Spotlight on Finance: Wealth management issues should help shape your financial plan

Oct 19, 2017 John McIntyre Business, Spotlight on Finance

Ruth Mahoney, President, Capital Region, Keybank

By Ruth Mahoney, President, Capital Region, KeyBank

CAPITAL DISTRICT – October is National Financial Planning Month. Yes, you read that correct. There is an actual month of the year designated to encouraging people to take charge of their financial future, and for good reason.

According to a recent report by the National Association of Personal Financial Advisors, of American adults, more than 50 percent lack a budget, 39 percent have no retirement savings and 50 percent of those with children have no will.

It’s no wonder that today’s worker expects to work longer than any previous generation. In fact, nearly 40 percent of today’s workforce expects to work past the age of 65.

This is why financial planning is important. While it is not a financial cure-all, financial planning can improve your financial wellness and address basic wealth management issues. The following are some common, interconnected wealth management issues most people will deal with over the course of their lives.

Investing. Saving is great. But saving without investing your savings isn’t enough. You should prepare a long-term investment strategy and regularly measure your progress against your goals and objectives. It is also important to revisit your investment plan as your life circumstances change. This is particularly true when it comes to assessing your tolerance to risk.

Insurance. Asset protection should be a part of every financial plan, but for most people, their insurance coverage falls short. At minimum, you want to protect yourself and family from a premature death, disability, liability and the possibility of long-term care costs.

If cost is your barrier to purchasing insurance, ask yourself the following question: if you had the option to live in 100 percent of your home with no coverage for damages or 95 percent of your home with full coverage against loss, which option would you choose? Your income, investments and assets make up your “financial house.” It is important to protect them.

Liabilities. Having debt is not necessarily a bad thing, just as eliminating it is not necessarily a good thing. Managed prudently, debt, ranging from equity lines of credit to asset secured loans, can be a useful financial tool to smooth cash flow crunches, help manage taxes and support other goals.

Retirement. Retirement planning starts with a goal. Primarily: what lifestyle do I want when I retire? But retirement planning should be about more than accumulating wealth. It should include managing assets, transferring wealth to the next generation and, if you are a business owner, succession planning.

For business owners, a long-range business succession plan helps ensure continuity, providing a safeguard for stakeholders and employees. Items to address in your succession plan should include transfer of management and ownership, a contingency plan for disability or premature death and professional development and training for successors.

Estate Planning. Think your estate isn’t big enough to warrant an estate plan? Consider this: where do you want your possessions to go when you pass away? Do you want to provide for your family after your death? Leave a philanthropic legacy? Reduce taxes? Ease the transition of your business?

An estate is nothing more than possessions of value that can be transferred to another individual or entity upon death. So essentially everything you own—property, bank accounts, investments, business interests, retirement benefits, IRAs, insurance policies, fine art, collections, jewelry, clothing and other personal belongings—comprises your estate.

An estate plan is important because:

• • It will allow you to keep more of your money and property in the hands of your beneficiaries;
• • It will ensure your assets are distributed as you intend;
• • It can be set up to provide funds to cover your own funeral expenses, as well as any immediate or long-term living costs (in case you become incapacitated);
• • It will allow you to designate the individuals that you want to carry out your instructions and to care for your minor children; and
• • It will help eliminate the likelihood of family disputes over the distribution of your estate.

Don’t make the mistake of thinking you’re not wealthy enough for an estate plan. It is just as important for a family with limited financial resources as it is for the wealthy.

To develop an estate plan that is best aligned to your interests, you should work with a reputable lawyer, skilled fiduciary specialist and other professionals who have experience and expertise in wealth transfer planning, custom trust solutions, trust administration, estate tax minimization, power of attorney/living will, document review, beneficiary designation, titling of assets and real estate management services.

Remember, you’ve worked hard your whole life to provide support to your family and grow your financial wellness. Your estate plan—and more broadly, financial planning—will ensure that you can continue to so after you die or are no longer capable. 

About the author: Ruth Mahoney is president of KeyBank’s Capital Region. She may be reached
at either 518-257-8619 or [email protected].

Considerations when estate planning

When it comes to transferring property after death, there are four primary methods:

1. Will. A written document that provides for the transfer of all property owned by the person signing it upon her/his death.
2. Living trust. Similar to a will, in that it assigns transfer of assets to a trustee upon death. Even though your estate is put into the trust, you can control your assets—even revoke them—during your lifetime.
3. Joint tenancy. When two or more people own a property together and the title or interest of the person that dies automatically gets transferred to the survivor(s).
4. Community property. When all earnings and assets acquired during a marriage belong to both spouses, regardless of who earned the income. Upon death of the spouse, the community property is split equally and the survivor gets his or her share outright. The deceased spouse’s share of community property is handled through the will or living trust.

You should take the time to find a local financial advisor and schedule an appointment to create a will and discuss your estate planning. This will allow you to put into writing your intentions on the handling of your property and valuables at death.

For parents, one of the most important parts of this process is designating guardians for your children. You also should choose an executor and explain how you want your property distributed. This way you can avoid some of the other methods of property and asset transfer that may be against your intentions.

Here are some additional things to consider when estate planning:

• • Probate. This process deals with proving in court the validity of the deceased person’s will, identifying his or her property, having it appraised, paying off debts and taxes and then finally distributing the remaining property as the will directs.
• • Property transfer taxes for the transfer of title on property owned.
• • The estate tax, which is a tax on the transfer of property to others. Depending on the value of the property and assets at the time of death, estate taxes may need to be paid before distribution of the estate can take place.
• • The gift tax, which is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return during a person’s life. This tax prevents the avoidance of an estate tax should a person want to give away his/her estate.
• • The inheritance tax, which is like the estate tax, but is imposed by certain states.
  

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