Planning Vs. Reacting
A Proactive Approach to Challenging Economic Conditions
Top 10 Estate Planning Mistakes
November 15, 2011
7 Hotel Street
Warrenton, VA 20186 www.handfordfinancial.com

Board of Certified Financial Planners
Investments
Risk
Management
Estate
Tax Efficiency Retirement

Unhealthy Habits

Board of Certified Financial Planners
Investments
Risk
Management
Estate
Tax Efficiency Retirement

A Solid Plan

A Proactive Approach to Challenging Economic
Conditions

• You are not alone.
– Fear and anxiety have become commonplace as the market continues to experience periods of fluctuation.
– The reality is that your investments have likely declined along with the overall market performance.
• An emotional response is a natural response.
– We’re humans, not machines! Emotions will always play a role in how we deal with challenging situations.
– But how can we acknowledge our emotions and still manage our finances?
• Take some time to verbalize how you feel.
– Sometimes simply stating how you feel or writing it down can help release the tension.
– Once you’ve respected the emotion, you may be able to focus on action.

666

S&P 500
1565 October 9, 2007
666 March 6, 2009 (57.44%)
1250 November 8, 2011 87%

What’s the Secret to Worrying Less?
• No magic bullet
• Empowerment through action
• The benefits of financial planning
– Results of a recent study* by the Financial
Planning Association and a leading financial institution

Study Statistics Worth Noting
• 50% of the planning participants feel that they are in control of their financial future.
• 9 out of 10 planning participants (88%) feel that they have clear financial direction, which is about 50% higher than those who don’t have professional support.

Study Statistics Worth Noting continued
• Planning participants are 50% more likely to say their goals and dreams are financially secure.
• 42% of planning participants feel extremely or very prepared for retirement (vs. 16% of those without an advisor).

What’s Most Important to You?
• One benefit of planning is that it gets you thinking about what is really most important to you.
• Your concerns over your finances are likely more specific than
“I want more money.”
– What is the “why?” behind your goals?
• What is meaningful to you may not always be quantified in dollars and cents.

Important, Intangible Goals
• We already mentioned that some of the items that are important to you are going to be less tangible, like:
– Family
– Community service
– Leaving a legacy
• These intangible items can be reframed in terms of quantifiable financial planning goals, like:
– Protecting your family by having adequate insurance
– Leaving behind a legacy with a properly structured estate plan
– Giving back to your community with a charitable trust

A Methodical Approach to What-If
Worries
• It’s normal to question how things would look for you if different variables changed.
– How will adjusting certain goals for time and cost impact your ability to attain them?
– What if you were to save more and spend less?
– What if you had to save less?
– What if your investments declined more or less over time?
• A Monte Carlo simulation can provide perspective
– Takes into account the bad years (kind of like what we’re seeing now) and shuffles the cards in order to convey a realistic expectation of what could happen based on different scenarios.

• Road map to your goals
• Includes probability of reaching goals based on testing
• Living, breathing document
– A good plan is updated regularly—typically annually—to ensure that it still matches your current situation and accounts for any changes.
– A financial professional monitors the plan and keeps you on track with your goals.
– Just like no two clients are alike, no two plans are alike!

You Don’t Have to Go It Alone
• Taking control does not mean you have to uncover all of the solutions on your own.
• A financial professional can assist you with:
– Goal definition
– A written financial plan
– Financial planning for
• Estate plan coordination
• Retirement income planning
• Charitable giving
• Risk management
• And . . . everything else!
• Proactive planning = Less anxiety

Name
W.C. Fields
Humphrey Bogart
Clark Gable
Walt Disney
William Boeing
Estates of Famous People
Estates that made use of the marital deduction
Gross Estate Settlement Cost Net Estate % Shrinkage
$884,680
$910,146
$329,793
$274,234
$2,806,526 $1,101,038
$23,004,851 $6,811,943
$22,386,158 $10,589,748
$554,887
$635,912
37%
30%
$1,705,488 30%
$16,192,908 30%
$11,796,410 47%
Name
Marilyn Monroe
Estates where the marital deduction was not used or unavailable
Gross Estate Settlement Cost Net Estate % Shrinkage
$819,176 $448,750 $370,426 55%
Elvis Presley
J.P. Morgan
Alwin C. Ernst, CPA
$10,165,434 $7,374,635
$17,121,482 $11,893,691
$12,642,431 $7,124,112
Frederick Vanderbuilt $76,838,530 $42,846,112
$2,790,799
$5,227,791
$5,518,319
73%
69%
56%
$33,992,418 56%
Source: Public Probate Records. Under current laws the costs would be different.

Could That Happen to Us?

1. Failure to Plan
• State intestacy laws determine whom will inherit what.

1. Failure to Plan continued
Other considerations:
• Court-appointed guardians and executors
• Additional expense and time required to distribute property
• Missed opportunity to minimize taxes
• State may become beneficiary

2. Failure to Implement
• Misconception: once documents are executed, process is done
• Reviewing and re-titling assets and reviewing beneficiary designations
• No implementation may result in ineffective plan (see #1)

3. Failure to Update
Triggering life events:
• Marriage
• Divorce
• Birth
• Death

3. Failure to Update continued
Other triggers:
• Change in law
• Change in asset value
• Change in goals

4. Failure to Review Beneficiary
Designations
• Easiest way to derail a plan
• Perform an audit:
– Life insurance
– Retirement accounts
– Nonqualified annuities
– Transfer-on-death accounts
– Trusts
– Wills
– Special needs

5. Failure to Understand the Plan
• Allocation of assets between spouses
– Portability provision
• Structure of policies and titling of assets
– Joint tenancy with right of survivorship
– Community property vs. separate property
– Contractual agreements

6. Failure to Make Lifetime Gifts
• Leveraging gift tax exemptions: a simple and cost-effective way to reduce estate value
• Irrevocable life insurance trusts (ILITs)
• 529 plans

7. Choosing the Wrong Fiduciary
• Inexperienced, unqualified, or self-serving
• The “bad guy”
• Family conflict

8. A Plan That’s Too Simple
• All-to-spouse or joint ownership arrangements
• Unintended beneficiaries
• Lack of efficiency
• Effort to save hundreds costs thousands

9. A Plan That’s Too Complex
• What are the goals?
– Asset protection
– Liquidity
– Efficiency
– Control
• GRAT, CLAT, FLP, CRUT . . .
• Administrative duties

10. A Plan with No Flexibility
• Must be able to change in light of circumstances
• What does irrevocable mean?
• Trustee discretion

Planning Vs. Reacting
A Proactive Approach to Challenging Economic Conditions
Top 10 Estate Planning Mistakes
November 15, 2011
7 Hotel Street
Warrenton, VA 20186 www.handfordfinancial.com