A clan, a man, a money plan (pg. 2)
Before tackling the family's investments, BWFA sorted out the Pierponts' estate. Anderson advised Gary to establish an ILIT (short for irrevocable life insurance trust), a trust that would own Gary's life insurance policy. Because the trust, not Gary, owns the policy, the $2 million death benefit is not included in Gary's estate and is not subject to estate tax when Gary dies.
BWFA also created a limited-liability company (LLC) to control Gary's real estate investments, which would shield his assets if, say, a renter were injured and decided to sue.
Other decisions were not so easy to make, and Gary and his advisors did not always see eye to eye. Beginning in 2005, Mark Stinson, who took over in 2004 when Anderson went on a leave of absence, strongly recommended that Gary sell most of his real estate holdings. "But when they said get out, I was buying more," Gary recalls. "I thought I was smarter than they were."
The difference of opinion didn't sour the relationship, though. "No matter how much they disagreed with us, they were not condescending," says Michelle. "They never made us feel as though we didn't know what we were talking about."
Luckily for the Pierponts, Gary's stubbornly bullish stance on the real estate market hasn't shattered his long-term dreams. Selling the bulk of his real estate in 2005, which BWFA recommended, would have put Gary on pace to retire even earlier, but now he's back on the original course. "We still think it can happen," Stinson says.
Gary began selling his real estate in earnest last year - the proceeds went to pay off part of his home mortgage - and Stinson, 49, wants him to sell even more.
Outside of the real estate, the Pierponts have about $140,000 in investments that BWFA manages directly, taking a 1.25% cut of the total each year. Gary also has $110,000 in his company 401(k) plan, which BWFA advises Gary on but does not actively manage. Stinson suggested that his client invest about 25% of the retirement plan in small- and mid-cap stocks, 30% in large blue chips, 25% in value stocks, and 20% in international equities. Last year it returned 5.7%, on par with the S&P's 5.5% gain.
Stinson also saw a lot of overlap between the mutual funds held by Gary's 401(k) and his IRA, so the planner exited the IRA's funds and plugged the money into individual stocks like Activision (ATVI), which is up 300% in the four-year period in which Gary has held it. In May, BWFA sold some of Gary's Activision shares for a profit.
Not every stock has risen. One dog has been Amgen (AMGN, Fortune 500), down 39%. Still, the Pierponts' overall stock investments with BWFA have returned 94% from May 2003 through the end of April, roughly double the percentage gain of the S&P 500 over that period.
As for the kids' college savings - there's a total of $130,000 in three Maryland 529 plans - Stinson recently made the unusual suggestion of saving less, not more. "Gary made substantial investments there when the kids were young, so we feel he can pull back there a little bit," says Stinson. They are now contributing $250 per child a month, half the previous amount.
There's no question that the meltdown of the broader real estate business has taken its toll on the family's day-to-day finances. Gary's business last year declined some 35% from its 2005 peak, and Michelle has started working part-time from home to supplement the family's income. But the Pierponts, who admittedly are a preternaturally optimistic pair, don't seem concerned about their long-term financial security; indeed, they meet with Stinson only once a year, at an hour-long review. "We don't speak to them on a regular basis," says Michelle with a shrug. The Pierponts had hoped to find a financial planner they could grow with, but they may have found something more important: one they can trust.