“Know what you own, and know why you own it.” -Peter Lynch

This month we’re looking at the importance of having an estate plan along with some valuable steps that will protect your wealth under a wide range of scenarios.

One of our primary goals at the Mile Marker Club and Heritage Capital USA is to help you develop strategies to maximize your wealth. But an equally high priority is that you have been appropriately directed in the event of a life-altering occurrence and at the time of death.

Part one of our multi-part series on estate planning addresses the value of having a plan, proper record-keeping, beneficiary designations, and the role of fiduciaries.

Developing an Estate and Legacy Plan

Regardless of the size of your estate, you should have a written estate and legacy plan. Without a Will or Trust (some sort of written, notarized expression of your wishes), an estate, regardless of its size, may be subjected to the whims of the courtroom in your state of residence.  So, if you don’t draft a Will, your home state will provide one for you.

The other reality is that sometimes as hard as it is to talk about death, those who avoid the topic are at a disadvantage. In fact, avoiding the topic is part of the reason most families’ wealth is gone by the end of the third generation. Having an estate plan means taking the initiative both for how assets are directed and who oversees their direction.

Additionally, being very clear about what you want to happen to your assets can relieve a significant amount of pressure from the shoulders of your beneficiaries (children, charities, or churches for example) about your intentions. The last thing you want to do is leave a legacy marred by inter-family squabbles or legal battles fought over unclear intent.  This is a particularly important step if your wealth and estate is comprised of a business you own and operate.

As covered in our recent series “How the Wealthy Maintain their Wealth,” those disciplines are not just applied to how the wealthy make investment choices; the wealthy are not just thinking about wealth through their personal lens, but they’re doing so from a multi-generational outlook.  Adapting that mentality is a key step in assuring that your wealth will be able to sustain itself for a long period of time, even after you’re gone.

Maintaining Proper Records

Having a complete list of all your family information, documentation, and assets and liabilities is part of the first step in creating your estate plan.

An organized balance sheet is a key piece that allows you to manage your wealth efficiently. It’s this sheet that becomes the basis of your estate plan because it thoroughly lists all assets that need to be transferred to your heirs and beneficiaries. Furthermore, it also properly lists all liabilities that need to be taken care of and paid off prior to transferring those assets.

It’s not uncommon to either undervalue or overvalue assets that comprise your entire estate. Yet, when you keep up with wealth management over your lifetime, creating and administering your estate plan is much easier.

One element that we tend to see missed when determining the gross estate is the face amount or death benefit of all life insurance policies owned.

While it is generally true that death benefit proceeds from a life insurance contract pass to the beneficiary income tax free, those proceeds, if owned by the decedent, are actually part of the gross estate tax and can be very much taxable at the estate level.

While there are many reasons why we need life insurance, we certainly don’t want to solve the liquidity issue that it brings while simultaneously creating a greater estate tax problem.

Finally, by having all assets and liabilities and family information properly organized it makes it significantly easier for your advisors, your heirs, and their advisors, to help settle your estate in the most efficient manner possible in accordance with your wishes.  One way to do this efficiently is to have an electronic system where you store all of this important information so that it can be easily accessed from anywhere, at any time by you and others that would need quick access to it.

As illustrated below, we’ve seen many of our families have great success with this system–an important storage facility mechanism that helps to store all of your important documents and family information.

Updating and Confirming Beneficiary Designations

Many of the assets and accounts that you hold inside your portfolio will have a beneficiary designation. Individual retirement accounts, pension plans, employee benefit plans, life insurance policies, trusts, bank accounts, and 401k plans typically include beneficiaries. These are worth reviewing from time to time to make sure they’re serving the greater good of your estate plan.

If you’ve had any significant life events such as the death of a previously listed beneficiary or the birth of a new beneficiary, reviewing the aforementioned accounts is recommended because whoever is listed as the beneficiary (whether you intended or not) has rights at the time of your death.  You want to make sure that your beneficiaries are in concert with the vision of your overall estate plan.

Further, there can be some significant tax advantages by being strategic with your beneficiary designations, especially when it comes to individual retirement accounts.

Naming and Engaging Appropriate Fiduciaries

A fiduciary is a person you entrust and designate to handle your financial considerations, assets, business, and personal affairs. From an estate planning standpoint, this individual may be an executor or trustee, and both of these roles come with certain obligations and responsibilities. Therefore, giving careful consideration to whom you list to serve in these capacities is paramount.

Simply listing someone is not enough.  It’s important to have a series of conversations to make sure that the person you’re considering is willing to participate as a fiduciary, has the knowledge necessary to carry out your affairs, and is in tune with your values. After establishing such a relationship, ongoing conversations are important to determine that your values and the complexities of your estate are being handled in accordance with your standards. You also want to have assurance that your designated fiduciary wishes to continue fulfilling their assigned role.

We’ll continue our discussion of estate planning next month by looking at the necessity of properly titling assets, planning for contingencies, properly structuring gifts and inheritances, funding and administering trusts, and reviewing and updating your legacy plan.

If you’re reading this newsletter, I hope it’s given you pause to consider the current state of your estate plan.  Our Mile Marker Club is a strategic place to participate in a meaningful conversation about estate planning amongst other financial and investment considerations.

I hope to see you on the road for this year’s Motorhome and Money Tour.  It’s always meaningful to see our readers in person and share additional educational strategy during these Tour stops.

Happy Summer!