First Friday Feedback: April 2025

April’s First Friday Feedback is here. Phil sits down with Daniel Smith, EVP and Cannon Subject Matter Expert, to talk through what the Trump administration could mean for taxes, estate planning, and client conversations.

Smith breaks down potential changes to the estate tax and shares why people skills are just as important as technical expertise. With tax season in full swing and National Financial Literacy Month underway, this episode offers clear, actionable insights for wealth management professionals—minus the jargon. Get practical takeaways and stay ahead of what’s next.

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Please send Comments, Questions, and Feedback to: mojo@cannonfinancial.com

Please send First Friday Feedback submissions to: mojo@cannonfinancial.com

Transcript

I'm Phil Buchanan with Cannon Financial institute. We produce the podcast series Monday morning Mojo, the cannon curve and cannon connect each of these podcasts invites listeners to email or text their feedback, comments and questions, they are all answered right here on First Friday feedback. If you're new to our podcast. Go ahead and subscribe to all four and get engaged by sharing your perspective life is about the journey. So, let's go for the ride. Greetings. Cannon Nation. It is Phil Buchanan here with First Friday feedback for April 2025 Well, a couple big things coming up in the month of April, of course, it's Financial Literacy Month, and all of what that entails, both from a client's perspective, but also a broader nationwide and dare say, worldwide perspective, anything that you are doing, anything that you can support in your Local communities, in your states around the country to promote financial literacy is well, well intended. It's also tax month. April 15 is the filing deadline for US taxpayers, and that's got a lot of people questioning, what do the changes that are sure to come under the new administration. What does that mean for me from an income tax perspective, but also from a larger wealth management perspective? I'm excited today to be joined by Daniel Smith, who is Dean of Faculty at Cannon Financial institute. He heads up our private wealth management group, and he is here to give his perspective and his insight on what the new administration and the changes that are sure to come might mean for the world of wealth management. Daniel, welcome to First Friday feedback.

Thank you, Phil, glad to be with you so, Daniel, you are the dean of faculty at Cannon. You are the longest serving full time employee at Cannon. So, I'm curious, and I know our listeners are curious about this as well. Tell us a little bit about you, a little bit about your background and what you've been working on, Oh say, the last 35 years.
It's a lot of it's a lot of coverage out in there. You know, this is the greatest opportunity that was ever given to me in my life, is to be able to come on board and be with cannon. And it's kind of shocking 35 years later to be thinking about that, certainly in the late holes in the back nine of your career doing that stuff. But I was, you know, as you know, I started in the financial services industry as a financial advisor with a wire house firm. Dude went to Reynolds back in those days, what's now, Morgan Stanley, and got to know as I had wealthier and wealthier clients, they had these funny things called trusts, right when I put things into name. And so, I thought, well, somebody in training back there talked about that, but not in any depth. I thought, I need to know more about that. So, I started learning about that and teaching people about estate planning. Back in those days, wire house firms did not have trust companies, and so we couldn't actually help people with it. We could give people good advice. Financial literacy, as you were talking about, very, very important to be able to explain difficult concepts in simple ways that people would act on them if they don't understand them, they're not going to do it. Certainly not going to do something that's irrevocable. And so that that started my journey down that path, that and a number of other things, Glass Steagall coming down, and a couple of mentors of mine who started with trust companies, it just kind of kept coming up. And the Trust Company across the street was interested in my sales acumen and investment knowledge, and I was interested in the broader platform because I could only help people with stocks and bonds and mutual funds and things like that. A lot of my clients, you know, their wealth is and other things, real estate, and they've got art collections and all these other things that I couldn't help people with. So that broader platform was very interesting to me. So, I went to work for a Trust Company, and through that, met cannon so Ted riddle Huber, at the time, President company, we had to do some presentations and some of the sales classes that we were doing. And he came up to me after my first presentation and said, hey, have you ever thought about teaching stuff? And that was, it was just a tremendous opportunity. So came on-board full-time Bucha and back in 1990 and have enjoyed the ride ever since.

Well, and again, what a ride it continues to be, you know, I think back to the timing 1990 you were a bit before your time in that you had a very broad and comprehensive look at financial services. You were not, you were not, you know, bucketed in any one area. You were looking at the complex issues that hit a family situation, not so much from the way most of us are trained at that point in time to think about the products and the services that people might buy. You were actually looking at it from what are the issues that clients are facing, and how can I help solve those? Issues we have seen the industry morph over the over that 35-year period of time that we were just talking about into being more comprehensive in its approach, being more focused on client challenges and issues and less about the products that solve them. What other changes as you think back over your time in the industry, have you seen and it's for the better, or you've seen and maybe it's not for the better? I look at its kind of in two ways. In one way, the industry hasn't changed at all. It's not about us; it's not about the products and services. It's about solving clients for clients and clients' families, and that's really why I'm in the business. I don't care about taxes, I don't care about trusts, I don't care about investments. Fundamentally, those are tools to get somewhere. And so, for that reason, I learned those things so that I can help my clients with those ideas. The only reason why I'm in the in the business because I want to help you. And so, if I can leave an imprint on the industry, whether that's a student in a classroom or whether that's a client sitting across the table from me, my objective is simply to help people to achieve what is their purpose in their lives. And so, if I can better their lives through advice and planning that I can give to them, that's great. And so, the marketplace of ideas, in that sense, hasn't really changed, right? If you're investing in the stock market, bond market, right? All the investment markets that we would put things into, fundamentally, the strategies in those areas haven't changed dramatically over time. It is a long-term process, and when you implement that process correctly, you see the results that you're trying to achieve over time. And being on the older end of that spectrum, it's nice to look back and see that the things you've helped people with have worked and implementing that in your own life that works. And that's a beautiful thing to sort of see that that coming together. So, in that sense, I really see a sameness in terms of what we do. And luckily, at least on the personal side of the business, the laws don't change dramatically generally. So, I think of two big changes that have taken place over the course of my career. One is the entrance of generation, skipping transfer tax to the code, right? So, the state and give taxes go back into what, 1917 or something like that, a permanent part of the code. We got the unlimited marital deduction in 1981 so you might say, wow, that's a really huge change, but all it did was slightly change how we created the formulas, for instance, to create an AB trust. So dramatic change, not huge movements in what we have to do in order to change our overall planning. Generation. Skipping was an interesting one, because it really led to a longer-term trust horizon. Because once you get that exemption in place, and you got a zero-inclusion ratio on your trust, that trust can literally go for as long as the law will allow. And of course, in some states that can go perpetually, but even in states that have a rule against perpetuities, you're still talking about four or five generations out 120 years or so, depending on how long people live. But that's a really long time to have money sit in a trust that would be your what your great grandparents? Great grandparents. Do you even know who those people are? Do we know the names of those people? I mean, I've done some ancestry stuff, so I happen to know that when I ask people those questions, most people have no idea who those people are. So, the origin of that money is something that most people wouldn't even know where that came from in the first place. And we always think in terms of the big numbers, and certainly today, we have huge exemptions. Back in those days, it was $600,000 for a state and $1 million for generations, skipping transfer tax. And so, it was a lot smaller seed capital. But even with that amount, when you grow that out over generations, it turns into enormous amounts of money. And even if that's just a portion, if I'm worth $5 million and I set aside 1 million in this generation, skipping transfer tax free trust and use the rule of 72 double that money every 10 years at a 7% rate of return. It's astonishing what that will turn into in just 100 years. So, it's a beautiful thing, sort of, to see how that play comes in. I think that really ushered in the acceptance and the trend towards longer term trusts, at least for a portion of your money. And then, most recently, really, in 2011 when the exemption went this was during the Obama administration and the Bush administration, the estate tax went to zero. Congress just couldn't get along and couldn't figure out that was going to happen. And so, we ended up with 2010 with no estate tax. Seven billionaires to my last count, died that year paying absolutely zero estate tax. That was obviously something they needed to fix, and they put in. They couldn't just extend it, as they did with the income taxes. They had to actually put in. A new bill. They needed a new law, and so they pulled off the shelf this thing that Senator Kyl from Arizona had written. Nobody thought it was going anywhere, and suddenly that becomes the new law, temporarily in Obama's mind, just for two years to fix it, and that took us to the $5 million exemption we have today and indexed for inflation. But the other thing that ushered in, which the other big change is decent is the portability component of that, and that has really changed planning in some ways, in that we have another option other than doing an AB trust. I still think on the high-end wealth side, the AB trust is still your ideal motion, but there's a way to back your way into that and really leave either the portability option, or the AB trust option on the table for a post death, right postmortem election opportunity by using a Q tip trust. So, in an in a kind of funny way, if you're using a professional trustee, that's my big caveat here, because you have to have a trustee who knows what they're doing. Are why attorneys are, are sometimes reluctant to draft it this way. They like the paint by number, right? Put as much here. Put that much here. They're going to draw formulas out for all those things. That's not necessary. If you use a single Q tip trust, I die. I leave everything into a Q tippable Trust and give the trustee the power to split. It's all. All I need. You want to add in some other language that allows you to alter the trust based on the election that's made beautiful. But from a fundamental standpoint, interestingly enough, the most complex and most flexible type of planning to be able to do today is almost the easiest drafting. So that was another big change that took place during my career in terms of what those are outside of the numbers. Obviously, the numbers have gone up dramatically, and the big exposure I find in the numbers going up dramatically, the estate tax free amount. It lost a lot of people. Because if people were not focused on people in solving a problem, as you were talking about earlier, they were focused on numbers. It was very easy early in my career, of the typical way that estate planning would take place with people. They go, hey, you're worth over 600,000 you're going to be subject to estate tax. You need set up to save me trust. And so, it's all focused on the vehicle. It's kind of like the early days with an IRA, hey, put $2,000 in here and you'll get you'll get a tax deduction. Was sold as a tax deduction. It wasn't sold as a retirement plan. In the same way estate planning was kind of sold to save estate taxes. And so, when the estate tax exemption went to 5 million, all of a sudden, most people aren't subject to estate tax. And then when they double that to 10 million, index for inflation, you know, less than 1/10 of 1% of people are subject to estate tax. The great thing about that, to me is it exposed the soft skills part, the understanding family dynamics, the understanding who the client really is and what they're trying to accomplish, because that's really what estate planning is about. The taxes are just the obstacle course that we have to run on the way to getting there. Whether you're worth $200,000 or $200 million the family dynamics are always present, and that's the main thing that people need to be thinking about and talking about with their clients. And because the estate tax exemption went up so high, we don't have to talk about the tax thing with most people. And so, it leaves it for you to see who's going to step up and really make sure that we're looking at who are the family members here. What are they trying to accomplish in this family? What kinds of concerns do they have associated with that money? Because, again, on a relative basis, where they were 200,000 or 20 million, you know, the underbelly still there at 200,000 that's the lifestyle that my family lives. At 200 million, that's the lifestyle that my family lives. And so, it's still all of your money, right, regardless of how many zeros that first number is it jump out at me.

A great, great narrative, right there. You know, couple of things that came to my mind as you went through that a good friend of ours, who is CEO of wind trust in Chicago, Mary Ann Corinne, made a comment recently that I think speaks to the importance of what we do. She said, in our business, the business of wealth management, relationships are number one. The ability of advisors, professional advisors, to cultivate and build relationships, is the number one thing. And she said, I don't really care what number two is, because if you don't have the relationships, the rest of it doesn't matter. And you know, as I think back on what you're outlining right there, it is less about the technical wonky side, because, quite frankly, they're they're small adjustments that get made over time, but once you've mastered the basic applications. It is about how you take that information and how you use it, correct. Yeah,
in Trust School, that comes up a lot, and I try to set people up for that because I said, you know, the knowledge is important, otherwise you can't advise people on that information, but there's always somebody smart that I can hand them off to, but then I lose that aspect of relationship. Because they're in a relationship with that person yet, and so as a result, you get what I call premature handoff, right? People get to something that they're uncomfortable with in the advisory space, for instance, and they'll go, oh gosh, I just don't know enough about estate planning. I don't know how to answer those questions. Well, to me, just fall on that sword and just go, hey, Phil, you know, tell me about your estate plan. That's not my area of expertise, but as you can imagine, all of my clients have to deal with that. What are you doing in that space? So, what I've done is I've basically just said I can't answer the questions in this area, but because we have that relationship, talk to me about what you're trying to accomplish. It almost makes it easier to talk to me, because, you know, I'm not trying to solve the problem. I'm just trying to figure out if there is one or if there's something that needs to be addressed. And so that's a really important part. And back to the number's aspect of it, along with her quote about that, one of the things that I tell classes all the time is your clients are not a math problem, right? It's a people problem. So, you know, we keep trying to go back and solve this little numbers thing, and for a lot of people, that's a very important game to play, but they sometimes lose. I think the fact that that relationship needs to come first, that the client, as a human being and as a human family needs to come first, and that's the unit you're really talking about. So, one of the things we try to do in all of the cannon Trust School classes, and I think one of the things that makes them very different, is we're not just teaching technical knowledge. I tell the classes every week at the beginning of trust one when we're in there, if there's one thing you can work on for the rest of your career, it's communication skills, right? The knowledge is an important side effect to that, but communication skills is how you stay in that relationship, build that relationship.

You know? It's interesting you say that I heard a clip, and I've gone back, and I've tried to find it, and I've not been able to find it, but it was a millennial. And of course, millennials are now into their 40s, so it's, you know, we have to keep that in mind, because I don't know that there is ever been a more maligned group, but a millennial was making a comment, and she used the term power skills, not soft skills, but power skills. And it was her observation that not just for her generation, but for everyone, that the art and the skill of effective communication is what really empowers you to be successful in life. It's not so much what you know, but what you can communicate that counts. And so I have changed my languaging based upon our comments right there. You know, it's not about soft skills, it is about the power skills. And you're absolutely right. You know, when you work on the effectiveness of your ability to communicate, that instills with you a certain power, a certain authority, a certain professional attractiveness that draws people to you. You know, you and I have joked about this in the past, that we've all met professors and PhDs and really just brilliant individuals in industry that can't carry on an even basic conversation, and when that's the case, that doesn't draw people to them, that doesn't make them as professionally attractive as those individuals that do have those power skills of communication. So, I think that's great insight. Well, let me ask you, go ahead, important to know that everybody can learn that. Because I think some people go, oh, you know, I just don't have that thing. I heard a great phrase around that that probably applies a little bit to me too, that I'm a I'm an extroverted introvert, right? So, because of the job that we're in, we're put into a position where we need to exercise those skills. And I think that's a really important component of it, to understand that I can develop those power skills, even if that's not a natural thing for me, but it's it is a learned effect. And so, if you do that in application with somebody, if you really care about the person sitting across the table, again, the table again, one of the reasons why I love our business because it's a People-to-People business, as opposed to a people to company business. I understand you're still dealing with a person when you're dealing in a in a corporate role, but seeing that direct impact on families is a big part of the inspiration for me to try to work hard enough to figure out how to explain complicated things and explain
them in a simple way.

Incredibly well said. Well, Daniel, let's wrap up with you taking a little bit of a of a forecast approach. I'm gonna put you in the in the seat of a meteorologist. And by the way, you don't have to be right to be a successful meteorologist, and you don't have to be, you don't have to be right right here. But again, as you take that 35 years of history and recognizing that we've got a, still a relatively new administration, couple of couple of months at this point in time under their belt, you know, a lot of forecasts. Tested changes that may occur, etc. What is your advice to people in the welt space right now relative to what changes might occur under the Trump presidency later this year?

So, my main advice would be, relax, but be aware. So, let's just talk about what automatically happens at the end of this year. As we know from an estate tax perspective, the numbers will essentially cut in half. They'll go back to the exemption we had before, which is $5 million index for inflation. Currently we're at about 14 million. So that means we paid a number of about 7 million for estate tax purposes. If people are super wealthy and they can afford to give away the 14 million, it doesn't work if you just give doesn't work if you just give away a part of that, but if you give away the 14 million, certainly you're locking that in. And if you're giving that to people that you care about, you're doing it in a completely tax-free way. And it's not money that you need to live on for the rest of your life, right? Those three components are all important. Then what happens with the estate tax or not is immaterial, and for most of us who can't afford to do that, right? We're simply riding the wave and seeing where that exemption is going to go. Now, again, even at $7,000,000.90 9% of Americans don't have to pay estate taxes, so it's not really an issue for most people's lives, and I don't see that changing anywhere in the near future. So, let's just think about the proposals that are out there right now. There's sort of two tracks that the estate tax proposals are running on. Number one track is extending all of the 2017 tax cuts and Jobs Act tax cuts and make them permanent. So obviously, that was Trump's tax bill to start with. So, Trump 45 through the Biden administration, initially enough, while there were a million proposals that would have changed a lot of things in that space, some of them dramatically. None of those got passed through the entire Biden administration. So here we are on the backside of that, let's say Trump 47 naturally, with his tax bill that was put in temporarily for eight years. He wants to extend those numbers, and I would expect in the estate tax space, that's probably what we'll see. So keeping that bonus estate gift and generations, keeping transfer tax exemption, and along with that, there were a couple other income tax things, no tax on tips, no tax on Social Security, as some of us are creeping up on, sounds pretty good, too, not to be self-serving, but those are two big income tax proposals that come along with that. That means that, from an income tax standpoint, presumably, brackets would not change. They'll continue to be the broader brackets with a lower top number than was proposed the prior number, 39 and a half. Now we're at 37% is our top tax bracket, and again, that only affects people with incomes above $700,000 married couple filing jointly, $600,000 roughly for single individuals. So below that, again, the brackets have been both spread out and reduced in terms of rate. So, I would expect that would continue but understand there's a razor thin margin. So, you've got to get enough people on board the House and Senate for wonky reasons we would need to go into here. One of them wants to do it as two separate bills, or to deal with immigration and spending in one and the other one to deal with the tax laws. So, if that was the case, if we did it as two separate bills, it might come up late in the year. So that's going to scare some people. But again, this has been the same planning. We've been having the fear of falling off this cliff for quite a number of years, ever since 2012, right? That's sort of been hanging out there. So, it's standard advice. So, I would expect that's probably the direction we go. We'd simply extend the current tax laws going forward. There is another proposal out there that has over 200 signatories to it in the house, and that is to actually repeal estate tax. They wouldn't repeal the gift tax, but they would repeal the estate tax and retain this is important, the step up in basis. Wow, at death, because that was in Bush's proposals. Basically, he was replacing the estate tax with a capital gains tax, where your cost basis would transfer on after death, a record keeping nightmare, but understandable. I mean, that's what happens when you give something away. I don't expect that repeal to pass, but it has more support than I've ever seen before.

Well, Daniel, as always, you take the complex and you simplify, and you put it into categories that I can certainly relate to, and if I can relate to it, then everybody else can. So, thank you for your wit, your wisdom, your insight, but more importantly, thank you for the contributions that you make to the industry. Because as you said earlier, you hope that you have made an impact. And there are literally 10s of 1000s of financial professionals that but for their engagement with you, they wouldn't be in the position they are today. So, thank you for what you've done, thank you for what you're doing, thank you for what you're going to do in the months and years to come, and thanks for sharing your perspective on First Friday. Feedback.

You're very kind. Thank you, sir. You. An honor. First Friday feedback
is the production of Cannon Financial institute. Executive producer of First Friday feedback is Sarah Jones. Editing and mixing is done by Danny Bruner. Until next month, I'm Phil Buchanan, thanking you for being part of the cannon family and bye, bye for now you.