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Oxford Financial Group, LTD


Oxford Financial Group, LTD


Expert Perspective

News, research and market insights from our team of experts.


Current Issue | December 20, 2018

10 Resolutions to Bullet-Proof Your Wealth Transfer Plan

By: Kathleen Kuehl, J.D., Managing Director

New years are always a time for reflection and resolutions, and 2017 will be no different. Many of these will revolve around personal, health and fitness and professional goals, but financial and wealth management issues should not be forgotten. As you consider your financial health, here's a list of 10 suggested resolutions to ensure your plan is "in shape" to meet your financial and wealth transfer objectives.

Resolution #1: Make sure you have a Will or Revocable Trust.
It is estimated that nearly 70% of Americans do not have a will or trust that will provide for the thoughtful management and distribution of their assets after their death. Relying on the laws of intestacy (which will provide for such distribution) is NOT a good plan, nor one that most people would consciously choose. One need look no further than the situation involving the iconic music superstar Prince. The absence of a will in his case resulted in almost thirty people claiming to be his potential heir. In addition, under the Minnesota law of intestacy, half-siblings and full siblings will likely end up as beneficiaries of his multi-million dollar estate. There remain questions of who will ultimately control Prince’s vast music empire, including a vault of previously unreleased songs. In order to avoid your own family drama, take the time to put a proper estate plan in place.

Resolution #2: Review other critical documents like financial powers of attorney, living wills and health care powers of attorney.
These documents address financial and personal issues while you are alive. Using these documents you name individuals to act on your behalf if you become incapacitated or incompetent to make financial or medical decisions for yourself. Remember, financial powers of attorney are only effective during your life; once you die, a nominated executor or personal representative or a trustee (in the case of a revocable trust) will take charge and be responsible for the orderly administration and distribution of your estate.

Resolution #3. Prepare a personal financial statement.
This is a great tool for a number of reasons. First, it allows you to inventory all of your assets and liabilities and serves as a terrific starting point for anyone who would need to manage your financial affairs or administer your estate. Nobody, whether family members or advisors, enjoys searching through file cabinets, banker's boxes, old tax returns or waiting for mailed notices in order to figure out what someone owns.

Second, include the ownership of each asset listed. This, too, is a critical piece of information needed by an advisor helping you with your estate plan, as it impacts how certain tax exemptions are utilized, as well as how assets may "pass" to other beneficiaries (as an example, remember assets held in joint tenancy often pass to the surviving joint tenant, and not per the provisions in your estate planning documents).

Finally, this document can and should be referenced in any future planning conversations you have with your financial, tax and legal advisors. It can easily be updated as your situation changes, and may be used as a starting point for discussions with family members as well. There are a number of software programs that have templates you can use, or ask your financial advisor to put one together for you.

Resolution #4: Review your current estate plan.
If you are one of the minority that actually does have a plan (and your family should thank you if that's the case!), this is a good time to review it and make sure it is up-to-date and reflects your current intentions. You may be asking why you would do this with all the uncertainty surrounding the estate tax given the election of a new President and a Republican-controlled Congress, both of whom support complete estate tax repeal. Here are three reasons to consider:

  • First, your specific circumstances may have changed. Personal things like divorce, remarriage, death or disability of a beneficiary, births and family additions may alter your original intentions and require revisions to existing plans.
  • Second, the state in which you live may have its own estate tax which might impact your plan.
  • Finally, you may have a significant change in your financial situation.

Whether the estate tax stays or goes, your current wealth may have changed your intentions. A proactive review now with an assessment of how proposed tax changes may impact you is a better, more informed course of action.

Resolution #5: Check beneficiary designations.
Do not make the mistake of assuming that your will or trust will govern distributions of all your assets. Things like life insurance, annuities, IRAs and other retirement plans will be distributed according to beneficiary designations that you must complete. These assets should always be coordinated with your overall plan, so make sure

  1. You have beneficiary designations completed.
  2. You are reviewing those to ensure they are consistent with your objectives and overall plan.
  3. If you are unsure about either of the first two items, consult with your financial advisor or estate planning attorney for guidance.

Resolution #6: Conduct a review of any life insurance policies.
If you are like most people, these policies are purchased and then tucked away in a drawer, only to be pulled out when someone dies and a claim needs to be filed. And while you are reviewing the policies, review the reasons they were purchased in the first place.

  • Was it to provide temporary protection during income-earning years?
  • Or to provide liquidity for estate taxes?
  • Or to fund a buy-sell agreement or provide key-person insurance in a business?
  • Do the reasons you had at the time the policies were purchased still exist?
  • Is more or less coverage necessary now?

Whatever the reasons, it has never been more important to review these products. The last eight years have given us persistent and unprecedented low interest rates, which are good for borrowers but not for life insurers. Low interest rates have squeezed earnings for insurers and put pressure on policies which were expected to generate returns of 4% (which is fairly conservative) or, in many cases, much higher. You need to know how your policy is performing, so ask your agent to run new performance illustrations. Keep in mind, too, that the policies in this industry continue to improve and what might have been considered a "first in class" product when you originally acquired it, could quite possibly be replaced with something better and less expensive.

Resolution #7: Think about risk management and asset protection.
And no, we are not talking here about elaborate off-shore planning or creating complex legal entities to shelter assets and shield from liability. Those strategies may apply to some, but the majority of individuals manage risks and protect assets through other means, namely forms of insurance, including, health, disability, long-term care, homeowners, auto, umbrella, etc. It is advisable to "catalog" all these coverages and pull out those policies for an annual review.

Start with your homeowners, auto and umbrella policies. Obviously, you want to make sure you have appropriate coverage for homes and their contents, jewelry, collections, autos and other unusual assets (like boats, planes, other recreational vehicles, etc.), since valuations change, or you may have acquired or disposed of certain items over the course of the year.

Do not neglect health and disability policies. The health insurance market seems to change daily, and with a new administration bound and determined to repeal the Affordable Care Act enacted under President Obama, there will, no doubt, be more changes coming down the road. Know what you have now, think about future needs and be informed as to how proposed changes may affect your situation.

Do you need long-term care insurance? The cost of nursing home care has skyrocketed with no ceiling in sight, and the policies in the marketplace have changed and evolved to provide coverage for in-home and other services. It may be wise to consult with your financial advisor or insurance provider to determine if this coverage is appropriate for you.

Finally, as critical as it is to protect assets, it's also important to protect income, so review disability policies if you have them and consider them if you do not.

Resolution #8: Review gifting strategies.
Making gifts, whether to family or charitable organizations, may be prompted by estate tax concerns, but often times the motivation is more altruistic. So the existence or repeal of a federal estate tax may be irrelevant to your gifting intentions. Also, while many individuals make their annual gifts at the end of a calendar year, it may be advisable to make them at the beginning of the year, particularly for individuals with health concerns. To review, each individual is allowed to make annual gifts up of $14,000 per donee (gifts in excess of that amount will need to be reported on a gift tax return). However, there are certain exceptions which permit larger gifts—those exceptions include payments made directly to educational or medical institutions for the benefit of a specific individual beneficiary, and certain contributions to 529 plans which allow for "front-end loading" of those accounts.

With regard to charitable gifts, consider whether a donor advised fund is appropriate. These can be established with a donation as minimal as a few thousand dollars (depending upon the organization's specific guidelines), can be added to over time and may offer a great opportunity to introduce younger family members to the concept of philanthropy. Also, the IRS recently made permanent Qualified Charitable Distributions from an IRA which gives an individual age 70 ½ or older the ability to direct the IRA custodian to transfer IRA proceeds of up to $100,000 directly to public charities. The amounts distributed can satisfy the required minimum distributions (RMDs) up to $100,000, and although there is no charitable deduction allowed, the distribution is not included in the donor's taxable income. If you don't need all of your RMD, perhaps directing excess income to a charity may be both "feel good" and tax wise!

Resolution #9: Don't neglect your digital assets.
We live in a digital world, and even those who consider themselves technological novices have a digital footprint. More and more information is being created, stored and shared on-line and accessed through digital means. These "digital assets" usually have usernames and passwords associated with them. They may contain personal or private information, or in some cases, have monetary value. They can be extremely difficult to access and protect once the rightful "owner" dies. So, here are some things to consider:

  • First, prepare an inventory (similar to the personal financial statement referenced earlier), which includes the type of account (e.g., social media, websites, email, bank and other financial accounts, cloud accounts, etc.), account numbers, if applicable, and the username and password for each asset.
  • This inventory can either be created with a handwritten list safely stored, or on an encrypted USB drive or perhaps with one of the many apps designed to safeguard such information.
  • Second, make this a part of your updated estate plan, specifically including authorizations for your personal representative, trustee, attorney-in-fact and other fiduciaries to access and control these assets.

See our previous discussion regarding this topic.

Resolution #10: Schedule a meeting with your financial advisor.
While this list covers many of the resolutions recommended to get "financially fit" in 2017, it may not be comprehensive with respect to your specific financial circumstances. If you have a financial advisor that you've worked with in the past, he or she should be able to identify other issues that may be pertinent to you. First quarter of 2017 would be a great time to schedule a meeting with that person. If you don't have a financial advisor, perhaps Resolution #1 for you should be to get one!