income.

Business owners earning more than $500,000 individually or $1 million jointly won’t be able to take the state portion of the “pass-through” deduction. While this deduction was temporarily eliminated last year, the new bill makes the change permanent.

In addition, Colorado allows residents to contribute money directly to a 529 savings account without paying taxes on it. The new legislation will cap this deduction at $30,000 per household each year.

Consequently, high earners and business owners may want to consider accelerating certain expenses and taking advantage of current loopholes before the end of the year. For example, if you plan on making a large charitable donation in 2022, you can claim the full deduction in 2021 by funding a donor-advised fund (if you itemize). Be sure to work with a fiduciary financial advisor or CPA to look for additional opportunities to reduce your tax bill.

#2: Property Taxes

Under the new tax code, property owners may see temporarily lower property tax rates in tax years 2022 and 2023. Single-family homes would get a property tax discount of about 3%. Meanwhile, apartment property owners would see their property taxes drop by about 5%. Agricultural and renewable energy properties are also likely to see a significant reduction in property taxes.

But that doesn’t necessarily mean your property taxes will go down. House Bill 1164 seeks to correct the balance between what the state pays and what school districts pay to finance public education by allowing districts to slowly raise their mill-levy rates.

In November, Roaring Fork School District voters passed a measure to increase property taxes to source funds for increasing teacher salaries. The mill levy override goes into effect on Jan. 1 and the actual allotment won’t be known until the end of December.

#3: Colorado Tax Law Changes to Capital Gains and Social Security Benefits

Currently, Colorado taxpayers can be exempt from paying state taxes on capital gains in some cases. The new tax code eliminates that deduction, forcing more people to pay state taxes when they sell property and other types of investments.

However, there is some good news for retired wealthy Coloradans. Specifically, if you’re over 65 and receiving Social Security benefits, you may receive a partial tax break next year.

Presently, Colorado taxpayers can deduct up to $24,000 of Social Security income from their taxable income. Beginning in 2022, the deduction will be unlimited, essentially eliminating state taxes on Social Security benefits for people over 65.

Planning for Colorado Tax Law Changes in 2022 and Beyond

While these tax changes are among the most significant in Colorado history, tax laws are continually in flux. And we’re likely to see additional changes at the federal level.

Anticipating relevant changes to the tax code and planning accordingly can help you protect and preserve your wealth over time. Consider working with a fiduciary financial advisor like Sherwood Wealth Management, who can recommend specific strategies to help you minimize your tax bill.

This article also appeared in The Aspen Times.

Don’t Need Your RMD This Year? Consider Donating It to Charity.

Donating Your RMD to Charity

It’s that time of year again. Temperatures are falling, days are getting shorter, and the holidays are just around the corner. And if you’re 72 or older or recently inherited a traditional IRA, it may be your last chance to take required minimum distributions (RMDs). But what if you don’t need the money? To avoid paying taxes on income you don’t need this year, consider donating your RMD to charity.

What Is a Required Minimum Distribution?

A required minimum distribution (RMD) is the amount of money you must withdraw from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA). The purpose of RMDs is to prevent individuals from using certain types of retirement accounts to avoid paying taxes.

Prior to 2020, account owners had to begin taking RMDs at age 70 ½. However, in 2020 the age changed to 72 as part of the SECURE Act.

In addition, the SECURE Act of 2019 changed the rules for inherited IRAs so that certain heirs may have less time (10 years maximum) to draw down an IRA. This primarily applies to non-spouse beneficiaries who inherit an IRA from someone who passed away in 2020 or later. Spousal beneficiaries and certain eligible non-spouse beneficiaries may be allowed to take RMDs over their life expectancy.

How Are RMDs Taxed?

In most cases, RMDs are treated as ordinary income for tax purposes. However, you don’t have to pay taxes on your basis (any amount you already paid taxes on).

What Happens If You Miss an RMD?

While there are some exceptions, failing to take an RMD typically results in a harsh penalty from the IRS. Indeed, Uncle Sam collects 50% of the shortfall plus taxes. So, if your RMD is $40,000 and you only withdraw $20,000, for example, you’d owe a $10,000 penalty plus income tax on the $20,000 shortfall.

If you miss an RMD, you can ask the IRS for relief by filing Form 5329 with a letter of explanation. However, there are safeguards you can put in place to avoid forgetting. For example, you can hire a fiduciary financial advisor to help you plan.

Donating Your RMD to Charity

Depending on the size of your withdrawal and your other sources of taxable income, RMDs may push you into a higher tax bracket. Or they can increase your tax bill in a year when your taxable income is already higher-than-normal. Fortunately, there are strategies you can leverage to avoid these potential tax consequences.

For example, if you don’t need the income, one option is donating your RMD to charity. A qualified charitable distribution (QCD) allows IRA owners to transfer up to $100,000 directly to charity each year.

A QCD can satisfy all or part of your RMD, depending on your income needs. (You can also donate more than your RMD, so long as you stay below the $100,000 threshold.) QCDs are non-taxable and don’t increase your adjusted gross income (AGI) as an RMD would. A lower AGI may also expand your eligibility for certain tax credits that you otherwise wouldn’t qualify for. 

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet the full requirement. In other words, if you decide to do a QCD to reduce your tax liability, be sure to make the QCD before making any other withdrawals from your account.

Planning Is Key When It Comes to RMDs

Required distributions can significantly impact your tax situation if you don’t have a strategy for taking them. Whether you’re in retirement or you’ve recently inherited an IRA, it’s important to plan your withdrawals accordingly to avoid unnecessary tax consequences.

Remember: a QCD is just one option for managing RMDs. There may be other strategies that make more sense for you and your family. Consider working with a fiduciary financial advisor like Sherwood Wealth Management. We can help you develop a withdrawal strategy that helps you achieve your financial objectives while minimizing your annual tax bill. Please schedule a call to get started.

This article also appeared in the Post Independent.

Understanding Financial Industry Credentials

Understanding Financial Industry Credentials

Brian Littlejohn recently answered several questions on financial industry credentials posed by a reporter at Forbes Magazine. A transcript of the questions and Brian’s answers are below.

REPORTER: How does a CFP® differ from a wealth manager?

BRIAN: A wealth manager should have the CFP® designation, but that isn’t always the case. I say “should” because CFP® professionals receive in-depth training in several areas that would help them advise wealthy clients. These areas include investing, taxes, retirement planning, asset protection (insurance), and estate planning.Unfortunately, just about anyone can call himself or herself a wealth manager or financial advisor. This is because large financial companies are against imposing a stringent, industry-wide standard for the use of these titles. If such a standard were imposed, many of the employees at these companies would no longer be able to use the titles to attract and influence unsuspecting consumers.

REPORTER: If you need help developing a budget or paying down debt, what type of financial professional should someone consult and why?

BRIAN: A person should seek out a CFP® professional for this type of help. If the debt is significant, they may want to enlist the help of a credit counselor.

REPORTER: If you’re focusing on investing, what type of financial professional do you need and why?

BRIAN: A person who is looking for investing expertise should seek out a CFA® charterholder. This designation is the gold standard for investment management. It takes an average of 1,000+ hours of study, along with four years of professional experience and successful completion of three rigorous exams, to earn the distinction of being called a Chartered Financial Analyst® . The curriculum focuses on economics, financial reporting, corporate finance, equity investments, fixed income, derivatives, alternative investments, portfolio management, and ethics.

REPORTER: If you are a high net-worth individual, what type of financial professional should you consult and why?

BRIAN: A HNW individual should consult a CFP® professional since their situation is likely to be more complex and require knowledge in several different areas of personal finance. CFP® professionals are adept at devising creative solutions that meet the needs of those with significant wealth.

REPORTER: How does an investment advisor differ from a wealth manager or investment broker?

BRIAN: A Registered Investment Advisor (RIA) has a fiduciary duty to his or her clients. This means that they are obligated to act in their clients’ best interests at all times. An investment broker does not have a fiduciary duty to his or her clients. They can be thought of as investment sales representatives. Currently, both RIAs and investment brokers can call themselves wealth managers (or financial advisors).

REPORTER: Are all financial professionals fiduciaries? Why is that important to know?

BRIAN: No, it’s estimated that only about 15% of financial professionals act as fiduciaries for their clients. This means that the other 85% are NOT required to act in their clients’ best interests. This is a dirty little secret that the large investment companies who employ the 85% would rather not have the public know. It’s mind-boggling to me that these companies are still allowed to operate in this fashion.  

REPORTER: When looking for a financial advisor, what factors should someone consider or check

BRIAN: Consumers should look for an independent financial advisor who acts as a fiduciary for their clients at all times. They would also be wise to check on their potential advisor’s background using the SEC’s BrokerCheck website.

Brian Answers Questions on Social Security Benefits

Brian Answers Questions on Social Security Benefits

Our own Brian Littlejohn recently answered a few questions for Kiplinger’s Personal Finance Magazine on Social Security. A transcript of the questions and Brian’s answers are below:

REPORTER: Should retirees and near-retirees be concerned about the coming shortfall in Social Security funding? Could expected benefits be trimmed?

BRIAN: If a retiree or near-retiree doesn’t have other significant sources of income to rely on during retirement, they should definitely be concerned about the potential shortfall in Social Security funding. Social Security benefits could be reduced by 20% or more beginning in 2035 if Congress doesn’t take action. There’s certainly no guarantee that they’ll do so; the last time that Congress acted to shore up funding for the program was back in 1983.

REPORTER: How much weight will Social Security benefits have in retirees’ overall portfolio as a secure source of income, given a volatile stock market and low interest rates?

BRIAN: Today’s recessionary and low interest rate environment have made Social Security benefits even more important for recipients. This is because bonds, CDs, and even savings accounts pay a reduced amount of interest when rates drop. Additionally, recessions often cause companies to cut or eliminate the dividends they pay to shareholders. Both of these effects can reduce the amount of income retirees receive from their investment portfolios. 

REPORTER: What Social Security claiming strategies make the most sense in the current economic environment (for example, claiming at age 62, 70 or somewhere in between, timing benefits in conjunction with spouse, etc.)?

BRIAN: Conventional wisdom says that as long as a person is healthy, waiting until age 70 is optimal in order to receive the maximum amount of money from the Social Security program. However, if benefits are going to be reduced due to the program being underfunded, drawing earlier might make more sense. I suppose you could think of this as a “get ’em while you can” approach.

To ascertain which specific claiming strategy is most likely to maximize your Social Security benefits, speak with a CFP® professional and/or visit

REPORTER: Anything else retirees and near-retirees should be thinking about today when it comes to Social Security benefits?

BRIAN: Whether it’s disappearing Social Security benefits or corporate pensions, investors are being asked to take on more responsibility for funding their own retirements.This increases the importance of (1) saving adequately and (2) investing wisely. If investors can’t successfully handle both of these tasks on their own, they’d be wise to enlist the help of a CFP® professional or a CFA® charterholder.

You can read the full article here or check out Pick a Winning Social Security Strategy in Kiplinger’s, also featuring Brian.