Estate planning from a financial planner’s perspective


By Michelle Muhammed, CFP

Ben Franklin said, “In this world nothing is certain except death and taxes.” It’s a phrase that is often repeated for a reason. And, while death is eventually inevitable, with proper estate and tax planning strategies, it is possible to reduce or eliminate the estate taxes and probate fees associated with your estate plan.

Michelle Muhammad

In my 21 years as a financial planner, I’ve been surprised how many people are often confused about estate planning, even the most financially savvy.

Below, I’ve compiled some of the most common questions and concerns I’ve encountered over the years. I hope some of these lessons will help you protect yourself and your legacy.

I’m not rich, I don’t need an estate plan

I’ve heard this statement from people with $3,000, people worth $3 million, and everyone in between. All is relative. Some people compare themselves to their friends or family who have a lot more than they do.

There are many challenges with this statement. For example, as a retiree, if you spend less than you have from fixed income sources (such as pensions and Social Security), your retirement accounts and other investments have room to grow and improve. accumulate over time. So even if you don’t consider yourself “wealthy,” the wealth you accumulate in these accounts may be subject to inheritance tax if you haven’t planned properly. If you own a business, it can grow beyond your expectations and you could end up being worth much more than you expected.

If you have a minimal amount of liquid assets, but own durable goods such as real estate worth hundreds of thousands of dollars, your estate may incur unnecessary probate fees even if you do not consider yourself not as rich.

Surprising fact: there are a number of famous and “wealthy” people who have died without a will. Prince, Pablo Picasso, Jimi Hendrix, Kurt Cobain, Bob Marley, Amy Winehouse and James Brown, to name a few. Some of them even had surprisingly few assets five to 10 years before their death.

It’s easy to wonder why they didn’t have a will when they had so much wealth to protect. But it’s human nature to put off the unpleasant, especially in the face of your own mortality, which is a necessary part of your financial preparation. It’s not a fun task, even in the easiest of times, so it’s only exacerbated when you have an illness or some other difficult time in your life. That’s why it’s so important to approach estate planning when you’re healthy and thinking your best.

Finally, it is not just a question of money. There are other important decisions at stake, such as those about your health care if you are unable to make your own decisions. Who do you want to be in charge? It is wise to have a power of attorney and power of attorney in place for health care long before it becomes an issue. Talk to your financial planner about the options. There are institutions that can act as trustees if you really don’t have anyone you can trust. If you don’t, a court will appoint a guardian or conservator to make decisions for you, which is usually not what most people really want.

I have a will from 20 years ago. Why should I spend money to update it?

Has anything changed in your life in the past five, 10, 15, 20 or more years? For a lot of people, I’d bet the answer is “yes”. The people you were close to a few years ago may have moved on or are no longer as important to you. It’s wise to regularly review your estate plan every three to five years, even if you think little has changed. Many of my clients are surprised when they see what they wrote years ago and recognize that it no longer applies.

Why do I need an estate plan? When I die, the money will go to my spouse or my children.

I know of a situation where someone went to the hospital shortly after having a draft estate plan drawn up. This person was a lawyer and planned to review the draft documents when he returned from the hospital. Unfortunately, she never came home.

Because they lived in Texas, her spouse paid several thousand dollars in probate fees. Yes, the money can go to your relatives, but they may receive less than expected. Do not waste time. Do your estate planning now, while you’re healthy.

Additionally, even if your primary asset is your 401(k) where you have a named beneficiary, there are many other considerations, such as property and personal effects, that you need to factor into your will and estate planning.

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I put my children, who are minors, as beneficiaries of my estate plan because I want them to be taken care of if I die before they are adults.

Although this is well intentioned, it can have adverse consequences. Most likely, a court-appointed conservator will manage and disburse the money for the children. This can be costly and erode the value of funds. It may also not be the person or entity you would have chosen to make financial decisions for your children.

Estate planning vehicles like trusts can be a more cost-effective way to ensure the children receive the money for the purposes you intended (health, education, maintenance, and possibly for purchases like a house).

I am single without children. Why should I worry about what will happen to the money after I die?

I find that many of my clients, whether or not they have children, have lifelong friends, a place of worship, a charity or a cause they are passionate about. If so, it makes sense to do some estate planning to make sure your money goes where you want it to. Your money can have a positive impact even when you’re away.

I can get a will on the internet and that’s fine.

It can be a wise penny and a foolish pound. While these “do it yourself” wills seem easy, the reality is that many people have no idea what they want or need. Once you get into the complexities of family dynamics and the specifics of your state and situation, do-it-yourself estate planning can be more challenging than working with a team of professionals. I recommend hiring an estate planning lawyer who specializes in this topic.

So what should your next steps be to make sure your bases are covered? I recommend the following seven steps to help you protect your legacy:

  1. Speak to a financial advisor and your estate planning lawyer
  2. Explore the differences between wills, trusts and beneficiary designations, and the pros and cons of each to help protect your finances
  3. At a minimum, create a will and appoint a guardian for your minor children (if applicable)
  4. Create an advance medical directive and appoint a medical and financial power of attorney
  5. Talk to your family and heirs about your estate plan
  6. Regularly review your estate plan every three to five years and after major life events
  7. For some wealthy families, a market downturn could be an opportunity to consider certain estate planning opportunities, such as:
  • Make large gifts (either directly to family members or in irrevocable trusts) with assets that have lost value but may rebound in the future
  • Donations with depressed values ​​may reduce the tax implications of making such donations.

About the Author: Michelle Muhammed

Michelle Muhammed, CFP®, is Director of Financial Planning at Edelman Financial Engines. Michelle’s specialties include developing comprehensive financial and retirement planning strategies that enable clients to build, grow, protect and preserve their wealth. Michelle is a financial planner with over 20 years of experience who has had the privilege of helping her clients and their families achieve their financial, retirement and investment goals. Outside of work, Michelle gives back by helping women and underrepresented groups find their way into the financial services industry.

Neither Financial Engines Advisors LLC nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular situation.

All advisory services provided by Financial Engines Advisors LLC, a federally registered investment adviser. Results are not guaranteed. See for patent information.

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