Estate Planning – Say What?

When we were first married an insurance agent came to the house to set up our auto and home insurance coverage. When completed he thanked us and said the next thing we need to talk about is estate planning.  Say What? We don’t have an estate (mansion, acreage, investments). I thought he was nuts. Since then I have transitioned from aerospace engineering to the financial services industry for more than thirty years. I am now the one suggesting estate planning.

Yes, I sometimes get the same look I gave the insurance agent years ago.  So, what is it and do I really need to be talking about it? For most people it is getting a will. “But if I get a will it means I’m going to die.” Sorry, that is not determined by getting a will, and yes sorry again but if you didn’t know, no one lives on the third rock from the sun forever.  But it is much more than a will.

Here are some examples that I have experienced over the years.

1. I have had widows come in not capable of writing a check, or any knowledge of how to access cash. You may laugh, that was several years ago, but there were and probably are households today where the earning spouse controls all the money. I was one of those. So, what I learned is that by taking care of all financial matters for my wife I was doing no one any favors. Once the empty nest came I turned bill paying and other financial matters over to her. She said “I don’t think I can do that”, I said “I don’t think I can let you.” But it needed to happen.
2. I have had children come into the office after their parents passed away and had no idea what their parents had or why. We knew what they had with my firm, but nothing else and so the process started of researching the parent’s financial affairs after the fact.  This was very time consuming and they were never sure if they found everything.
3. I have seen life insurance policies and IRA accounts with incorrect or out of date beneficiaries. These cannot be corrected after the fact.
4. Clients inherited large amounts of company stock from parents.  We point out the risk of investing in one company, one industry, one country and that it may be best to diversify. Inherited stocks would have no capital gains for the heirs, so there is no tax consequence to diversify.  They feel they need to hold the stock as Dad or Mom owned it and it would not be right to sell it. In many of those cases we saw the value of those stocks deteriorate to little or nothing.  Instructions from Dad and Mom to give permission to sell after they are gone would have been very beneficial for the heirs.
5. Inheritance taxes! Where did that come from? Parents did very, very well, children receive inheritance and have to now file a form 706 (one’s last tax return) and now there are estate taxes due. In some cases the assets inherited are a business or real estate and not readily liquid to pay the tax. Even worse, the IRS has in mind a different value that those inheriting do. With no buy sell agreements or valuations determined in advance, one can now be in court fighting the valuations with the IRS.

These are a few examples that comprise estate planning. Perhaps it may be better called “full cycle financial planning”.  Even without a mansion, acreage, or millions in assets it is important. We all should have a will, durable power of attorney, medical power of attorney and a physician’s directive. But also all beneficiaries should be current. Guidance on what to do with certain assets may also be very important.

To assist in this “full cycle financial planning”, my firm offers The Virtus Vault to store documents and assets. We also make available a form “love letter” which can be filled in by you providing all the necessary information for survivors to complete one’s affairs after passing.

I will submit that not doing estate planning may actually be considered selfish on our part if we chose to ignore.

The information provided here is for general information and educational purposes only and should not be considered an individualized recommendation or personalized investment advice. Each person’s situation will be different, please speak to a financial advisor about your individual situation before taking any actions.