Category: Families and Individuals

Estate Tax Portability: Do You Still Need a Trust?

As you may already know, we each can now shelter up to $11.2 million ($22.4M for couples) from estate taxes as assets pass to our heirs.*  The new tax law preserves portability, which was introduced in a revision of tax rules by Congress in 2012 called the American Taxpayer Relief ACT of 2012 (ATRA). What you may not know is the same act also made portability a permanent law, which in turn has prompted some to question the need of traditional trusts.

So what is “portability” and how does it affect you? The portability law allows us to transfer our $11.2M (2018) exemptions to our surviving spouses.  Previously, we could have only accomplished efficient use of both spouses’ exemption amounts by dividing asset ownership between the two spouses and establishing a credit shelter trust, or an A/B Living Trust, that would be activated after one spouse passes.

While portability appears to simplify the estate planning process and perhaps make trusts obsolete, there are a number of drawbacks you may wish to consider:

  1. Remarriage

There is potential to lose a deceased spouse’s unused exemption amount when a more recent spouse passes away. One solution may suggest using the first spouse’s exemption via gift and then creating a credit shelter trust with the second spouse.  It is always a good idea to review your estate plan with your attorney before getting remarried.

  1. Watch out for appreciated assets

The exemption amount transferred to your spouse under the new “portability” law remains fixed and is not indexed for inflation.  More inflation protection could be available under the credit shelter trust.

  1. Tax filings

Portability will require the executor to file a return at the death of the first spouse.

  1. Generation Skipping Tax (GST) Exemption

The GST exemption is not portable.  By contrast an A/B Living Trust could take advantage of the GST exemption amounts for potential transfers to grandchildren.

  1. Asset Protection/Prior Marriage

The credit shelter trust may provide asset protection and secure inheritances for children of prior marriages, and if properly drafted protect assets from the children’s creditors.

  1. Living Trust avoids Probate

Besides allowing post-mortem portability, a Living Trust avoids the cost, delays and public disclosure that probate entails.

7. Considerations for Older State Plans

Many existing estate plans for married couples were designed prior to 2018 when the exclusion was much smaller. These older plans often call for automatic, maximum funding of a “credit shelter” trust at the first spouse’s death. This can result in “over-funding” of a credit shelter trust, which may realize less-than-optimal use of the deceased spouse’s exclusion, and sacrifice the opportunity for a “step-up” in cost basis at the surviving spouse’s death.

While “portability” may be here to stay, there are still a number of traditional planning solutions you may want to review:

  1. Annual Gifts: You may want to continue to gift to those other than your spouse to take advantage of the $15,000 (2018) annual gift exclusion per recipient. There are also exclusions for transfers for medical and education expenses. This is still a great way to gift assets and reduce your gross estate.
  2. As mentioned above the GST Exemption is not “portable” so you may want to consider gifting to lower generations to take advantage of the GST exemption amount now.
  3. Spousal Lifetime Access Trust (SLAT): Here one spouse makes a gift in trust and the Trustee has the right to make distributions to the other spouse. Thus the SLAT can be used to provide the other spouse with access to a potential cash flow (from cash values within the trust) while the insured (or insureds’) remains alive. For more details you can review my white paper on this topic.

Bottom line, keeping your estate current will help assure your assets end up in the hands of those you intend with the least erosion from taxes and legal fees.  We typically recommend a review every 3-5 years or upon a life changing event such as marriage, divorce, or passing of a loved one.

*For 2018 the estate tax “basic exclusion” is $11,180,000. This amount will continue to be indexed to inflation in future years, but is scheduled to “sunset” after 2025, essentially reducing it by one-half.

Wells Fargo Advisor Financial Network is not a legal or tax advisor. 

This information is not considered a recommendation to buy or sell any investment or insurance. We strongly recommend an advanced tax and estate planning expert be contacted for further information. 

Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Wells Fargo Advisors Financial Network (WFAFN) is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. WFAFN is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. 

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent.  He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years. Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981.  Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN).  Kauffman Wealth Management is a separate entity from WFAFN

Can Articulating Your Values Enhance Family Cohesion?

“What’s important about money to you?” [i] The response to this critical question invites a higher level exploration beyond those tangible possessions which can provide transitory satisfaction. Study after study shows that lasting happiness and fulfillment can more often be attained by understanding our deeper emotions, e.g. our values and priorities. Yet as important as it is, this critical question all too often goes unasked and even less often, gets answered.

What frequently gets lost is the role money plays as a means to an end rather than an end in and of itself. The things we really care about, what gives us a sense of fulfillment, are the real payoffs that money can help us secure. These define our core values, the things that motivate us and give our lives meaning. Articulating values communicate those things important to us that can help us gain more happiness ourselves, bring spouses and families closer, and can serve as important role models for our heirs. It can also lay the groundwork for a family mission statement that can help establish a family’s identity.

If we think of articulating our values as a process, then defining what is a value could serve as a good starting point. Values are the qualities and principals that are most intrinsically dear and desirable to us. As such, they are given particular significance by the specific words we may use to describe them. They are those life intangibles that give us a deeper, more sustainable emotional “high” beyond fleeting pleasures of the moment. The attainment of our values is what gives our lives true, lasting meaning and contentment as life’s emotional payoff.

When we talk about family values, we refer to “… a traditional set of social standards defined by the family and a history of customs that provide the emotional and physical basis for raising a family. Our social values are often times reinforced by our spiritual or religious beliefs and traditions.” [ii] In short, family values consist of those important ideas that are passed down from generation to generation that help us define how we want to live our family lives.

In his book Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, Bill Bachrach suggests a Five Step Process to starting a values conversation between partners:

  1. “Your partner asks you a simple question: ‘What’s important about money to you?’
  2. Your job is easy; just answer truthfully and as honestly from the heart as you can. Take as much time as you need, and give the first answer that comes to mind without overanalyzing.
  3. Your partner records your answer toward the bottom of a sheet of paper (or use the worksheet provided in Bachrach’s book, an example of which appears in Appendix 1) that serves as a Values Hierarchy or “Staircase”.
  4. Then your partner builds on your answer by asking another question, substituting your value for the word money: “What’s important about [your last answer] to you?
  5. Again you respond with your first thought, your partner records it, and then he or she asks you the question again “What’s important about [the value you just said] to you? And so on up the staircase.”[iii]

Money, like values, has meaning that differs from person to person. For some it can offer security. For others, freedom and independence, and likely something very different to others. Having the patience to “drill down” with this process can help us access our deepest levels of emotions. Responses such as independence, accomplishment, making a difference, providing for family, inner peace, spiritual attainment, and self-worth can serve as statements of value that provide powerful inspiration. While your core values may be completely different from these, it is important to keep in mind that there are no wrong answers; your answer is always the right one for you.

The benefit this exercise offers is often found in the “drill down” phase. As Abraham Maslow postulated in his “Hierarchy of Needs”, the image 1starting level relates to essential biological and safety needs such as food, water, shelter, protection from danger, disease, and fear. Once those are satisfied, Maslow believed that attention could then focus on higher psychological, social and emotional needs such as love, belonging, esteem from self and others, knowledge, and aesthetics such as beauty. As those are fulfilled, the highest “self-actualization” needs such as realizing one’s potential and enjoying “peak” experiences, become more achievable.

With Maslow’s Hierarchy as context, we often find three similar levels of response to the “What’s important about money” conversation:

Level 1 – Lower Self: Many will start with the more obvious answers about the “lower self” as Bachrach calls it. Responses that include tangible goods are simpler, less threatening and easier to access. They often relate to more immediate, physical benefits and obtaining tangibles.

Level 2 – Thoughtful Self: Pushing a little further may generate more thoughtful responses that pertain more to others than to self, such as making a difference, providing for family, social consciousness, or having a positive impact on community. The tone is less about immediate gratification with tangibles and more about doing for or giving to others.

Level 3: Higher Self: At this level responses can take on a more expansive tone and focus on areas with greater potential internal/emotional payoffs. These can be aspirations like becoming the best person I can be, inner peace and contentment, spiritual fulfillment, enlightenment, etc. This is considered the level of pure emotion where there is a noticeable lack of tangibles and emphasis on real life purpose.

    Sample Values Ladder

Values ladder

Keep in mind that most of us do not speak of our values very often. So responses can bounce around from one level to the next as part of this spontaneous process. People can also become anxious or even a little defensive as they drill deeper. This is perfectly natural. Bachrach suggests some important guidelines to help make this values conversation as effective as possible:

  1. Choose a Good Partner: Someone who is genuinely interested in your responses and who can help support your completing the exercise. Two key guidelines that to consider:
    • Stick to the inquiry format of “What’s important about __________ to you?”
    • Don’t interject or offer suggestions. Especially for spouses who may be tempted to even complete each other’s sentences, this may be particularly challenging but try to refrain.
  2. Stay Focused: As we drill down, people may become more anxious and may be tempted to stray by perhaps discussing their responses before the exercise is completed. Focus is tough enough, so for best results try to stay on task.
  3. Be Spontaneous: The first response is usually the most genuine and it may take time. Keep in mind that the exercise is not timed and this subject matter is not often top of mind. Patience is key. In fact, clients have spoken of instances when answers were hard to come by. By moving at a more leisurely pace they felt more satisfied with the experience.
  4. Stick to the Format: Best results occur when clients stay dedicated to the format. Strictly staying with the questioning format of “What’s important about money to you?, then following up by substituting the last value given with “What’s important about _______ to you?” is your best assurance of gaining a sincere, meaningful result. Try not to vary the words or the order they are said.
    • Even seemingly minor changes such as “Why is money important?”, “What does money mean to you?” will likely not get the same meaningful results.
    • The farther you delve into this, the more clarity you will get about your financial motivations. The end result can be a more powerfully inspired experience that can make a significant difference in your life.
  5. Fixing a “Stuck”: Participants may find they encounter a “block” as they move toward deeper Level 3. When this occurs, it may be helpful to picture yourself already in the position of having achieved that particular value and ask “Once I know that I have _______, what is important about having attained this that is resonating with me?” Some also find it helpful to step back, take a break, then revisit the exercise again from where you left off.
  6. Knowing When You’re Done: It is critical to not try to “leapfrog” ahead or force the highest value, as that could produce less than true results. The process itself, while taking some effort and introspection, contributes much to the crescendo of values at the end in revealing how each relates to the final output. Think of this as an unfolding of what matters to you, in a sense a story of you in the making. As participants near the end, they typically find their values start sounding redundant or repetitive. As that occurs, the interviewer may rephrase the questions to be “Is there anything more important to you than ___________ (being the most recently stated value).”

Values are the less obvious, often intangible reasons that motivate us. They are the emotional payoffs that guide our choices and actions. Articulating them can not only help us gain a better understanding of ourselves; discussing them can bring partners and families closer as well. They provide a framework around which we can create more meaningful financial goals. Perhaps more importantly, sharing our values can provide effective modeling and meaningful inspiration as they are handed down to our heirs.

Living your values is often even more of a challenge than defining them, as it takes concerted effort, discipline and commitment. Bachrach’s “Value Ladder” (see Appendix 1) offers a convenient format for exploring your values. “Life Enhancer Worksheet” (see Appendix 2) provides a valuable structure to implement changes to help assure your lifestyle is consistent with what is most important so you can enjoy a “Life Well Lived.”

Appendix 1

Sample Values Ladder Template

Values Template

Appendix 2

Sample Life Enhancer Worksheet

Life enhancer

This information is not considered a recommendation to buy or sell any investment or insurance and is being provided for information purposes only and is not a complete description, nor is it a recommendation. We strongly recommend an advanced tax and estate planning expert be contacted for further information since Wells Fargo Advisors Financial Network LLC (WFAFN) does not provide tax or legal advice. Any opinions are those of Mitchell Kauffman and not necessarily those of WFAFN. The information has been obtained from sources considered to be reliable, but Wells Fargo Advisors Financial Network does not guarantee that the foregoing material is accurate or complete.  Prior to making a financial decision, please consult with your financial advisor about your individual situation.  Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN)/Member SIPC. Kauffman Wealth Management is a separate entity from WFAFN.

Written By

Mitchell E. Kauffman, Managing Director

Certified Financial Planner™

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981. Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN).  Kauffman Wealth Management is a separate entity from WFAFN.

 

[i] Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, by Bill Bachrach, Aim High Publishing 2000, Pg. 4

[ii] Defining Your Family’s Values by Susie Duffy, M.F.T., Parent IQ http://www.parentiq.com/news/DefiningYourFamilyValues.asp

[iii] Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, by Bill Bachrach, Aim High Publishing 2000, Pg. 5-6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

How Prepared Are Your Heirs?

Thirty Trillion Dollars! That staggering amount is what studies predict will be transferring from Baby Boomers to their heirs in the coming years (i). Yet nearly 70 percent of family wealth transference and business succession plans fail, with the vast majority (actually 60 percent) of failures attributable to poor family communication and heir preparation (ii). This begs the question “How can Baby Boomer’s parents better prepare their heirs to be successful stewards of the savings that they have spent their lifetimes accumulating?

Tackling this daunting challenge may best be done by first having an objective appreciation of our heir’s cultural differences, then identifying what skills they need to succeed, followed by an objective diagnosis of where they may fall short. Then we can more effectively provide them guidance and with the resources they may need.

The reality is, Baby Boomers have accumulated a level of assets that is significantly greater than that of their parents, and will likely far exceed what the next generation may be able to accumulate. Boomer’s good fortune stems from an extended period of economic growth and stability occurring during their peak earning years (their aggregate net worth has quadrupled since the last 1980’s). This combined with the considerable appreciation of non-financial assets such as real estate (iii), has provided a near perfect good storm. When contrasted to the challenges many Gen Xers (born 1965-85) and Millennials (1985-2004) have experienced, especially since the Great Recession of 08-09, the resulting asset gap becomes more understandable.

As the graph below shows, the median household net worth for today’s 35 to 44 year olds is approximately $47,000, compared with $102,000 for those of a similar age in 1989 (adjusted for inflation). No small wonder it has been said that this younger generation may be the first in our country’s history to hold a more pessimistic view of their future opportunities compared to their predecessors. Combine that with the entitlement that many exude, it’s not surprising that cultural perspectives may vary.


graph 1

 

Graph 2

A young person’s ability to successfully launch themselves in several crucial life areas has traditionally served as a competency gauge, giving the impression of becoming one’s “own person,” grown-up and responsible. Knowing the functional and cultural differences between generations can provide valuable insight:

1. Career Success: Boomers value hard work almost to an extreme. Common with this “live to work” philosophy were 50 to 60 work weeks and a consequence that family and health, at times, ranked a distant second. They found an abundance of opportunity, with consistent reward and advancement for their hard work ethic. This fostered a perception that floundering careers were more by choice and personal inadequacy. Work was seen as an adventure, a place to prove one’s self and worth.

a. By contrast, and particularly in this post-“Great Recession” environment, Gen X and Millennials face fewer opportunities and greater challenges to launch their careers of choice, let alone excel in them. Perhaps more than any other since the Depression, many may be found in lower level “bridge” jobs, if not completely unemployed. Combine this with their cultural bias toward balanced lives, work may be more often seen as a contract and means to an end. As such, it can be demoted to lower priority compared with their personal enjoyment and fulfillment. They may be more readily perceived as “slackers” and feeling entitled to more than may be deserved.

2. Financial Self Sufficiency: Boomers grew up facing clear expectations that they become self-sufficient upon finishing school. Self-sufficiency meant that they could start and support their own separate household with little or no assistance from their parents.

a. Many Gen Xers and Millennials by comparison face considerable financial burden from substantial debts such as school loans. Combining this with fewer career opportunities that an uncertain economy brings, and we see many needing parental support and even living at home much longer. This combined with their cultural bias to do things “their own way,” it is easy to see how Boomers may feel critical and perhaps intolerant of their children’s lack of financial success.

3. Family Success: Although Boomer’s were known to postpone their family launch until later in life, their being able to build a traditional family has been seen as a measure of responsibility and achieving adulthood.

a. Younger generations, by contrast, have more cultural flexibility than ever. While some may choose a traditional family structure, others may consider what best meets their unique needs. Some may be attracted to non-traditional options such as remaining single, co-habitation, etc. Bottom line, an heir’s progress toward their eventual family environment may not be the same gauge of competency that it once was.

4. Life Resiliency: The old adage of “making lemonade out of lemons” has rarely been seen as a more important skill than today with all of its challenges. Boomer optimism and “can do” philosophy-despite-the-hurdles have been legendary traits of this generation. So they may find themselves less sympathetic to discouragement and pessimism that their heirs may express.

a. Gen Xers and Millennials have seen an increase of cynicism, disaffection, and bleakness among their ranks, which is no small wonder considering the challenges we as a society face. The fact is, many of today’s young people see the economy’s anemic recovery as more than just a temporary setback. Rather, the dour environment may very well be costing them the future they once took for granted. The resulting malaise they feel may be met with intolerance by Boomer’s, whose “just hunker down” mentality worked for them so well during their life challenges.

In short, assessing our heir’s competency by these traditional measures may not give us a comprehensive gauge of success. A more objective view may be had by focusing instead on our heir’s actual skill level in several key areas. The expectation is not to develop professional level expertise; rather that heirs demonstrate their willingness to assume responsibility to address these for themselves and their family unit.

How Prepared Are Your Heirs-KS Edited3

1. Budgeting: Managing cash flow and living within one’s means

2. Debt Management: Systemic reduction of education loans, credit cards, mortgages, etc.

3. Savings and Investing: Allocating budget surplus toward future goals

4. Adversity Protection: Assuring loved ones will be financially secure if tragedy strikes (life, disability, liability and medical insurance)

5. Managing Employee Benefits: Optimizing employer programs for protection and savings

6. Estate Planning: Assuring that affairs will be properly handled in case of death or disability

7. Income Tax: Proactively managing affairs to help minimize tax liability

Many heirs have found it helpful to first consider an introspective assessment of their current skill level and areas where they may appreciate further assistance. The attached Financial Scorecard has proven itself a helpful tool in this regard. Where couples are involved, having each complete their own assessment, then comparing their responses can spark candid conversations that can in turn help address varying perceptions. The result may bring the couple closer and ensure everyone is on the same page.

Certainly every generation experiences their own challenges that seem daunting at the time. The eventual success that Gen Xers and Millennials may eventually enjoy will be a function of the encouragement their Boomer parents can offer by creating a supportive, directive, yet non-blaming environment. They likely will have to do more with less compared to those who preceded them which, while difficult, could very well offer a similar character-building opportunity that WWII gave to our “Greatest Generation.” Since many Gen Xers and Millennials will one day be inheritors of considerable wealth, much can be gained by teaming with their Boomer parents in a constructive manner.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Mitchell Kauffman and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. You should discuss any tax or legal matters with the appropriate professional.

Written By

Mitchell E. Kauffman, MBA, MSFP

Certified Financial Planner™

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwealthservices.com or call (866) 467-8981. Kauffman Wealth Services is an independent Registered Investment Advisor and serves clients from two office locations: 140 South Lake Avenue, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108.   Securities offered through Raymond James Financial Services, Inc., member, FINRA/SIPC.

______________________

i Great Wealth Transfer Will Be $30 Trillion‐Yes, That’s Trillion With A T by Cam Marston, CNBC On‐Line July 22, 2014, http://www.cnbc.com/2014/07/22/great-wealth-transfer-will-be-30-trillionyes-thats-trillion-with-a-t.html
ii Preparing Heirs by Roy Williams and Vic Preisser, Robert D. Reed Publishers 2003, Pg. 36
iii The Long and the Short of Baby Boomer Balance Sheets by Benjamin Mandel and Livia Wu, J.P. Morgan Investment Insights Oct. 2015

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How to Create Your Effective Family Financial Plan

Many of us spend our lifetime accumulating our wealth.  But did you know that often times heirs don’t spend their inheritance—our wealth—responsibly?  In fact, nearly 70 percent of family wealth transference and business succession plans fail.  This is according to Victor Preisser and Roy Williams in their book Preparing Heirs: Five Steps to Successful Transition of Family Wealth and Values.  Surprisingly, only 3 percent of these failures can be attributed to errors in financial planning, legal issues or taxes.  Rather, the vast majority (actually 60 percent) of failures were attributable to poor family trust, communication and heir preparation.  This suggests that with better preparation, many of these failures could have been successes. 

While preparation can take many forms, my 35+ years as an independent advisor has shown that developing a Family Plan can go a long way in giving clients confidence, knowing their family and heirs are ready to manage the funds.  Key ingredients are good communication and family engagement in a collaborative process which I will outline below.  The role parents or elders play in creating a conducive environment for constructive family discussions cannot be overstated.  To do so, it works best if the parents are well prepared beforehand.

For many clients, articulating their feelings may not come easy.  Perhaps a good first step is to explore why parents may anticipate awkwardness and discomfort—real or imaginary—with money talks.  Top challenges may include:

  • Do We Have Enough for Ourselves?  Clients may question whether they can meet their own needs before figuring out how much to give to heirs and charities.
  • Avoiding Mortality Discussions: It is human nature to not want to think about our own mortality, which can serve as a basis for avoiding related discussions. 
  • How Can We Be ‘Fair and Equal’: Some may dread a discussion between, say, competitive children about who gets how much and when.  All too often, “fair” can translate into “equal” in good parenting parlance which may or may not best serve the family’s needs, especially when  children may have unequal financial circumstances. 
  • Painful Reminders: Traditional bread winners may already be struggling with middle age, coming to terms with their life’s meaning and regrets about what may have been sacrificed as a
  • spouse, parent and/or loved one to achieve financial success.  So there may be hesitation that bringing up family finances could also spark painful emotions that clients see as best left undisturbed.
  • Don’t Rock the Boat:  Parents may hesitate to initiate conversations that may spark controversy within the family and opt instead to avoid discussing delicate issues that could cause upset.  This is especially true given the money pressures the younger generations may feel from our challenging economy. 
  • It’s Not Our Business/We Don’t Want to Appear Greedy:  By the same token, adult children may hesitate to ask about family finances so as to not appear overly anxious, perhaps falsely assuming parents will take the initiative and/or that these matters are none of their business despite their inherent stake.  The end result is that important conversations may never take place.

As we consider the best ways to resolve these concerns, it can be helpful to better understand those issues that most worry parents concerning the effect of their wealth on their children.  According to a U.S. Trust survey of Affluent Americans:

PARENT’S WORRY ABOUT THEIR CHILDREN     % WHO ARE WORRIED [2]

Too much emphasis on material things………………………….60%
Naïve about the value of money…………………………………… 55%
Spend beyond their means…………………………………………..  52%
Have their initiative ruined by affluence………………………. 50%
Not do as well financially as parent would like………………49%
Not do as well financially as parent did………………………….44%
Hard time taking financial responsibility………………………  42%
Resented because of their affluence……………………………… 36%
Suffer from parent not being around……………………………. 35%
Date or marry someone who wants affluence………………. 34%
Limited exposure to non-affluent people………………………  33%
Feel they have big shoes to fill and will fail…………………… 18%

In short, increasing the success of wealth transference strategies requires much more than simply employing better taxation, preservation and governance of that wealth.  Since many concerns are grounded in the parent’s direct experience and the resulting perceptions, their resolution not only rests in better preparing heirs, but may require a “revision or updating” in those perceptions as well.  “The parental concerns address behaviors, knowledge, application of that knowledge, and what is often referred to as not-yet-acquired ‘common sense’ and ‘good judgement.’”  To be truly effective, that effort is best combined with an objective assessment of family skills that is more grounded in the here-and-now than being burdened by history.  That John could not handle money as a teenager, or Sally spent every penny as soon as she got it, could leave a lasting impression that is best re-evaluated in the present.

Challenging though these worries may seem, our clients have found that by having a framework, many worries can be successfully resolved.  The result can be a sense of confidence that the savings they have worked their lifetimes to accumulate will be handled as they wish—with a much lower chance of heirs being left hurt and disappointed. 

How We Do It

“Your Number” Lifestyle Adequacy: Before figuring out how much to give to others, clients find it invaluable to first understand how much they will need to support their own lifestyle. Following the thought process of Lee Eisenberg in his bestseller, The Number: A Completely Different Way to View the Rest of Your Life, we are able to calculate the required lump sum after allowing for Social Security, pension benefits, employment earnings, rental income and a multitude of other potential income sources (see our white paper: “Are Your Financial Goals Achievable? The Importance of Having ‘Your Number’” for more details).

Understanding Your Own Values and Priorities: Airlines recommend in case of emergency to have your own oxygen mask on before helping your companion. Similarly, it is important that family elders are clear and in agreement on their values and priorities before initiating those discussions with their families. Our clients have found it helpful to utilize the Values Based Financial Planning process advocated by Bill Bachrach in his book by the same name. Using that process, we are able to facilitate a deep, meaningful exploration of what is important to each client and why, which in turn provides a basis for dialogue and finding common ground. A discussion of philanthropic passions can provide a helpful means of conveying values to your heirs (see our white paper: “Can Articulating Your Values Enhance Family Cohesion?” for more detail).

Gaining an Objective Perspective on Heirs: Especially for Generation X’ers and Y’ers, many may have graduated with onerous education loans and credit card debt while at the same time may be challenged to find career jobs. Effectively managing their money, plus an eventual inheritance, will require familiarity, if not core competency, in these key areas:

• Budgeting & Managing Debt
• Savings & Investing
• Assuring Adequacy of Life, Disability & Medical Insurances
• Buying a First Home or Upgrading an Existing Home
• Optimizing Employer Benefits
• Planning an Estate Including Wills & Trusts
• Managing Income Taxes
• Managing Education Funding for Children

A first step may be to encourage heirs to objectively assess where they may need extra support using the enclosed questionnaire, “Are You Prepared to Succeed Financially?” By so doing they may increase their self-awareness and at the same time will help you gain a more current, perhaps objective picture of their financial prowess (see our white paper: “How Prepared Are Your Heirs?” for more details).

Getting Your Heirs the Support They Need: Our A-Z Financial Resource contains valuable, easy to understand articles on these core skills that can provide a solid base for awareness and learning.

Identify Your Interest Areas: Making philanthropic decisions together can provide a good basis for inviting important financial discussions and, as a result, can enhance trust and openness among your family members. As a starting point, you may want to consider organizations that have positively affected you and others with whom you feel close. These are often causes that “speak” to you and resonate at an emotional level.

Prioritize Opportune Gifting Assets: Potential tax treatments can be a key. Top gifting options may include assets with significant unrealized gains, those that may not generate adequate cash flow, and troublesome assets like some rental properties (see our white paper: “Are You Enjoying the Joys of Gifting?” for more details).

Compose Your Family Mission Statement: When created openly and with consensus, this sharing process can greatly facilitate family communication and serve to build trust among its members. There are typically three key parts that can be built by completing these sentences:

  • Values that influence my giving are…
  • I would like to (goal of your time, treasures and talents) help (further what purpose, interest or social issue) ….
  • Organizations (specify organizations or types of organizations) with which you would like to engage. Identify organizations offering best fit for your goals.

Identify Organizations Offering Best Fit for Your Goals: Before selecting an organization, it is important to understand how supporting it can help you achieve your mission and charitable objectives. Numerous services are available that gauge a non-profit’s effectiveness and results. You may want to tour their facilities, perhaps as a family group, and speak with staff and even perhaps the clientele it supports.

Implement and Monitor Your Plan: Philanthropy is an evolving process, not a single event. Family “traditionalists” may have very different views than Millennials. You may want to uphold your ancestor’s philanthropic legacy while remaining open to the ideas and experiences of new generations. It is important to revisit the statement annually.

creating_your_family_plan

In summary, we all want our remaining time and money to be spent with as much clarity as possible. It is difficult to address issues of money with our loved ones; it is human nature to want everything to just go on as it is and trust the future will somehow take care of itself. But by carefully and mindfully speaking to your family members about your wishes and theirs, an ease of living is created because the hard stuff is “on the table.” Everyone then can continue living their lives without secrets, doubts, and possible questions. This comfort and ease can permeate the family system, allowing for time together to be as rich as possible. Several appendices worksheets follow with recommendations that our clients have found invaluable in helping them facilitate a productive, inclusive Family Planning process.

This information is not considered a recommendation to buy or sell any investment or insurance and is being provided for information purposes only and is not a complete description, nor is it a recommendation.  We strongly recommend an advanced tax and estate planning expert be contacted for further information since Wells Fargo Advisors Financial Network LLC (WFAFN) does not provide tax or legal advice. Any opinions are those of Mitchell Kauffman and not necessarily those of WFAFN. The information has been obtained from sources considered to be reliable, but Wells Fargo Advisors Financial Network does not guarantee that the foregoing material is accurate or complete.  Prior to making a financial decision, please consult with your financial advisor about your individual situation.  

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent.  He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community. 

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981.  Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN), Member SIPC.  Kauffman Wealth Management is a separate entity from WFAFN.

Spousal Lifetime Access Trust

A powerful estate planning tool in today’s uncertain world 

“Having your cake and eating it too” is usually beyond what we can deliver in wealth advisory.  That has been especially true when making gifts to reduce one’s estate size and subsequent taxes.  Reducing the size of your estate can lower the tax against assets (estate tax) and, possibly, the tax on the income those assets produce (income tax).  Many clients who are comfortable making gifts frequently choose to use an Irrevocable Life Insurance Trust (ILIT).  An ILIT, as the name implies, is an irrevocable trust that allows clients to remove assets from their taxable estate.  Although other assets may be used, life insurance is often purchased to benefit from the leverage it provides, e.g., a dollar of premium typically buys many more dollars of insurance (depending on the insured’s age, health, etc.). Unfortunately the ILIT is frequently seen as akin to a “locked safe” because of its rigidity and inflexibility.  Hence some clients may be somewhat reluctant to make substantial gifts despite the obvious benefits to heirs such as wealth preservation.

An attractive alternative can be found in the Spousal Lifetime Access Trust or “SLAT.”  Therein one spouse makes a gift and the Trustee has the right to make distributions to the other spouse. Thus the SLAT can be used to provide the other spouse with access to a potential cash flow (from cash values within the trust) while the insured (or insureds) remains alive. What makes this discussion so timely? There have been frequent changes to not only one current lifetime gift exemption but also to the top estate tax rate. Depending on what changes may be pending, acting sooner rather than later could help preserve an estate from greater estate taxes.

To illustrate, let’s assume we establish an ILIT and make an irrevocable gift. That removes the gift from the donor’s estate so it is not subject to estate tax at death.  Since this arrangement is irrevocable, the grantor is restricted from altering, cancelling or amending trust terms (however a third party trustee can with appropriate rights as provided within the trust document).  ILIT cannot be altered, cancelled or amended.  Likewise any life insurance policy within the ILIT usually cannot be accessed until the insured’s passing.  Once death occurs, the insurance proceeds are received into the trust (tax-free), where they are available to pay any remaining estate taxes or for distribution to the trust’s beneficiaries free of both income and estate taxes.  The heirs get liquidity so assets need not be “fire saled” and help offset estate costs like taxes (if applicable). 

A  Spousal Lifetime Access Trust (or SLAT) operates in the same manner except with one significant difference; the trustee is allowed to make distributions to the non-grantor spouse for the spouse’s health, education, maintenance and support.  The potential benefit of this distribution strategy cannot be overemphasized.  That one is able to make the gift(s) and thereby remove that amount from the couple’s potentially taxable estate and still derive some future cash flow benefit for the other spouse, is nothing short of remarkable.

 

slat

There are three SLAT strategies to consider:

  1. Single: The most basic approach, wherein one establish a SLAT which purchase insurance on his or her life. The other spouse may be the trustee and beneficiary.
  2. Joint: This approach, also known as second to die, differs only in that the insurance policy’s death benefit would be payable upon the death of the second spouse.3
  3. Dual Spousal: The ultimate hybrid strategy which has each spouse create a SLAT for the other’s benefit with similar (but not identical) features. This strategy helps retain the most flexibility in both estate and cash flow planning.

When implementing any of these SLAT strategies, several points should be considered:

  1. INDIVIDUAL GIFT: It is important that the gift be made from each grantor’s separate property so to minimize the risk of the SLAT assets being included in the spouse/beneficiary’s gross estate (IRC Sec. 2036).4 For residents of community property states, the gift should be formally separated first. One way is to fund the SLATs from individually titled accounts.
  2. INSURED SHOULD NOT SERVE AS TRUSTEE: At the very least, the trustee could be the grantor’s spouse. Legal experts will often recommend that an independent third party be the trustee or at least serve as co-trustee.
  3. PROHIBITED DISTRIBUTIONS: Distributions cannot be made to the grantor’s spouse as part of the grantor’s legal support obligation.
  4. RECIPROCAL TRUST DOCTRINE: The IRS has ruled that when two SLATs of substantially identical nature are created, there is an incidence of “consideration” that can serve as a basis to “uncross” the trusts and include its proceeds in the decedent grantor’s estate.5 Some estate planning attorneys argue that if the terms of each SLAT are not identical, this can be prevented.6

SLAT’s like many estate planning strategies have their drawbacks.  Key among these is that the grantor has only indirect access to the trust property through his or her spouse.  So a divorce or the death of the non-grantor spouse will terminate this limited access.  If this is a concern, the dual trust strategy could provide a valuable solution.  Keep in mind that all estate planning strategies (particularly advanced ones such as these) should be carefully drafted by qualified legal experts to avoid inadvertent estate tax inclusion.

Again, lifetime gifting is highly advisable– sooner rather than later. The bottom line, for those who hesitate to gift for one reason or another: The Spousal Lifetime Access Trust can help you reduce your taxable estate and provide future cash flow during your retirement.  It is truly a potential for “having our cake and eating it too!”

Uncertainty over the economy and financial markets has many people concerned about their financial futures.  For friends, relatives and colleagues who may find this information helpful, please feel free to share with them.  Remember, for those who could benefit we offer a complimentary “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth advisory firm like ours—one that delivers services according to the needs and perspectives of its clients. 

This information is not considered a recommendation to buy or sell any investment or insurance and is being provided for information purposes only and is not a complete description, nor is it a recommendation.  We strongly recommend an advanced tax and estate planning expert be contacted for further information since Wells Fargo Advisors Financial Network LLC (WFAFN) does not provide tax or legal advice. Any opinions are those of Mitchell Kauffman and not necessarily those of WFAFN. The information has been obtained from sources considered to be reliable, but Wells Fargo Advisors Financial Network does not guarantee that the foregoing material is accurate or complete.  Prior to making a financial decision, please consult with your financial advisor about your individual situation. 

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent.  He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community. 

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981.  Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN), Member SIPC.  Kauffman Wealth Management is a separate entity from WFAFN.

How Can You Avoid Wealth Transference Failure?

If you believe that everything has been done to preserve your estate as it passes to your heirs, you may want to think again. Almost 70 percent of family wealth transference and business succession plans fail, according to studies cited by Victor Preisser and Roy Williams, in their book Preparing Heirs.

Continue reading “How Can You Avoid Wealth Transference Failure?”

How Can You Avoid the Top 10 Estate Planning Pitfalls?

Upon your death, the best thing you can do for loved ones upon death is allow them to resolve your estate quickly and easily, so they can get on with their lives. But people often fall into 10 estate planning traps. Here is how to avoid them. Understanding and avoiding these common errors can help minimize the tax bite for your heirs and assure that your wishes are fulfilled.

1.  Not funding your living trust

This important trust places your assets “in bin” while you are alive. Postmortem a pre-appointed trustee is provided to manage them. Living trusts can usually help avoid probate (a costly court proceeding that decides which heirs receive your assets after your death) and help reduce taxes on your estate. No matter how thorough your living trust is, it needs to be adequately funded. Generally, to be effective, you must move property and assets into the trust by making the trust the legal owner of those assets. If you don’t make the appropriate title transfers, assets may be subject to probate and eventually, estate taxes.

2.  Too much JTWROS property

Joint-tenancy-with-right-of-survivorship (JTWROS) is a type of brokerage account that you share with your family members while you are alive. After you pass away, your survivors inherit your share of the account. While titling assets under JTWROS does avoid probate, it does not avoid estate taxes. It is important to keep in mind that property titled JTWROS goes to the surviving joint tenant regardless of what a will or trust says.

3.  Leaving too many assets to a surviving spouse

Under the current tax laws, you are allowed to transfer as many assets in your estate as you wish to your spouse either while you are alive or at your death. The problem and extra tax may come when those assets pass to the next generation. A major goal of a living trust is to preserve the first-to-die spouse’s applicable exclusion amount. This is the amount that is exempt from estate and gift taxes. It is advisable to check the current amounts with your attorney.

4.  Not equalizing assets through gifts between spouses

This is another example of improper titling and wasting the applicable exclusion amount. Having all property titled in one spouse’s name can create problems when the non-titled spouse dies first and does not pass on any property under his or her credit.

5.  Not having a will

If you die without a will, the disposition of property falls under the purview of the state intestacy laws. In effect, a judge decides who gets what according to a preset formula based on lineage. Not only can your wishes be thwarted, but this process can also bring additional legal costs, taxes, delays and frustrations to your heirs.

6.  Improper ownership of life insurance

Policies are often owned by the insured, payable to the insured’s estate or survivors. This is included in the owner’s taxable estate and is therefore subject to estate taxes. You can avoid this by giving the policies directly to the beneficiaries or transferring them to an irrevocable trust.

7.  Being donor and custodian of a UTMA account

If you are the custodian and donor to a uniform transfer to minors account, that account will be included in your estate and possibly subject to painful estate taxes.

8.  Not knowing where all the documents are

Heirs are often burdened with hunting down accounts and documentation. A scattered estate plan by a secretive deceased person may cause some assets to be left uncollected, undistributed and even lost. It is best to keep copies of documents, recent account statements and safe deposit box information in a notebook and to make your trusted heirs aware of its contents.

9.  Naming the wrong executor

The tasks facing an executor are often formidable and demanding. If you are concerned that your spouse, relatives or friends are not up to the task, consider hiring a professional or a trust company.

10. Not periodically updating an estate plan

It is human nature to think about dying. That makes estate planning one of the most frequently procrastinated aspects of our financial plans. Often when the original documents are drafted, people are tempted to put it on a shelf and be done with them.

As your economic situation, health, family and the tax code inevitably change, so too should your estate plan. You should review your estate plan at least every couple of years. It’s best to work with an experienced advisor who can help make the necessary modifications.

Even the most sophisticated estate planning tools can go awry due to some simple oversights. Be sure to work with an experienced financial professional to help you achieve your estate planning goals.

Uncertainty over the economy and financial markets has many people concerned about their financial futures. For friends, relatives and colleagues who may find this information helpful, please feel free to share with them.  Remember, for those who could benefit we offer a complimentary “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth management firm like ours—one that delivers services according to the needs and perspectives of its clients.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Wells Fargo Advisors Financial Network LLC (WFAFN) does not provide tax or legal advice. We strongly recommend an advanced tax and estate planning expert be contacted for further information. Any opinions are those of Mitchell Kauffman and not necessarily those of WFAFN. The information has been obtained from sources considered to be reliable, but Wells Fargo Advisors Financial Network does not guarantee that the foregoing material is accurate or complete.  Prior to making a financial decision, please consult with your financial advisor about your individual situation.

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981. Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN), Member SIPC.  Kauffman Wealth Management is a separate entity from WFAFN.

 

A Survivor’s Financial Checklist

No one likes to think about death, and yet we all have to face it sooner or later.  My clients often request a checklist when someone they know has passed away.  It can provide some structure during a time that can seem overwhelming.  This financial checklist is in no way meant to be legal recommendations. A couple of things to note:

  1. Since each estate is unique, your own legal and accounting professionals should guide you through the overall process.
  2. If you are a Trustee, the estate planning documents will give you immediate access to funds possibly needed for funeral and other expenses related to the death of the individual.
  3. If you are a named executor, you will have to wait for court appointment for access to funds but you should be able to retrieve the individual’s original will from his/her safe deposit box.

Within the first few days –Take your time. Recognize that you are going through a grieving process. Do not be rushed into any decisions. At the immediate time of death, there is nothing that needs to happen from a legal standpoint. You can spend your time dealing with the doctors, funeral homes and immediate family members. Get yourself through this time and process. After that, your next step will be to:

1. ____Locate any health care powers of attorney, advance health care directives, funeral and burial instructions, etc. and review them for possible instructions about disposal of the body and funeral arrangements.

2.____ Locate any papers relating to prearranged funeral services or pre-purchased burial plots.

3. ____If your loved one has served in the U.S. Military, check the website www.USMilitary.about.com and search for information on Military Honors available at burial such as US Flag and Military Representative.

4.____ Check with the decedent’s banks to see if they have any safe deposit boxes.

5.____ Locate the original copy of the will or trust, if there is one.

6.____ Locate all the legal and financial documents that pertain to the deceased person’s assets such as deeds, vehicle titles, stocks, bonds and insurance policies.

7.____ Locate and secure important personal documents such as driver’s license, social security card, passport, birth certificate, divorce decree, legal separation agreement, Marriage license, military separation papers, citizenship and retirement documents.

8.____ Maintain a detailed list of all expenses relating to the final care and/or death of the decedent. You will probably be able to obtain reimbursement for these expenses from the decedent’s estate or trust, and some of these expenses will be deductible for estate tax or income tax purposes.

9.____Contact the deceased person’s financial planner, CPA and estate planning attorney. They each need to know and will each have a role in helping you. The attorney will prepare any documents necessary to confirm the authority of the successor trustee of the trust. This will give the trustee access to assets within the trust to cover costs of the funeral and/or other related expenses.

10.____Request a minimum of five (5) death certificates from the funeral home. Most life insurance policies and related assets require an original certificate with the claim form.

Within the following week – The deceased’s financial planner will often help with the following.

1.____Contact the insurance agent or agency handling each life insurance policy and request death benefit claim forms. If the deceased had a financial planner they will often do this for you. Note that most insurers will usually cut a check relatively quickly following the death of a loved one.

NOTE: Do not feel compelled to invest this money immediately. Most insurance companies will let you keep the proceeds from a life insurance policy in an interest bearing cash account until you have a plan for investing it. If you know your loved one had a life insurance policy but you cannot find it, contact the American Council of Life Insurers (www.acli.com), which offers guidance in tracing missing policies.

2._____Notify all other insurance carriers i.e., health, long term care, umbrella, disability, accidental death, travel, vehicle, homeowners or renter’s insurance.

3.____Get a list of all the beneficiaries of the insurance policies with their age, relationship to deceased and their current address and phone number.

4.____Contact the deceased’s current and past employer to see if any retirement plans or life insurance policies are in place and request the necessary claim forms.

NOTE: Many companies make every attempt to help the families of their employees after a death. They may cut you a check right away for wages owed, vacation pay, sick pay, and life insurance benefits. If the death was the result of an accident on company time, there may also be accidental death and dismemberment benefits.

NOTE: Also notify Worker’s Comp, if appropriate.

5._____Gather all of the decedent’s bills and expenses that are coming due, bank and brokerage statements, and last year’s tax return.

6._____Locate and organize notes regarding assets and liabilities, such as Promissory Notes, Loans, Business Interests, Patents, and Royalties

7.____ Check with banks and credit card companies to see if there was additional life insurance connected with the decedent’s accounts.

8.____ Contact all of the financial institutions that hold any assets of the deceased. Tell them you need the date of death values on each asset in each account. Ask them to send you a copy of this information. Note the name of the individual assisting you.

9.____ Locate and secure any items mentioned in a governing document, will or trust or documents of title.

When You Have Received the Death Certificates

1.____ Process Life Insurance Claims

2.____ Apply for Social Security Benefits at 1-800-772-1213 (and/or the Veteran’s office at 916-731-7300 if applicable) and inform them of the death of the individual. Otherwise you will be required to pay back any monies that are overpaid to the decedent. Many times the funeral home will have notified Social Security; confirm this with them.

3.____ Close Credit Card Accounts and destroy Credit Cards.

4.____ Notify banks and brokerage firms and remove the deceased’s name from any joint accounts.

5._____Meet with the deceased’s financial planner or yours, as appropriate, to develop a long-term investment plan for the estate assets, including any life insurance benefits to be received.

Within the Next Few Weeks After Death

_____ Gather the legal documents (deeds, promissory notes, deeds of trust, loan or real estate documents), estate planning documents (such as wills and trusts), all current and/or past due bills, statements, claims forms, etc., and set up an initial meeting with the financial planner, CPA and the estate planning attorney to identify what needs to be done and coordinate who will do it.

Some of the tasks that will need to be addressed include the following:

  • Lodge the original will with the court in the county of his/her domicile (legal residence).
  • See an attorney to determine whether a petition for probate of the will must be filed.
  • Beginning to prepare for filing the estate tax return (Form 706). Some of the forms and documents you have been collecting will be needed by your CPA or attorney to document date of death calculations for that return.
  • Your attorney or CPA can assist you with finalizing and understanding any legal documents and/or forms that you have received.
  • The financial planner and estate attorney can also assist you with funding the trusts (if applicable) and with making distributions to any beneficiaries.
  • The financial planner and CPA can help you make IRA and pension plan election decisions.

Things to consider:

  1. When you are ready, taking charge of the financial affairs can be a very healing process. It gives us focus and empowerment when we may need it the most.
  2. If applicable, contact a human resources (HR) representative of the decedent’s employer for help with retirement plans. A surviving spouse will be able to roll over money from the deceased spouse’s retirement plan into his or her own IRA. In most cases, that will make sense, but if you are considerably younger than your spouse you may want to keep the assets in your spouse’s retirement plan. That may allow you to tap into those assets at a younger age without penalty.
  3. Make sure you have sufficient cash on hand. One of the biggest concerns immediately following a death in the family is making sure the survivors have enough cash to meet their current expenses as well as funeral costs. You may want to take part of your life insurance proceeds or other death benefits and increase your cash reserves. Try to have at least six months’ worth of living expenses covered in a money market or other very accessible account. This will help ensure that you are not too rushed into making other major financial decisions right away.
  4. Consider creating a lasting memorial. One of the most healing experiences for survivors is to find a way to honor the people they have lost. Whether it’s through a brick paver in a memorial walkway, a scholarship in the name of your loved one at his or her alma mater, or a donation to a favorite charity, creating a tangible remembrance is an important part of paying tribute to those who have blessed our lives.
  5. If you wonder if you could benefit from any type of bereavement counseling or other support, you probably could. Please feel free ask us for a list of community resources. Don’t overlook the vital role your church, synagogue or mosque may play in providing spiritual and social support for you and the family involved.
  6. For many, particularly those who are not the chief financial decision maker in the household, professional financial counseling may be a comfort. Be sure to carefully screen financial advisors before you agree to work with them. Key resources can be the web sites for the Board of Standards for Certified Financial Planners (www.cfp.net) and the Financial Planning Association (www.fpanet.org).

Uncertainty over the economy and financial markets has many people concerned about their financial futures. For friends, relatives and colleagues who may find this information helpful, please feel free to share with them. Remember, for those who could benefit we offer a complimentary, no obligation “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth advisory firm like ours—one that delivers services according to the needs and perspectives of its clients.

This information is not considered a recommendation to buy or sell any investment or insurance and is being provided for information purposes only and is not a complete description, nor is it a recommendation. We strongly recommend an advanced tax and estate planning expert be contacted for further information since Wells Fargo Advisors Financial Network LLC (WFAFN) does not provide tax or legal advice. Any opinions are those of Mitchell Kauffman and not necessarily those of WFAFN. The information has been obtained from sources considered to be reliable, but Wells Fargo Advisors Financial Network does not guarantee that the foregoing material is accurate or complete.  Prior to making a financial decision, please consult with your financial advisor about your individual situation.  Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN)/Member SIPC. Kauffman Wealth Management is a separate entity from WFAFN.

Written By

Mitchell E. Kauffman, Managing Director

CERTIFIED FINANCIAL PLANNER™

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara and Santa Barbara City College.

For more information, visit www.kauffmanwm.com or call (866) 467-8981. Kauffman Wealth Management and serves clients from two office locations: 140 South Lake Avenue, Suite 307, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108 (by appointment only).   Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN).  Kauffman Wealth Management is a separate entity from WFAFN.