We hope everyone had a terrific time over the holidays making memories with family and loved ones. Also, we hope people had opportunities to connect with the special people in their lives that they may not have been able to in the recent past. The holidays can be hectic and stressful, and we can often forget the truly meaningful times and traditions that make this time of year what it should be. These times of year can also bring about important conversations. These discussions can be hard and/or uncomfortable, but still extremely important and worth having.
This is a great time of year to reflect on how your financial plan may impact your family in the future. Do you have an estate plan? Do you have a strategy for what happens to your money when you are no longer here? Have you spoken to your loved ones about these things?
We don't often like to think about these things, but it is important for you and your family to know exactly how your money gets distributed and spent when you are not here to make these decisions. Do you want an inheritance to go to your grandchildren even if they are young at the time of your death? Or would it be more prudent for you to determine that they get their inheritance at an older age, say 18 years old or even after college? Do you want to help guide how they use your inheritance by stating that you want it to be used for their education or as a down-payment on a home? Are there special charities that you would like to donate to? These are all things that can be laid out in an estate plan.
My goal is not to try to explain estate planning and to do a deep dive into the subject in this post. I did not go to law school, and you probably do not have the time to read a compendium on the topic anyway. However, I would like to bring awareness to the importance of having an estate plan. Talk with any financial advisor and they probably have more than one story about a time when an estate plan should have been in place but wasn’t, which caused unnecessary stress, upset, possible turmoil and extra costs. Estate planning has many benefits, some are financial, and some are not. An estate plan can protect young children by possibly selecting a guardian if the parents pass at a young age, protect a person’s wealth from excess taxes and families from arguing amongst themselves. No family thinks the last one will happen to them until it does unfortunately. If an estate plan is in place, these issues can be avoided.
Estate planning creates a strategy for either an individual or family that predetermines the transfer of assets in anticipation of death or incapacitation. The goal of an estate plan is to preserve the maximum amount of wealth possible for the beneficiaries while also taking into consideration the best interests and/or wishes of the account owner(s) while they are alive. An "estate" includes assets of money and property, both real estate and personal (for example cars, household items and bank accounts), owned by an individual prior to distribution through a trust or will.
Depending on the individual or family, their financial situation, and the intentions they have for their assets, the estate planning process can be anywhere in between simple and very complex, and people should always consult a trusted and qualified estate attorney. There are many aspects that come together in a well thought out estate plan that include not only legal but also tax and cost considerations, both for the person making the estate plan and the beneficiaries.
From a 30,000-foot view, an estate plan is created by taking inventory of everything a person or family owns and where it is. This, in itself, is a great exercise and hugely beneficial for people. It still surprises me how many accounts people have in various places for various reasons rather than being consolidated (not to mention the retirement accounts that are left stranded sometimes, and outright forgotten at times). Once inventory has been taken, then it can be determined what goes where when you are unable to make those decisions, either because of death or incapacitation. An estate plan can be implemented through things that most people have heard about such as wills and trusts but there are different types of trusts and certain strategies used within estate planning based on what the individual wants to achieve. Certain options are Revocable vs Irrevocable Trusts, Charitable Trusts (which go deeper with Charitable Lead Trusts vs Charitable Remainder Trusts), Special Needs Trusts and AB Trusts among others. Again, please speak with an estate attorney to explain more about each of these and others that I have not mentioned. The type of trust chosen depends on what the person wants to accomplish, and certain investments are better in some trusts compared to others, which is a perfect example of why a client’s estate attorney, tax advisor and financial advisor should all be part of the conversation.
It is obvious that life is not stagnant. Once an estate plan is created, it is paramount to review your estate plan when your circumstances change. Life changes make it necessary to adjust or amend your estate plan. Things change during a lifetime, and we all need to be flexible and adjust, this is certainly no different for your estate plan. One of the biggest mistakes in estate planning that I encounter is when a person has a will or trust made decades ago and thinks everything is in good order without reviewing it. Life is busy and things change, and it can be easy to forget that you have an estate plan to update when very important things in life occur, for better or for worse. When you look back on when that legal document was made compared to when it is needed, what could have changed? A lot. Were people added to the family through birth, adoption, marriage, etc.? Are there people that were included in the estate planning document that are not present anymore due to divorce or death? How many times did that person move since the plan was made? Are there assets still included that shouldn’t be? Has the individual changed their wishes of what goes where? If that person is a business owner or has stake in a business, what has changed in that respect? It is extremely important to keep this aspect of your life current and up to date. Life changes fast and your estate plan should keep up with those changes.
Lastly, once these documents are created, please let your loved ones or someone you trust know where they are in case you aren’t around, and the documents need to be used for the exact reason that they exist. Depending on family dynamics, include everyone that you feel needs to be part of the conversation.
At Majestic Financial, we feel it is important to work as a team with your estate attorney. This way we can all be on the same page, all for your benefit. We strive to work well with all the professionals in your life to enable you the best probability to reach the goals in your life.
Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS
*Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Leon Bennett, CFP®
Part of the Majestic consultant trio, Leon also assists the marketing team and is an avid fan of the Talking Heads and the Chicago Bears.