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Picturing Your Financial World

Picturing Your Financial World is Not Magic

Identifying your financial assets and their relationships

One way to see your financial world and its many aspects is a “Playing Field Graphic.” This graphic shows all of the “players” in your financial world. “Players” are entities or activities that exist in your financial world. The “Players” tend to be accumulated but not necessarily planned.

Financial World “Playing Field Graphic”, a picture of your financial world


Your Financial World “Playing Field Graphic” is a pictorial representation of all of your financial assets in the form of players (entities and activities that make up your financial situation).

Financial World Written Descriptions, making the picture functional

The written descriptions describe the purposes and goals of each of the “players” on the Playing Field and the relationships and transactions between “players.” Relationships and transactions between “players” define the actions taking place. These actions and activities may affect taxes and other aspects of your financial world. Knowing the interactions between Players could change your tax planning and/or future acquisitions or dispositions.

A Map of Many Uses

Individuals Who Can Use “The Map”

  • The family - in creating a daily financial budget
  • Financial advisers – in developing your financial plan
  • Tax advisers – in developing a tax strategy
  • Legal advisors – in structuring legal documents between players
  • Insurance advisors – in assessing risks
  • Estate planners – in preparation of estate plans and documents
  • Family members – in knowing where financial assets exist
  • Business managers – in planning business activities related to other players
  • Lenders – in assessing financial strength
  • Business planning & development – to include other players
  • Successor planning – in developing a comprehensive succession plan
  • Business start-up or expansion planning – to identify financial assets for expansion
  • Your accountant – in understanding player relationships
  • And more

Your Financial World Graphic. Click to see a larger image

Summary of “Player” relationships and purposes as shown in the Sample Financial World graphic

(click the image to the right to open a larger image)

Financial World Graphic Basic Divisions, 1, 2, and 3:

  • Section 1 – Active sources of income from the efforts of the Controllers of the financial world.
  • Section 2 – “Passive” assets that are the basis of the Controller’s financial estate. These assets may provide inputs to the current income tax returns. These assets also represent the assets that will provide retirement income and the estate to be passed to the heirs.
  • Section 3 – The tools for transfer of the estate to the heirs and other designated individuals at the end of the life of the Controller and at the retirement of the Controller from the Closely Held Company.

Types of Players

Section 1 – Active Section

Controller – this player represents the decision point for all players and is the location of personal income tax returns. That return receives input from many of the other Players that have positive and negative impacts on the amount of tax paid each year. These affects determine how and when changes should be made to players to achieve your financial goals.

Closely Held Company – This entity could be any type of business entity. This entity is one of the two basic cash flow sources, the other being an employer company. As indicated on the Graphic this player may provide wages, benefits such as family health insurance and contributions to pension plans, and dividends – distribution of company profits.

Employer – Any entity that any Controller is employed by and receives income and/or other benefits. A closely held company may also be an employer.

Section 2 – Passive and Investment Assets

Personal residence – The personal residence is a living place for the Controller and their family. It is included as an asset if it is being or has been purchased. This asset is expected to increase in value or at least to maintain its value over time.

Liquid savings – A slow growth asset that is maintained as an emergency fund.

Stock/bond portfolio –Stocks or bonds held for growth and possibly current income. This portfolio is part of the plan of asset accumulation.

Rental Real Estate – Real property acquired as part of asset accumulation which is expected to pay for itself over time and may provide tax benefits on a current basis.

College fund – This is another liquid savings plan designed to accumulate funds over time to pay for the college education of the children. Properly set up this fund can help control income taxes primarily at the state level but also at the federal level as these funds grow without producing taxable income during their accumulation period.

Closely held company interests – this represents the value of the operating businesses. These interests are expected to rise over time and may be liquidated at Controller’s time to retire.

Pension accounts – Two types of pension accounts are available – regular pension accounts, and Roth IRA account. These may be currently being funded or held from previously funded sources. The principal reason for having pension accounts is to allow accumulation without tax on the growth.

Other types of players – There are many other types of players not shown on this sample. Any entity or activity that impacts your financial world is a player and should be included.

Section 3 – Estate Transfer Tools

Living Trust – A living trust is designed to hold estate assets in such a way as to facilitate their distribution upon the death of the Controller. This trust can also be used to specify end of live choices so that they would not need to be handled by those left behind.

Wills – A properly written and activated will is a basic requirement to handle end of life transfer of property. This is the minimum tool that all people should have

Business succession plan – a business succession plan is a document that provides a planed turnover of an existing business to a designate person or group at the time of the retirement or death of the current owner/operator.

Completing the Process

Once all of the Players have been identified each a description of each player is written and the purpose of each is identified and comment is added that tells how well the asset is meeting its purpose. A attempt should be made to explain how each Player relates to other Players.