Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Retirement Planning > Retirement Investing

Before you build that retirement plan…

Your article was successfully shared with the contacts you provided.

Last week, I discussed the six steps to follow when constructing a retirement plan for your clients. Here are other important aspects to consider.

Estate Planning

Minimize or eliminate probate. Probate is the court process whereby your clients’ assets go through the system to demonstrate the authenticity of their legal documents in order to decide who gets what assets. When your client’s estate is set up properly, probate is minimal or unnecessary. They can set up a trust and ensure their non-retirement assets are titled into that trust. Their gross estate could be depleted up to 6 percent for probate cost when planning is not done.

Minimize or eliminate death tax. If your client passes away in 2012 and has a financial worth of $5,120,000 there is no death tax. However, beginning Jan. 1, 2013, the federal estate exclusion will return to the 2002 level, which is $1 million. So in 2013 if your client couple has done no planning and their net worth is $1.5 million and they have kids, the first $1 million will be sheltered by the death tax deduction, while the $500,000 could result in a 43 percent loss (tax) to their kids. With some estate planning, utilizing a credit shelter trust, every dollar over $1 million and up to $2 million can be sheltered from the death tax. And while the unlimited marital deduction will ensure that a spouse can leave as much money as they want to a surviving spouse the death of that surviving spouse means their heirs can lose up to 43 percent of their inheritance.

Ensure your clients’ inheritance gets to the right people. For example, a qualified terminal interest property trust (QTIP) can ensure client couples can leave a certain amount of money to one person’s child. It allows for a surviving spouse to use the income from the asset without touching the principal and that when the surviving spouse passes the principal goes to the other person’s child.

So what are some of the red flags you can look for when helping clients construct their financial plan?

Is everything titled correctly so they can avoid probate?

  • Home, out of state property
  • Retirement accounts
  • Cars
  • Stock certificates

Beneficiary wording current and names the person they want to get the assets/proceeds.

Retirement accounts

They started at a company 30 years ago, named their wife and kids. They have been divorced and remarried 20 years and never made a change to the beneficiary wording.

Their company offers 100 percent retirement payout with no carry-over for their spouse at their passing or 75percent at retirement with 50 percent carry-over to their spouse at their passing.

Life insurance

Many people have policies they bought 20 years ago, have small plans bought for them or rider plans that carry small cash value and have not changed beneficiary designation in years. They are remarried, have grown kids now who are in situations that could affect their choice in naming them as beneficiaries. Some have old LP 85 policies they quit paying for; however, they had the dividends purchase paid up and they are still out there. You want to make sure the surviving spouse is able to exercise all the death benefits available. Moreover, you want to keep in mind that benefits on annuities may be taxable as ordinary income whereas death benefits on life insurance are tax free.

CDs, savings, money market and other accounts

Will the surviving spouse have access to these accounts outside of probate? Are there old accounts out there where the title or beneficiary is outdated? Many times non-retirement assets need to be re-titled. They could have an account that is jointly titled and when a spouse passes this may need to be re-titled, depending on the type of non-retirement asset.

Review the first page of their 1040 form

If they have a lot of taxable interest and they are in a higher taxable bracket you might recommend they reallocate some of that taxable interest that they don’t need to live on. That way, they can lower their reportable income, below the Social Security threshold, to reduce their taxes and possibly increase their monthly disposable income. They may be able to earn interest on money they were paying for taxes and delay paying these taxes until later in their retirement at a lower rate while enjoying a higher standard of living.

There are some things that we know for sure: People tend to get less healthy as they age rather than more healthy. The longer we live the more we need our income to last and as we move through this last phase of our life we have little time or resources to make up for any loses or bad decisions. None of us knows what the future holds and that is why it’s essential to help our clients put plans in place that will cover every eventuality as they reach their later years.

For more from Lloyd Lofton, see:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.