The Other Two-Thirds

When we sit down with a client and help them plan for the future, we consider several things like taxes, investments, income, future long-term care needs, and more. But once this part of the planning process has been completed, we’re only one-third of the way through the whole process.

There are two more areas of planning not a lot of people consider that need to be explored in order to complete your entire financial picture. So, what does that look like?

The first third of the process takes a look at you and your spouse. The second third shifts to your immediate family — your mom, dad, and/or siblings. You might ask, “What does my immediate family have to do with my financial future?” It can be more than you realize.

We recently had a client call us up who found himself in a situation he had not expected. He had become the executor of his sister’s estate. The problem wasn’t that he had been made the executor of the estate, necessarily, but that there were minor children involved. 

He not only had to accept the responsibility of handling the estate but also had to manage the assets that would eventually be given to his nieces and nephews. So, he enlisted our services and we helped him figure out his new financial future. He was able to follow his sister’s wishes, but it did change his retirement, since he had to handle the future assets of his nieces and nephews for the next 12 years. 

Now, this client is a smart guy who wanted the best for his family, but he never saw this coming. He didn’t know he would be named executor nor did he inquire about it. It wasn’t a topic that had ever come up.

I’ve seen this happen too many times over the years. We help clients set up their financial plan for the future, but it ends up falling apart when family members pass away and the client suddenly learns they’re the executor or they’ll be handling assets they weren’t prepared to handle. 

We had another client who wanted to pass assets to his two adult children. These were brothers who were also in the process of applying for disability through Social Security. While the assets weren’t enough to sustain them for the rest of their lives, it was still a sizable amount. 

They had to ask themselves if they wanted to take what their father passed on or complete the application process. Suddenly, they would both be worth more — their financial situation would change overnight, modifying the terms of their application. 

These are just a few hurdles people commonly face. There are also issues related to divorce and rebellious grandchildren, as further examples — things that can change your financial future. 

This is why it’s important to learn what your immediate family members might be thinking. Most of the time, they don’t talk about it. This is why we make it a point to talk to your family so that we can complete your financial picture. Nearly 100% of the time, they are willing to have this conversation. 

This conversation has the power to mitigate possible taxes and it ensures you know where assets are meant to be when it’s time to pass those assets to the next generation. Basically, it clears the air and gives you a plan. It’s the “second third” of your overall plan. The final third of completing your financial picture is planning what you want to pass to your own children and heirs.  

Being named an executor is time consuming and overwhelming because you now have a fiduciary responsibility to execute the will or trust of the person who put it in your care. If you deviate from the terms of the will or trust, you can be held liable. 

Here’s an example of what that can look like: We had a client in Florida who was made the executor of her dad’s estate. This client also has two brothers — one brother borrowed money from Dad years ago and never paid it back. He was set to receive no benefits from the estate. 

The client wanted to include her brother so each sibling received a third of the estate. She talked to legal counsel and family, but had no recourse. If she didn’t follow Dad’s rules, she would be exempted from benefits as well (she would only receive $1). She had to do what Dad wanted.

It caused a rift in the family, but that’s the way these things can go. As we say, money makes people funny. You can have people who get along very well. Then money enters the equation and it all falls apart. There’s another saying along these same lines: “If you want to get rid of a friend, lend them money.”

My point is that every family needs to have a plan. You need to know not only your own goals, but the goals of your immediate family. When you take everyone into consideration, it protects your own goals as well as theirs. Plus, it can mean no surprises and lower taxes.

I leave you with one final thought as you contemplate the other two-thirds of your plan. It’s one of my favorite verses related to the topic of retirement:  “A good man leaves an inheritance to his children’s children, but the wealth of the sinner is stored up for the righteous.” (Proverbs 13:22 NKJV). 

The best gifts you can give are your time and your presence now. They can’t enjoy that after you’re gone.

Gary Mattson