Estate Planning Myths and Misconceptions

Now is the time of year when extended families get together at the beach, lake, mountains or national parks. While the focus is on meals, family bonding and R&R, it’s also a good time to get the ball moving about those sensitive estate planning issues.

According to my friend Valentino Sabuco, founder of The Financial Awareness Foundation, half of the U.S. adult population has NO financial, estate or gift plan. As most of you know, estate planning is not just for the wealthy or elderly. It’s essential for anyone who wants to make their own decisions about their assets and their heirs—rather than the government making it for them.

I don’t have to remind you that estate planning is not only a touchy subject; it’s complex and often misunderstood. In response, several of our clients have been speaking to the national media recently about estate planning myths and misconceptions that frequently trip successful families up.

With the significant increase in the lifetime exemption under the 2017 tax act ($11.2 million per spouse in 2018), our client, Blake Christian, CPA said even many affluent taxpayers do not believe estate planning is truly necessary. “Nothing could be further from the truth,” said Christian, a partner of HCVT in Long Beach, CA. “Even for the 99 percent who will never pay estate tax, estate planning is very necessary for numerous reasons, including:

1) Avoiding the probate process.
2) Asset protection.
3) Simplifying mixed-family complexities associated with divorce, blended families and common-law marriage situations.
4) Titling assets properly can also make the difference between getting a full or partial step-up in an asset's tax basis for the heirs.

5) Making sure your assets are distributed correctly to provide your heirs with sufficient after-tax income after you are gone,” added Christian. 

According to our client, Mark A. Rioboli, CFP®, CFS, director of wealth management at Wayne, PA-based Independence Advisors, “The misconception is that if you have a will, it controls everything. In reality, it only controls the assets in your own name.” 

*** NOTE: HB clients Anthony Glosmki, Molly Grubb and I will be speaking about advanced planning topics at the Accounting & Finance Show in NYC this week at the Javits Center. More than 2,000 attendees and 200 speakers are expected. Stop by if you are in the Big Apple.

Our client, James Nevers, an advisor at Soundmark Wealth near Seattle, WA agreed. He said it’s a common mistake to believe that if you have a Will, you don’t need to worry about your beneficiary designations on retirement accounts. “I manage several 401(k) plans for medical groups. When I provide participant education to their staffs, I tell them the same story every time we meet – ‘If your primary beneficiary designation on your retirement accounts says your ex-spouse, then all your hard-earned savings in your 401(k) is coming to your ex-spouse, regardless of what your Will states.’”

According to Nevers, you should also check to see if a minor child is listed as a beneficiary. “I don’t know many 8 year-olds who can responsibly manage $100,000. Nor do I know anyone who wants their ex-spouse to get one more penny than they’ve already received,” added Nevers. “Beneficiary designations supersede your will – simple as that.  I advise everyone to consult with their estate attorney about who they should designate, whether it is their spouse, a trust, or another individual.”

Conclusion
As Benjamin Franklin famously said, "Failing to plan is planning to fail." Don’t let that happen to you and your clients. Hope to see you at the Accounting & Finance Show on July 11th and 12th.

TAGS:  Mark Rioboli, Independence Advisors, Blake Christian, HCVT, James Nevers, Soundmark Wealth, NYC Accounting & Finance Show, Valentino Sabuco, The Financial Awareness Foundation

How Financially Literate Are Your Clients’ Kids?

This recent piece in USA Today got me thinking, What Schools Teach Kids About Money Is Scary. I know many of you won’t admit to reading USA Today unless you’re stuck in a long airport delay. But a LOT of people DO read this paper and it tends to have a good finger on the pulse of the American public.

Guest author, Peter Dunn, suggests a hypothetical 13-week money skills course for teens and pre-teens. Perhaps it’s too basic for many of your clients—but not too basic for their kids and grandkids. And if your clients review Dunn’s tips, they might pick up a refresher or two for themselves.

Week 1 is very important because Dunn stresses the importance of one key point: “Your financial life is not about money; it’s about behavior.”

Our client Gary Klaben frequently reminds followers of his blog that “Saving First, Spending Second” is the most valuable money habit you can have.

Dunn also stresses the importance of budgeting and goal-setting in the early weeks of the course—how to manage debt and how to watch out for all the little nickel-and-dime luxuries we pay for that can blow a big hole in our budgets. Around week 7, Dunn would introduce the power (or danger) of compound interest. I would personally introduce compound interest earlier in the course since compounding is your friend as a saver/investor but your bitter enemy as a debtor. Also, most middle- and high-schoolers can do the basic compounding math ( I have one of each).

Our own blog and website has more.

In Weeks 8-10, Dunn would devote a fair amount of time to student loans. That might be too much, other than helping them kids understand that you want to avoid student loans as much as possible. If for no other reason than you don’t want to take on debts on bad terms that can stalk you throughout your adult life. I don’t think students younger than high school juniors and seniors can grasp this concept until they may have to face the reality of NOT being able to attend their first, second or third choice of colleges for financial reasons—not because they didn’t have the grades or extracurriculars. We do give Dunn kudos for this point however:  “Saving for a purchase almost always makes more sense than borrowing, especially on lower-price items.”

Finally, the topic of insurance. Life insurance is a tough concept for kids, teens and young adults to wrap their heads around. They think they’re invincible, so why pay a lot of money for something they’ll never need? However, we do like Dunn’s suggestion of teaching kids about insuring their material possessions because at that age, loss of a mobile device, ear phones or even a car can appear to be a life shattering event.

For more good resources to share with kids and grandkids of clients, we recommend Gary Klaben’s Grown Up Money blog and The Financial Awareness Foundation website founded by our good friend Valentino Sabuco, CFP®, AEP®.

Conclusion

Even if kids, teens and young adults in your lives know how much their parents make or what their house is worth, you can’t expect them to know how little of that wealth can be utilized as spendable cash—my dad makes $100K, why can’t he buy a $100K used Ferrari? But, you can teach them about the value of delayed gratification by working and/or saving for the things they really want. When a price tag is expressed in terms of hours bussing tables or how many lawns need to be mowed, then we assure you, financial literacy will kick in—fast!

And remember, the 3^rd week of October is National Estate Planning Awareness Week, courtesy of Val Sabuco. And if for pre-teen kids in your life, consider giving them a Savvy Piggy Bank which has separate compartments for Saving, Spending, Donating and Investing.

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TAGS: teaching kids financial literacy, Peter Dunn, Gary Klaben, Valentino Sabuco