H. William Wolfson, DC, MS, MPASSM, CFP

We never know for sure when that ill-fated day will come. For all of us, death is the finality of life. However, for many families and beneficiaries it is just the beginning of a potentially long and arduous process of an estate’s dissolution, transfer, or continuance. Some leave it to remaining family members to figure it all out, with potentially disastrous results—finding assets and liquidity challenges, tax and legal issues, arguments over who gets what, custodial concerns, and more. Most estate trepidations can be allayed if prepared for in advance of that inevitable day. The process can be seamless and reconciled in a reasonable time frame and with the decedent’s intended results.

A will directs how assets should be disposed of or transferred and who will be named guardian and custodian of children and assets. A will allows a named personal representative to obtain the estate’s asset and debt values, pay creditors and taxes due, take appropriate deductions, transfer assets and property to designated beneficiaries, and if necessary, conclude the decedent’s estate under the direction of a probate court. Regrettably, the process of probating a will can be expensive and time consuming. Each state is responsible for this process and the costs can vary greatly. It all depends on where the decedent established a primary domicile, but this does not preclude additional states from getting involved if property exists in their respective state. This can substantially add to costs, thereby reducing the net estate value to beneficiaries. Additionally, probate 

is open to public scrutiny and potential legal challenges

Consulting an attorney with knowledge of estate planning can help minimize the negative ramifications of an estate’s ultimate disposition, including curtailing the cost and process of probate. Will substitutes should be considered if avoiding probate is desired. Payable or transfer-on-death designations to specifically named beneficiaries from investment and bank accounts are not subject to probate or public scrutiny. The use of specific or special trusts can allow for certain transfers or purposes and avoid the probate process. 

The use of certain business tax structures (S-corporation, LLC, LLP, FLP, etc.) can prove to be cost effective and tax saving, and 

allow transfers to intended interested parties or beneficiaries

. In addition, high-net-worth families have used family limited partnerships (FLP) or family limited liability companies (FLLC). However, 

, “The Internal Revenue Service is about to toughen the rules on a type of investment vehicle [FLP and FLLC] that has been abused by some very wealthy families to avoid millions of dollars in taxes.”

, “An individual can leave $5.45 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield $10.9 million from federal estate and gift taxes.” An unlimited marital deduction exists between spouses. If elected timely and correctly, the surviving spouse may benefit from any unused portion of the decedent’s estate exemption. However, 

 exist for non-residents and non-citizens.

A goal of reducing the overall gross estate value can be accomplished via specific gifting which does not reduce the lifetime estate exemption amount. 

, the following gifts are not taxable gifts: gifts to anyone of an individual’s choosing and if not more than the annual exclusion for the calendar year (ie, $14,000), direct payments to a school or healthcare provider of service (tuition or medical expenses you pay on behalf of someone), gifts to your spouse, or gifts to a political organization for its use. Life insurance held in a properly executed irrevocable life insurance trust allows for tax-free distributions to beneficiaries and remains outside the decedent’s gross estate.

The myriad and complexity of tax forms and filing deadlines, rules, and regulations are often overwhelming and cumbersome. It’s critical to pay close attention and file the appropriate forms in a timely manner. 

, “the estate tax return is due nine months after the date of death. A six-month extension is available if requested prior to the due date and the estimated correct amount of tax is paid before the due date.”

Who will take the lead in coordinating the efficient gathering, analyzing, paying, tax efficiency maximization, and conclusion of the estate process? The appointed personal representative has the responsibility to complete the task of estate resolution and often looks to professionals knowledgeable in navigating the process to finality and with minimal stress and potential challenges.

The Certified Financial Planner (CFP) professional or financial planner is often an individual’s first contact for prudent plan development and asset allocation with the different and varying stages of life’s events. It is also the CFP who assists family members in managing assets before and after distribution. The CFP is often integral during the estate process and helps coordinate amongst the fellow professionals to ensure a timely and efficient conclusion.

The CPA or accountant is responsible for ensuring gross estate calculations are correct after receiving all the pertinent data (bank, investment, and retirement statements; insurance values; and appraisals of real estate, jewelry, art, business, etc.) from ancillary sources (bankers, investment brokers, appraisers, insurance agents, etc.) and filing the appropriate tax forms.

The estate attorney, after producing the will and trust documents, is responsible to effectively handle any legal issues, including probate. Equally important you must ensure that your family or other interested parties know your final wishes and know where to find your will and trust information. Generally, the estate attorney who drafted these documents maintains the original and supplies a copy to the client.

Frank and honest communication with those you care about should happen while you are alive and competent. Any mortal demise is traumatic to the people who care about you. However, compounding their grief by causing a treasure hunt is unacceptable. The reality of not knowing and being able to ascertain the full estate value may preclude beneficiaries and heirs from their rightful share you have worked diligently to provide.

Remember the basic rule of having an emergency fund to pay expenses of six months or more? Once deceased, your emergencies end but a family’s can begin. A family requires unfettered access to cash for immediate use to pay upcoming and unexpected expenses. Any life insurance disbursements or bank and investment assets can take time and paperwork, or worse, court permission. One more often-overlooked item to consider is how you will pay for your burial or cremation and where will you be interned.

An Expense Worth Considering But Often Overlooked

. Most of us avoid contemplating this morbid inevitability, but being realistic can be the difference between burdening your loved ones at their most vulnerable and emotional time or allowing them to grieve in peace. Planning and choosing the right professionals can make the difference in minimizing the potential chaotic scenario that befalls those who are not prepared.

Articles

Nobody likes to think about their eventual demise, but those willing to plan ahead and get their estates in order will save their friends and families considerable headaches.

An Expense Worth Considering (But Often Overlooked)

How many of you can recall driving in a car with children and hearing, “Are we there yet?” Depending on their ages it may seem like eons ago or it may be as recent as last week. It seems most people, but especially children, have a protracted attention span before additional stimulation is needed. Or is it the lack of patience? The reality of going on any journey involves a planning process. It can be involved and detailed or done quickly, depending on the ultimate destination. The reality is some effort in planning is required to get from point A to point B and more.

Now fast forward to you and your financial goals. At some point decisions need to be made allowing you to develop little or no savings to a level of monetary accumulation that will be utilized for a specific purpose in the short-, mid-, and long-term. The questions are: How will you approach this challenge, monitor your progress, and know when you have achieved your goal?

We are a debt nation, spending more than we generally. Most of us have some level of personal debt with US households collectively owing more than $12 trillion. 

According to the New York Federal Reserve

, “Household borrowing in the US climbed to its highest level since 2010 in the third quarter [2015], driven by increases in mortgage lending, auto loans, student loans, and credit cards.”

Debt management involves making smart decisions with every purchase. There are “rules of thumb” with debt to income ratios and consumers should be knowledgeable about these percentages to avoid potential problems. Total debt includes everything you pay for i.e., expenses, loans, taxes, insurance premiums, alimony, child support, etc. and should remain at 36% or less of your gross (before tax) monthly income. Housing costs should be 28% or less of your gross monthly income and consumer debt should be 20% or less of your net (after tax) 

. Savings and investing goals should be considered in conjunction with spending. According to the St. Louis Federal Reserve, US households in November 2015 

. Many financial advisors would agree that this savings rate is woefully inadequate and likely will translate to shortfalls of money needed in retirement.

Allstate, in conjunction with FTI Consulting, 

 in January about their spending. Among the key findings:

• Fifteen percent of Americans polled say they find it tough to make ends meet every month.

• Only 37% of Americans report they can comfortably live and save some amount for retirement or other needs.

• Forty-six percent say they can get by every month but find it difficult to save and invest, for retirement or other endeavors.

• Thirty-two percent of respondents report that in the past year, withdrawals were made from savings or pension funds to make ends meet and reduced contributions of approximately 30% were made to a 401(k) or other pension or retirement fund.

• Sixty-four percent indicated their financial wellbeing was reliant on on their own actions, while nearly 32% said it was dependent on events usually out of their control, i.e., economic gyrations, employer decisions, an unexpected morbidity, or stock market fluctuations.

• Fifty-four percent reported their current financial position is either fair or poor, while 45% said it is good or excellent. Forty-two percent indicated they expected their personal financial situation would improve, and 46% felt it would become worse.

Social Security Is Only Part of the Solution

Many financial advisors project an individual will need about 70-80% of pre-retirement earnings to maintain a comparable standard of living when retired. In addition to social security benefits, an individual will most likely need to access additional income from a pension, stock and bond investments, an annuity, or savings to fill in the financial gap. 

According to the Social Security Administration

, “If you have average earnings, your social security retirement benefits will replace only about 40%. The percentage is lower for people in the upper income brackets and higher for people with low incomes.”

, “For 65% of elderly beneficiaries, Social Security provides the majority of their cash income. For 36% of them, it provides 90% or more of their income.  For 24% of them, it is the sole source of retirement income…. Among those aged 80 or older, Social Security provides the majority of income for 76% of beneficiaries and nearly all of the income for 47% of beneficiaries.”

You are in charge of setting aside for your retirement. It is your responsibility to save for retirement whether covered by an employer’s pension plan, participating in a company sponsored 401(k) (hopefully maximizing an available employer match), 

self-funding a retirement plan, or saving in an IRA or Roth IRA

. Making excuses due to lack of foresight or perceived lack of time to invest in your future should be indefensible.

Ultimately, retirement cash flow can be derived from invested savings and a systematic withdrawal plan or from living off interest and dividend income. One can also simply continue working, collect social security, 

or using a guaranteed lifetime annuity from an insurance company

Given these sobering statistics, all individuals should seriously review their debt versus income ratios, reassess spending and saving practices, set realistic financial goals, and consider additional opportunities to make sure of adequate cash flow in post-retirement. Obviously, the earlier one begins a dedicated saving plan and reduces non-essential spending, the better. 

Consulting with a Certified Financial Planner

 is just one smart action step that can be taken to get you on the right path. Time can be your friend or nemesis; it depends on when you begin your journey. Your final pre-retirement destination should change from are we there yet to I have arrived!

A version of this article originally appeared in ChiroEconomics on April 15, 2015

H. William (Bill) Wolfson, DC, FICC, MS, MPASSM, CFP is a financial consultant and advisor and a member of the Dentist’s Money Digest advisory board. After passing the rigorous Certified Financial Planner examination, Dr. Wolfson obtained a Master of Science in Personal Financial Planning from the College for Financial Planning. He was subsequently awarded by the College a Master Planner Advanced StudiesSM. While in practice, as a doctor and fiduciary, care for patients was coordinated in a prudent, caring, proactive and diligent manner.  This same approach is used with clients for their financial planning needs and concerns. Additionally, by accessing Dr. Wolfson’s network of financial professionals, clients have access to nationally known experts in the financial planning and investing arena. Dr. Wolfson retired after 27 years of active practice. He is a member of the Financial Planning Association (FPA), American Chiropractic Association (ACA) and New York State Chiropractic Association (NYSCA). Contact Dr. Wolfson at 631-486-2792 or 

https://www.linkedin.com/pub/h-william-bill-wolfson/14/a55/226

Saving for retirement can be a challenge no matter your income. Mapping out a plan can make the journey less rocky.