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A Financial Plan for Couple Joe & Cathy, Both with High Incomes

A Financial Plan for Couple Joe & Cathy, Both with High Incomes

Categories Case Studies 

Joe and Cathy are a working couple with two children, who need good quality, objective planning advice to establish their priorities and make the best use of their financial resources, with particular focus on pension AVCs and a knowledge of the US estate tax issue.

The Background

Joe and Cathy are a working couple with two children. The couple own two properties, each with a mortgage on it. One of these is their home in Dublin, the other was Cathy’s house before they married, which they have kept as an investment.

They are both fortunate to work for a US multinational company, with generous reward packages consisting of good salaries, a generous bonus scheme and stock options in the company they work for. They are very conscious of costs when it comes to investing, and with this in mind, they have a DEGIRO share trading account and own some cryptocurrency.

The Clients’ Objectives

Whilst Joe & Cathy are drawn to DIY investing to save costs, they have just discovered that their shares in their employers’ company would be subject to US estate tax on their death, with no credit against Irish inheritance tax. This has highlighted a growing concern that they don’t have time to research all the possible financial opportunities open to them, or fully understand the issues that they face.

They recognise that they need good quality, objective planning advice to establish their priorities and make the best use of their financial resources.

The Everlake Approach

When analysing Joe & Cathy’s current financial position and working through their financial objectives in more detail, it became apparent that they needed to raise their focus from short-term tactical decisions, and instead take a far more strategic approach to their personal finances. They are in a very fortunate position financially, with the potential for significant affluence in the coming years. However, this requires careful planning.

We outlined from the start that the key to good planning for them is to immediately focus on their biggest asset – their future income stream.

Over the next few decades their earning potential is by far their biggest personal asset. They should do everything possible to grow this through further education and career advancement. We also suggested that they protect this income stream, should unforeseen events such as a death or illness occur.

After examining their Employee Benefits packages in detail, our initial consideration was ensuring that Joe & Cathy had sufficient income protection and life assurance in place, on top of the benefits provided by their employer. It was important to act on this immediately, as both protection solutions are easier and cheaper to arrange when you are younger – just ask anyone with a pre-existing medical condition. While this may not be the most exciting element of financial planning, we firmly believed that it was the top priority in Joe & Cathy’s financial plan.

US Estate Tax Issue

We then turned our attention to their stock options and their US estate tax challenge. To mitigate this issue, we arranged to transfer their vested stock over to our nominated custodian without having to sell the shares and pay tax, so that we could put in place a legal structure to address the US Estate Tax issue if one of them were to die.  Over time our advice is to diversify their portfolio into a range of non-EU ETFs. Read more about the US Estate Tax issue here.

In relation to their surplus disposable income, we drew their attention to their cash deposits that were losing real value, and their two mortgages. We suggested that they retain some cash in State Savings Certificates as a short-term emergency fund and then accelerate their mortgage repayments, particularly on their investment property where quite a punitive interest rate was being charged.

The couple’s employer provides an Occupational Pension Scheme where both the employer and the employee contribute. This is a very valuable benefit and one that always merits careful consideration. Employee contributions to the scheme are often a necessary condition to pick up your employer’s ‘matched contributions’. If you miss out on these, you are effectively voting for a pay cut. As these matched contributions were already in place, we suggested that they consider making additional voluntary contributions (AVCs), which they will also receive tax relief on, especially as they are both paying income tax at 40%. They are now aware that they can also make a backdated contribution to the previous tax year. They have a recurring task in their calendars for early September, to look at allocating spare cash to a pension contribution each year.

The Outcome

Joe & Cathy have now taken a strategic view of their finances and have a strong plan of action. They have clarity about their circumstances and are aware of some of their potential financial hurdles in the future. However, now they have a plan and the solutions in place to deal with the challenges. This has given them the security and confidence to be more ambitious about their plans in life over the coming years.

The couple also recognise that their circumstances will change a lot in the coming years. And so, their plan will need to evolve. They look forward to working with the team at Everlake for many years to come, as we help them to enjoy the lifestyle that they want.

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