Estate Planning: What you should be considering now

Estate planning means much more than trying to avoid a possible federal estate tax.

True estate planning means you have properly put in place a set of documents (a plan) that says how and to whom your assets will go when you die, as well as how they will be managed if you become incapacitated.

The current Republican legislative proposal calls for the elimination of the Federal Estate Tax. It is critical to note that if the Federal estate tax is repealed, it will most likely only be temporary, for up to 10 years. Due to the rules of the Senate, it is unlikely that the tax reform legislation will be permanent and many of the provisions, if passed, would expire in 10 years.

Thus, even if the estate tax is repealed, estate tax laws have changed frequently over past decades and an estate tax could be enacted again in the future. Your estate plan documents should be flexible and represent your desires, whether you are subject to an estate tax or not.

As good estate planning encompasses many more issues than estate tax reduction or avoidance, you should review or work on your estate plan even if the estate tax is repealed.

We view our roles as financial advisors very broadly. We are much more than just investment advisors. We have extensive experience in helping clients clarify their goals, simplifying the estate planning process and providing creative solutions. If dealing with these issues is difficult or you would like our assistance, please talk to us.

There are some of the topics you should consider in reviewing or drafting your estate plan:

  • Do you have the proper supporting documents in place and are they current?
    • These should include Powers of Attorney, Health Care Powers of Attorney and Advanced Medical Directives. If you are married, each spouse needs their own documents.
    • You should have a Revocable Trust in place, to avoid probate. Then it is important that you have funded the Revocable Trust, which means that your various assets are titled in the Trust name, not in your personal name.
  • Who are your Trustees or Executors when you die or if you become incapacitated?
    • Are they age appropriate and younger than you, to be able to effectively manage your affairs for many years in the future?
    • Have you named successor Trustees, beyond the initial Trustee(s) or Executor(s)? We do not recommend naming banks in these roles, except for special situations.
    • We have seen a number of times when the people named for these positions made sense when the documents were originally drafted, but later need to be changed. Check these.
  • Are you comfortable with when and how assets may be available to the next generations, depending on their ages and level of maturity?
    • Particularly if you have significant assets, think through the numbers. We can walk through this exercise with you.
    • For example, if you have $6 million and after you (and your spouse) die, and you have 3 children, are they able to handle receiving $2 million each?
      • Should the children get all of the money in one lump sum, even if they are adults? We recommend spreading the distributions out over a period of time, for almost all situations, unless the beneficiaries already have shown good responsibility handling significant sums of money.
        • Your documents could specify distributions in multiple stages over a number of years. If they are older than the last age specified when they would actually begin to receive the funds, a second provision could state: at the time of your death and then 2 and 5 years later, as an override.
    • We strongly recommend that assets going to the next generation should be given in the form of trusts, not to the beneficiaries outright, especially if the beneficiaries could be receiving $500,000 or more. This is vital in case of a future divorce by your children or beneficiaries.
  • If you desire to leave assets to a charity, and you have significant assets, we generally recommend making these charitable bequests from an IRA or retirement plan. This will be a huge tax savings to your heirs. These need to be done through the beneficiary designation form for that account, not through an estate plan document an attorney drafts.
  • As Alzheimer’s and dementia are becoming more common issues, we recommend that you review the provisions for how your financial matters would be handled if you were unable to manage your own affairs.
    • Traditionally, most estate plan discussions and documents focus on what happens after you or your spouse die. With Alzheimer’s, you may be alive for many years, but require the assistance of others to manage your finances. Thus, durable power of attorney designations and similar documents are vital.
    • Review your designations for this responsibility. Unlike estate Trustees who may have a only short period of responsibility, a successor during your lifetime may provide services and deal with issues for years or decades. 
    • If you are diagnosed with Alzheimer’s, Dementia or Parkinson’s, it is wise to meet with an Attorney who specializes or is knowledgeable about these issues in the early stages to make sure all your documents are in order as your significant other or guardian will be responsible for your care, finances and legal documents.
  • Do you want to add specific provisions for grandchildren in your estate documents? This has been a very meaningful topic we have discussed and seen implemented with a number of clients. They are providing these gifts, in addition to leaving funds to their children.
  • Is your life insurance adequate? Do you have older policies which should be reviewed? Do you have significant cash value or do your policies mature before age 100?
  • If your children are minors, have you designated guardians for them? If this was done a number of years ago, do you still agree on the guardians?
  • If a relative died recently, you should check to see if any of your estate plan documents need to be changed as a result. Your beneficiary designations? Your trustees or successors? Guardians?
  • If something happened to you, do your immediate family members know the passwords to your financial accounts, such as your credit cards, banks and other institutions? See my blog post on this matter, Emergency Planning.


This week’s takeaway: Estate planning has traditionally focused on avoiding estate taxes. With recent tax changes and others proposed, you should review and focus your estate planning and related documents on practical matters. Time spent on these issues could be very beneficial to your and your family members. We are here to help you.

Money, Family and Love

Money can be a source of happiness as well as challenges.

How you handle money and financial issues with your spouse and family members is a matter of great responsibility.

We encourage you to talk with your family members openly, in an age appropriate manner, about financial matters and investing lessons you have learned. We can assist you with these discussions, if you would like.

These conversations are an important part of any relationship. Conversations about money are vital to good relationships, whether it is within a marriage or between generations. These conversations can represent real love and caring.

For couples, we strongly recommend that both of you be involved in your financial planning and attend meetings with us. Even if one of you is less interested, it is still valuable that both of you be informed, aware and involved in the decision making of your family’s finances.

For emotional and personal reasons, as it is financially and age appropriate, we recommend to grandparents to leave some inheritance directly to their grandchildren. This can have a significant impact beyond just the dollars, to both the giving generation as well as the younger recipients.

How you pass on your assets to children and grandchildren is vital. For parents with significant assets (which is defined by each situation), we recommend that assets be passed to children via trusts, not directly to the children without a trust. This is vital in the event of a subsequent divorce by one of your children. You can discuss this with us, as well as an estate planning attorney.

For parents, teaching your children solid financial values can be a great challenge. If you are fortunate to pass down good financial values, you will have succeeded at something quite important.

We strongly encourage you to tell stories about your early experiences with money, jobs and financial decisions with your children and grandchildren.

Talk about the jobs you had when you were young. You will be amazed at how interesting younger generations will find your past. Have these meaningful conversations now, while you can.

I share with my kids (ages 19-25) how I worked in high school, during college and the summers while I attended college, to pay for my own college education.

I share with my kids how I diligently paid my students loans every month for 10 years until they were fully repaid.

I share with them why our firm invests in the manner we do. I share with them the importance of establishing good credit, how to use credit cards responsibly and why they should start saving for retirement as soon as they start working after college.

Regardless of what ages your children or grandchildren are, once they understand the concept of money, they can be taught valuable lessons that hopefully will last them their lifetimes. Give them an allowance and tell them about the financial choices you are making, such as to save for their college education.

Talk about financial matters. Have conversations about money.

It may not be easy. You just need to take the initiative to start the conversation. It will be very worthwhile.

We are always available to discuss any of these financial matters with you and your extended family members.

How do you define financial success?

Defining success, and specifically financial success, can be very personal and subjective.

A speaker at a recent national investment conference I attended stated that men tend to evaluate investment success based on their principal balance, performance and returns.  Women are different, as they tend to be much more focused on their annual cash flow.  Women are generally more concerned about not running out of money.

Both of these are very valid ways to judge your financial progress and how well you are doing.  Our role is to make sure that we understand what is most important to you, and help you meet those objectives.

When working with clients, and particularly those who have gone through a life transition, we focus on helping you to figure out how much money you will need each year to live comfortably and maintain your lifestyle.  Discussing this in detail leads to developing a personalized investment plan for you. Providing you with comfort and clarity are key to us.

As life expectancy is increasing, planning so that you and your family have adequate resources for longer periods of time has increased in importance.  Once we understand your cash flow needs, we can implement our investment strategy, which is designed for the long term.  Our focus is not on outperforming a given index for a month or a year.  Our goal is investment performance that will provide you with adequate financial resources throughout your life.  This is true investment success.

Clearly a significant role is for us to provide you with solid long term investment performance.  In terms of stock market performance, academic research shows that the vast majority of active mutual funds and money managers do not outperform their respective benchmarks over the long term.  The mutual funds we have recommended since we started our firm have outperformed the vast majority of the actively managed mutual funds in each of their respective asset classes.  Defined in this manner, we are successful.

Another measure of financial success is whether you have avoided big financial mistakes.  This is another role that we view as very critical.  During your life, you may be faced with some major decisions, which we can assist you with.  When clients have to make decisions about whether to take a pension distribution over their joint lives or a single life, there is usually a definitive answer.  We can assist clients in deciding when to begin taking Social Security or other retirement distributions.  We help clients with multi-generational planning with their estate plans, as well as charitable giving.  As discussed above, we help you to determine how much you can safely withdraw each year, so you can live comfortably, while being confident that you will not run out of money.

One of our core investment philosophies is diversification.  While the 2015 stock market performance for the funds that we recommend in the US and Internationally are up or down slightly for the year, we have avoided some of the major losses that a number of individual stocks and huge hedge funds and private money managers have incurred.  There have been many reports of billion dollar money managers that have lost 10%, 20% or 30% this year, and some have even announced they are closing their funds.  These funds have usually made large bets on specific companies, oil and gas, or other commodity related companies.  By being well diversified across companies, industries and countries, we have avoided these types of “preventable” losses and risks.  We know that being highly diversified the right strategy for your long term investment success.

As interest rates have been so low for many years, we have been very disciplined not to “reach for yield.” This means we have not purchased high yield bonds to get a little more interest rate return, at the potential cost of risking your investment principal.  Many investors may have purchased “high yield” or “junk” bonds for these reasons, but have not fully understood the potential downside.  It was reported in the WSJ on December 10, 2015 that a formerly large bond mutual fund, Third Avenue Focused Credit Fund, which once had $2.4 billion in assets, is down 27% for 2015 and is now blocking investors from being able to redeem their money.  This is an example of why we only purchase investment grade bonds or bond funds.  The risk is not worth it.

Similarly, some stock investors have focused on buying stocks with large dividend yields, to make up for low interest rates on bonds or CDs.  We don’t feel that this is the right strategy, as this is risking investment principal in search of higher yield.  If the stock drops, your net return can be far worse than the potential extra interest you were trying to obtain.  A recent example is Kinder Morgan, an energy company.  This stock, which was considered safe and a source of steadily rising dividends, has lost over 60% of its value in 2015 and just reduced its dividend by 75%.  Likewise, IBM pays above a 3.5% dividend yield, but its stock has been steadily dropping for years and has underperformed the S&P 500 by over 11.5% per year for the past 5 years.

The financial world can be complex.  We can provide you with clarity and answers.  Even though none of us can predict the future, we can work with you to develop strategies and solutions that you will be able to understand, so that you and your family can live comfortably and with peace of mind.


What is Your One Thing?

As fall begins and we approach the last three months of 2015, what deserves your attention before December 31, 2015?

Take a step back. What is one thing, which if you focus on, will make a difference in your life, or the life of your family?

As Stephen Covey said, what is something that is important, but not necessarily urgent, that needs to be done?

What comes to mind? What can you be pro-active about? What have you been procrastinating or avoiding?

If you are young, are you saving enough? Are you participating in your company’s 401(k) program? Are you properly allocating your investments within your 401(k)? We can help you with this.

If you have children who are young, have you prepared a will and designated guardians for them? Do you have adequate life insurance? Have you started to properly save for their college education? We can help you with these.

If you are older than 50, have you started to plan how much income you will need for your retirement? Have you checked your social security benefits online? Have you developed a financial plan for a 30 year retirement span? With longer life expectancies, a 30 year retirement will become the norm for many. We can help you with these.

Is there a medical test that you should have done, which you have been putting off? Are you getting regular physicals? We can’t help you with these, but hopefully this gentle reminder will encourage someone to make an important appointment or phone call. I will make the appointment that I have been putting off.

Is there an important conversation that you need to have with someone, or a group of people, which you have been putting off? Please take the initiative and have the conversation. Some of the most important things are accomplished by having what appear to be, in advance, uncomfortable conversations. They may be uncomfortable, but they are usually very worthwhile. We can help you with these.

If you don’t have an idea yet, are you using a password management program, like 1Password or Last Pass? If not, please read these blog posts: How to Securely and Efficiently Manage Your Passwords, Practical Tips for Online Security and 5 Password Security Tips. Password management may not be as important as many of the topics above, but it should be on your list to get updated. We can help you with this.

We view our roles as financial advisors very broadly. We provide our clients with investment management, tax and estate planning advice. We counsel families, individuals and people who are going through life transitions regarding numerous topics, both financial and non-financially related.

We hope this essay helps you to improve some facet of your life. If we can assist you to do this in any way, please contact us.

Spending and Your Financial Security

A key factor in your financial success is knowing how much you spend. Not to the penny, but with some measure of accuracy, how much do you and your family spend in a year?

Knowing your annual expenditures is critical to your ability to save. How else can you accurately answer these questions: Is your income greater than you are spending? Do you need to make any changes?

When you are in the earlier stages of your life, determining your annual expenses and comparing this to your income is the basis for what you can save and invest. The earlier you can begin to save, the better you will be. You will have greater financial security and more financial freedom. You will be able to have more choices and flexibility. You will not have to take on as much financial risk later in your life.

For clients nearing retirement, a critical part of their financial planning with us is determining how much they need from their investments and other sources to provide the life they want. To do this, we compare their future projected income versus their expected expenses.

Income can come from various sources, usually from distributions or withdrawals from their investments, as well as Social Security, pensions or other retirement plans. We work with clients to quantify these amounts and make reasonable assessments of how much they can expect to generate or withdrawal from these sources, so they will not outlive their assets.

The other side of this equation is how much you will be spending. For many, this is a challenge to determine or estimate. We are not saying you need to live on a specific budget. But the more accurately you can quantify your annual expected expenditures, the better planning we can do.

There are many ways to determine what your annual expenditures are, or will be. The more accurate you can be about tracking or determining your past spending and projected future expenses, the more confidence you will have in the financial planning process.

Determining your annual expenditures can be done in many ways. It does not need to be exact. Using technology and online resources, pretty realistic figures can be quickly determined. Consider what you can gather from just the following:

• Credit cards, over a year or two
• Review your checkbook for large and small expenses
• Mortgage and property tax payments
• Utility bills, which you could be paying through your checking account or credit cards
• Car payments, which are likely linked to your checking account

Many of these records can be obtained for a few years, online, such as credit card statements and bank statements. These will provide you with a good starting point. If you want to go a step further, you can track your finances with an online tool, such as Intuit’s QuickBooks or

As you near retirement, or to plan for your future, you will also want to consider changes or events that may occur in the future. Depending on your age and other factors, these could be things like: how long you plan to work, travel plans, education expenses, changes in your home, major family events and health care costs.

Gathering, reviewing and projecting your expenses provides you with necessary information we can use to help you plan a financially secure future. This information can also be an important step in evaluating how you are spending your money, and whether you want to make changes in your spending habits.

Good data leads to better decisions and better planning. We can work with you to assist in the various aspects of this process, so you and your family can have as much financial security as possible.

Having an Impact

Our firm has an impact on people’s lives. We can influence and affect the future of their life, their children and siblings, as well as the legacy they leave.

The more that we build relationships and trust with our clients, the deeper and broader this impact becomes.

A client gets referred or comes to us for investment planning. This is where it usually starts. Their first priority is to improve their investment portfolio, or to understand their investments. We evaluate the client’s financial situation and determine the appropriate amount of risk they should take. We almost always reduce their overall investment costs. We diversify their stock portfolio and improve the quality of their bonds.

And then, at some point, the topic changes from investing to….

  • They want to discuss how to make significant charitable contributions to organizations that are near to their hearts.
  • They want to know how to fund a child’s or grandchildren’s college education.
  • They want guidance regarding Social Security. How and when should we start to take Social Security? Should we start taking distributions at age 62, 66 or wait until age 70? This decision has a large impact on your financial future.
  • If a client is self-employed, as a consultant for example, they want guidance on how they can make huge annual retirement contributions, so they can save for retirement and reduce their taxes.

It is through these various discussions and meetings that real change and impact can occur.

  • Can you help me with my estate plan? The client knows that their estate plan needs to be reviewed or updated, but is not moving forward and resolving issues. We help through discussions and creative ideas. We assist by clarifying relevant issues and ensure that these are put into their Estate Plan documents.
  • How much life insurance do I need or is our life insurance appropriate? We help them to analyze these issues and reach decisions.
  • Can you review the portfolio that we still have with another broker? The client says they don’t understand what the other investment professional is saying or what they are doing. They tell us that our approach to investing and the discussions they have with us are “understandable.”

As the relationships develop, the conversations grow. And the impact deepens.

  • We advise a client that they can afford to pay off their grandchild’s student loans. This makes the grandmother and granddaughter happy. Both are less stressed when the debt burden is gone.
  • We tell someone it was OK to take that special trip after a loved one was very sick. It is not always about the money. It is about living the life they want, while both are alive. They now have peace of mind that this “luxury” was the right thing to do.

You may meet with us initially about your investments, but we can provide you value in so many more ways. It usually begins with a conversation and we are here to listen. It’s more than investing; we want to make a difference in your life.


How to Deal with Uncertainty

Uncertainty is part of our life. We do not know what the future will bring. Uncertainty can be very stressful. How can you best deal with uncertainty?

There are many issues in our lives which result in uncertainty.

  • You may be concerned if you will have enough money to retire and still live the life that you want.
  • You may be concerned about whether you will need to go into a nursing home or similar-type of facility, and what the cost of that will be.
  • You may be uncertain if you are saving enough for your children’s college education.
  • You may be concerned about the stock market, which is full of uncertainty, especially in the short term.

The best way to deal with these types of uncertainty “issues” is to work through the specific issue with us. Begin a process. Start the discussion.

Let’s take the issue of “retirement savings,” for example. Will you have saved enough?

If we met with you to discuss this topic, we would identify the factors that begin to answer this question. We would ask you the following, and more:

  • When will you be retiring?
  • How much do you think you be spending annually, during retirement?
  • How much do you think you will be saving each year, from now until you retire?
  • How much will you be collecting from Social Security and any other type of retirement or pension plan?
  • What can we assume that your investments will earn throughout your lifetime?
  • What will future tax rates be?
  • What is a safe amount to withdraw each year from your retirement savings?
  • What changes will you be making in your lifestyle and where will you live?

It should be pretty clear that many of these questions cannot be answered with certainty. There are lots of variables and unknowns. Working through this issue will require many assumptions, which will change over time.

This is a critical part of the financial planning process. It is ongoing and it is a process which will be revised and adjusted. As your life and other external factors change and become known, such as stock market returns, we will review and update this analysis. We have software specifically for long term retirement planning.

By going through this process, this will go a long way to relieving some of the stress of uncertainty. The more that we analyze and discuss each of these components, the more confident you will feel. The uncertainty will begin to decrease.

We cannot completely remove the uncertainly of life. Discussing and analyzing whatever issues concern you, will help you feel more comfortable and confident. That is our goal.

What is Quality Financial Advice?

Determining quality can be easy or difficult, depending on what is being evaluated. After you finish a restaurant meal or have had a new watch, sweater or television set for a while, you can determine if you have experienced good quality. But how do you evaluate the quality of financial advice or an investment portfolio?

Defining the quality of financial advice can be more challenging, as it is not a tangible item that you can touch, feel and see. The time perspective is also very different, as financial advice and its benefits occur over a long period of time.

Financial advice can be measured in various ways. The quality of finance advice can be measured from a wide angle lens or perspective. Is the advice that you are receiving moving you towards your life and financial goals? Are the conversations that you are having with your financial advisor addressing your needs and concerns?

Is your advisor understanding you? Is your advisor assisting with issues beyond just investments, to provide you peace of mind with insurance, estate planning or charitable giving matters (depending on your personal issues)?

Do you feel that you and your advisor have developed a trusting relationship, in which your advisor is acting solely with your best interest in mind? Is your advisor making recommendations based on what is best for you, and not providing advice that is influenced by any commissions or fees that he or she may receive? (Note: we are not compensated by any commissions or fees, other than our advisory fee).

In terms of implementing your financial plan, you can then evaluate the quality of the advisor’s recommendations by using a different perspective, which is more quantifiable. You can measure and track the performance of the investment recommendations, against appropriate benchmarks. This should be done over a long period of time, which would be years, not months or quarters.

In evaluating our investment recommendations, we monitor how the mutual funds that we recommend perform against their respective benchmarks over various time periods. As independent advisors, we recommend many DFA mutual funds (Dimensional Fund Advisors). We don’t recommend them because we are compensated by DFA; we are not. We do not recommend them because DFA has grown to become the 7th largest mutual fund company in the US. Our recommendations are based on adherence to a disciplined investment philosophy. The funds deliver what they promise to do, which is to consistently perform well in each asset class that it is invested in, over a long period of time.

To measure quality, you will need to use different perspectives to evaluate different things. In measuring an investment advisor relationship, there are many components. We strive to continuously learn, to improve, to understand our clients and to provide them with the best investment and financial planning recommendations that are appropriate for their personal needs.

Note: Thanks to Jason Womack, who’s excellent Leadership Retreat I attended last weekend. Jason provided the context to think about quality and the different perspectives of measuring quality.

My New Favorite Quote

A person’s success in life can be measured by the number of uncomfortable conversations he or she is willing to have.

I saw this quote recently, by Tim Ferriss.   The more you think about it, the more powerful this quote is.

What are the uncomfortable conversations you need to have?Carl Richards Sketch - Decisions That Lead to Great Conversations

What are the issues you need to think about? What are the unresolved issues you can work on, if you talked about it with someone?

How could your financial life be better, if you had a conversation?  Even though you may be anxious or worried about it, before the conversation, wouldn’t having the conversation be worthwhile?

What this quote means to us is that the more you actually deal with things that are hard or that you are procrastinating on, the better off you will be.

If you have concerns about your estate planning, you need to talk about it.

If you are worried about your cash flow or whether you will have enough money to live on and maintain your desired lifestyle, then you need to begin a conversation.

Whatever the issue you have, and we all have them, by talking to someone, you will begin the process of dealing with the issue. From that first conversation, however difficult or uncomfortable it may seem ahead of time, you will begin the process of resolving something.

And that is the key. From uncomfortable conversations and confronting things that are hard to deal with, comes progress and solutions.

We are here to have these conversations with you. We want to help you address and resolve whatever issues and concerns you may have. Because once you have these conversations, you will feel better.

How long will an average 65 year old American live?

In a study released Monday, the average 65 year old American is expected to live at least 2 years longer than the average 65 year old American did in the year 2000.

The average 65 year old American woman is expected to live to 88.8 years, which is an increase of over 2 1/2 years from 86.4 years, based on the year 2000 study.

The average 65 year old American man is expected to live to 86.4 years, which is an increase of almost 2 years from 84.6 years, based on the year 2000 study.

What are some of the implication of this study?

Average is a key word. Life expectancy statistics mean that half the people will live longer and half the people will live shorter than the published figure. This means that half of the women who are 65 now are expected to live beyond 89, most into their 90s.

If you are well educated, have access to good health care and are a non-smoker, you would be expected to exceed these life expectancy figures. While we all know many people who unfortunately did not live into their 80s, you should be prepared emotionally and financially to live into your 90s.

Are you planning for a financial life into your 90s?

The increase in life expectancy over the past decade is dramatic. Since the 2000 study, life expectancy has increased 10.4% for men and 11.3% for women aged 65 today. This trend will likely increase. The study indicates that it is now becoming more statistically relevant to live past 100. It is becoming less of a rarity.

It is obvious that with better health care, people are living longer. You will need your money to last a long time.

You will need to make good decisions throughout your life and have good financial advice, so you will not outlive your financial assets.

Note: I actually read/skimmed the 76 page report prepared by the Society of Actuaries. (This was a first for me and I dont highly recommend it). The purpose of this report was to update their last study, published in 2000, to provide information to large pension funds to guide their investment obligations. The conclusion of this study is that large pension plans, many of which are already underfunded, will need to increase their pension plan contributions, as their liabilities may be 4-8% higher than they are currently anticipating.