“The Legal and Financial System, Your Choices and Exchanges”

Experiencing The System

You are born into a legal and financial system.  You are largely unconscious of the system, and most people rarely comprehend or choose to comprehend its intricacies.  Yet there it is, already engaged in your favor or to your disadvantage at all times—without your consent.  It is a system created by man over thousands and thousands of years.  Every choice you make, every action you undertake associates and relates, at some level, to the law, to the economy.

 

At some point, you become more or less independent of your parents, and, with minimal or substantial preparation (depending on your background, the advantages you were born into or worked to acquire), so begins your venture as you face the prospect of “getting and spending” your way to…what you want to do with or attain in your life.

 

For you to advance your personal fulfillment and material well being, you haphazardly and probably unconsciously begin to decipher a path through the system’s intricacies that you comprehend over time to a greater or lesser degree and to your greater or lesser success or advantage.  In other words, you choose a path, you gain employment, and you work to achieve certain goals.  As you direct your life, you may find yourself being sued, or having to sue others; you may apply for permits or licenses; you pay for gas, food, shelter, clothing.  You learn that there is a system of exchange, that there are others out there who disagree with you or who favor you.  For every choice, action or transaction, the system is present.

 

Choices and Exchanges

As you go through life, your choices and efforts result in your share of material goods, and add to or subtract from your quality of life or well being.  These goods are not exactly plentiful, as it turns out.  Not everyone has the same things.  And not everyone can—as plentiful as goods may appear, there is always and everywhere a limit on their availability.  But you do have a share—your share.  And this share of economic goods, whatever its measure, is called your “distributive share” of income and assets, and the way you live—the way you allocate your resources—is termed your “standard of living”—a fluctuating, non static position.  Some content themselves with less in terms of total material goods or obligations—income, debts, and assets—than others.  No matter what you have, though, or whatever you attain, there is nothing in the legal and financial system guaranteeing any one person’s or institution’s legal or financial position…for much more than the slightest instant.

 

Between birth and death, good health and ill, joy and tragedy, fulfilled and broken dreams, you fill in the space as circumstances or opportunities grant, as your will or your mind determines.  In other words, you make choices—and you take action—even if, when confronted with a choice, you choose not to do one thing, you make a choice to continue a certain action.

 

One choice necessarily excludes some other choice.  And for every choice—call it a goal, a desire, an objective—there is an exchange that occurs.  Each choice incurs costs and signifies a value—a value that you place on the choice you make versus all other available choices, and a value you place on what you receive in exchange for what you pay or give up.  To buy a Starbuck latte, you make an exchange—you pay money in exchange for the coffee.  As well, you forego or exchange saving that money in place of paying down credit card debt, let us say, or saving up for a shirt.  

 

Each choice you make is subject to your possibly being pleased or not pleased with the results of your choice.  In the case of your being pleased, you have gained or profited; in the case of your not being pleased, you have lost or not profited, at least to your present satisfaction.

 

 

Where You Stand

Where you are right now is evidence of your values, your goals, your choices, your priorities.  For you to change your status, you have to apply change your thoughts and take action.

 

You may be discontented or less than pleased with your current standard of living, so you seek out the means to improve it.  Alternatively, you may be satisfied and contented with your standard of living, so you seek to increase it, maintain and guard it against loss.  In either case, whether in the course of improving and achieving a higher standard of living, or by way of protecting the standard you have attained, it is necessary that you take action as a simple matter of being human.  Taking any action implies that you want something under the circumstances before you.  It also implies that you have made a choice.  In respect to the legal and financial system, conscious, informed choice is commonly called “planning.”

 

Planning occurs through a variety of ways.  You may try to do that which your friends, acquaintances or others do.  You ask advice of relatives, friends or acquaintances.  You may read articles in scholarly journals, magazines (usually devoted to money or economic matters), newspapers, newsletters or self-help books.  You may watch programs on television, download information available over the internet, or attend seminars and conferences.  You may seek out or obtain the advice of professionals who work within the system and whose title, profession, or offer of services or products presumes and promises strategic advantages to you.

 

As I have asked before in this medium:  How do you discern your standing in the system?  How do you know when, if, or whether you have all the options, prices, or other values before you for your consideration?  How do you know when, if, or whether you have the best options, prices, or other values before you for your consideration?  Should you care about the legal and financial system?  Should you know something, anything, about this legal and financial system?

 

Really, that is for you personally to determine.  Whether you do or do not, whether you should or should not, however, there it is—the system.  Growing, changing, giving, taking away, always moving along a path…to nowhere in particular.  It just exists, and continues to do its job.  Which may or may not be to your advantage.

 

Conclusion

What I have just recounted is that you make choices, take actions, and make exchanges within a system of which you are a part, and of which you may have greater or lesser knowledge.  Unless you have planned and concluded by trial and error that you are comfortable with where you stand in relation to that system, there is no way for you to quantify your position, and therefore no way, other than by the trial and error of reading this, hearing that, executing an action here and avoiding an action there, to know what your position could be.

Building The Baseline Using “Planning Indicators”

A baseline that gauges the legal and financial system requires an organization to be manageable. I have earlier proposed that ten planning categories comprise a baseline in the process of developing a legal and financial planning—resource management, estate, asset protection, retirement, insurance, tax, investment, gift, business, and choice of entity planning. Let’s take a moment to review a description of what these planning disciplines are.

Planning Indicators.
Physicians and nurses use your vital signs, changes to your temperature, weight, or physical chemistry to determine your health. Economists employ a variety of data—jobless claims, durable goods orders, housing starts, new factory orders, personal income, the unemployment rate, producer prices, real gross domestic product, the consumer price index, or consumer confidence—to measure the strength or weakness of the economy. By separating out and measuring certain planning disciplines, you can likewise derive conclusions about your legal and financial strength and weakness. The following list of planning fields does not represent a descending order of priority. Other than knowing and understanding that financials (incorporated in Resource Management) are crucial to, and usually antecede, every planning decision, the planning emphasis described by a given planning field shifts based on individual priorities or needs. Briefly described, The Ten Planning Indicators or Disciplines concern:

Resource Management
The measure of your wealth (income, debt, credit, expenses, and assets) to cover needs and desires.

Estate Planning
The measure of your wealth upon incapacity or death.

Asset Protection
The measure of your wealth to present or future creditors, whether voluntary or involuntary by force of law.

Retirement Planning
The measure of your wealth following total or partial withdrawal from the active workforce through life expectancy.

Insurance Planning
The measure of your wealth subject to risks not offset, mitigated, or shifted to third-party guarantors in the areas of life, property, casualty, disability, health, long term care, business or profession.

Tax Planning
The measure of your wealth following application of tax laws (income, capital gain, estate, and gifts including charitable and non charitable transfers).

Investment Planning
The measure of your wealth obtained by the acquisition of tangible or intangible assets over time under terms of risk, or how much the return on an acquisition can change in the short or long term (volatility) and in the predictability of an acquisition’s results.

Gift Planning
The measure of your wealth during your lifetime following distribution to one or more charitable or non charitable beneficiaries.

Business Planning
The measure of your wealth as a result of privately held business structures or enterprises.

Choice of Entity Planning
The measure of your wealth following the selection of juridical (i.e., trust or business) entities you implement for personal or business planning purposes.

Alternative Views On Planning Disciplines
Some planners might take the position that there are more or fewer planning disciplines. For instance, it could be said that Incapacity Planning—the branch of Estate Planning having to do with your inability to control your property or person—should be separated from Estate Planning, just as Asset Protection Planning, formerly a subdiscipline of Estate Planning, has been separated. Indeed, in the coming years Incapacity Planning may be so separated and distinguished, possibly due to an ever increasingly powerful subsection of Estate Planning, namely Elderly Planning. For the time being, however, it is still considered part of Estate Planning. Choice of Entity Planning has been a significant component of Business Planning. Choice of Entity Planning involves the determination of whether to use one or another type of trust or business vehicle to achieve planning purposes. The reason for breaking Choice of Entity Planning apart from Business Planning is that there are aspects of entity planning that resemble active business less and passive administration more. Take trusts, for example. There are numerous types of trusts from which to choose, depending on the purpose for forming a trust. Besides this, trusts are not considered legal business entities (though they may in fact carry on business). Furthermore, business entities (corporations and partnerships, for instance) are frequently formed more for administrative, passive, or not highly or necessarily profitable purposes. Traditional business entities are strictly for-profit. Hence, it seems worthwhile to consider Choice of Entity Planning as a separate planning category. As a final example, while financial planning has sometimes concerned itself with Resource Management—that is, focusing on planning for income, debt, credit, and budget matters and ratios—most financial planning and all traditional legal planning have had very little to do with the matter. Financial planners have been more concerned with the sale of specific insurance or investment products (primarily publicly traded), and attorneys have had no training in the field at all. Yet Resource Management is the undeniably indispensable component. It is useless to speak of planning without an understanding or knowledge of resources and how an individual manages them. In fact, there can be no planning whatsoever without money (e.g., income, assets, or credit) or the desire for money or more money (e.g. in the form of income, debt, credit, or investment) or money’s worth (e.g., to be rid of debt, to have more assets).

The Point Of The Ten Planning Disciplines.
Whether there should be more or fewer planning categories, the point is that any breakdown or organization should indicate your present position in the legal and financial system, and the effect or impact that any legal or financial strategy you undertake will have on your legal and financial health across all planning disciplines. To date, there has not been an objective, quantitative method devised by which you could make sense of the legal and financial system as you face or make planning decisions, or by which you could measure results or make sense of where your wealth stands presently, let alone following a planning decision however minor or major. Most planning decisions you make are small, but they are cumulative and impact the long term dramatically. This means that it may take some time to change course and obtain more optimal planning results. To keep track of the effect of cumulative decisions, it is simple and beneficial to organize them by larger categories, by separating and grouping them into logical classes. Too many, and they encumber the system; too few, and lines get blurred and analyses become difficult to comprehend. The Ten Planning Disciplines indicate the state of your legal and financial health.

Conclusion.
By establishing a few general planning categories that make simple sense as to how the legal and financial system impacts your wealth, you will be able to analyze, quantify, and track its effects on your wealth. More specifically, the impact of your past legal or financial decisions is indicated and can be quantified by an analysis of your wealth in terms of The Ten Planning Disciplines. All legal or financial strategies—whether they are promoted as services or products, however specific or general—can thus be measured for their short- or long-term advantages or disadvantages on your wealth.

Getting to “Baseline” for Legal and Financial Planning

There are not many, but a few people are very practical about the system of law and money. They possess an enviably rare, internal compass that allows them not only to make sense of the unintelligibly intricate system, but have as well the quiet, practical ability to take care of their legal and financial planning.

Most people, however, feel as if they are at the center of a storm, that they are trapped on all sides in the chaotic midst of The Great Planning System. The following depiction perhaps illustrates this sense.

 

The Need for Order in Legal and Financial Planning

Given the welter of strategies, rules, laws, opinions, and providers of services and products, there is all the more reason to discover a mechanism that makes order, an organizing principle or baseline that identifies where you are in relation to the system and its multitude of alternatives and views. Such a baseline would provide an orderly method for analyzing your legal and financial options or consequences, and a basis upon which to make your present, or to time your future, legal and financial decisions.

Unfortunately, there is no “baseline” in legal and financial planning, at least not one that crosses the planning disciplines and allows you to make sense of your alternatives, let alone to measure the impact that one decision in a given legal or financial field has on another. Reading all, or at least several, books on planning gives you a sense of planning, and may even prove satisfactory in the event you accept or implement an author’s advice—or not.

A sampling: use credit to get ahead; don’t buy anything on credit; get a will; wills are bad, so get a trust; buy an annuity; put your money in an IRA or your employer’s 401(k), not annuities; buy whole life insurance for protection and savings; the purchase of whole life insurance is a scam; avoid selling stock with capital gains; sell stocks with losses and gains; purchase an index fund; exchange traded funds are superior to index funds; give to charity; create a charity; start a business; buy a business; form a limited liability company and transfer real estate into it; S corporations are better; and so on.

And just what are the effects of your planning decisions on your current or future resources? Or at what point does it make sense to change, amend, or undertaken an altogether different strategy? It is time consuming and frankly impossible to read every book, to search all articles, to expect all advisors to be on the same page or to notify or discuss with you and all other advisors changes in circumstances or the need for an amended or different strategy. It is unimaginable that they could quickly review where you were, where you are today, and what course your legal and financial planning should take because…there is neither a baseline nor a system to track changes and analyze alternatives.

Getting to “Baseline”

At its simplest, a baseline provides a starting point. It is a point of reference that establishes objectively what your personal legal and financial condition is in relation to the total legal and financial system—no matter who your advisors are or what their opinions or competencies may be, no matter the size of your wealth, no matter what your neighbor has or says. Based on your wealth and your personal data, a legal and financial baseline should give you and every advisor a simple, reliable, and consistent picture of where you are right now and indicate what you have for strengths and weaknesses. By inference, a baseline would likewise indicate your planning possibilities or impossibilities given your legal and financial wherewithal.

In truth, determining your legal and financial condition can be somewhat problematic because the legal and financial system is organic; it evolves by the nanosecond. Laws and rules change; products change; the market changes; people move, suffer injury or illness, or die; businesses start up and compete, profit or lose money, are merged with or acquired by competitors, or cease to exist; the government requires more resources, allocates or reallocates funds, or changes policies and enforcement emphases; or political unrest challenges existing authority or economics. And then there are wars, weather, terrorism, cycles of economic boom and bust, foreign trade wars or agreements that unsettle the status quo.

But then, your personal legal and financial condition is likewise not the same from one moment to the next. To you, it might seem to be more or less stable because you are so close to it. When times are good, you judge things to be in synch, very stable; when times are bad, you judge your situation to be precarious, insecure. You lose a job; get a new job or change jobs; lose benefits; get a raise; spend your savings to cover increased mortgage, insurance, gas, food, clothing, or other costs. Usually, it is easier to deal with and focus on than what occurs at larger, more remote levels. Nevertheless, what a baseline will do is to keep all things in perspective. It will gauge your legal and financial health no matter the state of the world or your personal life.

To devise an order and baseline out of the organic, seemingly unstable and unpredictable legal and financial system will require that we establish categories for analysis that incorporate what are or can be termed core fields or general disciplines within legal and financial planning. While the planning fields may be otherwise broken down—some authorities or practitioners may add, subtract, combine, break out, or rename one or more fields—in essence they involve the following:

 

□ Resource Management □ Estate Planning

□ Asset Protection □ Retirement Planning

□ Insurance Planning □ Tax Planning

□ Investment Planning □ Gift Planning

□ Business Planning □ Choice of Entity Planning

 

Summary

We have lots of measures in life that allow us to make judgments. Establishing a legal and financial baseline across multiple planning disciplines will serve to offset, if not eliminate, product and service confusion as well as economic waste.

“The Omnipotent, Omnipresent, Omnivorous Legal System”

The System

It may be arbitrary.  It may not be what you like.  It may not be ideal, or what you voted for.  It may not be something you understand, pay attention to, or want to deal with.  However, there it is, chasing after whatever you earn or own and giving no quarter, no rest to the busy, the weary or the confused.  “It” is the omnipotent, omnipresent, omnivorous Legal and Financial System.

 

The Legal System

For nearly every activity, the law is there with a sensitive trigger waiting just in case “justice” must be measured out and dispensed.  You take the law for granted as you pursue and proceed about your life’s business.  And why not?  Why should you have to contemplate the infinitude of laws behind simple, otherwise everyday, activities or transactions? 

 

For each seemingly simple decision, each everyday activity, each common transaction, there are laws vigorously at work or hovering to be engaged.  Until something goes wrong, you give no thought to the laws surrounding and permeating the preparation or consumption of a peanut butter and jelly sandwich; shopping for milk, salad, or apples; renting, leasing or buying a car, an apartment, condominium, or home; taking clothes to the dry cleaners; charging gasoline, food, clothing, or other purchases on a credit card; writing a check out for a child’s swimming, baseball, skating, soccer, tennis or other sports league activities or lessons; donating funds to a school, community, religious, or other cause; taking a vacation to Disneyworld, Jackson Hole, or the beach; visiting a sick relative in the hospital, or going to the doctor for a routine checkup; going out to dinner at a restaurant with friends, business colleagues, or romantic partners; getting the hair done or going to the barber; or any other one of literally tens of thousands of mundane decisions, activities, or transactions you make in just one day.  Each involves the system of laws.

 

Planning Within The Legal System

In short, planning within the legal system is … not easy to think about.  As you live, work, relax or sleep, there the dynamic legal system is:  Federal Laws; State Laws; County Laws; Municipal Laws; food laws; toy laws; apparel laws; business laws; health care laws; intellectual property laws; license and permit laws; employment laws; zoning and building laws; gift laws; environmental laws; hunting and fishing laws; mining laws; admiralty laws; gun laws; tax laws; inheritance laws; real property laws; personal property laws; marriage laws; manufacturing laws; traffic laws; securities laws; tort laws; criminal laws; insurance laws; commercial paper laws; insurance laws; employment laws; manufacturing laws; patent and copyright (intellectual property) laws; bankruptcy laws; contract laws; tax laws; banking laws; and on and on. 

 

Each of these laws affects your wealth and well being in cumulative silence or at some tragic big-bang point.  And nearly always, what you consider justice in respect to your wealth and well being will come up short of your expectations.

 

Laws and Wealth and Well Being

As they concern planning, laws do not make anyone equally wealthy, equally happy, or equally secure.  More accurately, it is your freedom to learn, your power to choose, your opportunity to execute or implement by action or inaction determine the measure of your wealth and well being.

“Legal and Financial Planning”—How Do I Know What I Need?

“Legal and Financial Planning”—How Do I Know What I Need?

 

Let’s start with the assumption that you care about “planning,” whether “legal planning” or “financial planning.”  Without getting lost in definitions of “planning” and distinctions between “legal” and “financial” for the moment, what aspect of planning do you care about?  “Investment planning”?  “Retirement Planning”? “Business planning”?  “Tax planning”? What about asset protection planning, insurance planning, gift planning?  Why do you care about one or more of these areas?  Should you even care?  After all, for whom is all this busywork, this planning—is it for yourself, your beloved, your kids, your mom or dad? 

 

Judging from the books available, everyone should be able to figure out what “planning” is and how to do it.  A visit to Borders Books, Amazon.com, or Barnes & Nobles includes numerous titles from the joker boys behind the Motley Fool guides; the classic Planning for Dummies series (estate, investment, financial, or insurance planning); or the too-toothy-and-white-to-be-totally-genuine-smile Suze Orman book cycle.  Or others.  Take your pick.

 

What everyone walks away with from these—or even more academic or sophisticated books with topics such as hedge funds, day trading, real estate investments, options and futures, or the foreign exchange markets—is that planning is about spending money and time.  It is about spending money on the purchase of specific products—annuities, stocks, bonds, mutual funds, index funds, and a host of other products.  Let’s not leave out insurance—Long Term Care, Whole Life, Universal Life, Term Life, Property and Casualty, Disability, Business or other types of insurance.  It’s about spending time reading about legal documents such as trusts (how many kinds are there?), wills, powers of attorney, college savings plans, corporations, limited liability companies, partnerships, resolutions, IRAs, pensions, special needs, tax forms and returns, leases, contracts, and a host of other instruments.  It’s about spending time and spending money to educate yourself about planning in one or more of these areas. 

 

To what end?  You benefit from learning some terms and concepts.  What all of these books recommend is…what?  Now that you have spent time and money, you need to spend some more on a financial or insurance or banking or brokerage product?  You need to spend some more on a legal, tax, or accounting service?  You still need advice after reading these books?  Did you actually think you were going to get a plan?  Perhaps you thought you were going to get certain knowledge about what to do, what to avoid, what to buy to ensure that you can afford to buy more such books in the future.

 

Planning, at the end of all this reading, is educational in the sense that it is “informative.”  The exercise is intended to lessen mistakes when “planning” becomes “buying.”  Buying products or services because someone who writes a book inevitably must tell you that (a) educating yourself about services and products is good—good “planning,” if you will—and, at the end of however much you read, (b) you will still need to see your “planning professional” in order to get the service or product. 

 

So you come away from reading “planning” books with some terms, concepts, some understanding or rules of thumb that may or may not apply, success stories of folks who made the right planning decisions, tragic stories of folks who lost everything by making the wrong planning decisions—both the success and failure stories emanating from following the same or similar underlying wisdom or rule of thumb, only one person ends up fortunate, the other unlucky—and instructions to see a lawyer, CPA, broker, banker, certified financial planner, insurance professional, or ….  The list goes on.

 

When you see the doctor—any doctor—you will begin with some minor “tests” in order to establish a “baseline.”  It does not matter how many times you see the doctor, you will have your weight, height, and blood pressure checked.  A medical baseline is the beginning for further analysis—even analysis which may interpret that baseline differently.  But at least there is a baseline.

 

In the planning business, there is to date no such baseline.  Lots of books and advisors tell you to buy specific products or services, but based on what?  Why do we need to buy a product or service?  What difference does its presence or absence make to us, and on what basis?  Moreover, just how do we know what we need, how much we need, and when we need it—assuming we need a product or service?  And will not this provider of the service or product, at the end of the day, give me an answer that…another provider (or even book author) will contradict?

 

What you need, what planners of all professional stripes require, is a baseline, a standard from which analysis can begin, even if someone takes a different position.  Look, physicians apply very standard examinations notwithstanding that no two people are alike.  The test is the same for everyone.  And from that, they then delve further into figuring out what ails you, which leads to ever more sophisticated tests, which, in turn, have their own baselines upon which further analysis is ventured.  At some point, various causes of sickness or extensions of injury are eliminated and a procedure is begun to eliminate or assist the individual, who is usually informed about and is usually a participant in deciding what the physician should do.

 

Planners have no baseline.  They have rules of thumb and preferences.  Some have a few formulas or prized clauses, methods, or products.  But they have no baseline, at least no baseline that crosses disciplines and which measures the effects of choices in one planning area on another.

 

So what you need to do is to establish a baseline for your planning, one that will measure your legal and financial condition day in and day out since your position fluctuates not only as your income and assets go up and down, but as the larger legal and financial or economic system gyrate wildly.  You need a planning anchor, something that will make sense of all that reading you do, or something that will unburden your thoughts from that nagging sense that you need to plan…before whatever you don’t want to happen comes about.