09/02/99

Financial and Estate Planning

Most people have significant amounts of money in their retirement plans, hold stocks and mutual funds in personal accounts, purchase financial products from insurance to annuities and are currently contemplating a host of financial decisions. However, many people have not recently had a review of their assets and financial goals. In most cases, before adding the next mutual fund, altering or rolling over the 401k plan, transferring ownership of assets, or purchasing a financial product of any kind, the best thing would be to have a comprehensive review and a financial/estate plan established. Investing in such a plan can make all of your next financial decisions the absolute best.

Financial vs. Estate Planning

Is there a difference between a financial and an estate plan? Yes and no. A financial plan covers the decisions facing people in their "younger" years. It includes everything from how much to save for retirement, to how to build up assets for the kids education's. The estate piece is not included because it is not a relevant concern. An estate plan includes many components of the financial plan such as a portfolio review, insuring assets will last throughout the senior years, etc., but it adds the estate component. Estate planning includes the protection of assets, avoiding estate taxes, transferring assets to loved ones, by-passing probate, and more. A financial and estate plan is for people in their middle to senior years -- generally age 55 and older.

The Benefits

There are many benefits to financial and estate planning. One of the first benefits is not about what to do next, but simply to assure you that what you have done is first rate and satisfies your expectations. Secondly, it may point out a weakness in your plan. Perhaps you have an under-performing asset or you purchased a product that has many limitations which would be wise to change. It will also show you if you have under or over saved; are under or over insured, etc.. Next, a plan can help you take advantage of estate & tax laws, current economic conditions, recent changes in your personal life, etc. Fourthly, the plan can save you money. In the case of a solid estate plan, you could avoid considerable estate taxes leaving more money for your heirs. Finally, it will give you a specific plan of action for what to do next and insure that you are maximizing all of your assets.

The Specific Components of a Financial/Estate Plan:

Investments - a financial review will assure you that your portfolio is top shelf, and show you where you might be able to fine tune it for even better results. Sure, your investments have been making money over the last 5 - 10 years -- so have everyone's. The questions is - has yours kept pace with similar investments? The analysis will also look at the diversity and balance in your portfolio. Do you need more growth or more income? Perhaps you are overbalanced in large caps? The review will include other items as well, but ultimately it will answer the important question of how you should invest your next dollar.

Retirement - The retirement analysis will give you comfort in knowing that you are saving enough for retirement. If you are already retried, the analysis will show you how long your resources will last throughout your senior years. There are a host of other specific concerns that this part of the plan will also cover including: retirement plan options; converting to a Roth IRA; rolling-over plans with previous employers; a review of current retirement investments, etc. Most importantly, the plan will maximize your assets for your retirement years.

Estate Plan - The main focus of the estate plan is to give you protection and control of your assets while you are alive and to pass as much as possible to your heirs without conflict. Aspects of the estate plan include: projections on the future value of your estate; and recommendations on specific trusts to avoid estate taxes and probate costs; how to cover long term care costs; how to transfer assets to heirs; how to pay unavoidable estate taxes; and more. In summary, the estate plan will assure that your hard earned money will not be wasted or end up in places not intended by you.

Taxes - All financial reviews and plans must take taxes into account. Therefore, the analysis will review various tax related items. For example: the tax efficiency of your portfolio; the advantages of tax free or tax deferred investments; tax strategies for retirement; reducing taxes on Social Security, to name a few.

Insurance - Insurance is, of course, the necessary, but often unwanted part of a financial plan. The goal then becomes to find the right product, not pay to much, and turn it to an advantage in your overall financial strategy, if possible. A comprehensive insurance review will assess the strength of your current policies, target the exact amount of insurance you need and find you the best insurance solutions. Financial plans mostly focus on life, disability, long term care, and survivorship life products.

College Funding - There is no mystery here, if you want to help your children with college costs you probably need to be putting away money now. In addition to answering the question of -- How much money to be saving each month? -- a financial plan will lay out a clear strategy of how to invest those assets and in what vehicles. There are numerous ways to save for college as well as strategies for maximizing your financial aid eligibility.

Other Topics - A comprehensive plan may also include other items: cash flow analysis, budgeting assistance, accumulation goal funding (house, cars, etc.), current and future net worth, and more.

In Summary

Beyond the specific benefits of the plan, such as clear action steps on how to meet your financial needs, the planning process itself is beneficial. Most people remark that the process has finally "pushed" them to find documents, organize files, and address pending financial concerns. The process will help you to develop goals and set financial priorities. If married or if your finances are commingled with another, the process opens up communication and often brings to light a partners interests and concerns. So, for a "hot" tip on a great investment, I suggest a financial/estate plan. It will enable to reach your goals, make the most of your assets, and leave the most for your heirs.

Please send questions or comments to dcoffin46333@wradvisors.com.