Families inherit money and sometimes make the right moves investing and spending. Inheritances can also ignite disruption, divorce and a host of bad behavior – far from the hopes and plans of the benefactor.
What happens when you leave what’s probably one of your biggest investments: your individual retirement plan?
Perhaps most important, your estate plan must address potential disruptions: the U.S. tax code will almost certainly change, your heirs will experience life’s normal challenges and opportunities and something you never considered may befall those you leave behind. Early death, disability and divorce all happen every day.
You should probably leave your retirement assets to an individual. Such accounts include your:
IRA or 401(k)403(b) if you worked for a school or tax-exempt organization, a simplified employee pension (SEP-IRA), or any of a number of other plans. The retirement plans must go to your spouse unless he or she signed away control of them after you married (prenuptial agreements do not apply here), permitting you to designate a different beneficiary. You can leave your IRA to any person you choose.
What if you leave your retirement money to your estate instead of to a person? What if your beneficiary dies before you?
In either case, your savings must be liquidated and distributed over the next five years. You also lose the ability to arrange stretched payouts over individuals’ life expectancies – usually lowering future income taxes significantly. Plus it creates a potential marital asset for many recipients, newfound wealth that can evaporate in the wake of some future family tragedy or feud.
You can use specialized trusts to help mitigate most risks, such as the danger of a family beneficiary blowing the inheritance. A number of vehicles exist for restricting a beneficiary’s (irresponsible) access to the money.
For example:
You worked hard to save for your golden years. When the inevitable day comes and you no longer need what money remains, make sure you leave it behind the best way.
Sometimes it’s hard to ask for help and you think you can – or should – handle things yourself. Whether it’s taking care of a nagging injury, fixing the sink, changing the oil in your car or doing your own taxes. The same questions often arise about finances and financial planning.
You have questions that you consider silly or stupid and feel that you should handle alone so you don’t seek help. This is not necessarily the best course. As happens often in life generally, not reaching out to a professional can delay you reaching your goals and cause you to incur more out-of-pocket expenses.
With respect to your financial future, there are no stupid questions. Don’t sit on the sidelines and fear asking a question or think you’re unqualified to go to a financial planner. Solid and respectable planners let you know if they can’t help you and refer a professional who can. They also let you know if they think you can plan your finances yourself.
Here are signs you may need a financial planner:
To merge or not to merge finances is a huge question: emotions to contend with, forms to update, cash flow to track, debts to pay down, goals to lay out and spending habits and needs to reorganize and prioritize.
Communication during this transition helps you navigate possible questions about taxes, investment allocation updates, selecting benefits, joint roles in management of the household, deciding whether to maintain separate bank accounts and more.
Whether considering starting your own business or a long-term entrepreneur, you likely need to know how to prioritize goals, pay yourself while keeping the operation running and the best way to manage cash flow on an income that fluctuates monthly.
Not to mention saving for retirement, obtaining health insurance and protecting you and your family against a loss in income from death or disability.
Simple budgeting often enables you to handle large purchases. If you are looking to buy a first home or make another sizeable investment, understanding the overall effect on your cash flow, lifestyle and future goals looms large.
How much home can you afford? What’s your budget for home maintenance? What other goals go on the back burner? What about your future savings?
Job or career transitions also bring changes in income and benefits. Make sure you maximize your company benefits, leave no retirement accounts behind and ignored, plan appropriately for income fluctuations, consider future job growth or career prospects and consider the transition’s overall influence on your lifestyle.
A baby comes with a slew of considerations: ensuring you have an emergency fund of three to six months’ expenses adjusting your spending for child care, groceries and medical costs and updating your estate plan and insurance coverage in case something happens to you, among many other needed updates.
The first step in asking for help always seems the hardest. The assistance and feedback may surprise you when you are open to the idea that you need not handle all financial questions solo.
Many of you already have estate documents, probably executed many years ago. You need an estate attorney to look over your documents every 10 years or so. Here are a dozen points to review.
Do you have a will and powers of attorney for health care and property? These are part of every complete estate plan. With health-care power, you choose an agent to act on your behalf if you become unable to make your own decisions. With durable power for property, you select an agent to act if you are incapacitated and can’t sign a tax return, make investment decisions, make gifts or handle other financial matters.
Make sure your health-care power addresses the Health Insurance Portability and Accountability Act. This governs what medical information doctors can release to someone other than the patient.
Do you need to change any beneficiaries, executors, trustees, guardians or others named in your documents? Are all still living? Can someone you recently found fill a role better?
Any updates needed to addendums to your will that specify who gets what of your personal property? Often I read wills that mention addendums for personal property and the addendums don’t even exist.
Did you move to a different state since the execution of your estate documents? If so, seek out a local estate attorney to check any legal differences for planning between your old and new states.
Do you still need your trust documents or can you decant, which allows you to change some provisions? Consider this technique of emptying the contents of an irrevocable trust into another newly created trust if you are unhappy with your irrevocable trust. Not all states allow decanting.
You may also want to discuss possibly moving assets out of a living trust (where a trustee holds them, a technique sometimes used to avoid probate) and holding them in the name of an individual.
This discussion will weigh the income tax benefits of a step-up in cost basis, the original cost of an asset, versus other reasons to keep the trust. (“Step up” means that the cost basis of an asset resets to the fair market value of the security as the date of the holder’s death - potentially a much higher value than when they bought the security.) The higher the cost basis, the less capital gains tax your heirs pay when they sell the asset.
You may also want to see whether you need an irrevocable life insurance trust, a device once used to move assets, typically life insurance, out of a taxable estate. Now that thresholds are higher - you may not need to move assets.
Also check when your life insurance expires. Consider how long to keep it if you think you might outlive the policy.
Have your children passed the ages specified in a children’s trust (in which you designate money for such specific purposes as education, home down payments or weddings once the kids reach stipulated ages)? If your estate documents call for a trust to give children access to money at certain ages after you die, you may be able to delete that language if the kids are older than the specified ages.
What happens if one of your kids gets divorced? A trust can help you protect assets for your child or grandchild.
Do you have heirs with special needs? Don’t assume typical estate documents help such an heir. Seek out a financial advisor and attorney who specialize in this planning.
Check beneficiary designations on brokerage accounts, insurance policies and retirement accounts. Anybody you don’t want there?
If you filled out a brokerage account application (or any beneficiary designation), understand the firm’s policy when one beneficiary dies before the others. If you want the share of the assets to pass by blood line - to the deceased’s children, for example - you may need to put in language specifying per stirpes (distribution of property when a beneficiary with children dies before the maker of the will).
Otherwise, the remaining listed beneficiaries may simply divide the assets.
Often a parent names a child on a bank account so the child can access or use the money if the parent can’t act. Understand that if you name your child as a joint owner on an account, the money passes to your child no matter what your will dictates.
The child splitting the money with someone else constitutes a gift. Think carefully so you keep the family peace.
Do your heirs know where to find all your important information? Let someone know the password to the app where you keep all your passwords - you must remember digital assets now, too.
Many parents may find it uncomfortable, or even believe it is unnecessary, to inform their children about personal finance matters. Yet, communicating openly with your family members can help to reassure them about your financial and health care wishes. This may also ease the decision-making process for your family in many important areas.
As time goes by, informing your children of financial, estate, and medical arrangements that could affect the entire family helps everyone prepare and plan for the future. This does not need to include detailed facts and figures; however, you may want to consider sharing the following information with your adult children:
Life insurance is typically purchased to provide a death benefit to help cover final expenses, estate taxes, outstanding mortgages, other liabilities, and lost income. Knowledge of the existence and location of life insurance policies can be of the utmost importance to children when settling their parents’ finances in a timely manner.
Be sure to inform children of other insurance policies that you may have, including health, disability income, and long-term care insurance. If you’re age 65 or older, make sure your children have a basic understanding of Medicare coverage and are aware of any health insurance policies that exceed Medicare coverage. Older adults can greatly benefit when their children understand and follow appropriate procedures, as well as submit any necessary forms on deadline.
Preparing a will allows you to avoid leaving the disposition of your estate up to your particular state and its probate laws. To help ensure that your assets are distributed according to your wishes, both you and your spouse should prepare wills, review them regularly, and make necessary updates as circumstances change.
Although specific contents can be kept private, it is important to disclose the existence and location of wills to several family members or a trusted legal advisor. Keep in mind that bank safe-deposit boxes may be temporarily sealed at death, so you may want to choose an alternate location for this key document. For example, the original will may be left with your financial advisor for safekeeping.
Trusts can help protect your estate from unnecessary taxation or mismanagement. Make sure to discuss pertinent terms with those who will be involved. As children reach adulthood, it is common for parents to select a responsible son or daughter to act as trustee in the event of the parents’ death.
This document specifies your preferences regarding the administering or withholding of life-sustaining medical treatment. Under many state statutes, a patient must be considered “terminal,” “permanently unconscious,” or in a “persistent vegetative state” before life support can be withdrawn. Be sure to provide copies of living wills to anyone who may be involved with the health care of you or your spouse, and keep the originals in a safe, readily accessible place.
This legal document allows you to appoint a person to act as an agent on your behalf to make medical decisions, should you become incapacitated. It is important to file a copy of the health care proxy with your primary doctor and your hospital, if possible. In addition, be sure that the individual appointed as your agent retains a copy.
With a durable power of attorney, an individual or financial institution may act as an agent to oversee your legal and financial affairs, even if you become incapacitated. Grown children need to be informed of the steps that have been taken to ensure the competent direction of your finances, should the need arise. However, their actual involvement in your financial matters may be limited, according to your wishes. A power of attorney automatically terminates upon the death of the principal.
It can be beneficial for your children to know that you have compiled a list of your assets and debts, even if you choose not to show them the list. An asset list updated regularly may include information on your bank accounts, real estate holdings, pension payments, annuities, business agreements, brokerage accounts, boats, cars, artwork, collectibles, jewelry, or other valuables, and insurance policies. A debt list may include information on your current mortgages, consumer indebtedness, personal loans, and business obligations. For both lists, be sure to identify where the paperwork and associated files for each item can be found.
Initially, preparing these lists and the associated documentation may seem like an overwhelming task. However, once completed, both you and your adult children may experience a sense of relief in the knowledge that thoughtful planning was discussed and implemented according to your wishes.
If you’re a small business owner, you’ve invested a great deal of time and effort into building your company. With day-to-day demands, it may be difficult to imagine your eventual transition into retirement. Yet, if you want to build personal financial security and ensure business continuation, it is important to plan ahead. Business succession planning can help create retirement income for a retiring business owner and facilitate the transfer of operations and/or ownership to family or another entity. A succession plan can also provide a strategy to handle unforeseen events, such as death or disability.
It is never too early to begin planning for succession. An early start can allow you ample time to develop an appropriate exit strategy, choose the right person to be your successor, and train your successor to manage the daily operations of your company. Consider the following points to create a foundation for a successful plan:
A key aspect of planning for continuation is calculating the worth of your business. There are a variety of techniques for business valuation, and the most appropriate will depend on your business circumstances. A qualified professional can help you choose strategies for valuation.
It is important for a retiring business owner to plan his or her departure from the day-to-day operations of the business. A solid plan can help ensure this transition will go smoothly, as well as facilitate the transfer of ownership.
If you plan to keep ownership and control of your business within your family, start by assessing your family members’ interests and qualifications, and how well they match the needs of the business. Discuss with family members who will participate in the company and in what capacity. Then, determine how working members will be compensated and what will be given to nonparticipating members.
If you expect unrelated parties to carry on the business, meet with the key people involved for an in-depth discussion about the company and its future. If succession involves the sale of the business, be prepared to address such issues as what the purchase price will be, how it will be paid, and when the succession plan will be activated.
Through your business plan, you can outline clear-cut, short-, medium-, and long-term business goals for your successor, along with an action plan for achieving them.
Include budgets and financial forecasts that can be modified according to changing conditions in both the industry and the economy.
Depending on the type of business, its value, and your personal financial situation and goals, determine the best ownership transfer strategy for your business. There are a variety of ways to structure and fund buy-sell agreements. For transfers to family members or charity, gifting may be an appropriate option. Consult your tax and legal professionals for specific guidance.
Regardless of your intentions for succession, it can be helpful to compile current information in case an unforeseen event, such as a death or disability, occurs before you have finalized your succession plan. This information should include the following:
A comprehensive succession plan involves strategies to handle a number of financial, legal, and tax issues. For instance, how will a successor secure funds to buy out a retiring, deceased, or disabled owner’s share of the business? What are the estate planning issues? How can an owner minimize gift taxes resulting from the transfer of company stock to family members? Such situations can be addressed in a succession plan, with the guidance of qualified financial, legal, tax, and insurance professionals.
You owe it to yourself to ensure that your business will continue to flourish after your retirement, as well as in the event of death or disability. Proper planning through a business succession plan can help provide long-term security for your retirement, your company’s future, and your family.
When it comes to personal finance, there are a number of competing priorities that can make it difficult to determine where to focus your efforts. For many people, the choice between building emergency savings and working towards their retirement goals is one of the biggest dilemmas they face. So, which should you focus on first?
In order to answer this question, it's important to understand what emergency savings and retirement goals are and why they are both important. Emergency savings refers to the amount of money you have set aside in a readily accessible account to cover unexpected expenses, such as a job loss, medical emergency, or major home repair. Retirement goals, on the other hand, are the plans you have in place to provide for yourself financially once you stop working.
Both emergency savings and retirement goals are important, but the order in which you focus on them will depend on your individual financial situation. If you have a stable income and few financial obligations, you may be able to focus more on your retirement goals, knowing that you have a safety net in place in the form of your emergency savings. However, if you have limited income and high debt, you may need to prioritize building up your emergency savings in order to protect yourself from financial shocks.
Here are a few reasons why emergency savings should come first:
However, there are also some good reasons why focusing on your retirement goals first can make sense:
So, which should come first? Ultimately, the answer will depend on your individual financial situation and goals. If you have a stable income and few financial obligations, you may be able to focus more on your retirement goals, knowing that you have a safety net in place in the form of your emergency savings.
However, if you have limited income and high debt, you may need to prioritize building up your emergency savings in order to protect yourself from financial shocks.
In any case, it's important to find a balance between the two. You don't want to neglect your emergency savings and end up in debt when an unexpected expense arises, but you also don't want to neglect your retirement savings and end up struggling to make ends meet in your later years. A good rule of thumb is to aim to have three to six months of living expenses in your emergency fund, and then start contributing to your retirement goals as soon as you can.
Over the past year, the global economy has faced a series of rolling recessions – periods of economic decline that impact specific sectors or regions without bringing down the entire economy. This phenomenon, although concerning, is not necessarily as disastrous as it may sound. It reveals a nuanced picture of economic resilience, courtesy of offsetting pockets of strength. As an investor, understanding these dynamics can help guide investment decisions and strategies.
Rolling recessions, sometimes referred to as rolling bear markets, are essentially localized downturns that hit specific areas of an economy while others remain robust. These can be industry-specific, region-specific, or even product-specific. They may be triggered by a variety of factors such as regulatory changes, technological disruptions, trade conflicts, or even sector-specific demand and supply imbalances.
For example, if there's a technological disruption that renders certain jobs obsolete in a specific sector, that sector could experience a recession while others continue to thrive. Similarly, a region heavily reliant on one industry may suffer if that industry faces a downturn, while regions with a more diversified economic base continue to grow.
The simultaneous existence of these recessions and robust sectors illustrates the complex, interconnected nature of modern economies. It also underlines an inherent resilience, as healthier areas can help stabilize the economy and prevent a full-blown, nationwide or global recession. These healthier sectors can absorb displaced labor, offer investment alternatives, and maintain overall economic activity.
It's akin to a natural ecosystem: when one species is in decline, others may thrive and maintain the balance. Similarly, in an economy, when one sector is facing a downturn, others that are more robust can provide the necessary counterbalance.
For investors, rolling recessions offer both challenges and opportunities.
On the one hand, these can lead to portfolio losses if one is heavily invested in a sector or region that enters a recession. On the other hand, they can provide opportunities to buy assets at discounted prices and diversify into more resilient sectors or regions.
Hence, the key to navigating rolling recessions lies in regular communication with your financial advisor, maintaining a diversified investment portfolio, staying informed about economic trends, and being flexible in adjusting investment strategies based on changing conditions. Investors can work with their advisor to keep a pulse on both macroeconomic indicators and sector-specific trends.
While rolling recessions can unsettle investors, they need not trigger undue alarm. In fact, they highlight the resilience of a diversified economy and can present unique investment opportunities. With a good financial advisor who understands the economic landscape and sound investment strategies, investors can not only navigate these downturns but potentially turn them into profitable ventures.
As we move forward in this ever-evolving economic environment, remember that a professional financial advisor who is knowledgeable and adaptable is your most valuable asset. Use them wisely to spot opportunities, mitigate risks, and ensure your financial resilience, no matter the economic weather.
One of the more challenging aspects of managing finances today is deciding how much to save and which savings vehicles are most appropriate in helping you reach your goals. Naturally, you hope to create a savings and investment plan that’s “in tune” with your personal objectives and risk tolerance. But, the lure of potentially high rates of return can easily skew a novice’s objectivity, which could result in unrealistic expectations and unnecessary exposure to risk.
That’s why it’s important to meet regularly with a qualified financial professional to review your personal financial situation, taking into account your short-term and long-term goals. During these meetings, you’ll formulate answers to the following questions:
Professional guidance can help you create a well-diversified savings program with assets placed in different types of investments and investment classes covering a wide range of the risk/return spectrum. Examples of some investment vehicles include: stocks; bonds; mutual funds (which can comprise of stocks, bonds, or a combination of both); certificates of deposit (CDs); savings; and money market accounts. Each investment class, and its respective options, tends to react differently to changes in financial markets and to the economy as a whole. Thus, by diversifying your portfolio, risk is spread over a broader range of investments—potentially minimizing the impact of downturns in the economy or a particular market sector.
Each individual situation has its own set of circumstances that require constant re-evaluation. Factors such as your age, income, expenses, family responsibilities, and risk tolerance will certainly change over time. In addition, it’s important to recognize that past performance of any investment is not indicative of future results, and shares may be redeemed for more or less than their original value. Investments that are performing well above or below your expectations may create an unbalanced portfolio, which could result in an investment mix that is “out of harmony” (inconsistent) with your original objectives.
Regular reviews with a qualified financial professional will help ensure your portfolio is properly diversified, balanced, and performing in accordance with your investment goals—in short, making music you want to hear.
Investment advice is offered through Integrated Partners, a registered investment adviser doing business as Strong Valley Wealth & Pension. This information on the website has not been approved or verified by the United State Securities and Exchange Commission or by any state securities authority. Registration as an Investment Adviser does not imply a certain level of skill or training. Strong Valley Wealth & Pension, LLC offers securities through M.S. Howells & Co. Member FINRA/SIPC. M.S. Howells is not affiliated with Strong Valley Wealth & Pension. Not all products and services referenced on this site are available in every state and through every representative or advisor. Check the background of the firm or investment professional on BROKER CHECK or ADVISER CHECK.
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