You’ve worked hard your entire life.
Whatever your assets may include, if
they aren’t distributed according to a plan tailored to your unique circumstances,
both you and your beneficiaries ultimately
lose out.
“I consider myself a financial adviser to
the family,” explained Angie Hager, CFA,
CFP®, investment manager for BPM
Wealth Management LLC. “And every family is different.”
The key to successful estate planning, she
emphasized, is planning for every conceivable eventuality.
“For example, if you want to pass down
the family business or the baseball you
caught at the World Series, but you don’t
provide the cash or liquidity to pay the taxes
on it, your heirs will have to sell it, and it
would move out of the family.”
Smart Business spoke with Hager about
devising a plan that works for you.
How does estate planning protect assets, and
how are the directives of a trust carried out?
A trust is a legal agreement that protects
assets in complicated situations. The trustee
may play quarterback and make decisions as
to whom the assets are distributed and how
they are distributed. For example, a trust is
especially helpful when the trustor has the
intention of leaving assets to children of a
current spouse, and there are also children
or a spouse from a former marriage involved. Another example would be a situation in which the beneficiary of the assets
might not be prepared or mature enough to
receive the assets, and the trustee may be
asked to distribute a limited amount of the
assets to the beneficiary on an annual basis.
In either of these situations and many more,
proper planning in advance can ensure that
there are legal instructions and a trustee in
place to follow your wishes.
Trusts can also ensure that assets are properly directed to charitable organizations.
In addition to monetary assets, what kind of
unusual assets can trusts aid in passing
down?
Assets like artwork, antiques or possessions you love can also be protected with a trust. Unusual assets are not easily marketable, and you wouldn’t be able to sell
them quickly. A trust allows you to give specific instructions to the trustee or general
guidance to the beneficiary on those types
of assets.
What might happen if a trust is not properly
designed and implemented?
When there is no trust in place or the trust
is incomplete or out of date, assets may go
to the wrong beneficiary or might be seized
by the court altogether. Perhaps your trust
was designed for your once-current family
structure but was not updated when you
remarried. If the trust weren’t properly
redesigned, the court might step in and follow probate laws, resulting in your intended
beneficiaries receiving a fraction of the
assets you had hoped to leave them.
How can assets from trusts be protected from
litigation, divorce and other claims?
The beneficiary of the trust doesn’t actually own the trust entity but rather receives
assets from it. If the beneficiary had been
given the same amount of assets in cash, the assets would belong to the beneficiary and
would therefore be more vulnerable to legal
claims.
How can you avoid simple mistakes when
planning?
When we go through the planning process
with clients, we confirm that the designated
beneficiaries on the IRA and life insurance
policy are the right people. We also check
clients’ investment accounts, their houses
and/or real estate. If those should be in a living trust or other trusts, we make sure it’s
funded correctly.
Advisers should generally review all trust
information every two years, asking the
client what has changed and confirming
that what has already been set up is still
accurate. From an investment standpoint,
the client should be reminded that one
objective is for these assets to continue to
grow while they are protected and preserved. There should be an appropriate
asset allocation and adequate diversification to ensure continued growth for the next
generation.
To be certain that your assets are distributed the way you want, it is important to use
a team of professionals. In addition to a
financial adviser, you need to involve an
estate attorney and a tax accountant. If it is
a complex trust, you will also need the assistance of a trust officer. Oftentimes, your
financial adviser can coordinate the efforts
of all of these professionals.
The successor trustee is also an important
person in the design of the trust. Should you
become incompetent, your successor
trustee, someone who thinks like you and
will stand firm on your decisions, will step in
to make sure your wishes are carried out.
He or she should be compatible with your
survivors.
You have worked hard to earn and grow
your assets. Take the time to design a proper trust to be sure that all of your hard
work is properly distributed to those who
matter most to you and that the means are
provided for them to receive and enjoy
your generosity.
ANGIE HAGER, CFA, CFP®, is an investment manager for BPM Wealth Management. Reach her at [email protected] or
(415) 288-6277.