Roth Conversions are a Big Deal

It is no secret 2020 took the world by surprise and will be the year we all remember. It also seems investors have learned there are many things we certainly cannot control. However, when it comes to financial planning, and in particular tax and retirement planning, there are significant opportunities we all should consider now since they may not be available for long. If you haven't considered Roth conversions before, 2020 may be the year.

Why 2020? It's because we have historically low tax rates and some have suggested they could rise in the near term. Taxes could also rise due to the increasing budget deficit, increased stimulus spending and highest deficit since World War II. For those whose employment has been impacted by the Covid-19 pandemic, this may present planning opportunities. And the obvious may be that higher tax rates put tax-deferred retirement savings at risk; so some of us may want to pay off the "debt" at the lowest possible tax rates.

KEY CONSIDERATIONS:

Assess overall market conditions and factors to determine if a Roth IRA conversion makes sense.

Determine which group of assets and/or asset class to convert.

Work with Advisor or CPA to determine the amount to convert.

Determine how you will pay the income tax on the conversion.

Compare other viable long-term tax planning strategies.

NEXT STEPS

Evaluate your need for a 2020 tax conversion. One option is to perform a series of smaller annual conversions over time. This fills up the lower tax brackets each year and manages the tax liability. Also, be sure funds are available to pay the taxes.

A second option is to convert larger amounts in 2020. By now, you should have a reliable estimate of 2020 income. If the pandemic caused business losses, a job status change from retirement or unemployment, or a large change to income, this year may allow for a larger conversion.

This popular planning strategy can allow you to pay lower tax rates today and allow the funds in your Roth IRA to grow tax-free. It can also allow for the potential for 100% tax-free withdrawal from your Roth in the future.

While a Roth IRA conversion can remove some risk of uncertainty to your planning process, keep in mind your Roth is not subject to required minimum distributions (RMDs). Smaller RMDs can reduce tax liability and increase sustainable lifetime income.

The benefits can be significant, but this strategy is not for everyone.

As always we are here to help.

Best,

CAM Investor Solutions

Source: AICPA; M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. This blog has been provided solely for informational purposes and does not represent investment advice or provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Any stated performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Charts and graphs provided herein are for illustrative purposes only. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

Your Future Self in 2020

Take a minute to think about your birthday this coming year. Who will be there with you? What will you be doing? What will you be eating, and maybe more importantly, what will you be drinking?

Now, think ahead and do the same for your birthday in 20 years’ time. What does the scene look like? Who is there? What are you eating? What are you drinking?

Emily Pronin, an Associate Professor of Psychology and Public Affairs at Princeton University, posed the first question to one group of people and the second question to a different group of people. The study found that there was a shift in perspective between the two groups. The first group described this year’s birthday using the first-person perspective (e.g. “I will be hanging out with my three best friends at a bar.”). The second group however, described the distant future birthday using the third-person perspective. They were more likely to depict their future selves as other people in the scene (e.g., “I see an older guy with some friends around him.”).

Empathizing with Your Future Self

So, what’s the meaning of this? When we are thinking about our futures, when we are doing this while goal setting, we are looking at ourselves as a different person. Often our shortcomings may come from imagining ourselves as someone else. Why would we keep less now just to give that money to a stranger I don’t even know? Realizing that we may be seeing our future selves as someone else may help us understand why we are not accomplishing our financial goals.

What if we can shift our goal setting to take advantage of that perspective? The common messaging in the financial industry is that we should make decisions that are in our own best “self-interest”. Instead we can shift our message to acknowledge that our retirement-aged selves, that are seen as different people, may be worth caring for. We often encourage people to take care of others, so why shouldn’t we use some of the same tools for our future selves?

Helping Your Long-Term Financial Decision-Making

When setting your goals and beginning to make decisions to accomplish them, think about your future self. First, determine why money is important to you, then try to appeal to the sense of responsibility that you may feel toward our older selves. We can use this mindset to motivate long-term decision-making and accomplish our goals both for our self-interest and for those strangers we call our future selves. So, if a shift in your mindset is needed to help figure out why money is important to you, here are some questions to help you do this:

What brings you joy? List 10 to 15 items, no matter how silly and frivolous.

You have plenty of money. How will you live the rest of your life?

You have just 24 hours to live. What regrets do you have?

Your fairy godmother comes to you and says you can have whatever your deepest wishes are. Write down every fantasy you have had over the years. Why do you want this?

The doctor tells you that you have just 10 years left to live. You will not be in pain, but you will die suddenly. What changes will you make?

Take a minute to think about your birthday in 5, 10, or 20 years. Who will be there with you? What will you be doing? What will you be eating, and maybe more importantly, what will you be drinking?

These questions may seem silly to some, but when you begin to understand why many of these things are important to you, you might begin to clearly see the best possible version of your future self; then you can set goals that you are willing to accomplish. Take note of your feelings, your wishes, and your perspectives. Write down your goals, financial and otherwise, and get started today. You do not need to wait until January to begin accomplishing your goals.

December is the new January so get started now.

As always, we appreciate our relationship with you, and we are here to help.

Cheers to 2020!

Marc

 

Source: Hal Hershfield, Associate Professor of Marketing and Behavioral Decision Making at Anderson School of Management at the University of California; Avantis Investors; Anderson School of Management at the University of California, Los Angeles; Amos Tversky and Daniel Kahneman, “The framing of decisions and the psychology of choice,” Science, 1981; M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. This blog has been provided solely for informational purposes and does not represent investment advice or provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Any stated performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Charts and graphs provided herein are for illustrative purposes only. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

End of Year Personal Financial Planning

The end of the year presents a unique opportunity to look at your overall situation and take advantage of some personal financial planning. With factors like tax reform, life changes or just working towards your goals, now is an especially important time to review things. Taking what we now know about the new tax law and weaving together all of the other areas of your personal finances is one of the key ways we provide value to our clients as their trusted adviser. Below are some things we’d like to help you think through before the year ends.

Income Tax Planning– Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills. It is also good to review your current year tax projection based on your income and deductions year to date and how that may be different from before.

Estate Planning– Examine a flowchart of your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you. Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents and any trust agreements. You should also confirm that the beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.

Investment Strategy– Recently, we’ve seen increased market volatility and it may feel uncomfortable. Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative. Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio, and if you are retired and living off your portfolio, managing sequence of returns risk is vital to your success. In addition, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.

Charitable Giving– There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving.

Retirement Planning– Think about your future when working becomes optional. Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you.

Cash Flow Planning– Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals. If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. Do you have a well-defined Withdrawal Policy Statement (WPS) in place? If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions. If you are over age 70.5 make sure you are taking your required minimum distributions because the penalties are significant if you don’t.

Risk Management– It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes and wildfires serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life, disability and long-term care insurance.

Education Funding– Funding education costs for children or grandchildren is important to many people. While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key. With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.

Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical. Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.

The decisions you make each year with your personal finances will have a lasting impact.  We hope these reminders have begun to generate some insight to areas of your personal financial planning that need attention. We are honored to those of you where we serve as your trusted adviser and partner. Please contact us to discuss any year-end planning needs.

As always, we appreciate our relationship with you and we are here to help.

Best,
Marc

Schedule a Personal Financial Planning Review Today

 

Source:  Bloomberg; AICPA. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

Lack of Estate Planning Can Tear Families Apart

Having personally lived through a family experience in October 2006 following the passing of my grandfather, I continue to share my story with clients, friends, and many others. While there are no guarantees that our decisions are the right ones when it comes to estate planning, we can have a lot of control related to what our family and beneficiaries will be faced with in the future. Often, most of these difficult decisions and circumstances can be removed or avoided with the right level of planning.

In the case of my own family's experience, my grandfather had all the best intentions as he established a simple will a long with some other basic directives for his eight children. Unbeknown to him, given Arizona estate law, this left the door open to contest for his real estate and personal assets after his passing which lasted many years (the Global Financial Crisis in 2008 only made it worse). Half a decade later, the legal process had drained most all of the estate's assets and the family ranch had lost well over half its value during the housing crisis which made any attempt at a sale near impossible. But the hardest part by far was seeing a once large and very close family, now divided.

My grandfather had all the right intentions, but had he known, I am absolutely certain he would have put in place a few more provisions to prevent the possibility of this outcome.

I encourage you to take a few minutes to review your own family's estate planning, as I promise you it will be time well spent. This is long, but here are some guidelines for keeping the peace to avoid fights that can tear families apart.

Key Takeaways

As more and more boomers reach retirement age, trillions of dollars in family wealth are going to be transferred from older to younger generations. But many heirs (and their advisors) are not prepared.

A significant number of families lose a chunk of their inherited wealth due to estate battles and misunderstandings.

Think at least as much about the nonfinancial aspects of dividing their property among children and other heirs as they do about minimizing taxes.

According to global consulting firm Accenture, an estimated $30 trillion of wealth is going to be passed from older generations to younger generations over the next three to four decades. That will have profound impact on the families involved. Everyone has a different value of a dollar. As a result, differing values about investing, saving and preserving wealth are bound to surface, not to mention differing views on which philanthropic causes should be supported.

Research continues to show that estate disputes are on the rise. The fights aren’t always about the money, either. You can have a multimillion‐dollar estate and the children can be arguing over watches, golf clubs and inexpensive jewelry that have more sentimental value than appraised value.

Sadly, you’ll see heirs spending more money than they stand to inherit on legal fees to battle siblings or other family members (we lived this). That seismic shift in assets will create ample opportunity for estate fights among the wealthy as well as among the merely affluent.

However, before allowing a fight to begin that ends up tearing your family apart, consider using a mediator to work out the differences. Once the battle begins with both sides hiring lawyers, it’s difficult to have either side step back and give up anything as the “line is drawn in the sand” has been drawn.

Steps you can take to preempt family estate feuds

Battles over estates can inflame family relationships, but there are ways to lessen the chances that your heirs will turn against each other. That includes consulting with your heirs or getting your property appraised and specifically designating beneficiaries for those items. Also, make sure you choose your executor wisely.

Here are some other pointers for families to consider when putting together an estate plan. 

Estate planners and other experts advise clients to think at least as much about the nonfinancial aspects of dividing their property among children and other heirs as they do about minimizing taxes. As the old saying goes, fair doesn’t always mean equal, and it’s almost impossible to divide things such as property and possessions equally.

Decide early on what “fair” means within the context of your family. A parent might decide to leave a larger inheritance to an adult child who struggles financially and less money to a child who has struck it rich on his or her own. A sick or disabled child might need to inherit cash for long‐term care but wouldn’t get much use out of a family vacation home.

Conversely, parents might be reluctant to leave money outright to a troubled or estranged child or believe that while alive they had given a child enough money to justify leaving nothing else to him or her in a will.  

Preventing fights

Communicating your wishes about who gets your personal property and assets after you die and making them explicit in your will are usually the best ways to prevent a family feud.

Make a list of your assets, including bank and brokerage accounts, retirement savings, and life insurance—and note whom you have named as the beneficiaries of those assets. Then add homes and big‐ticket property such as artwork, furniture, jewelry or expensive clothing and family heirlooms, and consider whom you want to inherit those items.

It’s worth it to ask family members for their input. Be careful what you ask, as you might be opening a Pandora’s box.

Getting family input also gives you the chance to explain your reasons for arranging lopsided inheritances while you are still alive and can benefit from whatever parental authority you still have. As another example, you may have helped one son but not the other with the down payment on a house, and that’s how you explain to the first son why his inheritance will be smaller. Or your nephew might have been your primary caretaker for the last year of your life, quitting his job to look after you full time, which helps you explain to your other heirs why he is getting proportionately more than they are.

Also be consistent. If one in‐law is allowed into the decision‐making circle, all of them should be; otherwise resentment between siblings can brew. Listening to only the most vocal child and ignoring the rest or being unclear about how and why a certain decision was made regarding money or property also can breed mistrust. Some treat in‐laws as outlaws, and don’t include them. They may just see things differently.

Alternative approaches

Rather than itemizing who gets what in your will, a simple way of dividing things up equally is to get your property and possessions appraised and then have the children or grandchildren take turns choosing what they want while you are still alive. You can also set things up to allow family members to bid on a coveted property after your death.

Life insurance proceeds can be used to compensate one heir for getting less property than another. For instance, if there’s a closely held business, one child in the business can receive stock in the business and the other children can receive insurance proceeds that equal the one child’s stock.

Choosing a family referee

Often the oldest child gets named executor by default, or two adult children get named co‐executors. Both situations can be a mistake if there are still sibling rivalries or resentments. It’s best to appoint a family member or trusted outsider who isn’t a beneficiary of the estate. That person can get paid by the estate for his or her time in organizing papers and distributing the assets and can be a coolheaded referee for any inheritance disputes. Otherwise, if you give executors discretion, you run the risk that your wishes won’t be honored. If, however, you have only one or two children and they agree it won’t be a problem, then you can take a chance. You’re not going to be there when they’re dealing with your wishes.

Making your intentions known directly to your would‐be heirs can also clear the air ahead of time so they won’t erupt into conflict after you’re gone—particularly in the tricky situation where one child isn’t going to get much, if any, money.

Some clients put a clause in their will that says an heir who tries to contest it will get nothing. So‐called no‐contest phrases work well, however, only when the heir in question has enough reasons not to fight it. In some states such as Massachusetts, no‐contest clauses are effective, but in others states they’re not enforceable.

You should also detail in the will why someone is getting substantially less than the others—or nothing at all—with a phrase such as “I realize I didn’t leave [name of child] anything, and that’s because of XYZ.” A child can be left out of a will as long as the decision is intentional and made by someone of sound mind without being influenced by someone else.

Conclusion

From my experience I’ve learned that there’s no such thing as a “perfect” estate plan, but if you and your advisors are very clear about wishes, values and motivations, you can take the proper steps to ensure that those wishes are carried out with minimal family strife.

We appreciate our relationship with you and as always we are here to help

Best,
Marc

Schedule a Second Opinion Meeting

 

Source: Article contributions courtesy of Capital Directions and CEG Worldwide, LLC, 2017 www.cegworldwide.com | info@cegworldwide.com. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance.

A Critical Need for Women: Financial and Estate Planning

Some healthy reminders

Key Takeaways

Women over 65 are more than twice as likely as men of the same age to be unmarried.

Divorce can be as emotionally devastating as the death of a partner and is often a source of financial hardship—the rate of divorce in middle age is rising.

Although state laws largely determine property settlements, women should obtain advice from professionals who fully understand all available options for securing their support, including Social Security and pension benefit entitlements.

When it comes to financial and estate planning, women face a unique set of challenges. Statistically, a married woman is likely to outlive her husband. According to the U.S. Census Bureau, the average age of an American widow is 59 years old and women turning 65 today can expect to live on average to age 86. That’s a long time to be on one’s own. Other women who never married or who are divorced are facing retirement as single individuals. In fact, women who are age 65 or older are more than twice as likely as men of the same age to be unmarried.

Whether married, widowed, divorced or single, women have something in common—the need to develop their own financial savvy in order to maintain their independence as they age. That’s where you and your financial advisor (regardless of gender) can be a big help.

Imagine the overwhelming anxiety that accompanies managing household finances for the first time after a spouse has passed away or after a divorce. A woman who is familiar with her finances will find it much easier to assume additional financial responsibilities should the need arise.

As a start, women should know the location of pertinent financial paperwork, including insurance policies, real estate deeds, mortgages, stock certificates, bonds, and brokerage account and annuity statements. Women should also take the steps necessary to understand the aforementioned documents even if their spouses did not understand them fully.

While the situation is improving, single women as well as women in dual-income households often have lower lifetime earnings than the men in their lives. This earnings gap adversely affects the amount of Social Security and pension benefits a woman often receives upon retirement. Retirement benefits are often further reduced by the time women typically take off throughout their childbearing and child-rearing years.

Closing income gap challenges

In addition to having fewer resources due to pay inequity or time out of the workforce, the average widow’s compensation from Social Security in 2016 was only $1,285 per month. Therefore, women should take full advantage of any company-sponsored retirement plans whenever available, and if they are not available, IRAs and other options must be considered and implemented. The goal is to start this planning as early in life as possible, but even older women can make contributions that will pay off when they need income later in life.

Similarly, divorce can be as emotionally trying as the death of a partner and is often a source of financial hardship as well. The number of divorces in middle age has risen in recent years. Many older divorced women had long marriages before separating from their spouses. Many are displaced homemakers who have not participated in the workforce or who have not continued their education since before having children. During a divorce, women must protect their financial security. Although state laws largely determine property settlements, women should obtain advice from professionals who fully understand all the available options for securing their support, including Social Security and pension benefit entitlements.

Estate plan starters

Another critical step to maintaining independence is establishing or updating an estate plan. The act of drafting a will forces a woman to review her financial situation, which enhances her financial savvy. Further, establishing a Durable Power of Attorney and Health Care Proxy allows you to name someone who will make your financial and medical decisions if you are unable to make them for yourself. Creating an estate plan harnesses the power that you now have to control who will manage your affairs and benefit from your estate.

Women who balk at making financial decisions will encounter even more difficulty if they must face life alone. Without proper planning, divorce or the death of a spouse can financially jolt a woman. The ticket to independence is proper planning and education. Women must understand their finances and have a strategy in place that will maintain their style of living—even if they are unmarried. Retirement and estate planning are critical steps to be taken to ensuring this independence.

We are here to help.

Best,
Marc

Schedule a Second Opinion Meeting

Source: Article contributions courtesy of Capital Directions and CEG Worldwide, LLC, 2017 www.cegworldwide.com | info@cegworldwide.com. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance.

Advanced Estate Planning: So, Mom Is Dating Again?

During most of my career in financial services, the first few months of each year is filled with heavy conversation surrounding investments, the stock market, and getting taxes done. Naturally, some lead to how that impacts one's retirement and ability to sustain lifetime income. However, thus far this year I've also been receiving many estate planning questions which allows me greater opportunities to help my clients.

In this blog we will discuss a more difficult, yet important subject, on how your advisor can help alleviate the concerns of adult children.

Key Takeaways:

Whose money is it anyway? Ethically, can the children reasonably expect to get it all?

Expectations management: If adult children serve as a fiduciary for an elderly parent, can they really be objective?

Everyone has the right to be foolish. How do we balance independence and safety?

Many adult children want their parents to be happy and safe, but it is usually a crisis that brings up the conversation.

As a professional fiduciary, I often remind my clients that they are the first beneficiary of their trust. Estate planning is much like an airplane oxygen mask; you must put on yours before you assist anyone else, even your children. What if your elderly mother (the family matriarch) wants to enjoy her last days in love and companionship, but her children want to prevent any loss of their inheritance?

Here is a real-life example from an industry colleague of ours:

Daughter calls the mother’s financial advisor for the first time. The daughter’s mother has been a client for over 15 years. Daughter demands to know how much money Mom has with the Financial Advisor. Without permission from his client, of course, the advisor cannot share any information with the daughter.

“What prompted you to call?” the advisor asked.

Daughter said, “My mother is behaving strangely. She smiles all the time, is mysterious about her schedule and wouldn’t let me come in the last time I dropped by to see her. I think she’s seeing someone but won’t admit it. What if the man she is seeing takes advantage of her? What if he takes all her money?”

The advisor said, “I would be happy to call your mother to find out how she is doing.” He didn’t offer any more information, and finally the daughter thanked him and hung up.

When my financial advisor friend shared this story above, he said his client, age 75, told him she was fine. She was dating a friend from her college days and wanted to figure out her feelings for him before introducing him to her daughter. The client denied the advisor permission to share information about her romantic life. The advisor suggested that if the client developed the kind of feelings that might lead to marriage, he had some ideas to keep the peace within the family. The client thanked the advisor for alerting her to her daughter’s phone call.

How would you and your family react to this situation?

When first meeting with new clients, I have learned to let the clients drive the conversation, as the most important things they want to discuss are often their needs, their personal independence and their families. I listen for the clues about how elders see themselves and their aging process.

For adult children, there is often no perceived line between themselves and their parents’ money. The family discussions are often limited to daily logistics or other less sensitive topics. Parents are expected to help their kids financially, and yet few families ever discuss the details about what each family member has in the bank, or what their respective tax returns look like. Many adult children want their parents to be happy and safe, but it is usually a crisis that brings up the conversation.

Prenuptial agreements have long been a tool for keeping control over a client’s (and the family’s) wealth. But many clients feel prenups are unromantic things and adversarial. In this article, I will focus on other estate planning solutions, as elders in love may be more willing to address these issues as part of planning with the end in mind. Each elder may have children of his or her own and each may even have a separate trust in place.

Expectations management

When Mom starts dating again, she becomes vulnerable to flatterers and predators. The kids may or may not be supportive of newfound love, and a skilled financial advisor can offer an objective discussion. The best elder dating circumstances I’ve experienced have been when each elder has his or her own funds and doesn’t ask for “help” from the new “friend.” Make sure a family member or your parent’s financial advisor is kept abreast of any travel plans, any changes in residence, or any requests for financial help or financial information. A number of financial advisors I know offer to be the “bad guy” on behalf of elder clients so that their client can always tell a date, “I don’t know, I’ll have to ask my financial advisor.” Your parent and their primary financial advisor can set a threshold dollar amount (for example, anything over $500) that requires your parent to contact you or the advisor if asked for a loan or gift. We have seen lots of scams that would have been prevented if only the senior had reached out to a trusted third party before writing the check or sending the wire.

Balancing independence and safety

If an elder still has capacity, he or she has every right to spend their money as they wish. There is no law against being foolish. Even the most successful, intelligent and accomplished elders can get taken in, especially when romantic feelings are involved. Here are a few tips that you and your parent’s advisor can use for opening a dialogue with an elderly single parent:

Even very smart people can get scammed; there is no defense against deceit, so tell your parent there is no shame in asking more questions or “sleeping on it” before making big life decisions.

If the deal (or the dating) is a secret, something might be “wrong” with it. Please warn parents about Internet dating. If the new romantic interest asks for money, it may be a scam and not love, or sometimes a combination of the two.

If the new couple is serious about being together, the financial advisor can offer to hold a “yours, mine and ours” discussion. This discussion might include having your client and the new love reveal financials to each other, asking whose home they will live in, who will pay the household bills, and how death or incapacity of one or the other would play out for them, etc.

There is an opportunity to talk about estate planning prior to marriage. Couples who are 50-plus are often receptive to the discussion of logistics, having had some life experience, but may need an interested third party to get the details out in the open.

The estate planning process

Having an estate plan in place and knowing when to have someone else responsible for managing the trust/estate are powerful tools in the prevention of financial elder abuse. I have seen the value of the proactive relationship between financial advisors and clients. The advisors who guide the estate planning process and then support the ongoing maintenance of the plan have the best opportunities to keep the conversation going with at-risk clients—the ones who are generous with gifts to friends and family, they describe themselves as frugal, and they are interested in every new investment opportunity that comes along. The estate planning process can take several months to complete initially. You and your parents’ advisor should remind your parent that this life event (meeting someone new, getting married or moving, for instance) is a great time to revisit the estate plan to see whether it will still meet his or her needs, the relationship will grow.

Conclusion

We all want to have a choice about how we live our lives, and with whom we share our legacy. We often don’t realize we have become vulnerable until it is too late. A skilled advisor genuinely cares about their clients and is always willing to risk talking openly about their client’s life choices.

As always, we are here to help.

Best,

Marc

 

Article contributions courtesy of CEG Worldwide, LLC, 2017 www.cegworldwide.com | info@cegworldwide.com. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance.