Fees, Commissions, and Being a Fiduciary

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When shifting from one financial advisor to another, there are many questions that you should be asking. However, there are two main questions, which we’ll be covering today in great detail:

  1. What are your fees and commissions?
  2. Are you a fiduciary?

Fees and commissions are going to be tied into the advisor’s offering in some way, so you must know how your advisor is being paid. Choosing the right financial advisor is a process, and you need to really have a firm understanding of fees, commissions and being a fiduciary to safeguard your retirement.

What are Your Fees and Commissions?

Fees have been a central focus point of big brokerage companies like Charles Schwab and TD Ameritrade. The entire industry has been in a “fee” war where they’ve tried to compete in the fee department with each other, and fees fell.

For you, lower fees are always a good thing.

Transaction costs have also practically disappeared due to the increased focus on lowering fees and costs for investors.

When working with a financial advisor, you want to know many things, but today, we’re focusing on fees. You need to understand how your advisor is being paid. Many people come into our office and explain that they don’t know all of the fees and commissions that their advisor uses.

It’s essential to:

  • Ask your advisor about their fee structure and commission
  • Dive deeper into the advisor’s fees and commission if your questions make them uncomfortable or they seem to want to dodge your questions

Since you’re hiring an advisor to work on your retirement plan, it’s your right to know how they’re being paid. We would advise against working with an advisor who doesn’t want to divulge their fee structure and commission.

There are a few ways that your advisor can be paid:

Commissions

Commissions are a form of payment that has been around for probably the longest. Commissions are made when products are sold and also in the investment world. Originally, brokers needed to be contacted to make trades and would earn commission on these trades. 

You can buy stocks without commissions in today’s investment world. 

Mutual funds often have fees and commissions on the front-end or back-end, meaning your broker makes a commission at the start or end of the investment. 

You have every right to ask your advisor whether they’re receiving a commission on your investments in any way.

Fees

Advisors can charge fees in a variety of ways:

  • Hourly: An hourly fee may be applied when the advisor works on your portfolio or completes certain tasks.
  • Flat-fee: A flat fee may be assessed for things such as helping transfer your accounts or setting up your investment portfolio.
  • Percentage of assets under management: Finally, a percentage fee may be assessed based on your portfolio’s value. For example, a 1% fee may be charged on your $100,000 investment account, or $1,000.

Advisors may also charge a combination of the fees above. 

For the most part, advisors that charge fees will not make a commission. However, if insurance products are included, a commission may be assessed.

As someone looking from the outside, it’s common to think that the lowest fees are the best. But that’s not always the case. You need to look at the services that are wrapped into the fees to really understand the value in a service.

You might pay a 1% commission for a very hands-off advisor or 1.25% for an advisor who also assists with tax planning and other aspects of financial planning. It’s vital that you ask your advisor what their fees are and what’s included in their fees to know exactly which services you’re receiving.

Are You a Fiduciary?

A fiduciary is very important to understand when working with any financial advisor. You should be asking if the advisor is a fiduciary, but before you do that, it’s important to know what being a fiduciary really means.

What is a Fiduciary?

A fiduciary has to make decisions that are in your best interest. Therefore, certified financial planners must uphold a fiduciary standard. For example, let’s assume that the advisor makes a 10% commission on a specific type of insurance and a 5% commission on the other.

Someone who does not abide by a fiduciary standard would enrich themselves by recommending the product that gives them the most commission, even if that’s not the best product for you.

However, when an advisor is a fiduciary, they need to consider your best interests, even if that means lower commissions for them.

We run as a fiduciary, and our business is founded on:

  • Learning about a client
  • Understanding the client’s goals
  • Recommending the best options for the client to reach their goals

Not only does a fiduciary have to work in your best interest, but they need to be able to prove this in the future. If a client questions why we recommended a specific financial product, we must explain why and show proof that this product was the best based on our knowledge and their goals.

Legal vs. Assumed Fiduciary

Some advisors work on legal and assumed fiduciary duties. Suitability is one way that the advisor may work, and this means that they need to offer a suitable recommendation. In the world of suitability, the advisor can recommend a higher commission product if it suits your needs.

Assumed fiduciary is also an option, and this means that the advisor will do their best to work in your interests, but they’re not legally bound to do so.

Finally, there are legally bound fiduciaries, which we believe offers the best option. There are two times when a financial advisor must be a fiduciary:

  • Certified financial planners are obligated to be a legal fiduciary to hold their CFP designation.
  • Licensing is another time when an advisor may be a legal fiduciary. For example, if an advisor is Series 65 licensed, under FINRA, they’re bound by law to hold a fiduciary standard.

You should be asking your financial advisor about their fiduciary standards and whether they uphold them. You should also ask about licensing so that you have peace of mind that if they’re Series 65 licensed, they’ll work in your best interest.

Fiduciaries Must Disclose Things That May Be a Conflict of Interest

For example, let’s assume that I have a partnership with an attorney where I make money or some form of compensation from the attorney. A fiduciary must disclose this information and allow you to decide on your own.

We’re seeing many clients who are moving to independent financial advisors because of the fiduciary standards they uphold. So, let’s assume that you work with someone at Nationwide. The agent will recommend products that the company offers.

Independent financial advisors aren’t required to recommend specific products.

The Nationwide representative would recommend their own products, even if it’s not necessarily the best option available. Independent financial advisors, like ourselves, can recommend a wealth of products, whether that means the product is from Nationwide or someone else.

Did you enjoy this article? Then, we recommend signing up for our podcast, where we discuss topics just like this twice a week.

Click here to sign up for our podcast today.

What Should You Consider If Your Spouse Passes Away?

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No one wants to think about what would happen if their spouse passed away. Death is a difficult topic to discuss, but it is an inevitable reality for all couples. It’s important that you and your spouse have peace of mind that if either of you dies, the other has a plan in place that allows them to live the best life possible.

We’re going to help you think through the ideas and questions that will be helpful if your spouse dies.

If or when your spouse dies, your mind will be in a million places at once. Grief, fear and anxiety will overwhelm you. Having a general idea or checklist that can help you through this challenging time can really make it easier for you to overcome a spouse’s death.

You can’t be 100% prepared for death no matter how hard you try, but a checklist and guidelines can certainly help make the impact a little less intense.

A few of the things to consider are:

6 Things to Consider If Your Spouse Passes Away

1. Cash Flow: From Two Incomes to One

Income is a primary concern for most people, even if you’re both retired. We see many cases where one person is still working and passes away, and even times when both spouses are retired and one dies.

The main issue is cash flow because:

  • Maybe the deceased was collecting a pension with no survivorship attached.
  • Perhaps one spouse was still working and generating income and passes away.
  • You’ll lose one source of Social Security income if you’re both collecting. Instead, an adjustment is made where you’ll receive the higher person’s benefits.

Your standard of living can drastically change if your spouse dies and you lose some of these sources of income.

2. Expenses: The Key to Life Without a Spouse

When couples think of retirement planning, they think of retiring together. Most people will plan for:

  • Two sources of income
  • Two sources of expenses

However, even if you’re losing one or more sources of income, expenses will also be less. It’s vital for you to fully understand your expenses when retirement planning as a married individual and a couple.

For example, when your spouse passes on, you may no longer need to pay for:

  • Country club fees
  • Two vehicle payments/insurance
  • Certain medical bills
  • Etc.

Once you know your cash flow and expenses, it will be a lot easier to breathe if the worst happens.

It’s crucial for you to also know where all of the bills are coming from. You have to continue living, and it’s vital to keep these bills current.

3. Estate Settlement Issues

You’ll need to do a few things to your estate if your spouse dies. One thing that comes to mind is an IRA in your spouse’s name. The IRA will need to be retitled when your spouse passes. You may be able to:

  • Become an inherited IRA
  • Be taken over if you’re a spouse

When you take over a spouse’s IRA, you’re effectively rolling your spouse’s IRA into your own. You have to go through the steps to:

  • Change joint accounts to single accounts
  • Take certain accounts and change them to your name

Many accounts may need to be properly transferred to a surviving spouse.

In terms of estate tax, there are fewer issues today than in the past, but with larger estates, it can be challenging to keep track of all property. You might need to:

  • Look through credit card statements
  • Identify certain accounts
  • Locate assets

Because your spouse passed away, you’ll also need to look through your estate plan. Perhaps you wanted certain assets to pass to your spouse, but now that they’re gone, you’ll need to consider what happens to these assets.

4. Insurance Accounts and Benefits

Insurance is a major concern because your spouse and you can have a variety of accounts. You need to be able to:

  • Name accounts
  • Know where accounts are
  • Know how much is in these accounts
  • Etc.

You need to identify and know where all of these accounts are when your spouse passes. It’s essential to keep a running list of these accounts and how to access them. Ideally, when your spouse is alive, you should begin making a list of these accounts so that the surviving spouse can access them.

Insurance and death benefits may come from:

  • Employers that offer group life insurance if they’re a larger company.
  • Veteran benefits for death and burial.
  • Pension survival benefits with certain clauses.
  • If you have a dependent or child under the age of 18 at the time of your spouse’s death, Social Security may have certain benefits available to them.
  • Life insurance policies that may be open.

Insurance is a significant asset when retirement planning because it allows you to have an influx of cash that your spouse will need upon your demise.

5. Taxes

The IRS wants their money no matter the circumstances that you’re personally facing. You may have filed your taxes a certain way when your spouse was alive, but this can abruptly change when they die.

Your house may generate a gain if you sell it.

Provisions need to be thought through thoroughly. This is a major consideration, and we recommend going to a CPA. A CPA will cost a few hundred dollars, but they’ll help you understand your tax obligations and how your tax situation might have changed.

6. Assets and Investments

When you secure your retirement, you’ll notice that you’ve acquired a lot of assets and made numerous investments throughout your marriage. These investments need to transition to you as a survivor.

There may be tax concerns with these assets being transferred to you, so a CPA can help here, too.

A few of the accounts and investments that people may have questions about are:

  • IRAs: If they’re set up properly, the IRA can often be transferred to the surviving spouse without an issue.
  • Stocks: A step up in basis may be leveraged to save you money in taxes.
  • Businesses: Will you continue the business, or is there a succession plan in place? How about the sale of the company and the tax implications that follow?

You may have annuities and other investments that need to be considered. We recommend speaking to a financial adviser or planner to discuss your risk tolerance without your spouse.

Often, your retirement plan will have more risk with two spouses, but now that one spouse is gone, it may be time to reduce these risks.

Thinking of life without your spouse is something no one wants to do, and we’ve made a checklist to help you walk through these things to consider.

The checklist is completely free, but we need to know how to send it to you.

We can send the list either through email or regular mail – it’s up to you.

Call us today to request your own checklist to help you understand what to do when your spouse dies.

What Happens to My Money if Something Happens to My Advisor?

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Financial advisors can help you invest and manage your money. An advisor helps clients reach their long-term financial goals and often play an integral part in the retirement planning process. 

But there’s one question many clients have: what happens to my money if something happens to my advisor?

Your advisor opens your accounts, sends you reports and provides a hands-off way to secure your retirement. If these individuals die or become incapacitated, your money will still be safe and will still be your money.

What Happens to My Money if My Advisor Retires, Gets Sick or Dies?

As an advisor, 90% of our clients ask us this very question. It’s an excellent question to ask, and it’s one that we want to clear up for you. No matter who you’re working with, the logic and answers will be the same across the board.

But before we get too far ahead of ourselves, it’s crucial to have a firm understanding of where your money is held.

Understanding Where Your Money is Held

When you work with us or any independent financial advisor, your money never enters our bank account. In fact, our name is never on the checks that you write. Instead, you assign us as an advisor on your account.

A third-party custodian will be where your money is held.

These custodians are massive financial institutions, such as Wells Fargo or Charles Schwab. The custodian will house your money, ensure everything is compliant and facilitate the trades.

As independent advisors, we:

  • Act on your behalf when dealing with a custodian
  • Never actually hold your money

If something happens to your advisor or us, your money will still be sitting in the custodian’s accounts that we created for you.

What Happens When Working with Big Financial Firms?

If you work with a big financial firm, you may assume that if your advisor is no longer working with the firm, you’ll be working with another internal advisor. And you will be working with another advisor, but it’s essential to understand that these firms operate in what’s called “teams.”

Teams have multiple advisors, so if something happens to the leading advisor, you’ll work with someone else in the company.

In fact, you’ll receive a call from your new advisor and will need to decide whether or not to work with the team without the advisor you had. Your money remains in place, and if you choose to leave the team, you can just transfer your money to another advisor.

So, in short: you won’t lose your money and can decide on what to do next with your portfolio.

Common Scenario Questions People Ask

Your money is important to you, and it’s essential to know the answers to common questions regarding your advisor:

What Happens if Your Main Advisor Dies?

First, you’ll get a new advisor. But the process will go something like this. You’ll receive a phone call and the new advisor:

  • Will explain that they have been assigned to your account
  • Likely have you come into the office to learn about him/her

You should ask to meet the advisor and go through the initial decision stages again, just like you did when choosing your original advisor. What this means is that you’ll want to:

  • Talk to the advisor and see whether your personalities match
  • Understand the advisor’s investment philosophy
  • Decide if the philosophy is good for you

If you’re working with teams in the same office, you can be relatively confident that their philosophies will match. You won’t even need to worry about the investment strategy if working with an advisor from the same team.

This is the best-case scenario.

When working within the same team, your biggest concern will be whether the new financial advisor is a good fit for you. If the advisor isn’t a good fit, you can switch to another member within the same team.

What Happens If Your Financial Advisor Retires?

Retirement scenarios are a little different than if someone quits, gets sick or even dies. If an advisor is retiring, they’ll let their clients know well ahead of time. There is a lot of planning that goes into the retirement process, so you have many options as a client.

Your advisor can also choose to retire and:

  • Sell their practice, in which case, you can begin working with the new team.
  • Let the current in-house team take over the account. The long-term advisor leaves, but you continue working with the team that you’ve known for years.

If you’re concerned about your advisor leaving, it’s important to ask about their continuity plan for your team. You can ask your current advisor this question and ask this question when looking for an advisor.

Most advisors will have a plan in place to help you transition if they get hit by a bus tomorrow.

And a lot of people will shop for a new advisor when they know that their name advisor is going to retire.

We’ve had potential future clients come into our office, vet us thoroughly and explain that they plan to stick with their current advisor until that individual retires. You can follow this same concept because, at the end of the day, it’s your money that a new advisor will need to handle.

You’re not restricted to working with just the team that your old advisor built either.

Final Note

You’ll work closely with an advisor, build trust and hopefully make a lot of money together. Then, if your advisor is hit by a bus or decides to quit tomorrow, there will be someone that can confidently fill their shoes.

Often, you’ll have the option of working with the advisor’s team that they were a member of to make the transition as fluid as possible. And in all cases, you’ll still have all the money you invested accessible to you.

Want to learn how you can secure your retirement? We have two great resources that we just know that you’re going to love and benefit from.Click here for our 4 Steps to Secure Your Retirement Course or listen to our Secure Your Retirement Podcast.

Retirement Financial Plan

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Retirement planning has a lot of moving parts, and if you’ve been reading our blog or listen to our podcast (listen here), you know that we’re big on creating a holistic retirement financial plan.

We believe that you should have a retirement plan that is well-put-together and really hits on all of your goals.

How can you create this plan?

With a team.

We’re going to help you start to secure your retirement with a quick overview of what your retirement financial plan team should look like.

Retirement is a Lot Different than Most People Realize

A lot of people think about their retirement briefly while they put money into their 401(k) plans, and a lot of people know when they want to retire and take social security. But when you sit down and get closer to retirement, you’ll realize that there are a lot of moving parts to consider.

Retirement is more than just putting money away, although money plays a big role in retirement.

And when you begin doing your research, you’ll find a lot of advisors to choose from, which can make your head spin. We’re going to discuss the key people that should be involved in your life and can help you retire the way that you want.

Advisors to Hire and Work with to Secure Your Retirement

Advisors help you go well beyond just a 401(k) and saving money. These professionals will assist you with investing your money in many cases. For example, you may have an advisor that works with your employer and will:

  • Assist with asset allocation
  • Invest for you
  • Offer a quarterly report
  • Provide yearly statements

These advisors work with money management, but they fail to look at the whole of your retirement.

We take a holistic approach to retirement. For example, you’ve received a paycheck from an employer, and now that you’ve saved money to retire, it’s time to pay yourself. You have access to this money at any time, but if you’re spending way beyond your means, your retirement buckets can quickly dry up.

An advisor that works to invest your money only isn’t considering how you’ll pay yourself.

You’ve saved and grew your money, and that’s where a lot of advisors stop. They don’t consider how you’ll manage your money after retirement, nor will they continue checking up to understand your goals. As your goals change, your asset allocation should also change.

Money managers grow and build money; not plan for when you want to retire.

Your money manager won’t consider:

Holistic advisors tend to look at your retirement plan as a whole. There’s a lot to consider, so these individuals will discuss your retirement desires with you and help make retirement possible.

Types of Advisors to Work With

You may work with a variety of advisors, including:

  • Money manager or financial adviser. These professionals will be focused on investing and growing your money.
  • Tax advisor. A tax advisor is key because they’ll help you find innovative ways to shelter a lot of the money that you save for retirement so that you don’t have to pay it in taxes. Imagine needing $1 million to retire and not realizing that you owe $250,000 in taxes.
  • Estate planner. An estate planner will help you with ensuring that all of your documents are in order so that if you become incapacitated or want to leave assets to children or family members, you can.
  • Social security specialists. These individuals will help you determine the best time to apply for social security. They’ll also assist you with maximizing your payments by retiring later. 
  • Insurance experts. An insurance expert can help you obtain the best life insurance or health insurance just in case you or a spouse pass on.

No one is a master of all aspects of retirement, but with the right team, it’s possible to bring the collective knowledge of these professionals together in one place.

Working With a Holistic Team

A holistic team, like us, will help with all aspects of your retirement. We always start with your retirement plan, which is an extensive plan that looks at your retirement goals, needs, and the “what ifs” that pop up before and during retirement.

Comprehensive plans can and should be updated annually, and they’re a clear roadmap to your retirement.

Once we have this plan in place, you can sleep better at night. You’ll know what it takes to retire and can follow a roadmap to success.

And since we’re a holistic advisor, we bring in:

  • Tax advisors
  • Social security specialists
  • Other advisors

Your team must look at your goals, and how they change, so that you can confidently enter retirement. Working on just investing your money isn’t enough to retire. Bringing together the right team that offers a holistic approach will look beyond your investment portfolio and really bring everything together, from social security, to tax considerations and so much more.

Click here to sign up for our 3 Keys To Secure Your Retirement complimentary training.

Life Insurance in Retirement

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Life insurance is a complex subject. There are people that will tell you that you need life insurance, and there are others who would rather focus on their retirement planning. And there’s really no wrong or right answer here.

Some people want to leave money to loved ones or spouses, and their way of doing this is through life insurance.

Today, we’re going to discuss life insurance in terms of retirement planning with an objective view. Not every client that we work with will benefit from life insurance, but there are times when life insurance may align with your overall goals.

But before you can really decide on getting life insurance, it’s important to know what types of insurance are available:

  • Term insurance
  • Whole life
  • Universal life
    • Variable universal life
    • Indexed universal life

All of these types of life insurance are important to know about because they have their advantages and disadvantages. If you don’t know these key points, how can you determine if a certain type of life insurance is right for you?

Understanding Term Life Insurance

Term policies are a type of life insurance that is the easiest to obtain. You take out term life insurance for a period of time. Let’s say that you pay into the policy for 10 to 20 years. If you die during this period, the insurance will pay out a death benefit.

With every type of life insurance, death benefits are tax free.

If a beneficiary receives a $1 million payout from your insurance, they don’t have to pay a single penny in taxes, which is very beneficial.

Why Term Life Insurance Makes Sense

Term life policies are cheaper and easy to get started with. A lot of people take out a term policy when they’re younger so that the person’s family can pay their bills or even pay off the house if you die.

You may even receive this type of insurance for free from your employer.

Sometimes, the policy can be expanded when it’s from your employer, which allows you to pay lower rates for even higher levels of insurance.

Underwriting is common, so you will have to take a physical exam to satisfy the insurer. We’re also seeing a lot of insurers online offering term life policies with no underwriting. While no underwriting is beneficial and easy to get started with, the insurer takes on more risk, meaning your premiums will be higher.

Understanding Whole Life Insurance

Whole life is an insurance that is offered until the end of your life. Your policy will pay out a death benefit, and it can also accumulate a cash value. The policyholder can access the cash value of their policy during their lifetime to:

  • Invest the money
  • Borrow against it
  • Withdraw it

When legacy planning, let’s say that you want to leave your two children $500,000 each. You can use your IRA to pay for your whole life policy and leave the money to your children tax free.

The cash value of the whole life policy is very beneficial because you’re able to use the cash value you build. 

Understanding Variable Universal Life Insurance

A variable universal life (VUL) policy is similar to a whole life in that it is for the entirety of your life and has a built-in savings component. The main difference is that this savings component has an investment subaccount that is similar to a mutual fund and is invested on your behalf.

You can lose cash value when investing in a VUL.

Understanding Indexed Universal Life Insurance

An indexed policy is the same as a VUL, but the key difference is that instead of a mutual fund being used to invest your cash value, the investment is put into an index. This is very similar to an index annuity.

The cash value can be linked to one or multiple indexes, such as the S&P 500 or NASDAQ.

Investing in an entire index allows investors to automatically diversify their portfolios. You also can’t lose your cash value in an indexed policy. You’ll be able to rely on a nice rate of return with an indexed universal life plan.

Let’s imagine, for a minute, that you have cash that is stashed away in a CD or a savings account. You could, instead, put this money into an indexed policy that earns a 2% to 5% return (it can also be much higher).

And you have access to 100% of this money at any time that you need it.

If you die, all of this money and the death benefit will go to your beneficiaries.

When talking about retirement planning, life insurance is a small piece of the plan. You can leverage the right type of account for its tax advantages and even grow your money while still having access to it.

The added perk is that the death benefit is dispersed to your beneficiaries.

Life insurance is fully underwritten, meaning that the insurer will want to look at your medical history. If you have some medical issues but they’re under control, you might still pass-through underwriting.

For example, let’s say that you have high blood pressure. You might assume that you won’t be able to pass through the underwriting. Medications can help get your blood pressure under control, and if it’s under control, you have a good chance of getting approved.

We believe everyone should consider life insurance, but for some people, this type of insurance won’t make sense. The best thing that you can do is educate yourself on the benefits of life insurance and determine if it’s the right choice for you.

We can also discuss your options and help you determine if life insurance is the right choice for you. 

For some people, it may not be part of their retirement plan. But for other clients, life insurance can provide you with peace of mind that you’re leaving your family with financial security when you’re gone.

Click here to schedule a free introduction call with us today.

How To Have a Successful Retirement Plan

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Retirement planning is on a lot of people’s minds, but they don’t know where to start. It can be overwhelming reading blogs, watching videos on retirement or even listening to our podcast and trying to implement everything that you learn.

But today, we’re going to break down how to create a successful retirement plan by following four key components that we use when helping others secure their retirement.

4 Key Components of a Successful Retirement Plan

1. Retirement Financial Plan

Your retirement financial plan is the foundation of your retirement. If you don’t have a plan, the rest of the components don’t work. You’re likely familiar with coming up with a plan for saving for vacations or paying off debt, but a retirement financial plan is a lot different.

Why?

You’re likely not working and making income in the same way that you did in your 20s, 30s, 40s, 50s, and early 60s. We normally work with clients about 10 years before their retirement to put a plan in place that works for them.

Retirement Financial Plan Outline

A well-thought-out plan is the foundation of your retirement. You need to put your plan together, which will include:

Goals

What would you like your retirement to be? When do you want to retire? What lifestyle do you want to have? Do you want to travel? Do you want to have a second home? These should all be part of your goals.

Assets

You’ve worked hard, and you’ve acquired a lot of assets. You need to list all of your assets including 401(k), IRA, real estate and so on.

Income

Will your assets be able to provide you with income? You’re not working, so you need income to cover your expenses. How much money do you need? You need to consider your basic cost of living, your wants and any legacy money that you want to leave behind or gift to others.

You need to determine how your assets will provide an income.

Income will also include things like:

  • Social security
  • Pension plans

Social security is a big one because there is a lot of talk that the program will run out of money. If you retire early, you’ll receive less money from social security which may or may not be acceptable for your retirement plans.

You need to do a full valuation of social security to find what’s right for you. Waiting until 70 for retirement may not be what you want to do.

What Ifs

There are a lot of “what if” scenarios which can be both good and bad. A few things that you’ll want to think about are:

  • What if you planned to spend a certain amount of money and spend too much? What if you’re spending less than projected?
  • What if you want to travel for the first ten years of retirement?
  • What if long-term care is needed? Long-term care is very expensive.
  • What if your spouse dies? Will you be financially stable?

A plan can really help you because it’s on paper and can be referred to time and time again. You can look over your plan and determine if you’re on track to reach your retirement goals or not.

Your plan doesn’t need to be massive – a smaller plan is great.

We start with this retirement plan because it leads directly into the next point.

2. Investment Strategy with Risk Management

You have assets and savings, and instead of letting your money sit, it’s important to invest it so that it can grow. Buy and hold strategies are great when you’re young, but as you get closer to retirement, it’s vital that you focus on risk management.

There’s a time to invest, and there’s also a time when you need to secure your retirement by pulling money out of the stock market or other investments.

We always run our clients through a risk conversation where we learn how much risk our clients are willing to take with their money. For example, let’s assume the following:

  • You have $1 million in investments
  • Your portfolio is down 20% – $200,000

A lot of people get nervous losing $200,000, so they say that they can better handle a 10% loss. Every individual is different. You need a portfolio that looks at your risk tolerance. The last thing many people want to do is lose 30% or 40% of their retirement overnight.

Other people have more than enough money stashed away, and they rather seek the highest returns possible because a 30% loss won’t impact their retirement.

Another thing to consider – taxes.

3. Retirement Tax Strategy

Taxes follow you forever, but there are ways that you can lower your tax burden. You need to think about your assets because there are a lot of different asset taxes:

  • Pre-tax
  • After-tax
  • No-tax

For example, you can have $1 million in your 401(k), but you have to pay taxes on this money which impacts it significantly.

Roth accounts are tax-free.

Gains are taxed with some assets, such as dividends and not others.

You may want to convert to a Roth through a Roth conversion where you pay the taxes prior to converting and allow the account to grow tax-free.

It’s very important to spend time understanding how you can shield yourself as much as possible from taxes. A CPA or accountant can help, and we actually have these professionals on retainer so that if our clients have a question we can’t answer, the tax professional can.

4. Estate Planning

Finally, the last piece of the puzzle is your estate plan. You want to make sure that you have:

  • Beneficiaries setup
  • Beneficiaries named and updated
  • A will in place
  • Healthcare power of attorney
  • Durable power of attorney

A durable power of attorney is very important because even if you’re married, there are certain retirement accounts that can only be owned by a person. Let’s assume that your wife is in a coma, and you rely on her accounts to pay your bills.

Without a durable power of attorney, you cannot access these certain accounts.

These are simple documents that everyone that is entering into retirement should have in place.

Just imagine if you had all of these four key elements in place for your retirement. Would you have peace of mind in retirement? A lot of people will say “yes.”

That’s what a solid plan offers – peace of mind.

Want to learn ways to secure your retirement? Listen to our Secure Your Retirement Podcast to get started.

Want to dive in and learn more about how we can help you secure your retirement? Feel free to schedule a complementary call with us. Just 15 minutes of your time can help you on the path to retirement.

How to Avoid a Scam!

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Trusting your retirement savings with someone else is difficult. If you’ve spent your life working hard, the last thing you want to do is lose your retirement because of a fraudulent advisor. Bernie Madoff is a name that a lot of people in retirement planning associate with fraud.

After all, Madoff stole around $20 billion (1) in principal funds from his clients, although his firm stated they had returns of $65 billion.

If you want to secure your retirement, you need to know that your advisor isn’t pocketing your money and spending it to live the life of a billionaire. 

Today, we’re going to talk about safeguarding yourself against the Bernie Madoffs of the world.

Quick Background on Bernie Madoff for Everyone That Doesn’t Know

Bernie Madoff’s activities, initially, were legal. He setup custodianships so that he could manage his clients’ money. When you sign over custodianship, you’re putting a lot of trust in an advisor because manipulation can occur.

There’s a lot of oversight, but as we saw with Madoff’s business, regulators didn’t regulate him or his books like they should have.

He had free rein to move money to accounts, forge return numbers and get away with living the life of a billionaire in the process.

99% of Financial Advisors vs Bernie Madoff

Madoff ran a Ponzi scheme, and he did it exceptionally well, even though the activity was obviously illegal. When you hire an advisor, 99.99% of the time you’ll be hiring someone that isn’t Madoff.

You’re going to give someone access to your money, but it’s different than what Madoff was able to do.

When you work with someone – like us, for example – we use a third-party custodianship, which puts your money into Charles Schwab. You can also have money put into Fidelity, TD Ameritrade, or another custodian. It’s very difficult to create your own custodianship. These custodians will provide oversight for you.

For example, these entities create the statements that are sent to you so that an advisor can’t say, “hey, you made 15% returns,” when you really made 2% returns this year.

Bernie Madoff was able to manipulate the statements sent to his clients, who thought they were making a ton of money. Investors were happy to see their portfolios go up and didn’t question their statements.

Madoff, for all of the bad that he did, caused a shift in the way financial advisors can manage money. Oversight and regulations that allowed him to get away with his scam have been strengthened to provide safeguards for investors so that their money is safer in the hands of an advisor.

One of the protections that are in place now is that you own the entirety of your account.

Let’s say that we were managing your money and you decided that it’s time to go in a different direction. You could:

  • Contact Charles Schwab
  • Remove us from the account

You can log into your account to see the activities going on, which does provide some level of peace of mind that your funds are being managed properly. The custodian even prepares all of your tax documents.

Administering Your Account on Your Behalf

As an advisor, if you allow us to administer your account, we do have the power to put in an order to send you funds from the account. The power of an administrator provides us with some opportunities to manage your account, but you’ll never be able to ask us to personally write a check on your behalf.

And that’s a good thing.

The majority of advisors are setup in a similar way to us so that they don’t have the custodianship over your money. A third-party, well-known custodian will provide the oversight and protection necessary to keep your money safe and secure.

Licensing and an Advisor

Industry certification is a must-have in financial planning and the insurance industry. Your advisor should meet all of your state requirements and have the required certifications.

For example, we’re certified financial planners, but we’re also FINRA licensed.

FINRA provides oversight in the world of securities, and they have a variety of licensing available. Licenses offer protections that allow you, as someone looking for a financial planner, to have some peace of mind that your advisor is someone legitimate.

You should ask your advisor about their licensing and even go to your state’s board to learn more about licensing requirements.

If you look into 5 advisors and one says, “no, I don’t need a license,” that should be a red flag that maybe something isn’t right.

But licensing alone doesn’t mean that you can’t be taken advantage of or enter into a Ponzi scheme. Licensing should be seen as a bonus and adds credibility to the advisor, but that’s not the only thing that you should be considering when choosing a financial adviser.

Structure of the Advisor’s Business

Advisors can structure or setup their business in different ways. We’re setup as an RIA, or registered investment advisor, which gives us the ability to act on the behalf of our clients. Since we’re an RIA, we’re held to a fiduciary standard.

What does this mean?

This means that we have to put the client’s interest above our own. You’ll find that broker dealers and agents have their own setups.

And there are different ways that advisors are paid. For example, we’re paid a fee for managing money. We don’t receive commissions on transactions, so there’s no incentive for us to push you to one security or financial vehicle over another.

Brokerages, on the other hand, may be reputable, have a license and can push you to a mutual fund or other investment option. These brokers can sell mutual funds, securities, etc.

You should go to your state’s site and try to find out if the person you’re dealing with is licensed. Licensing means that the advisor is being regulated and must remain compliant.

Money Transfer the Right Way

Even if someone is licensed, this doesn’t mean that there aren’t ways in which fraud can take place. The biggest concern is when money transfers occur because there’s a standard, “right way” for these transfers to take place, and a not-so-standard means of transfers.

What’s the Right Way to Transfer Money?

The right way to transfer money is to write a check to a custodian company, not the investment company themselves. Custodians are highly regulated and are the safest option for transferring money.

What’s the Wrong Way to Transfer Money?

Let’s assume that you’re working with XYZ Corp and you want to invest funds. If you’re making a check out to XYZ Corp, you’re handing over your money directly. The company may be honest and put the funds into your account, or some or all of it can be taken.

It’s not a good idea for you to write checks directly to the financial advisor unless it’s to pay their fees.

When you read about Ponzi schemes, 99.99% of the time, the investor writes a check to the investment company that will then “disperse” the money to your account. If you’re not writing a check directly to the custodian, you’re putting yourself at risk.

Investing your money is always a risk, but you shouldn’t have to stress when you put your trust in a financial advisor. If you do your due diligence, you’ll be able to reduce the risk of being a victim of a Ponzi scheme.

Sources

1. https://www.wyff4.com/article/5-things-to-know-bernie-madoff-scam/36124939#:~:text=steal%20%2465%20billion.-,His%20Ponzi%20scheme%20is%20often%20referred%20to%20as%20a%20%2465,but%20those%20returns%20never%20existed.

Trusts Explained – What you need to know!

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Trusts can be a powerful part of your estate plan, but they’re not a tool that every estate needs to leverage. Do you need a trust? Let’s find out.

What is a Trust?

One of the most common questions we’re asked when working with someone that is in the retirement planning phase of their life is: do you need a trust? And the answer isn’t that simple. A trust may be a way for you to secure your retirement while putting assets in a trust for someone else, but it’s not an estate planning tool for every person or situation.

You can think of a trust as a relationship between:

  • Person that sets it up (grantor)
  • Beneficiary (beneficiary)
  • Person that takes care of the trust (trustee)

An example of a trust can be as simple as:

  • Giving someone $20 
  • Ask the person to give the money to someone else

When you create a trust, you’re allowing the trustee to grant assets, on your behalf, to the beneficiary.

When to Consider a Trust in Your Overall Estate Plan

A trust is not a part of everyone’s retirement planning because it’s really a part of your estate plan. You’ll be creating a trust for someone else, although while you’re alive, you may have access to the trust and all assets within, depending on how the trust was created.

Do you need a trust? No, it’s optional.

But that doesn’t mean that you might not benefit from one. A trust is a good option when you have:

  • Children who are too young to really be a beneficiary
  • Children who are disabled and receiving benefits that they may lose from inheritance
  • Beneficiaries suffering from addiction that may only be granted items in the trust under certain conditions

We also see a lot of trusts being made because the parent of a child isn’t sure that their child’s marriage is going to last, and they do not want part of their estate to go to the ex-wife or ex-husband.

A will distributes the assets out easily in an estate plan, while a trust allows the trustee to manage the estate over time until the beneficiary is ready to receive all or part of the trust.

Trusts are a great way to help divide assets in a second marriage. Perhaps you have children from your first marriage or prior to your second marriage, and you want them to receive a portion of your estate upon your death.

If you don’t have a trust in place, your assets would go to your spouse who may or may not distribute assets to these children.

So, there are a lot of great reasons to choose a trust as a way to strengthen your estate plan. The trust type that you choose will be very important, too.

Most Common Types of Trusts

There are a lot of different types of trusts, and some of these trusts can be very specialized. We’re going to cover the most common types of trusts, but before we do, it’s important to discuss something that is very important for all estate planning matters: probate.

What is Probate and Why You Want to Avoid Probate

When assets are transferred at death, this would be considered probate. A will is, essentially, probate because it helps transfer assets after your death, while a trust can have assets put into it while you’re alive.

Let’s say that you have a house when you die. The house will go through probate and then be given to your heirs.

When assets go through probate, there are drawbacks, such as:

  • Fees 
  • Longer time to transfer the asset

But there are some circumstances where probate may be beneficial. This is not as common, but it can happen.

Revocable Living Trusts

A trust that provides protections for beneficiaries, but they have one key benefit: they’re in existence when you’re alive. While you’re alive, you can place assets in the trust to avoid probate.

Irrevocable Trusts

These trusts are often created for life insurance or charitable donations. Once created, these trusts cannot be modified, revoked or changed after their creation. If an asset is placed in the trust, it cannot be taken out even if your wishes change.

Testamentary Trusts

A very common type of trust that is built into your will. These trusts are only “created” upon your demise, and they’re often in place to protect children that are too young to benefit from the estate just yet.

Special Needs Trusts

A trust for someone that has qualified for Medicaid or Medicare benefits. These trusts are drafted in a way that provides funds to the individual while also ensuring that they qualify for their benefits.

You can also have a trust that is more unofficial but is used when someone is less mature, suffers from a medical condition or is an addict and, at this time, shouldn’t benefit from the trust.

The person can still receive their fair share of the estate, but in the case of an addiction, you can put the share in a trust so that when the child is sober, they can receive assets from the trust. A trustee will often be the deciding factor on whether a special needs trust beneficiary is ready to benefit from the trust.

When a Trust Doesn’t Make Sense for Your Estate Plan

Trusts are a good option for some, but they may not be a good option for others. The times when a trust doesn’t make much sense are:

  • All heirs are doing well with no concerns, in happy marriages, etc.
  • Most of your assets transfer outside of probate, i.e. life insurance, retirement funds, etc.

It truly comes down to the beneficiaries whether a trust is necessary. If you have family dynamics, where maybe an heir is on drugs or gambles, you may want a trust. On the other hand, there are times when a 20-year-old is mature and responsible, so a trust isn’t required.

Choosing a Trustee

Sometimes, choosing a trustee is easy. You have someone in your life that you trust and know will handle your trust accordingly. When you don’t have a clear person that you can trust to handle these matters, then you have a few potential options:

  • Family
  • Friends 
  • Accountant
  • Lawyer 

You can also choose co-trustees where two people are left in charge of the trust.

Deciding on a trustee is very difficult. The trustee may be in their position for 20+ years. A trust can be around for decades, meaning that the trustee is in a vital position where they have to make decisions on distributing money or investing assets so that the trust grows over time.

The trustee may have to tell children “no” when they ask for a distribution.

You have to choose a trustee that you can trust and is very responsible. Since this is a position that the trustee may be in for a long time, they need to be reliable, dependable, in good health and someone that you have a lot of faith in to do the right thing.

Trusts are a complicated form of estate planning, and it’s important to speak to an estate planning professional to help you really determine if a trust is a good option for your estate.If you want to learn more about how to secure your retirement or need help with your retirement planning, click here to schedule an introductory call with us.

How Does a Variable Annuity Work?

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A variable annuity is another type of investment that you can make and add to your retirement account. When we talk about variable annuities, it’s important to fully understand what an annuity is and what they offer to your retirement account.

If you want to implement an annuity into your account, it’s important to know the three main types of annuities available.

Types of Annuities

1. Immediate annuity

The most common form of an annuity is the immediate annuity where you provide an insurer a lump sum of money. In exchange for your lump sum, you receive a certain amount of guaranteed income every month or year (your choice) for the rest of your life. 

You’re giving up your cash, so you don’t have access to this liquidity any longer. Need a new roof? You’ll need to save your income from the annuity or use funds from another account to pay for it.

2. Fixed annuity

A fixed annuity means that you receive a fixed interest rate. Your principal will never fall below a certain amount, and you’re guaranteed a certain amount of interest. The only time your principal goes down is when you withdraw money from the account.

You can have two main kinds of fixed annuities:

  1. Declared rate. A declared rate annuity means that you’ll have a fixed interest rate for certain numbers of years and then can choose to keep money in the annuity or walk away.
  2. Fixed index rate. When you choose this type of fixed annuity, the interest rate is based on an index similar to the way a stock index works. But you cannot lose money with this type of annuity. You can earn 0% interest, but you can never go into negative territory.

You can always draw an income from a fixed annuity. 

3. Variable annuity

What is a variable annuity? Basically, this is a type of annuity that has its interest rate vary based on the type of investment that this annuity is in. For example, you may invest in a certain type of financial instrument.

When you invest in a variable annuity, you can lose money if the financial instrument performs poorly similar to how the stock market works.

How Do Variable Annuities Work?

All annuities have their limitations, but a lot of people are intrigued by the variable annuity because they feel more in control. It’s important to remember that this is also the riskiest annuity because there’s no guarantee of:

  • Interest rate
  • Principal in the account

And you’ll also need to know how to invest using a variable annuity. Since your money is going into investments, this is one of the areas that you really need to sit down and learn about before deciding which type of annuity is best for you.

Making, or potentially losing, money all comes down to your investments.

It works out like this:

  • Put a lump sum into a variable annuity
  • Choose investments in the annuity, called sub accounts

You may be able to invest in mutual funds, ETFs, etc. All of these investments are considered sub accounts.

When you invest in a variable annuity, your investments are limited to what the insurance company offers. The insurance company will allow certain types of investments, and you lose a lot of your control over your money in the process.

Insurance often structures the fund around their own company. For example, the insurer may have their own mutual fund, and you may only be able to invest in these funds that the insurer created.

You may have just 20 or 30 total options with a variable annuity rather than investing freely.

Once you choose a fund, you’re hands-off and are subject to the market risk. You may gain a lot of return, or you may lose out on your investment. The protection that’s offered with the fixed and immediate annuities is completely lost with a variable annuity.

Losing Beyond the Market Dip

For full disclosure, it’s important that we look at how you may lose money with a variable annuity. Let’s assume that you’re able to heavily invest in the S&P 500, and the market falls 30%.

You put $100,000 into the sub account, so now you’ve lost $30,000.

But then there are also other potential losses, which come from fees. You may lose $30,000, but then the fee can be 1.5% to 3% (1) or more (we’re seeing 3% to 5% in total), causing you even more losses. Fees are not based on gains or losses, so your account can go down to $50,000 and fees are still going to be charged.

There are a lot of fees, including:

  • Admin fees. Cost for the insurance company.
  • Mortality expense. Essentially a death benefit.
  • Investment expenses. Costs of about 1% annually for investing.
  • Rider charges. Protection or income protection that can be added on to the annuity. Fees typically range from 1% to 2%.

It’s important that you’re aware of these fees. A lot of these insurers also have surrender charges.

When Would It Be Smart to Use a Variable Annuity?

When you really start understanding a variable annuity and all of the fees involved, you’re going to think “why would I ever choose a variable annuity?” We agree. For most people, a variable annuity doesn’t make much sense because you’re taking on more risks for higher fees.

There is one instance that we can think of where we may recommend a variable annuity.

When does this type of annuity benefit you? All of the annuities are tax deferred, but if you have a variable annuity, you’re likely to also put money into an IRA.

If you have a lot of money that’s not in an IRA and want to leverage a variable annuity for tax purposes, this is really the only time when you may want to put your money into a variable annuity.

What a Variable Annuity Might Look Like for Tax Purposes

Let’s say that you have $100,000 in a variable annuity and $100,000 in a brokerage account. When your brokerage account goes up or down, you’re going to pay taxes and capital gains. In the variability annuity, you wouldn’t be paying taxes because the account is tax deferred.

But when you do take money from the annuity, all of your gains are fully taxable.

You’re paying out taxes later on, which is a nice perk, but these taxes are still going to come out of the account. Keep in mind that the withdrawal from the account will be seen as income, so it’s not taken out as capital gains.

Taxes are not taken out of your original investment – just on the gains.

A variable annuity is beneficial when you don’t have a surrender charge and low fees and prefer tax deferral on your money.

While we don’t recommend a variable annuity to many of our clients, it’s still a viable investment option that you need to consider carefully. You may find that the tax deferment is great for your circumstances because you would rather be taxed at once rather than every year.

If you’re preparing for retirement and want a little guidance and peace of mind, schedule a 100%, no obligation introductory call with us today.

Sources

1. https://www.annuity.org/annuities/fees-and-commissions/

Beneficiaries – What you need to know!

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When you secure your retirement and have been diligent in your retirement planning, you’ll quickly find that your concerns may grow. One of the most common questions we get from others is: how to leave money to the next generation.

Our clients have a lot to say about leaving money to the next generation, including:

  • I’ve given enough to the next generation.
  • My goal is to enjoy my retirement. The kids can have what’s leftover.

But what happens if you’ve done everything that you wanted to do? You’ve traveled, purchased a vacation home and you still have more money than you need. Chances are that you’ll pass away with money that is left for your heirs.

You can use smart retirement planning to make sure that anything left does go to the next generation.

Account Types That You Can Setup

A lot of accounts can be setup so that the remaining funds can be passed down responsibly, including:

  • IRAs
  • 401(k)s
  • Savings
  • Brokerage accounts
  • Life insurance
  • Annuities 

You may even have private property, such as a home or other belongings that you want to pass down to either the estate or a specific heir.

How We Would Handle These Accounts

When you enter into your retirement, you’re likely going to have multiple accounts that you’ve put money into, with the most common being an IRA and 401(k). Accounts always have their own set of issues:

Traditional IRAs/401(k)s 

These haven’t had taxes deducted from them yet, so you need a withdrawal plan in place. But these accounts also make it easy to add a beneficiary to them. You can often log into your account, such as your Charles Schwab account, and add the beneficiary online.

We’ve had a lot of clients that have forgotten about these accounts completely.

If you’re juggling multiple accounts, it’s easy to forget one that may have a few thousand dollars tucked away in it. There’s also the risk that you have already added a beneficiary that you may no longer want to leave money to. For example, your ex may have been the beneficiary, and if still listed as such, he or she will be the beneficiary even if that isn’t your wish.

We recommend that you secure your retirement by consolidating these accounts so that all of your money is in one place, and it’s much easier for you to manage these accounts. 

It’s important to note that 401(k) accounts can be consolidated down into an IRA if you’re no longer working or aged 59 ½ or older.

Savings Account

Savings accounts may not have high interest rates, but they’re a good option to have access to cash when you need it. These accounts lack the great returns you’ll see with other accounts, but you can easily setup what is known as a TOD, which is a transfer on death, or POD (payable on death).

When you set these options on your savings or options, the account is able to avoid probate, which your beneficiaries will thank you for.

You can also setup multiple beneficiaries because what happens if your main beneficiary dies before you do? 

Brokerage Accounts

Setting up a brokerage account properly makes it much easier to separate assets even when compared to a will. The brokerage account may have a beneficiary designation, POD or TOD, that you can designate.

You would name someone to your account.

When you die, all the person has to do is file a claim and provide proof of who they are. This is much easier for the beneficiary than having to deal with probate or the courts.

Life Insurance

A life insurance account is one of the best accounts that you can leave to an heir. Why? These accounts are paid tax-free, so beneficiaries never have to worry about advanced tax strategies to keep more money in the estate.

Roth IRA

Roth IRAs are tax-free, too. The beneficiary is required to take the money out within a ten-year period.

Assigning Primary, Contingent and Further Benefits

Retirement planning should include knowing who you want to assign as your beneficiaries. The standard beneficiary documentation will include:

  • Primary beneficiary, which would be your first choice of a beneficiary. This may be your wife, child or anyone you like.
  • Contingent beneficiary or beneficiaries, which are the person(s) that you’ll want to leave your accounts to if the primary beneficiary is deceased at the time the document is executed.

We recommend that if you have a second contingent, you’ll want to add them as well. A good example of this would be your grandchildren, which would be second contingents. You can have percentages assigned to all of the grandchildren, and this is actually tax advantageous in most cases.

An example of the tax advantages:

  • You want to leave money to one grandchild to pay for their schooling.
  • The child’s parent is wealthy.
  • You might think that leaving the account to your child and allowing them to pay for schooling is beneficial, but it is not.

If you list the grandchildren, the parent can use “disclaiming,” which would help them not go into another tax rate. The grandchild will have to take the money out, allowing them to, in most cases, pay far less taxes if the grandchildren are listed.

You need to make sure that the grandchild is listed as a second contingent so that the money can be passed to them rather than their parents through disclaiming.

This is a tactic that is primarily used for a 401(k) or an IRA.

Per Stirpes and Per Capita

When you fill out a beneficiary form, you’ll often have to choose by per stirpes and per capita. If you don’t choose one, it will normally default to per capita. What does this mean? This means that if you put down three beneficiaries, and one of your children dies, their portion would be dispersed to the two remaining children.

This means that the two beneficiaries would now receive 50% of the account.

If you want the money to go to that child’s grandchildren, you will put “per stirpes” next to your child’s name. This would disperse the funds to your child’s children evenly instead of the money going to only your children.

These are some of the best retirement planning methods that you can use to leave money to the next generation. Even if you don’t want to plan your retirement around the next generation, these tactics can help keep money in your estate.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Click here to schedule a free, complimentary call with us to discuss how you can leave money to the next generation.

Documents for Estate Planning and Retirement

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Documents Every Person Needs for Estate Planning

     Is Estate Planning on your priority list? A common misconception about estate planning is that it is only necessary if you have a big estate, many assets, or a complicated family situation. 

The reality is, estate planning ensures that decisions that would be difficult to make in the moment are made in advance to make things easier in the future. 

    By making these decisions in advance and setting them out in writing or in some other way, you can ensure that the wishes of you or a loved one are preserved and that there is a concrete plan for what happens if someone needs to make a decision on your behalf after you die.

     Estate planning also governs what comes next after you die, from what happens to your property to how your funeral will be handled. At its core, estate planning is giving yourself the peace of mind that the people you leave behind will know what to do and will be taken care of, a concept that is very comforting for many. This can be part of your Retirement Planning Checklist.

Estate Planning Documents

      A number of legal documents must be prepared as a part of the estate plan. It is important that these documents are prepared correctly to ensure that your intent is reflected, that nothing slips through the cracks, and of course, that your will and other related documents are validly executed so you do not die intestate. 

      When Preparing for Retirement with estate planning, there are generally three main documents that attorneys advise families to prepare: A will, a durable power of attorney, and a healthcare power of attorney with a living will component. These three documents allow others to legally act for you, which is a powerful, invaluable tool when it comes to managing your end-of-life affairs.

  • Will
  • A will is a legal document that tells readers your wishes after your death, from the distribution of your property to the management of your estate to your intentions for how your children will be raised, in some situations. 
  • While, in some states the law recognizes handwritten/holographic wills, working with a seasoned estate planner or attorney will ensure that your estate is distributed exactly as you would like it to be. 
  • Some wills benefit from the inclusion of specialized clauses that allow for others to act on behalf of the estate, which can come in handy if the language of a will is unclear or if the way a certain property is set to be distributed is impracticable. 
  • For example, wills can include a power of sale provision, which allows the executor of the estate to sell a given property and distribute the funds among the will’s beneficiaries. 
  • Healthcare Power of Attorney
  • A healthcare power of attorney is a legal document that allows an established person to make healthcare decisions on the behalf of another. 
  • This kind of estate planning document is particularly helpful in situations where you or a loved one are unable to make healthcare decisions on your own behalf, like if you are in a medically induced coma or experience a lack of capacity. 
  • A living will is often part of the healthcare power of attorney document. The living will expresses what a person wants, while the healthcare power of attorney states who is authorized to be a decisionmaker.
  • Durable Power of Attorney
  • Durable power of attorney is similar to the healthcare power of attorney but is much broader. Durable power of attorney allows a person to entrust another with virtually all legal decisions. 
  • Someone who has durable power of attorney can make healthcare and financial decisions and even sign legal documents on behalf of another in the event that the person who gave them the power is incapacited or otherwise cannot act on their own behalf. 
  • Power of attorney is a powerful tool to entrust someone with, and can be used to make changes and allow access to bank accounts, various assets, and even change the beneficiaries of a will or similar legal document.

      With the help of these three key estate planning documents, you can feel confident that your loved ones will be taken care of and that it will be as simple as possible for your wishes to be respected after you die.

      If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

      In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.