Uncertainty is a part of life, whether it has to do with international politics, tax reform, the business climate, or your personal health. Not having all of the answers is unavoidable—but that doesn’t mean you can’t plan for it.
Stuart Green, Senior Wealth Planner at Wells Fargo Private Bank, understands why people may put off updating their wealth plans. “There are many reasons: no one can see 20 years into the future; the work can be complicated; the legal documents are confusing; and no one likes to think about dying.” However, he reminds that the benefits of reviewing and updating plans every few years can be worth it: “Plans should keep up with important life events, such as retirement, sale of a business, birth of a child or grandchild, or divorce, as well as financial events, such as tax code changes. Otherwise, your plan is not positioning you to be on track with your financial goals.”
To help you deal with future uncertainty, Green recommends having a discovery conversation with your financial team to map out your situation and build flexibility into your plan. Read on for tips on how to make that happen.
Don’t be afraid to get help
Getting started can be the hardest part. “Keep in mind that you do not have to tackle planning by yourself,” says Green. “There are many advisors out there who are specifically trained to help with organizing your wishes into specific action items. Our goal is to help you figure out where you stand against where you want to be and to help you evaluate the risks and rewards of a given situation.”
Share all your information
When working with clients, Green and his team begin by reviewing financial records: tax returns, investment portfolios, insurance policies, trusts, and other estate-related documents, and more. He notes that this comprehensive review nearly always turns up something that could be done to strengthen clients’ strategic plans, even among those who are diligent planners.
Not having all of the answers is unavoidable—but that doesn’t mean you can’t plan for it.
The issue for clients: Pulling all that information together isn’t necessarily hard, but it takes time. You also need to be sure that you consider all of your non-financial assets as part of this review. “Well into our second meeting,” Green shares, “one client mentioned that he had accumulated a museum-quality antique collection over many years. Not considering the collection as part of his ‘financial’ picture, he wasn’t aware that this created a potential landmine in the middle of his estate plan that could force his family to liquidate the collection at bargain-sale prices to cover the estate tax liability.”
Consider tax changes when reviewing your plan
The Tax Cuts and Jobs Act that passed at the end of 2017 is just one example of why flexibility and review are critical parts of any plan, says Green. “Pretty much every estate plan should be reviewed as a result of this new tax law, especially estates below $22 million.”
According to Green, “I recently met with a client who had last revised his estate plan back in 2008. The plan created a trust for his children, automatically funded with an amount equal to the entire estate tax exemption, and a trust for his wife. Back in 2008, with roughly $10 million in his individual name, this would have resulted in $2 million going into the trust for his children the remaining $8 million going into the trust for his wife. However, with the 2018 estate tax exemption increased to $11.18 million per individual, the trust for the children would receive the full $10 million while the spouse would get nothing. Needless to say, this was not their intention, and they were shocked when I pointed this out to them.”
Focus on insurance coverage and health care costs
Well drafted documents prepared by an attorney who specializes in estate planning can help avoid these types of issues by including flexible provisions to better address changes in tax law and your personal net worth. As you plan, you should also consider short- and long-term needs for your health and property.
Otherwise comprehensive plans often have gaps in insurance and health care, so Green recommends checking to see that clients have sufficient property and casualty insurance. Affluent and high-net-worth clients may need umbrella policies that provide them extra liability protection beyond what’s available in their home or auto insurance policies.
One in four of today’s 20-year-olds will become disabled at some point before they retire, according to the Council for Disability Awareness. People who are working, especially those with net assets under $5 million, may want to consider disability insurance to help protect their income in case illness, injury, or something else prevents them from working.
The Tax Cuts and Jobs Act of 2017 is just one example of why flexibility and review are critical parts of any plan.
Involve your family in your conversations
A key part of the planning process involves communicating the plan to others who may be affected by it. By providing more financial clarity early on, everybody involved knows both your wishes and their responsibilities. This candor can pave the way for less family uncertainty and discord in the future. Not everyone may be comfortable with sharing every detail of the estate plan, but communicating information can be done effectively without disclosing exactly how much you plan to leave to your children and other beneficiaries.
“One thing I have learned is that setting expectations with your family is critical, especially when your plan treats family members differently,” says Green. Many parents are concerned about how their children will get along after they are gone, so family dynamics can be important to address as you plan.
“As part of our discovery process, one couple shared that their children have very different personalities and skills, and they want their grandchildren to continue to be close. Given their concerns and goals, we first established a strategy for achieving their goals for wealth transfer. Now, we are working together to determine how best to present their plan to the children, including determining the level of detail to share and conveying what their parents are doing for them rather than inviting questions about why their parents didn’t do what they expected.”
Continually update your plan
Planning is an ongoing process, Green says. He suggests people review their financial strategy with a professional advisor on a regular basis, even if it is just to check-in and make sure there haven’t been major changes that need to be incorporated. After all, changes in market conditions, tax laws, and your life stage can all trigger changes to your wealth plan.