ABCs of Estate Planning

The process of estate planning is often misunderstood. In the minds of many people, the term assumes wealth and heirs. Single people of modest means may mistakenly believe they don’t “need” estate planning. However, planning for the disposition of one’s assets upon death offers everyone significant benefits.

The greatest benefit may be in knowing that your wishes will be respected. Naming your heirs and relieving them of unnecessary costs and stress by carefully designating which assets they will receive is far preferable to having a court make such decisions. Estate planning should include not only designating your heirs but also possibly using tools such as trusts to protect your assets. This will help ensure they go to the people you care about rather than to the government. And, in the event of mental or physical incapacity, an estate plan can enable other people to help care for you and your property through a durable power of attorney and a health care proxy. You may also want to include a living will among your estate planning documents so your physician knows your wishes regarding life-saving measures in hopeless situations.

Writing It Down: Begin Here

 A will is the basis of any estate plan, simple or complicated. To draw up your will, you should consider using the services of an attorney qualified to do estate planning. Although you may think you know your own mind and can do it yourself, an estate planning professional will ask you tough questions you may not have considered. Could your elderly parents manage an inheritance if they were to survive you? Do you want to include your children’s spouses in your estate? If your estate could be affected by the death of a child and/or divorce, then you should consider how these two painful situations might affect the distribution of your assets.

Naming Names

 The first name to settle on is that of your executor. Next will be the beneficiaries of your insurance policies. Beneficiaries, and contingent beneficiaries, of assets in retirement accounts, such as pensions, 401(k) plans, and Individual Retirement Accounts (IRAs), are kept on record with the retirement plan administrator, and these nominations take precedence over your will. Retirement plan assets pass directly to the beneficiaries, bypassing probate court unless the estate is named.

Similarly, beneficiaries of mutual funds and other securities holdings are also listed with the custodians who handle these accounts. These listings are made on a transfer on death registration, enabling ownership of the securities to pass directly to the appropriate person. The disposition of other assets, such as real estate and personal property, will also be included in your will.

You’ll want to make sure that you have considered all of your assets when you designate your beneficiaries.

Time for a Trust?

If you find your estate—including your home, pensions, and investments—totals more than $5.43 million in 2015, it may be time for a trust. In particular, an irrevocable living trust (ILIT), which means it cannot be modified or canceled by the creator, is often used to keep assets out of an estate. At its most basic, such a trust allows the transfer of assets to beneficiaries to be treated as a gift— thereby avoiding probate court—which could save your heirs time and money.

Regardless of the level of your net worth, there are a number of reasons why you should consider an estate plan. Take steps now to ensure your wishes will be implemented and followed and that provisions will be made for your dependents and loved ones.

We work with a team of estate attorneys that have your best interest in mind. To learn more about what type of trust might be right for you, schedule a meeting below.

4 Uses of an Advisor

What is the value of a financial advisor? The personal touch. Here are four stories of how flesh-and-blood advisors you meet in person (that’s opposed to a robo-advisor, where your contact is digital or over a phone line) benefited their clients.

These good advisors helped clients to overcome emotionally based decisions, stop them from making mistakes, figure out whether to make a big purchase and decipher arcane retirement plans. We’ll have separate articles throughout the summer describing in greater detail how they helped their clients.

Planning is so very vital for your future. According to a study by insurer Northwestern Mutual, a large majority (72%) of U.S. adults believes that the economy will suffer future crises. But two-thirds of them don’t have a financial plan. Plans are not static. Once you have a plan in hand, ongoing contact with your advisor is vital to make the plan work.

In our four cases, the advisor:

Prevented an emotional decision. A client of Nicholas Atkeson and Andrew Houghton, the founding partners of Delta Investment Management in San Francisco, feared that the stock market was getting too frothy recently and it was time to sell. No one can predict the market, and the wisest course is to have a well-diversified portfolio that you stay true to through good and bad times. There is room for rebalancing, certainly, but panicked decisions are almost always bad ones.

“Our role as financial advisors is to gently guide the client back on the road to smart portfolio management,” Atkeson and Houghton write. “The best deed we have done for a client is simply telling him it is a bad idea to be ruled by emotions.” The client relented from this ill-chosen decision.

Headed off an investment mistake. It’s amazing how often you come across seemingly great investment opportunities. Guess what? They are traps. Karl Schwartz, an advisor with Hewins Financial Advisors in Miami, notes that a client knew “a guy” who could get him into a sure-fire money-making investment, a South African gold mine. Trouble is, there is no such thing as a sure-fire investment. Schwartz managed to convince his client, through patient persuasion, that this great plan simply was not a good one.

When you hear about such bonanzas, Schwartz reports, “you cringe, as you know right away it’s a bad idea for the client.” Gold did well after the financial crisis but has lagged lately. It defines volatile.

Helped make a big purchasing decision. The question of whether to buy or rent is a major item in people’s lives. For many, their home is their largest asset. John C. Fales, lead advisor Allos Investment Advisors, which has offices in Phoenix and Overland Park, Kan., had a client who inherited some money and wanted to know how best to deploy it. He could buy a home for $150,000, or over the next 25 years, could pay out $300,000 in rent.

Fales did the math and figured out that, in this instance, it made more sense to buy. The client likely would have money left over to put into other investments, which would not be so if he were shelling out for rent over the next quarter-century.

Decoded abstruse pension details. A knotty problem confronted a client of Adam D. Koos, founder and president of Libertas Wealth Management Group, in Columbus Ohio. The client, a fireman, had previously been a police officer for eight years. When he quit the force, he collected his pension money as a lump sum. Now in his 50s, he wondered if he could buy back those eight years and thus boost his pension in the state-run pension fund for cops and firefighters.

Koos crunched the numbers and discovered that, for $80,000, the client could buy back the lost time and end up with a pension worth $500,000. As Koos puts it, this gives his client the “confidence that he and his wife will be able to retire on time and spend their later years doing what they enjoy.”

This person-to-person advice is invaluable.

Jobs are plenty, the stock market is hot, and the economy is firing on all cylinders. It won’t always be like that. Find out if you’re prepared for any type of market with a FREE PORTFOLIO CONSULTATION. We can also help with big purchasing decisions like buying vs renting or knowing when to take social security distributions.

A Changing Landscape for Young Families

For today’s younger couples, taking a drive along the winding road of finances is a lot different than it used to be. There are so many choices—each one steering the young couple closer or further away from the dreams of a lifetime. Hanging in the balance are two individuals hoping that their decisions will be in their overall best interest.

To better understand some of the challenges facing young families, meet Raj and Priya Chopra. They’re both in their late twenties and were married three years ago. Priya is a registered nurse and Raj is a marketing representative for a medium-sized technology company. Up until this point, they’ve enjoyed a lifestyle supported by two incomes. Without children, they’ve been able to be somewhat carefree about their spending.

Now, however, they are contemplating buying a home and having children. This has certainly raised questions about the financial implications of enlarging their family, as well as their financial future. Although the Chopras’ jobs seem relatively secure, they have friends who work for companies that have experienced significant downsizing and who are less certain about their future employment situation. Moreover, some of their friends have lost jobs and are going through difficult transitions.

Discussions with family and friends have led them to the conclusion that uncertainty may be the defining characteristic of their generation. Emerging families like the Chopra’s are facing a new reality, one with much more uncertainty about the future than that faced by previous generations. Some of this uncertainty is tied to rapid technological changes and some is the result of the realization that they personally may be responsible for providing for themselves much of what was previously provided by others (e.g., pensions by employers; social programs by the government).

There are many issues facing Raj and Priya, and they’ll need to ask themselves some difficult questions such as: Will corporate downsizing eventually catch up to them? If Priya intends to return to work full-time after having a baby, how would they cope if one of them should lose their job? What about the world of work in general? Will they go through several career transitions over the course of their working lives due to an economy that might be changing constantly? Is there a way to protect themselves financially? How difficult will it be for them to save for a child’s education? What about saving for more than one child? They both participate in 401(k) plans at work, but will they be able to save enough for a comfortable retirement? What about Social Security? Will the system change significantly? Will they be protected should they become sick or disabled?

What can a young couple like Raj and Priya do? A good first step is to discuss the various alternative solutions to these difficult questions. By doing so, Raj and Priya will be able to arrive at a realistic assessment of what they should and should not do financially, what they can and cannot afford, and what sacrifices they might need to make to assure financial security for both today and tomorrow. They know that their spending choices will have to be made carefully, and that preparing for a bright financial future will require setting goals now.

As the Chopra’s continue down the road of finances and look to expand their family, they can be a bit more optimistic about their future. The financial decisions they make today will make them less likely to be caught off guard by sudden economic or personal “bump in the road” tomorrow.

Is your 401k optimized to help you meet your retirement goals? Want to learn how to save thousands in taxes by making tax efficient invstments? Is your family covered if something were to happen to you or your spouse? Need help making these decisions? Talk to an advisor with your best interest in mind.