Category: Preserving Wealth

Estate Planning Preview

Three Reasons You Need an Estate Plan

Many people have the view that estate planning is mostly for high net worth individuals who require complicated estate tax planning.  However, there are many important reasons to do an estate plan other than tax planning, and these reasons apply to everyone, no matter the size of your estate.  Here are three reasons to consider doing an estate plan even if estate taxes are not your primary concern:

1. Planning for Incapacity

At some point in life, whether due to age, illness, injury, or other health conditions, many of us will become unable to independently manage our own finances.  If you become unable to manage your own finances, the agent you select in your estate plan can step in to make sure your bills continue to be paid and that your finances continue to be managed to provide for your financial needs.  Preparing an estate plan beforehand allows you to carefully choose people you trust to manage your property if you are no longer able to do so, and having the proper estate plan documents in place will give your agents the authority to act on your behalf quickly to provide for your needs without lengthy delays and in most cases without court involvement.

Planning for incapacity also involves planning for your health care in addition to your finances.  Preparing an estate plan gives you the opportunity to express your wishes relating to the treatment and care you would like to receive and allows you to choose people you trust to make important decisions relating to your health care, particularly difficult end of life decisions, if you are not able to do so yourself.

2. Nominate Guardians for Minor Children

If you have children under age 18, another important reason to do an estate plan is to nominate the legal guardians of your minor children.  For many parents, it is difficult to decide who will be responsible for raising and caring for their children after they are gone.  Nominating a guardian in your estate plan will give you assurance that the person you choose will be the person appointed as guardian of your children by the court.

3. Avoid Family Conflict

Dividing a bank account equally among several people is usually a matter of simple math, and there is not much reason to disagree as long as everyone gets the same amount.  However, it can be difficult for family members to agree when deciding who is to receive, for example, great-great-great-great-grandmother’s gold ring or the antique rocking chair that has been in the family for generations when there is only one of the item and several people interested in owning it.  Because of the high sentimental value these items sometimes have, deciding you will own it can become the source of deep family conflict.  The same principle applies to larger or more valuable items, such as the family home or other valuable real estate, where dividing it among several people might not be possible or practical.

Preparing an estate plan gives you the opportunity to specifically designate how you want your property distributed.  With a clear direction in your estate plan as to which family members should receive the property you specify, you can help avoid or reduce the possibility of a conflict over the distribution of your property among your family members after your death.

Depending on our circumstances and stage in life, some of the reasons discussed in this article will be more important or relevant to us than others.  These issues affect us and our families on a more personal level, and at some point most of us will be affected by one or more of the issues mentioned here no matter how much property we own or the value of your assets.  By preparing an estate plan before these issues arise, we can have confidence that that they will be managed effectively and efficiently.

Grandmother and Keyboard

Is Your Grandmother On Facebook?

Young people aren’t the only ones using social media.

People of all ages are using social media to share information, build and maintain relationships, and keep in touch with family and friends, primarily through sharing digital photos and videos.  Many people have also created music or book collections that are entirely digital.  These collections may contain thousands of dollars’ worth of books and music, but they can only be accessed digitally.

The exact means of access may be different depending on the specific type of media, but one thing they have in common is that access usually requires a login or password.

What is also common is that, depending on the media provider, getting access to these items after the death of the account owner can be difficult or impossible.

Family members are often anxious about receiving photos, home videos, journals, music and books of a deceased person, but find that the means for obtaining this information is difficult at best.  The laws affecting the rights to these digital assets are having difficulty keeping up with the advances in technology and the development of social media.

It is clear that digital assets and social media are ever evolving.

As estate planners, we can provide a valuable service to our clients by helping to guide them in arranging for the transfer of these important digital assets.  However, until the laws affecting these assets and the policies of the media providers becomes more stabilized and established, finding good resources to keep updated and informed as these issues develop is especially important to be able to properly advise clients.

The Digital Beyond is one helpful resource in this area. The “Legal” tab is chalk full of helpful articles and information for the “digital afterlife.” A good estate planner should be able to assist their clients with tangible assets, and navigate the waters of digital assets.

 

Retirement Benefits Feature

Your 401(k) Assets Are Not “Old” – Think Twice Before Rolling Them Over

Almost every bank has some sort of advertisement that refers to your 401(k) benefits as “old” and encourages you to rollover your investments into an IRA. Wells Fargo’s tag line reads: “Consolidate old retirement assets with guidance,” Fidelity publishes articles with the headline “What to do with your old 401(k),” and, Charles Schwab has a TV commercial that opens with “Is your old 401(k) just hanging around?”[1]

These banks are all attempting to send home the message that your “old” 401(k) needs to be rolled over into a “new” IRA in order to have better investment returns. The advertisements in particular are appealing to your sense that you no longer work for your employer, so why leave your assets in your “old” employer’s retirement account? They are also implying that somehow 401(k)s only have “old” investment types available and IRAs have all of the “new” and better investments. This is simply not the case – ERISA retirement plan investments are reviewed each year by fiduciaries and participants with self-directed accounts in ERISA retirement plans actually choose their own investments.

Be Aware of the Downsides of Rolling Over your 401(k)

Furthermore, participants in a 401(k) plan should be aware of the downsides of moving funds from a 401(k) plan to an IRA which can include:

  • Higher maintenance fees charged for an IRA rather than to stay in the ERISA retirement plan. Fees in an ERISA plan are regulated by the Department of Labor.
  • More limits on investment options offered by the bank hosting the IRA compared to the investment options that an ERISA plan can negotiate for on a large scale basis.
  • Less protection of assets from creditors or legal judgments.
  • Higher transaction fees charged in an IRA than in an ERISA retirement plan.
  • More restrictions on withdrawing your benefits. (If you retire from a company at age 55 or older, you may be able to obtain penalty-free access to your 401(k) account whereas IRAs generally have a 59 ½ age requirement before benefits can be obtained penalty-free.)[2]
  • Fees for investment advice may be charged by the bank whereas in an ERISA plan your prior employer’s contract may include providing participants with investment advice for no fee.
  • No ability to obtain a loan from an IRA whereas many ERISA plans permit participants to take loans.

Wells Fargo even has a long disclaimer regarding rollover IRAs, but it is in the fine print:

“When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free withdrawals are available, treatment of employer stock, when required minimum distribution may be required, protection of assets from creditors, and legal judgments. Investing and maintaining assets in an IRA with us will generally involve higher costs than the other options available.” (emphasis added) [3]

The conclusion is simple:

ERISA plans should take pride in the upsides to participants of staying invested in the plan, and participants should consider their individual needs in order to make the best decision.

[1] http://www.ispot.tv/ad/7wxM/charles-schwab-ira-offer, https://www.fidelity.com/viewpoints/retirement/401k-options
[2] http://www.irs.gov/taxtopics/tc558.html
[3] https://www.wellsfargo.com/investing/retirement/rollover/