The other day, I was meeting with clients to review their retirement and investment portfolios. After running a retirement calculator, Bob and Mary finally agreed with me that they had "too much money." They were financially comfortable, would never be able to spend all of their money, and would be leaving estate assets to their heirs and charities. Our conversation immediately shifted to discussing how best to prepare and increase the size of their estate by reducing their income taxes today and estate taxes after they are both gone.
While talking about their family, Mary said, "I'm concerned about how to transfer wealth to our family. As you know, some of our grandchildren are quite young and if they follow the same path as their uncle, they will become penniless. Our oldest daughter is being groomed to take over our clinic, but we want to treat everyone equally. And we want to protect their inheritance from being spent frivolously."
I understood what Mary was saying and told both her and Bob, "As part of our service offering, we will help you and your family in developing a plan that will allow you to transfer your wealth in a manner that is consistent with your objectives in protecting your wealth. We will assist you with planning choices and issues involved with making gifts and creating trusts. But first we need to prepare your financial statements that include an Income Statement and Balance Sheet. This will give us the information required to calculate how much tax can be saved and put to better use."
"Sounds good to me", echoed Bob, "But isn't this something our accountant already does?"
"That's a good question Bob," I said. "Yes, your accountant prepares your corporate financial statements and personal tax returns to ensure that you don't overpay your income taxes. There may be some opportunities to reduce your taxes but they need to be planned out in advance. Also, your accountant may have used tax deferral tools that reduce the taxes you have to pay today only to create a big tax problem for your estate. These are some of the things we are looking for in your personal financial statements so that we can optimize your estate preparation."
"OK John, let's get that estate calculator running and look at how much money the tax man won't be getting from us."
Fortunately, Bob and Mary were only in their 60s, which provided them with more options to optimize their estate. If they waited another 20 to 30 years, it is highly likely that one of them would have passed away or have diminishing mental capacity. Either way, at this advanced stage of life, when personal health issues are one's main focus, discussions around simple wills and powers of attorney updating can be challenging at best.
After reviewing Bob and Mary's estate goals together with the estate calculator results, a plan of action was created which included having a properly drawn will and powers of attorney. Interestingly, like many successful business owners, neither Bob nor Mary had a will that addressed all of their assets. If either of them had died without a properly drawn will, the potential cost could be tremendous. Not good for business nor family harmony.
Choosing the people to be their powers of attorney and executors were difficult decisions for Bob and Mary and understandably so. The duty of care and responsibility for these roles are huge. Most people do not have the expertise or skill set required to perform the tasks required. This is why many financial institutions offer expensive corporate executor services especially to those who have not planned in advance. But, with proper guidance, Bob and Mary were able to plan out their estate and put in a good combination of people and alternatives to execute their wishes in a cost-effective manner.
After most of their estate plan was implemented, a family meeting was held to let everyone know what was done. Even though most of their family was involved at one time or another during the process, it was a good idea for everyone to hear about their wishes at the same time. A cottage weekend celebration was arranged to provide everyone with the estate plan details.
Just like hearing tests, retirement and estate calculators are useful tools used by professionals to assist making proper diagnoses. Just remember that you don't need to retire before preparing your estate, especially if you own a business or other non-liquid assets, such as real estate. Prepare early and you will have more options available to choose from.
In Bob and Mary's story, name's and situations are illustrative and are not intended as financial planning advice. Before implementing any tax, investment, life insurance, or estate planning solutions it is best to seek professional advice. Have an experienced team of professionals work together to uncover the weak links in your plans and implement the correct solutions. Don't just leave your plans to chance because without structuring your family's wealth and estate plans properly, often, bad outcomes occur.
Consult a licensed financial planning advisor to help navigate your options, and then you can enjoy life & have fun.
About the Author
John Niekraszewicz (Nick-ra-shev-itch) BMath, FCSI, CFP, FMA is the Certified Financial Planner specializing in Wealth & Estate Planning that is responsible for the AHIP Association Health & Dental Plan provided by JVK Life & Wealth Insurance Group. John is also the Principal of JVK Life & Wealth Advisory Group - provider of mutual funds and investments. John welcomes your questions and can be reached at 1-800-767-5933 or email@example.com
Privacy of personal information is an important principle to the Association of Hearing Instrument Practitioners of Ontario. We are committed to collecting, using and disclosing personal information responsibly and only to the extent necessary for the administration and services we provide. Learn more here.
The publisher and AHIP shall not be liable for any of the views expressed by the authors or advertisers published in Signal, nor shall these opinions necessarily reflect those of the publisher or AHIP.