We often think of retirement accounts as monolithic resources. It is easy to see why – we spend our working years socking away money for our future. Unfortunately, though, the rising cost of healthcare can quickly deplete even the largest of retirement funds. Because retirement accounts tend to be the largest assets in a person’s estate, it is crucial that proper planning is done to handle one’s retirement fund.
The first thing you need to do is ensure you have the assets you need to take care of yourself and your family. With the increased costs of healthcare, it is crucial you have what you need after you retire and can manage your medical expenses on a fixed income. While we would all hope for a quiet retirement, finances can be unexpectedly stressful. In addition to budgeting out a financial strategy to keep you comfortable during retirement, we can also work with your financial advisor to help you develop a strategy for distributing any leftover funds upon your death.
In addition, the rules surrounding the taxation of retirement accounts can be difficult to understand, further complicating a potentially stressful retirement experience. Upon retiring, you will have to take a required minimum distribution, which will be subject to income tax. Most people are used to having income tax withheld from their paychecks, but sometimes overlook that they will still have a similar tax liability for their retirement account.
It is also important that your strategy for passing on the account takes into consideration the tax consequences. As mentioned above, because these accounts are created with pre-tax contributions, the required minimum distributions made to the owner are subject to income tax. When these funds are distributed to a designated beneficiary after the owner’s death, there are still income tax concerns regardless of who is named as the designated beneficiary. It’s why working with a trusted financial advisor and attorney is so important to enjoying your golden years. With these experts on your side, you’ll rest easy knowing you’ve taken care of your family in the present and future.
Ultimately, you will benefit most from ensuring your retirement plan and estate plan align. By working with your trusted financial advisor and us, you can ensure the goals you have for your retirement and for your estate do not contradict one another. For example, you may have designated one beneficiary for your account when you signed up for your 401k but may now wish to change who or how the beneficiary will receive your assets upon your death. Or, you may have originally anticipated the excess funds from your retirement account being used to care for an aging loved one, but due to the market, you may need to find additional sources to cover these anticipated expenses. Meeting with your financial advisor and us is crucial to making sure your family and loved ones are not stuck in financial hardship after you have passed.
When it comes to retirement, it can be difficult to know what you do not know. If you are concerned about the state of your retirement account, assets and estate plan, schedule a meeting with your financial advisor and us today. With so much on the line, it pays to do your homework, connect with professionals and ensure your final wishes are documented and respected.
Retirement accounts are designed to help make the transition between working and retiring easier. They provide a steady stream of income for retirees who are suddenly without take-home pay for the first time in their lives. These accounts require extra planning and consideration since, unlike other assets your clients may have, retirement account distributions are subject to income tax for the account owner and the designated beneficiary after the owner’s death.
It is important that any plans for retirement match up with the plans a person has for their estate. Of course, planning for retirement assets is often motivated by different goals than estate planning because of income taxes. It is critical that financial advisors take the opportunity to talk with their clients about the differences when meeting for a review of their plans.
By having long-standing relationships with clients, you have unique insight into their financial background, goals, and anxieties. Perhaps more than any other professional, you can help ensure that their retirement plans and estate plans do not contradict one another. Clients worried about their health or their ability to care for loved ones want reassurance that their nest egg is enough to cover living expenses, medical bills, and more.
The unique rules of retirement funds should be taken into consideration when making long-term estate plans. Income tax rules can complicate the wishes of your client. While assets may be set aside in trusts, naming a trust as the designated beneficiary requires the trust to have very specific provisions that comply with federal law and ensure maximum protection and stretch for the ultimate beneficiaries.
Always review beneficiary designations with clients each time you meet. It can help ensure that their wishes are respected should they pass before your next review. Fail to do so, and your client’s loved one could be forced into court to contest the distribution while grieving.
Retirement and estate planning should always be in progress. With no clear finish line in sight, you’ll want to prepare your clients for anything that life might throw their way. If you have concerns about how your clients’ retirement goals align with their estate plan, give us a call. We are here to answer any estate planning questions you may have and to develop a strategy that will help preserve the client’s lasting legacy.
What is a personal property memorandum? It is a frequently-used estate planning document that provides an opportunity to expand upon your will or trust. Many wills or trusts simply divide the whole of an estate equally between surviving family members. But, what if you’d prefer a more detailed plan for particular items you want to leave to specific individuals?
If you’d like to ensure that specific property or items in your estate are left to certain relatives or friends, a personal property memorandum is a great option. It’s a detailed accounting of items of personal property listed with the corresponding person you’d like to receive those items.
It’s simple but powerful, and we can assist you in making one. The best personal property memorandum will work in concert with your will or trust to bequeath your estate and belongings exactly as you want. Further, it must be referenced in the will or trust to be effective. Here are four tips we need to consider that’ll ensure your memorandum works as desired.
Use detail
When preparing your memorandum, include specific, detailed descriptions of each piece of property. For example, if describing a car, it’s best to add identifying descriptors such as model year, model number, and color. When conveying that you’d like someone to receive a piano, rather than simply “piano,” write “my black 1980 Steinway grand piano.” For an even more exact description, you may choose to include a photograph, especially if you own many similar items.
Be specific about who will receive the item
Because a personal property memorandum is a legal document, you’ll want to use a full legal name and relationship. Avoid confusion that could arise from listing only a relationship, using a nickname, or other ambiguity. Your list will be clearest if you write “my daughter, Emily Smith,” as opposed to just “Emily.” Readers of the memorandum will know your intent without a doubt if they see “my daughter, Emily Smith, to receive my 1980 black Steinway grand piano.” Remember, when the memorandum becomes effective, you’ll be deceased so no one will be able to ask you for clarification.
Update your property memorandum frequently
For this document to be useful, it must be current. If you give away an item, to the eventual recipient or otherwise, sell an item, or if an item is lost, stolen, or destroyed, such as by fire or flood, it’s time to amend your memorandum.
If you find yourself needing to make significant changes to your memorandum, one helpful approach is to photocopy the original, make notes on the photocopy about changes you’d like to make, then use the notes to produce a new, updated memorandum. It is important that the updated personal property memorandum include all of the specific items you want distributed to the named individuals. Once you’ve concluded this process, you can avoid any confusion by shredding the old memorandum— but of course, before shredding any estate planning document, check with a us.
Ask for help
If your personal property memorandum creates any challenges, such as an item or collection that’s difficult to describe, contact us. We’re here to help, and we can make sure your estate plan works just as you intend.
We hope these tips have been helpful. Your personal property memorandum can be an important document in the execution of your estate plan. But it must be detailed, accurate, up to date and mentioned in your will or trust to be effective.
As always, we’re here to provide personal, tailored advice as you create this essential document.
Estate planning is a complex, nuanced process. Properly done, it requires a specialized team of experts in investment, tax, and legal strategy. At its center, however, is the client and their particular needs, hopes, and goals. It’s vital that over the course of working together, you engage your client and help them gain comfort and understanding of the process. Delving into a client’s plan together is a great opportunity to interact more closely.
Be an Active Listener
As an experienced financial advisor, you may feel as if you’ve heard and seen it all. But every client is unique. Each one’s story, background, goals, hopes and fears are different, and it’s up to you to ensure you’re getting all the necessary information before proceeding with the next steps. If you’re not entering client consultations with the goal of being an active listener, you could be setting yourself up to miss critical details.
Here are some tips for connecting with your clients’ stories and needs:
Don’t assume you know what they’re about to say next. Each story is different, and even for those stories that seem the same, clients value feeling heard and understood.
Ask questions. Get more details and a deeper understanding of what the client has shared.
Pause to recap what the client has said, verifying that you’ve understood correctly. Rephrase what you’ve heard.
Do Your Homework
Once you’ve got the minutiae of your client’s requirements, it’s time to craft a custom solution that will help to secure the future for them and for their families for generations to come. Before you get started, though, research is imperative. Doing your due diligence will ensure that when you bring your solution to your client, it’s with confidence and readiness to get into the nitty-gritty.
The more prepared you are, the better you’ll be able to explain the nuances of the plan. For example, if a client’s best bet is to pursue a charitable strategy with their assets, you’ll need to immerse yourself in the specific benefits of that strategy before moving forward with the client.
Take a Holistic Approach
When delving into complex financial strategies and solutions with clients, technical jargon shouldn’t be your first mode of communicating. Using images, stories, and real world examples instead makes you relatable to clients and encourages buy-in. A visual representation may help clients absorb the intricacies of a financial plan. Similarly, sharing an account illustrating a strategy or requirement similar to the client’s own may shed more light. These methods can provoke deeper dialogue and engagement. Everyone learns differently, and you’ll want to use all the available tools to be the best trusted advisor you can be to your clients.
Work as a Team
Your client’s advisory team is a valuable asset when delving together into complex solutions. Most strategies require alignment of investment, tax, and legal strategies to generate the greatest effect. Collaboration and the resulting synergy across plans means a more thorough strategy, a better informed client, and a superior outcome. The other members of the team are there to help make certain that a potentially confusing strategy becomes manageable and comprehensible for the client.
You know the ins and outs of financial planning, and that’s what makes you valuable to your client. Be the best ally you can be to your clients by working with us to coordinate your client’s financial and legal plans. We’re here to help as you deepen relationships and help clients make the best choices for their futures.
Maintaining your estate plan can feel overwhelming when faced with all the changes life can bring. Calling your attorney may not be your first instinct when you’re faced with a significant shift in income, investments, or employment, but consulting with us is a wise way to ensure your legal health is always maintained. Read on for five events that should capture your attention and prompt you to reach out to us for some personalized advice.
You’ve opened a new retirement account or established a new retirement plan.
As we all know, planning for one’s retirement is crucial. The peace of mind provided by a solid retirement plan is irreplaceable. The way you and your financial advisors choose to structure your retirement plan and invest your retirement assets will vary, as they are designed to meet your particular needs, wants, and goals. Keep in mind that if you open a new account, your estate plan will need to be reviewed and possibly updated as well. A new taxable investment account may need to be “funded” into your trust. If you’ve set up or started contributing to a tax-deferred account, such as a 401(k), IRA, Roth IRA, employee stock ownership plan, or another type of retirement plan, contact us about your estate plan, too, since we want to be certain that your beneficiary designation is exactly what you intend.
You’ve started a new job.
Congratulations! A new professional opportunity is exciting, and it is accompanied by plenty of financial change. As we’ve seen above, taking a new retirement plan or account into consideration is quite important, and a new company often means a new account. You may also have new employer-sponsored life insurance, so it’s important to seek our help to verify that your life insurance beneficiaries remain up to date.
You’ve kept the same job.
Even if this year finds you in the same job as last, open enrollment for life insurance from last fall is now in full effect. This means that verification of your life insurance beneficiaries and retirement plan benefits is also in order. We can help ensure that everything is as it should be.
You have teenaged children.
Your child’s 18th birthday is not only a rite of passage but also a significant change in legal status and planning needs. Be sure to schedule a meeting with us to learn what you and your teen need to do as your teen becomes an adult.
You started a business.
Whether you’ve fully jumped in or kept your day job, starting a business is a bold step! It’s in your best interest to take precautions to ensure your business is fully protected. In addition to the business entity issues, tax planning, and growing your business, there are estate planning implications with a new business. We can help you coordinate your new business with your estate plan.
We are here to help and to ensure the health of your estate. Let us bring our attention, experience, and care to the big changes in your life. Together, we can develop or enhance your estate plan to meet your goals and secure your family’s future.
As a financial advisor, what could be more important than the financial health of your clients? As you know, a comprehensive trust-centered estate plan allows your clients to provide for loved ones, affording them immense peace of mind. But, estate planning is not a one-time event since trust-centered estate plans require careful supervision and regular reviews to function properly. Accordingly, it’s crucial that you participate in the maintenance of your clients’ trusts by monitoring important financial changes and helping clients to update their plans to reflect these changes.
Significant Changes in Wealth
Setting your clients up for success with their trusts is not difficult. Keep an eye out for any significant changes in wealth. One such important development in a portfolio is the addition of a new account, such as an IRA or new taxable investment account. Any time a new account is opened, it’s imperative that you schedule a trust funding review. This review ensures that new accounts and any new sources of wealth are incorporated into the planning process. In some cases, a major overhaul is necessary, whereas in others it may only need to be notated on the trust’s schedule of assets. In any case, accounts must be funded properly into the trust if it is to work as intended, providing a sense of security and stability to generations to come. Any time you have helped a client open a new account, it is a good idea for us to have a discussion.
Other New Assets
You are often on the front lines for a client’s other acquisitions. Has the client withdrawn money to purchase a boat, RV, vacation home, new residence, or to start a business? Like a new investment account, each of these assets has unique ownership issues that must be considered as part of the client’s estate plan. Help your clients optimize their plans by looping us in when you are made aware of new assets.
Is it time for a trust funding review?
During a trust funding review, a comprehensive look is taken at the client’s plan. We take a 360-degree view of the trust’s terms and the client’s assets. A trust funding review is not a one-size-fits-all process. The scope and depth of a trust funding review will vary with the concerns of the client and the advisor. A basic review for a client with only a few changes may involve a phone call or brief meeting. On the other hand, a client with many changes (such as many new assets or a significant change in wealth) may be tantamount to the creation of a new plan since changes to the trust may be necessary.
In either case, the best case of action is to get started on the funding review. The impact of a client’s changes—like new accounts, new assets, or changes in wealth—may be substantial.
Be Prepared for Your Clients’ Benefit
New accounts opened by clients during the course of the past year along with any other new assets must be taken into consideration during a trust funding review. Make sure your clients know they can depend on you and on their full team of qualified, experienced estate planning professionals to optimize their financial and legal well-being. You can put their minds at ease by reaching out to us to coordinate any necessary reviews. We are here to help.
How to Tailor the Conversation to Their Goals
Financial advisors often have a clear path to starting the estate planning discussion when their clients have children, as many estate planning discussions center around clients’ objectives for passing their wealth, properties, and legacy to the next generation.
Because of this traditional emphasis on the next generation, individuals and couples without children can easily arrive at the conclusion that they don’t need the same level of detail in their own plans or, worse yet, that they don’t need a plan at all. Nevertheless, there are several ways to help estate planning resonate with individuals and couples who aren’t parents.
Reframe the planning conversation
You can keep these clients engaged and help them find fulfillment by shifting your message away from discussions about bettering future generations and focusing instead on ways to plan for life, the future, and a legacy. Remind them that estate planning deals with a wide range of important issues like ensuring trusted people can make decisions if the client is unable to do so because of illness, incapacity, or death, and supporting meaningful causes they care about.
Planning for flexibility and the future “what-ifs” of life is important for young, child-free clients. Working successfully with these clients involves helping them pinpoint their core motivations and goals regarding their wealth and legacy. Ask them to reflect on the following questions:
Why are you saving and investing?
What do you want to accomplish during your life?
What legacy do you want to leave?
What impact do you want to leave?
Exploring these topics helps clients without children become engaged in estate and financial planning.
Think upstream for younger clients
Rather than directing their assets toward their descendants, some clients, especially young, single, and child-free clients, may be inclined toward transferring their wealth “upstream” to their parents or grandparents.
Issues arise, however, when these plans are not optimized for the issues faced by older beneficiaries. Certain estate planning solutions can help them make a positive impact on their older loved ones’ lives in regards to Medicaid, asset protection concerns, and blended families. Clients who want to leave their wealth “upstream” must discuss their goals with an estate planner to ensure the plan will work as intended.
An emphasis on philanthropy
Charitable planning may be more prevalent for clients without children. This is especially true for older individuals who have built lifelong connections to a particular passion that they’d like to support. Talking to these clients in terms of their potential for creating a positive impact is a helpful strategy for all parties involved.
In many cases, a comprehensive plan may be a better strategy than simply naming a favorite charity as a beneficiary on an investment account. One of the biggest risks these clients face is that they often assume that a simple plan is the best, but that assumption may, sadly, limit the opportunity they have to leave an impact.
Avoiding intestacy
Clients rarely want their assets ending up with a distant relative or being claimed by the state, and will appreciate developing a plan that’s meaningful to them. When an individual dies without leaving a will, this is referred to as “dying intestate.” This scenario brings with it a number of complications, as the state legislature has essentially written the client’s estate plan for them. For clients without children, this is often not the estate plan they would have selected.
Different generations take different approaches to life, and your likelihood of working with more childless clients is increasing. The birthrate in the U.S. has been low for decades, but there were record low fertility rates in 2017 and 2018, as many millennial women and couples are choosing to delay or avoid parenthood.
Helping these clients define clear, personal goals for financial and estate planning is an excellent way to add value to your financial planning services and engage with this growing demographic. Let’s schedule a quick discussion to cover other ways you can build trust and increase engagement with your clients. Give us a call today.
How to Steer Your Clients in the Right Direction
Estate planning provides your clients with a wealth of opportunities to strategically grow their net worth while also planning for their families’ future comfort and security. Opportunity brings risk, but also the potential reward of deeper, longer-lasting client relationships.
Educational Topics for Your Clients That Can Help Your Business
What you don’t know can end up hurting your clients, and in turn, limit your ability to secure future business opportunities and retain assets under management. That’s why it’s important to learn about and discuss the potential estate planning risks faced by your clients.
When you discuss the value of estate planning and these hidden risks with your clients, you strengthen your professional relationships, build long-lasting trust, and help clients maximize their financial well-being.
Risk 1: Sub-Optimal Insurance Products
Problem: Busy clients can put insurance product comparison efforts on the back burner and end up paying for it over time. If your clients’ premiums are higher than they need to be, it creates a financial burden — which can increase the potential for policy lapse.
Solution: Comprehensive planning minimizes resource loss caused by inefficiencies. Review your clients’ insurance products and see how long it’s been since they’ve explored better options. Coordinate with us, as estate planners, to ensure that all policies have the proper beneficiary designations for the clients’ goals.
Risk 2: Earned Income in Retirement
Problem: If your clients are part of a growing trend of retired individuals continuing to work and earn income, they’re also opening themselves up to greater tax exposure in the process.
Solution: It’s necessary to do a risk management assessment of what they’re earning, how it’s being taxed, and how we can strategize as a team to keep taxation on those income sources as low as possible.
Risk 3: Obsolete Estate Planning
Problem: Clients’ families may be in for an unpleasant surprise if the clients don’t have up-to-date wills and trusts. Outdated wills and trusts can lead to administrative inefficiencies, unnecessary probate, costs, and taxes, and, eventually, an exodus of assets from management when the process is complete.
Solution: Discuss your clients’ wills and trusts to open up a line of conversation about whether their current plan aligns with their goals and vision. An easy starting point is a quick review of the plan summary or diagram. If there’s any doubt about whether the plan will work as the client intends, an in-depth professional review is a great idea. We are always happy to review plans and recommend improvements for your clients.
Risk 4: Chronic Illness, Poor Family Health Histories, or Both
Problem: Clients who are suffering from chronic health issues won’t be helped by burying their heads in the sand when it comes to financial and estate planning. If they fail to act fast, they can quickly drain their wealth through medical costs.
Solution: With a long-term care funding plan, your clients dealing with chronic health issues can find comfort in the knowledge that their resources are being allocated wisely and that there’s less of a chance of their families being burdened in the future.
Risk 5: Life Insurance with Substantial Cash Value
Problem: Life insurance policies with significant cash values aren’t always the most effective route to take when other investment vehicles could provide for better growth.
Solution: We can work with you to help your clients monetize their life insurance policies to support their income needs with improved tax efficiency. By taking advantage of tax-deferred growth, tax-free dividends, or policy loans in ways that align with the clients’ long-term financial and estate planning goals, we can help ensure your clients are getting the most out of their life insurance policies.
Your clients may be in danger of experiencing the consequences of these risks without even being aware of them. Often, changes that lead to these types of risk take place so gradually that your clients haven’t considered them. Presenting these hidden risks can also help you cement your relationship with your clients and possibly win referrals and new business.
As you discuss these risks with your existing and potential clients, please be in touch if there’s anything we can do to help.
Strategies to Enhance Your Success
Estate planning is complex and continually evolving. Often, affluent families are “early adopters” of the newest and best estate planning strategies. Luckily, by working with us, you can benefit from the same estate planning strategies that affluent families do. Here are a few techniques we should discuss soon.
Maintain an up-to-date, trust-centered plan
The foundation of your estate plan must achieve your goals and needs. Wealthy people tend to utilize estate plans with all assets funded into or aligned with trusts. Not only should your estate plan be trust-centered, but it should also be continually updated as your life, family circumstances, and the law grow and change. Make sure your current estate plan always reflects your goals—a tried-and-true secret of the affluent.
Create special trusts for special assets
Wealthy people take advantage of the legal and tax opportunities presented by unique assets or investments. Many types of assets, such as IRAs, life insurance, business ownership, and more, require specialized planning to work properly in your estate plan.
If you’ve saved for retirement, you know the value of an IRA, a 401(k) or another retirement plan. You are probably also familiar with the beneficiary designations for these plans. But, you may not be familiar with a specialized trust, called a standalone retirement trust or IRA trust. This trust lays out exact instructions about where the money in your IRA will go after you’re gone. If you’ve seen substantial accumulation in your IRA, you may not want its entirety to be disbursed to a beneficiary all at once. You’ve worked a lifetime to save, and the IRA trust empowers you to protect what you’re leaving behind.
In a similar fashion, life insurance trusts give you more control over your life insurance benefits, allowing you to direct what occurs to your life insurance policy in more detail than is possible with a plain beneficiary form. It can be risky to name your minor children as the beneficiaries of your policy. If your children are not yet adults, the insurance company often requires a court-appointed guardian to receive the funds, a potentially costly and lengthy process. Many people may decide to leave the policy benefits directly to the children’s caretaker to avoid this guardianship issue. But, leaving the policy benefits to your children’s caretaker outright doesn’t ensure that the money is used for the benefit of your children. A life insurance trust can protect what you’re leaving behind and ensure it is used for the benefit of your beneficiaries.
Unlike a plain beneficiary designation, a trust also lets you designate specific uses for your money by your beneficiaries, such as educational funding. The wealthy don’t leave these things to chance and instead use proactive trust-centered planning to achieve their goals and protect their families.
Build a collaborative professional team
Wealthy people rarely plan and work with professionals in isolation. They know they can get better outcomes by meshing their legal, tax, and financial plans together. Rather than silo their strategies with various advisors, they ensure their team is optimizing their results through a collaborative approach.
As you build out your team, seek out professionals who are enthusiastic about working with one another across disciplines. The more visibility they have into one another’s strategies, the better they’ll be able to provide you with the best possible benefits. Call us today. We can discuss the best ways to put these and other estate planning approaches of the wealthy into action for you.
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As the end of the year approaches and you begin to look back on 2018, what changes need to be reflected in your estate plan? Have you gotten married or divorced in the past year? Perhaps you’ve welcomed a new child or grandchild, or experienced a change in your health. So much can change in a year, and it’s important not to let too much time pass before those changes are reflected in your plan.
Just like you need to stay in regular contact with financial advisors, primary health care providers, and accountants, your estate plan will serve you best when it’s kept up to date with the changes that shape your life.
Keeping your estate plan current with each new significant development in your life is much more efficient than having to do a comprehensive overhaul later on. The end of the year is the perfect time to take stock of any changes regarding the individuals listed in your estate planning, like fiduciaries or beneficiaries, in case adjustments are required.
Your End-of-Year Checklist
Many people find that estate planning — whether it’s embarking on creating a new plan or updating an existing one — can feel overwhelming. A checklist cuts through the mental clutter and allows you to focus on the most important decisions so you can protect yourself and your family.
Use this handy checklist to prioritize your time.
Has your family welcomed any new children or grandchildren?
Has anyone named as a fiduciary (successor trustee, agent, or health care agent) in your plan passed away this year?
Have you gotten married?
Has this year involved a divorce for you or any of your fiduciaries or beneficiaries?
Have you changed your preference about who is listed as a trustee?
Have you changed your preference about who is listed as an agent?
Have you changed your preference about who is listed as a health care proxy?
Do you want to change who’s appointed as your children’s guardian?
Is there a pet caretaker you would like added or removed?
Have you had a significant increase or decrease in your net worth?
Have you changed jobs or purchased a business?
Did you move to a new home?
Did you sign your will or trust before 2013?
If the answer to any of these questions is “yes,” your estate plan requires our attention soon. As we head into 2019, start your year off on the right foot by taking a few moments to see what projects you should prioritize. Give us a call so we can discuss.
