In my Fall 2018 column in Signal, “Is Everything Really OK?” I shared a story with you about Mary and her untimely passing away with an outdated Will. It has taken nearly 1 year to settle her estate, even though her estate was simple and her children were all named equal beneficiaries on her registered investment accounts. Although the delay in settling her estate was an unnecessary time-consuming burden, Mary ensured that each of her children would receive some tax-free cash right away that did not depend on her Will or estate being in good order. These cash proceeds were not subject to probate taxes and bypassed her Will. They went directly to her rightful heirs – her children.
When Mary's husband passed away, she found out the hard way that her “friendly bank” was actually not so friendly. The bank cancelled the home equity line of credit (HELOC) that she and her husband had always used to manage their expenses. The banker said that because of her limited income, she no longer qualified for a HELOC on her own. But the bank did offer to move all of her debt to another product at a much higher interest rate. Great job guys.
What the bank didn't realize was that Mary's husband had a buy/sell agreement with his business partner that was funded with life insurance. The partner got the business and Mary got the cash that she could use however she liked.
Mary used some of her husband's estate proceeds to pay off her debt, cut ties with the bank, and purchase a Cash Flow Now, Cash Later package. It was important for her to have a guaranteed flow of cash now to supplement her income so she could semi-retire as well as be able to provide her children with a cash legacy when she was no longer around.
Knowing that she needed her money to grow, provide an income stream and secure a legacy for her family, led Mary to implement a combination of financial products with "safety net" features. Owning a rental property and dealing with problem tenants and their issues was not an option. So, welcome mutual funds, life insurance and guaranteed annuities.
With the proper mix of investment products, Mary was able to stomach the up and down roller coaster ride of the stock market with the portion of her money allocated for long-term growth. If she were still alive, I know that December of 2018, which was the worst performing month of December on the stock markets since the 1931 Great Depression, would not have fazed her. And, she would have been correct to “ride the market” because January 2019 posted the best performance in more than 30 years. Actually, I know Mary would have been buying in December at the bargain basement prices.
Strategically shifting her assets into a Cash Flow Now, Cash Later package provided Mary with the cash flow she needed without having to worry about the day-to-day fluctuations in the stock market. She was also able to sleep well at night knowing that money was available in the “Cash Later” box if either her financial needs or health deteriorated and she needed emergency cash.
Now that proper legal documents are in order, Mary's estate can be settled. Investments that were frozen can now be sold. But her heirs are not too concerned with the volatility of the stock market and Mary's investments that were tied to this volatility. They received the “Cash Later” since Mary did not use any of it while she was alive. This tax-free cash allowed her children to be patient and let the value of Mary's assets fluctuate. These assets were not needed to pay the taxman or creditors, so there was no “Fire Sale” of Mary's estate. Just as she planned.
Life insurance is the heart of financial planning. It insures a vision and intension. Mary's was always to provide for her children and grandchildren. But if you have never purchased life insurance and are more focused on price, then the policy you buy may not be flexible enough to work both now and under unforeseen future life events.
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 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, specializing in Wealth & Estate Planning. John welcomes your questions and can be reached at 1-800-767-5933 or firstname.lastname@example.org
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