At Clifford Swan, wealth management has always been about more than your portfolio. Please do not misunderstand. Researching companies and carefully selecting investments tailored to meet our clients’ needs is in our DNA. However, we know that to be truly skilled investment counselors, our relationships with our clients must be broader than the portfolios themselves. In other words, we need to understand how your portfolio connects with other aspects of your financial life.
"We always recommend that clients complete an estate plan to make sure their assets are protected, organized, and ultimately passed on according to their wishes."
To begin with, we encourage everyone (not just our clients) to consider having an estate plan. They are not simply for the elderly, and anyone with assets to protect or others to provide for should regard them as fundamental. We always recommend that clients complete an estate plan to make sure their assets are protected, organized, and ultimately passed on according to their wishes. Good estate plans are often multifaceted, and crucially, they ought to be living and breathing documents. We realize that, around this time of year, many clients will have recently completed their taxes and may not be eager for more projects. However, this article will outline the case for an annual estate planning “spring cleaning” of sorts, easily completed to ensure your accumulated wealth is being protected as it ought to be.
"Good estate plans are often multifaceted, and crucially, they ought to be living and breathing documents."
Understandably, beginning the conversation about planning for after your lifetime can be difficult. However, as our CEO, Linda Davis Taylor, explains in her book The Business of Family: How to Stay Rich for Generations,1 thinking strategically about the future of your family and its wealth is crucial to your family’s success. Families (or individuals) should develop a philosophy centered upon their unique values, and that philosophy will in turn help guide the specifics of your estate planning efforts. As you get started, your Clifford Swan investment counselor is here to assist. We would welcome the opportunity to help you clarify your goals in this regard.
However, it would be a misstatement to think that estate plans only come into action after your death. While a will or trust is often the main component of your estate plan, other important ones include powers of attorney (documents that grant another person authority to act on your behalf in legal or financial matters) and medical directives (instructions concerning future medical care, should you be unable to make them).
By far, the most common estate plan for our clients involves a revocable trust. A revocable trust, or living trust, is a written document that outlines how your assets will be distributed upon your death, and the terms of your revocable trust can be amended or cancelled during your lifetime. You are able to serve as your own trustee, but, importantly, a successor trustee can step in should you become incapacitated, unable, or unwilling to manage your own affairs.
If you are not yet convinced of the importance of estate planning, proper planning can also make it possible for your heirs to avoid going through probate (the court-supervised process through which your estate is settled), which can be a public, lengthy, and costly process. In California, if you have not planned ahead, estates worth as little as $150,000 can be subject to probate. That may seem like a low number in relation to the values of many of our clients’ investment portfolios, not to mention their homes, cars, jewelry, art, etc. In our experience, revocable trusts are great tools. But, like all aspects of your estate plan, they cannot be simply put on a shelf and ignored.
"...proper planning can also make it possible for your heirs to avoid going through probate (the court-supervised process through which your estate is settled), which can be a public, lengthy, and costly process."
Therefore, in beginning your estate planning “spring cleaning,” the most important first step is to inventory your own circumstances. Ask yourself what, if anything, has changed in the past year to affect your plan. A good place to start is looking around you at the composition of your family and those you hold dear. Are there any changes? Perhaps there was a birth, death, marriage, or divorce you might need to account for in your plan. Or perhaps your preferences have changed, and you may want to include or feature charitable giving in a different way going forward.
"...in beginning your estate planning 'spring cleaning,' the most important first step is to inventory your own circumstances."
Next, if your plan includes a trust, revisit who is listed as successor trustee. This is the individual (or institution) who will step in to manage your affairs upon your death, incapacity, or resignation as trustee. Is that individual still able to serve in this capacity? Are they willing to? In our experience, it is always a good idea to have multiple successor trustees listed, as unfortunate circumstances do arise. Should your successor trustee predecease you, and another is not appointed, your heirs may find themselves in court. When considering who to appoint as successor trustee, sometimes a professional trustee may be appropriate and sometimes a family member or friend may be more than sufficient. Your investment counselor can assist you with this decision-making. If you choose to designate an individual as a successor, it can often be wise to loop that person into your affairs sooner rather than later, to prepare them for the eventual transition in authority.
Another important question to ask yourself periodically involves your assets themselves. Have you opened new accounts, acquired additional property, or benefited from an inheritance? If so, be sure that you continue to “fund” your trust and title these assets in the name of your trust, or otherwise account for them in your estate plan. It’s every investment counselor’s nightmare (or at least mine) to learn that their clients created a trust, but failed to retitle some or all of their assets in the name of the trust before it was too late. That is a crucial step.
Thus far, our estate planning review has focused upon revocable trusts; however, another key area of your “spring cleaning” should separately consider any retirement assets you may hold, including any IRAs (like your IRA or Roth IRA) or any employer sponsored retirement plans, to ensure your beneficiary designations remain up to date. The same goes for any insurance products you own. Your beneficiaries must be correct and current. Finally, we find it is an excellent exercise to create a summary document to list the key elements of your plan, both for your own review purposes and also for your heirs, when necessary.
"...we find it is an excellent exercise to create a summary document to list the key elements of your plan..."
At Clifford Swan, we cannot create an estate plan for you, as we are not attorneys. Moreover, the aforementioned list of items to include in your annual review is not exhaustive. The particulars of your plan will vary according to your circumstances and wishes, and we recommend you defer to your attorney for legal advice. However, as your investment counselors, we are in a unique position to help you manage your plan on an ongoing basis. We can help you think through your options and we are well versed in managing assets within all sorts of trusts and planning frameworks. We value working together with your estate attorney to be part of a collaborative and expert team dedicated to advancing your objectives.
1. Taylor, Linda Davis. The Business of Family: How to Stay Rich for Generations. Palgrave Macmillan, 2015.
The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.