Making a difference

This past week I was visiting Ashley Thiem, CPA / PFS in our new Paraklete® Financial, Inc. office in Charleston, SC. As we were making the rounds, I continued to be amazed by the number of individuals, and advisers, who want to retain the services of our firm. There is a definite desire on the part of consumers to engage a financial planning firm that does not manage assets or sell products.

One of the venues we visited was a large manufacturing operation. The business had been in the family for several generations and the next generation was about to “step up to the plate.” Their concerns were business continuity planning, income tax savings and better cash flow for the company—not that there wasn’t enough cash flow; but rather there was too much, which resulted in higher income taxes.Surrounded by all of the equipment, I immediately thought of the Gift Leaseback technique. This strategy is commonly used by older family members where they gift depreciated manufacturing equipment to younger family members directly or through an irrevocable trust. In turn, they then lease the item from the younger family member, or trust, and continue to use the equipment in the business. The gift of the depreciated asset makes good business sense because there is little or no tax benefit left in the depreciated asset.

There are many benefits to this concept. For the present I would like to focus on only one: income shifting. Lease payments are fully tax-deductible to the senior family member as a business expense, and taxable to the younger (lower marginal tax rates) family member. This idea allows for the shift of income from high tax bracket to low tax bracket.

As always, please consult with your CPA before acting on any ideas presented in this blog.

I invite you to join me for this month’s Webcast: Investment Management and the Personal Financial Planning Process. We will review investment management in the personal financial planning process: the need for asset allocation; review asset classes; tax planning with investment management; and overview types of investment vehicles. The Webcast will be held on Friday, May 30 at 1:30 PM EDT. The course is approved for one hour of CPE and CE. To register for the class, please email us at

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