Early in my career, estate planning was the furthest thing from my radar.
As a young advisor, it wasn’t something we were taught, but the longer I worked, the more I realized there’s more to planning than selling investment and insurance products. This realization inspired me to focus on the top four areas of concern my clients voiced constantly: taxes, legal, illness, and investments.
I’ve seen many estates go through nasty probate situations to get assets to the beneficiary that could have been avoided.
Why was there not a living trust? Is your last will and testament just an invitation for probate? Let’s discuss the outcome of the bloodline language and what it means. There is a drastic difference between the bloodline language within a will and the bloodline language within a trust. I explain to my clients the consequences of both. Many, if not all, of my clients would rather leave their legacy to their children or grandchildren instead of their daughter- or son-in-law! Essentially, keep the money in the family!
It’s also important to note that the supporting documents (your living will, health care surrogate, and durable power of attorney) are just as important as a will or trust. Many states change these documents occasionally and they should be reviewed every few years. They designate who will speak for you when you cannot.
When the owner of an asset is no longer there to sign and release that asset will it go through probate? Who helps to get those assets to their new, rightful owner, and how do they get there? It’s important to work with a team of competent attorneys and financial advisors who know you and your individual situation. Working with a team who understands your needs can help them properly coach and counsel you on the consequences of the actions or inactions you take.
Title accounts and beneficiary designations should be reflected in the language of your estate documents and brokerage accounts, joint accounts, and individual accounts and should, hopefully, stay clear of probate. Your life insurance and annuity policies act in the same manner: They’re beneficiary-friendly. You want it set up so that if the primary beneficiaries predecease you, there is a secondary beneficiary. The last thing you want to happen is your beneficiary to lose an inheritance due to poor counseling.
Many of us own real estate with our spouse and/or children. There are many different reasons for comingled asset ownership; however, the consequences can be harmful. There are better ways to transfer assets to a beneficiary after the owner passes, and probate is not one of them. The above examples and situations should be addressed by an elder law attorney and an advisor who is aware of the elder planning environment.
What if you get sick and require long-term care? Are you financially able or healthy enough to buy a policy now, or do you have one in place now? Becoming familiar with how long-term care works — your elimination period, restoration of benefits, and waiver of premium — could potentially help someone give you a voice if you don’t have one.
Aging in place and aging in a facility or assisted-living facility are very different things, making it important to qualify for extra LTC. There could be many outsiders deciding where a loved one may be the safest; it’s important to retain as much of your independence as possible. You can start preparing by getting familiar with government benefits (Medicaid/VA programs) and how you may qualify if the nest egg is in the spend-down mode.
As a planner, I focus on distribution planning vs. accumulation planning — accumulation being for pre-retirement and distribution for post-retirement.
Personally, I still fall in the accumulation planning stage; my 70-something-year-old clients and parents are not. When we consider the idea of retirement, we need a good foundation regarding how we’re going to remove money from our portfolio for expenses without spending it all before we die. It’s wise to do this planning well before you decide to collect that gold watch for 30 years of service.
You may want to ask yourself if your current income is enough. How to determine where the income should come from and how much will be needed is monumental. How we prepare for the rising cost of goods and services will give us insight regarding where and how we invest without putting the client at risk of loss.
Many investors forget that they’ve transitioned from the accumulation phase into distribution — don’t fall into this trap!
Retirees taking monthly RMDs or distributions from the nest egg to cover monthly expenses may never see that pre-loss value come back. In retirement, people do not have the time, nor can they stop spending while the markets return what they’ve taken away.
Be familiar with the areas of concern when you’re preparing your estate plan. Is it your last will or your living trust? How about all the supporting documents: living will, health care surrogate, and durable power of attorney? Is it illness planning for a loved one? Tax planning or income planning?
Look for professionals with strategic partners who understand senior planning and offer more than the traditional help. Be leery of advisors without these partnerships and planning experience: If they don’t refer to other professionals at all, I would keep looking. Would you go to a doctor who wouldn’t refer you to a specialist out of their practice if you needed it? Planning for the “what ifs” in life is something your trusted advisors should be equipped to help you with.
What is important is having a plan in place! It doesn’t matter how old you are or how much money you have — what matters is the plan!