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Posted on June 22, 2020

Why Estate Planning isn’t a One-and-Done Scenario

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By Mike Gertsema, CEO & Wealth Advisor

Death and taxes are life’s two great “unavoidables,” so why do we always avoid discussing them?

I was looking at our estate planning infographic that indicated that 42% of all adults have a will or living trust in place.

The breakdown of that statistic was:

  • 81% of adults 72 or older
  • 36% of Gen Xers
  • 22% of Millennials

I guess the older we get, the more we feel the urgency to get our affairs in order.

However, when we sit down and meet with clients to discuss their estate plan, we often sense concern, confusion, and an element of doubt as to whether it is what they want and if it’s going to work out as planned.

It can be a stressful topic, which is completely understandable, but estate planning is an essential part of your financial plan. Let’s look at some of the basics for starting this crucial conversation.

Estate Planning Can be a Taxing Experience

Over the years, I’ve been involved with the estate settlement process for clients and my goal is to help carry out their wishes. It’s very interesting to me how the parents know their children and can predict what each child will do when they’re gone.

Most people do their estate plan to have their possessions distributed the way they want it. They want to appoint someone in charge of the process to be sure the funeral and final wishes are carried out and they want to reduce the stress and heartache for their loved ones. Another priority is reducing or avoiding the cost, taxes and time to settle the estate.

I think that most people look at estate planning as a once-in-a-lifetime event because they dread it and want the item checked off their “must-do list”. I also think it’s where the concern and confusion come back to haunt us.

We advisors sit down with clients and discuss their estate plan, review the documents, and illustrate the estimated final settlement of their estate. While sometimes the numbers and the size of the estate and legacy are very impressive, the cost and taxes are shocking.

Most people are very sad and disappointed to see a large portion of their estate going to taxes and robbing the loved ones of the wealth planned to go in their direction.

It’s good to revisit the estate plan, not to make changes, but to be sure you are keeping Uncle Sam out of your estate.

Diving Into Investments and Taxes

Many people have told us that they made an investment or bought a financial tool that the salesperson made sound fantastic and fool-proof, only to find out it wreaked havoc on their estate plan a few years later.

The person selling them that investment isn’t usually a financial planner, and doesn’t have the whole picture in mind. What might look like a well-diversified, sound investment now can become a tax, management and estate-planning disaster if you’re not looking at the big picture.

All your investments need to support you and your lifestyle, but we must also consider the tax consequences today and down the road. For example, we don’t like paying taxes, so we invest in an annuity, IRA, and 401(k) so we can defer the income taxes, sounds good right?

It could be, but which income tax bracket are you in? Maybe you are in a rather low income tax bracket or effective income tax rate and while we hate paying income taxes, the income tax bracket you’re currently in is really not bad compared to what you’re beneficiaries are going to pay in your estate settlement or what you may pay when you need some of that money.

When do you plan on paying the taxes on the investments: when you’re forced to or do you want to pass it on to your beneficiaries and have them split the money with Uncle Sam?

The tax-deferred growth looks great with tax-deferred investments – like the annuity, IRA and 401(k) – but the income liability can be devastating and disheartening.

Diversification Complexities

Have you ever been involved with settling an estate where the deceased had investments scattered all over? Some are titled in the Trust name, some are joint, and some are titled individually. Every institution will require a death certificate and paperwork which is time consuming, stressful, and in some cases costly. The process is compounded if the assets aren’t titled correctly.

The person thought having everything spread around was diversification, but really was it? The person also set up a trust and had an estate plan, but it might have been “once-and-done” and never revisited because of the stress and confusion.

Our goal as an advisor is a comprehensive financial plan, including tax planning, protection planning, and estate planning.

How An Advisor Can Help

As advisors, we can not only illustrate but update everything in the plan to be sure everything stays in line with your goals. We collaborate with your CPA and attorney to verify your game plan and work as a team for your benefit.

Keep in mind, when you set up your trust, it needs to be funded and that’s where a financial advisor can be very helpful. We can help you avoid mistakes in titling your investments correctly to make sure we are satisfying your wishes.

We also have meetings with our clients and their beneficiaries to go over the estate planning section of their financial plan to help everyone understand the goals and objectives. In most cases, we have copies of the Trust documents, directives, and wills in our secure database.

We also scan and download all important documents for the clients and beneficiaries to access on their private, secure portal, including their investments. That way everything’s in one secure spot for your safety and convenience.

Whatever process you’d like us to take, we strive to add a lot of comfort and value to you and your family by offering trust services.

Talking about death and taxes does not have to be more stressful than it already can feel.

As advisors, we have a fiduciary responsibility to provide you value and help you make good decisions regarding investments, tax planning, protection planning, and estate planning.

I’m not here to sell you something. I’m here to help you realize how one decision can affect your game plan. Let’s start the conversation about tomorrow, today.

 

For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

 

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