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Post: The Forgotten Element Of Estate Plans: Portfolio Restructuring



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Simplifying and streamlining our portfolios and the rest of our finances should be an estate planning priority as we age.

I learned this firsthand when I took over management of my parents’ finances. I was fortunate that my parents were still around and alert when I took over, so they could explain some things, sign key documents and help re-organize.

Many people who were less fortunate have told me stories of their travails after taking over their parents’ finances when their parents weren’t able to help. In addition to the frustration and time involved, often the children have lingering feelings that money was left on the table because they didn’t find all the assets and life insurance.

It’s a fact that our cognitive abilities decline as we age. The decline begins at different ages and progresses at different rates, but most researchers peg the beginning of the decline at between ages 35 and 50. For a long time, cognitive decline can be offset by taking more time to make decisions and being sure all angles are considered. But often such measures aren’t enough when we reach the late 70s and beyond.

The potential for cognitive decline isn’t the only reason to include portfolio restructuring as part of an estate plan.

At some point, many people have less energy and are less interested in paying attention to details and making significant decisions.

Also, at some point, family members (or someone else) will inherit or take over the assets. They might have difficulty finding all the records, figuring out your strategy and intentions, and reconstructing your plans. The result often is lost or mismanaged assets, or perhaps a lot of aggravation and wasted time.

In many married couples, there’s a division of labor in which one spouse is in charge of the financial assets. When that spouse is the first to pass away, the other spouse has a new, significant, and stressful burden. Too often, they are unwilling to ask for help or don’t know whom to ask. They’re susceptible to bad decisions and scams.

For these reasons, as you age restructuring your portfolio and finances should be part of your estate plan.

There are two main estate planning strategies to choose from for your portfolio and other financial assets.

One strategy is to simplify.

At some point, you have accumulated enough money and don’t need more to sustain your lifestyle. Sure, it would be nice to accumulate even more to leave to your loved ones or charities. Attempting to do so, however, causes the problems for successors already discussed.

Consider simplifying.

The first step often is to consolidate financial accounts at one broker, bank, mutual fund company, or other financial services firm, or at least limit yourself to a couple of firms. My dad was an extreme example. He accumulated many small accounts at different banks and mutual funds over the years. We spent a lot of time transferring and consolidating these accounts at one broker and one bank. Yet, we didn’t catch them all. I eventually found that several had been transferred to the unclaimed property divisions of a couple of states. So, we had to file to claim them.

In addition to consolidating, consider selling some assets and using the proceeds to buy annuities that pay guaranteed lifetime income to you and your spouse. Just like during the working years, payments are deposited regularly in your financial account. That simplifies managing cash and paying bills for the rest of your lives and ensures there always will be steady income, no matter how long you and your spouse live.

It’s also time to unwind complicated investment strategies and sell assets that require skills or knowledge your spouse or heirs don’t have. If you have a collection or specialized asset your children or grandchildren don’t have the knowledge or a passion for, consider selling that or transferring it to an appropriate owner now.

With the rest of your financial assets, consider adopting a simplified investment strategy that involves buying and holding a diversified portfolio of ETFs or mutual funds.

An alternative simplification approach is to select one or more investment advisors to manage the bulk of your portfolio. You spend less time and effort on portfolio management, meeting with the advisors one or more times during the year. But most importantly, having an outside professional investment advisor ensures a smooth transition when the portfolio is inherited. No one has to figure out your strategy or where the assets are.

Of course, you also can make gifts to your children and grandchildren now. If you have enough money to maintain your standard of living, why make them wait to inherit all of it? Make some gifts now.

You can see how they benefit from the gifts while you’re alive. When you fear they won’t spend or manage the gifts well, transfer the property to a trust and have a trustee handle the money management and distributions.

The alternative strategy to simplification is to begin a transition of the management of your assets. Choose one or more people you trust and begin introducing them to your finances. The goal is for them to gradually help manage the finances and eventually take over.

You might choose a family member, friend, or a financial professional, and of course can choose more than one person.

If you haven’t already, you’ll need to organize your finances so other people can step in and handle things when you are unable to or no longer interested. At some point, you’ll take actions jointly with the other person (or persons). Eventually, they will take over. If you’re still around at that point, you review or oversee their actions.

After selecting a person or people, they should be named the agent under your financial power of attorney. They also should be named successor trustee or co-trustee for your living trust and any other trusts you are managing.

My experience with my parents is that the transition works best when the person is named co-trustee and agent under the power of attorney and is able to take actions on his or her own, with your oversight.

Of course, it’s critical to select the right person or people for this task. You want someone who’s qualified, able to do the tasks, and can be trusted.

Most people wait too long to simplify and streamline finances or never get around to it. The expression I’ve heard frequently is, “We’re not there yet,” meaning they still are able to manage their finances and don’t need streamlining or help.

The problem is that when we’re finally “there,” it’s too late to prepare and take action. We lack the energy or ability to have a good transition. Estate planning for your portfolio is a lot like insurance. You want to buy homeowner’s insurance before the house is on fire. If you wait, it’s too late.

Lora Helmin

Lora Helmin

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