Estate Planning Should Include the Next Generation

I remember the day we met with our attorney to get our estate planning done. It was the middle of summer during the week. Do you know how I remember? Because our 14-year-old son was with us.

When I say he was with us I don’t mean he sat in the waiting room and played video games. He came in and sat through the meeting with our legal counsel. I figured he’s our only heir, so at some point, he should be comfortable meeting with attorneys and talking business.

In fact, we’ve always included him in our businesses. He’s around it every day. As a result, he’s not intimidated or flummoxed. There are many concepts that he doesn’t understand at such a young age, but he’s not afraid to ask questions and learn. He also understands that we won’t always be around.

Now, most people probably aren’t like us. Maybe they have multiple children with their own children living hundreds of miles apart. It may not be prudent or useful to have them in the same room for such conversations. But I do think it’s important to help your offspring move up the learning curve so to speak.

I’ve been thinking about estate plans quite a bit lately. And I wanted to share some thoughts with you…

CSH Clients Will Have Something to Pass On. Are Your Heirs Prepared?

My 30 years of experience tells me that 80-90% of the assets our clients own will be forwarded on after their death to someone else. So in many cases, we are managing an income stream for a client with the remainder being passed on to someone, or multiple someones, at death.

  • Is that someone knowledgeable enough to make good decisions after you are gone?
  • Do you have someone you can trust to aid in that transition?

Read “10 Things Every Executor Needs to Keep In Mind”

Very often one spouse handles most of the financial decisions.

What if that spouse is no longer capable of doing so? This is something to really think about.

My friend Dan manages all the investments for his family. And he’s done very well so far. But he has accounts with multiple custodians and brokers. If something happens to him, his wife will have to deal with all those different accounts and several different brokers. There will be a lot of decisions to make.

  • What assets should be sold to pay expenses?
  • What about taxes? Is there a way they can be minimized?
  • Some investments get a step up in cost basis on the date of the owner’s death. Depending on how they’re titled, some don’t.
  • Is she going to be able to coordinate all that with multiple parties, all of which might have conflicting interests?

While Dan’s wife may not have been the primary financial decision-maker, he certainly had a responsibility to educate her as he went along. Things will work out better for Dan and his wife if she is prepared for the job ahead.

Estate Plans Aren’t Just for the Ultra-Wealthy: Everyone Can Benefit from a “Simple” Plan

“Gosh, Steve, I don’t have millions of dollars in investments. I don’t think I really need an estate plan.”

An estate plan can be extraordinarily simple or it can be complex. Usually, I recommend the simpler the better. This could just be a basic checklist of items.

Let’s call it The Easy-peezy Estate Plan. At the very least, everyone needs:

  • a basic will;
  • a durable springing power of attorney which “springs into action” if you become incapacitated;
  • a healthcare power of attorney stating what your wishes are at the end of life.

In addition, you should always (and regularly) double-check your beneficiaries on your retirement plans. Investments such as IRA’s, Annuities, and 401(k)s can be passed without being included in your probate estate if titled correctly.

If you’re recently divorced, make sure your ex isn’t still on your retirement plan! This has been a shocking surprise for many people, and there’s not much that be done about such a big oversight.

More Complicated Situations Need More Complex Planning

Some families have more complicated circumstances and may need, or already have a revocable trust.

Recently I had a client pass on. Fred and Norma had separate trusts which were both revocable. Fred passed on and his trust is now an irrevocable entity with its own Tax ID number. Norma has the right to the income from the trust for the rest of her life.

However, the income distributions from Fred’s trust need to be managed correctly. This is because trusts have very high income tax rates that accelerate very quickly. Once income reaches $2,600 the tax is 24%. The rates max out at $13,050 where they reach 37%. Ouch.

If Norma distributes the income from the trust, this onerous tax can be avoided and she can pay using her own presumable lower tax rate.

The good news in the above example is Fred’s trust gets a step-up in cost basis on the assets to fair market on the date of death. Fred owned two stocks that had appreciated multiple times. If he sold them before his passing he would incur large capital gains. Now, the gain is gone and he can sell with very little tax. Norma now has an opportunity to reallocate those assets without worry.

Don’t Forget Other Assets – Digital, Online, Social Media

Effective and holistic estate plans not only plan for financial assets but also take into account other assets that are easy to overlook.

Did your spouse trade in cryptocurrencies? If so do you know the log-in? Do you know how to sell crypto assets? What are the tax ramifications?

How about online services? There are Amazon points and frequent flyer miles. Some providers allow these to be passed on and some don’t. You’ll have to reach out to them to see what their policy is.

Social media assets such as Facebook accounts need to be properly administered.

And what about digital collections like photographs or videos? They might not have any monetary value but they can have great sentimental value to others. Do you know where they’re at and how others would get to them?

Do You Have a Go-to Person You Can Trust?

When it comes to effective estate planning, it’s important to identify “good helpers,” as local Estate Planning Attorney David Edwards calls them. Read his blog post about how to choose good helpers here.

In addition to personal helpers like executors and trustees, many people benefit from professional advisors who have a deep understanding of their own areas of expertise.

Do you have a point person that can coordinate and handle all these interrelated issues?

Can your investment person communicate with your tax and legal people? Does your accountant have a good connection with other professionals in the area? Does your attorney speak in plain English? If not, it’s going to cost your heirs money. Can your executor handle navigating all of these professional relationships?

Where’s All Your Important Stuff Kept? CSH Has a Solution!

  • Do your heirs know where all your important information is kept? And can they easily access it when the time comes?
  • Many people have a safe deposit box. But is everything in there? Can the right people access it if something happens to you?
  • What about insurance policies? How many different companies are involved? Who should your loved ones contact about those? If you have life insurance, what are the policy numbers?
  • What about your previous tax returns? Your executor might need these to make good decisions.

At CSH every client receives their own personal dashboard. They have access to all their investment accounts, even ones not kept with us. You can even manage your credit cards and track your spending with the personal account feature.

In addition, with our digital vault product, you can store important documents safely, such as insurance policies, tax returns, and yes, even personal photos.

Imagine having ONE place where your loved ones can find important contacts and other information at the very moment they need to access it? We think it’s pretty amazing, which is why we offer it to all of our clients (and even those who aren’t yet clients). If you want to learn more about this service we offer, please give us a call or contact us.

At CSH Investment management we are well well-tuned to estate planning issues. Our staff has over 50 years of tax experience combined. We’ve worked with hundreds, maybe even thousands, of individuals and their estates. Before and after the fact. We’ve lived the mistakes and the successes.

So in summation remember these facts about estate planning:

  1. Estate planning is for everybody not just the rich — although the basics are adequate for most people.
  2. Start including others in the process or help educate them. Don’t assume they know. Just because your son founded a company doesn’t mean he has a high level of financial knowledge, for example.
  3. Don’t forget digital assets. These might require special handling.
  4. Get your titling right. Many assets can and should be passed via proper beneficiary designations.
  5. Trusts require special handling. Many brokers probably won’t help you with this. We can.
  6. Important documents — are they easily accessible to others who might need them and where are they kept?
  7. Have a point person who can coordinate and communicate with the other professionals who will be helping with your estate. It is highly preferable to have a good communicator who can explain legal concepts simply.

Unfortunately, estate planning is one of those things that’s easy to put off, because you don’t need it until you REALLY need it… and then it’s too late. If you have questions about creating an estate plan or are unsure of where to start, give us a call at 217-824-4211. We’re happy to chat with you and help you get started. As I said, the vast majority of our clients will have something to pass on, so it’s really important to us that you have a plan in place when the time comes for that to happen.