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What Every Investor Should Know About Estate Planning

You’re doing everything the experts recommend: You put away money every month, you invest in tax-advantaged financial instruments, and you have a diversified portfolio that can weather a variety of economic conditions. But what are you doing about your estate? A little research can go a long way toward making sure that your assets are handled responsibly in the event that something happens to you.


Durable Power of Attorney
What would happen to your investments in the event you are incapacitated? A Durable Power of Attorney allows you to name an agent who can act on your behalf. This document allows you to name an agent to step in and handle the transactions that you handle daily. If you are in the middle of a business deal or selling a house, your agent could step in and complete the deal in your absence. For example, lets say you are selling your home. You have signed the contract, chosen the title company and set the closing date. Everything is in place for your signature. However, two days before closing you are involved in a major accident. Ultimately, you are going to make a full recovery. However, what happens to that transaction? Who steps in and makes sure the house gets sold? A durable power of attorney will allow your agent to step in and sign documents for you. This can help you avoid what some call, “the second disaster”. The second disaster refers to the financial ruin that can happen when someone is incapacitated for a time, and no one can help manage the finances. For example, what if you have a dozen automatic withdrawals every month from your checking account, yet you no longer have income going in? An agent acting under a power of attorney can contact those vendors and the bank and begin to negotiate or put services on hold. Unfortunately, your best friend, adult children and sometimes even your spouse may not be able handle those items unless they are named in the power of attorney.


Did you know that you can hold an investment account within a trust? It’s true, and it’s a great way to keep your money growing while still providing for your loved ones’ futures. I often meet with clients who have done a fantastic job of investing. Often, they are in their seventies or eighties and have come to realize that they have done well enough that they have something to pass on their children and maybe even their grandchildren. However, they worked hard for the money, sacrificed to save, went without luxuries for the majority of their life. The reality hits them that their children may not have the same ideas and maturity about money. I recently had a client lament to me that the younger generation (his children) didn’t know about managing money and was irresponsible. I eventually determined that by younger generation, he was referring to his children in their fifties and sixties. His goal was to ensure that the money he and his wife worked for was a blessing to his family for generations to come, rather than a destructive influence on their lives. We discussed how he could choose a trustee to step in and manage the assets to ensure that the money didn’t get lost in the shuffle. I have heard that inheritances and lottery winnings are often spent at the same rate; it’s all gone within eighteen months. By setting parameters on how the money can be spent and choosing a responsible trustee, your legacy can continue as you intended.


What about the estate/death/inheritance tax?
The Estate Tax is known by many different names, and strikes fear into the hearts of many investors and beneficiaries. Everyone wants to know how much of their money Uncle Sam is going to take. The Tax Reform Act of 2018 has reduced that stress and worry substantially. An individual can now pass up to 11.2 million dollars worth of assets during their lifetime or at their death (no double dipping) with no estate tax liability. Let me repeat that, ZERO tax liability on transfers up to 11.2 million dollars for an individual. A married couple can double that amount. It is important to note that this part of the Tax Reform Act of 2018 expires in the year 2025. At that time, the exemption will be cut back in half to reflect the law on the books before the act was passed. Therefore, folks with Estates above roughly 5 million dollars should still consider methods of reducing their estate tax liability.


Who should I meet with to ensure I have done the best job to protect my estate?
The best approach is a team approach. Your best financial advisors will encourage you to talk to an Estate Planning Attorney when it comes to what to do with items after your death. Estate Planning Attorneys will tell you to talk to your Financial Advisor and your Certified Public Accountant (CPA) to ensure that your money is in the right vehicles and that we are maximizing the effort to reduce taxes while not sacrificing security or growth.


In summary, the best advice is to use a team approach when planning your estate. You work hard for your money and you are careful about how to protect it while you can. Now, put a plan in place so that it can continue to grow and be protected when you can no longer do it yourself.

6 Things every Financial Planner Should Know About Estate Planning