Planning for an Inheritance

3 Tips for Anyone Expecting
an Inheritance
Financial Consultants Say Planning Will Help You Avoid Regrets

The odds are good that you will inherit money or assets in the coming years. And, if you’re like most people, you’ll save only half.

The largest transfer of wealth in history is underway, with beneficiaries expected to receive $59 trillion over the next four decades, according to a Boston College study. But those heirs will lose, spend or donate half of their inheritances, if a 2012 study by Ohio University holds true.

“People need to plan for inheriting wealth to avoid the pitfalls that result in so many heirs making emotional or ill-informed decisions they later regret,” says Michael Abbott, a veteran financial consultant and CFO of The Abbott Bennett Group, (www.theabbottbennettgroup.com).

It’s never wise to make important financial decisions based on emotion, and inheritance often starts with grief — one of the most profound emotions we ever experience, adds Chris Bennett, co-founding partner of the firm.

“Particularly with the death of a parent, people can feel a whole range of emotions – guilt, overwhelming loss, anger, relief,” Bennett says. “It’s a very bad time to make decisions that can affect you and your family for the rest of your lives.”

The average American inheritance is expected to be $177,000, according to an HSBC Holdings, a banking company. In Canada, the average is just under $100,000.

“Whether or not that sounds like a lot of money to you, handled properly it can have a tremendous impact on your life,” Abbott says.

He and Bennett share four tips for planning for an inheritance:

•  If you inherit non-cash assets, ask questions before you liquefy.
People inherit all sorts of assets: real estate, stocks and bonds, IRAS, gold, jewelry, etc. Different types of assets have different tax burdens attached. In order to preserve as much of your inheritance as possible, you need to learn the best way to minimize the tax burden for each asset.

“Once you’ve liquefied the asset – once you’ve turned it into cash – it’s too late,” Abbott says. “Life insurance is an exception. You won’t be taxed on that. A ROTH IRA that’s more than 5 years old will also be an exception if the amount is exempt under the current federal estate tax rules” ($5.3 million for 2014.)

•  If you inherit a tax-deferred retirement plan, consider rolling it into an inherited IRA.
“An IRA or 401(k), for instance, is a tax-deferred asset – the person who left it to you did not pay taxes on it. So if you take it in a lump sum, which some plans require, everything you withdraw will be considered taxable income for you,” Bennett says.

Alternatives include rolling the money into an inherited IRA – one that retains the deceased’s name along with language that clearly indicates it’s inherited. Don’t mix it with your own IRA. Then you can take small distributions over the course of years, and the money will continue to grow.

•  The best planning starts with a conversation with your loved ones now.
One of the biggest mistakes people make is not discussing inheritance matters while everyone is still alive and well. It allows the heirs to know their loved ones’ wishes and to make plans – without emotion – for what they may do with the assets.

“Some adult children won’t initiate the conversation because they’re afraid of appearing greedy or eager for their parents to die,” Abbott says. “Sometimes, the parents want to discuss matters but their children aren’t comfortable addressing mom and dad’s mortality. Even spouses avoid talking about it. It’s the most easily avoidable mistake families make.”

If loved ones express a desire to talk about “what you’ll get when I’m gone,” allow them to. It will give them peace of mind, Bennett says.

If you want to initiate the conversation, look for opportunities, such as when a family you know or a family in the news is dealing with estate issues.

Receiving an inheritance can be a life-changing experience, Bennett and Abbott say. It also represents your loved one’s financial legacy.

“Managing it well and preserving it is an important thing you can do in memory of that person you lost,” they say.

About Michael Abbott and Christopher Bennett

Michael Abbott has two decades of experience assisting retirees with their 401(k)s and pension plans. He is co-founder of The Abbott Bennett Group, LLC, an independent financial services firm, where he serves as CFO. He is a lifetime member of MDRT (Million Dollar Round Table), an association composed of the world’s best financial services professionals, and a member of NAIFA (National Association of Insurance and Financial Advisors). He holds a Master of Estate Preservation designation.

Christopher Bennett is a 16-year financial professional who has served as CEO of The Abbott Bennett Group, LLC, since 2003. He holds a Certified in Long-Term Care designation, a Master of Estate Preservation certification, and is a lifetime member of Million Dollar Round Table). Chris is also a member of multiple chambers of commerce, and participates in the National Association of Insurance and Financial Advisors. He has hosted and conducted hundreds of seminars and workshops.

Retirement Danger Signs

6 Signs Your Retirement
Plan is in Trouble
Estate Planner Shares Tips for Avoiding a 2008-style
Disaster during the ‘Distribution’ Years

After the 2008 economic meltdown, when the stock market fell 37 percent, veteran financial advisor Curt Whipple says he met with clients from outside financial institutions who’d lost 50 to 60 percent of their portfolio in a single year.

“Almost no one foresaw what happened that year, and I doubt very much that many will foresee a collapse if it happens again,” says Whipple, a Certified Wealth Strategist, Certified Estate Planner and CEO of C. Curtis Financial Group.

“Regardless, there are eight indicators that you can focus on that will help you identify whether or not you’re taking too much risk in your portfolio and if your retirement plan is in danger.”

Whipple, who recently published “Retiree Lifeline! How to Get Government Out of Your Pocket,” (www.ccurtisfinancial.com), a retirement planning guide, reviews the six danger signs from 2008 to watch out for in 2014.

• You either looked at your accounts every day OR you wouldn’t look at them at all. In 2008, people couldn’t believe what was happening to their portfolios. They looked at their account every day – an exercise in masochism – as their advisors told them either, “just hang in there,” or reminded them that the market is a long-term investment that cyclically rises and falls. That advice led them to stop looking at their accounts, which was as bad as looking at them every day, as their advisor told them to just hold on.

• You lost more than 15 to 20 percent of your investments’ value in 2008. That indicates you had too many risky investments. It’s important to know what level of risk you’re comfortable with – generally speaking, the younger you are, the riskier you can be. However, risk is also a personal decision. Make sure you and your advisor are on the same page regarding risk tolerance. That will require your advisor taking the time to explain your investments and how they’re diversified.

• Your broker or financial advisor fails to call you regularly. You should get a call every quarter from your advisor to review and discuss your account. The only time this should not be the case is if you specifically request to be contacted less frequently.

• Your portfolio is tied mostly to Wall Street or stocks, bonds and mutual funds. If each investment you have is one or all of the above, then your investments are not truly diversified. In addition to those investments, you should consider alternative investments like Real Estate Trusts (REITS), and your accounts should feature some kind of guarantee.

• You depend on your bond portfolio to protect you in hard times. We are living in a new financial era; bonds now have an inverse relationship to interest rates, which are so low now that they will invariably increase in the future. As interest rates rise, bonds will decline in value. That’s why using bonds as your only alternative to a falling market is a dangerous idea.

• You excessively worry about money. Your fear may be based in reality if you have a number of risky investments; if you really don’t understand what you are invested in; or if you don’t have a clear plan to achieve your financial objectives.

About Curt Whipple, CWS, CEP

Curt Whipple is the author of “Retiree Lifeline! How to Get Government Out of Your Pocket,” (www.ccurtisfinancial.com). A Certified Wealth Strategist (CWS) and Certified Estate Planner (CEP), he is Chief Managing Partner at the C. Curtis Financial Group, which he formed in 1986. Since then, Curtis Financial Group has counseled and advised individuals and corporations on their financial goals and decisions. Whipple is a nationally recognized speaker.

Understanding Wills

Your Will: The Overlooked Bucket-list Item
Financial Expert Explains the Vital Importance of this
Document

Of the trendy terms to come around in the past decade, “bucket list” remains among the most useful, says retirement planning expert Jeff Gorton.

“As a neologism, I hope it endures because it reminds us of how precious our time is – and that it’s important to plan wisely,” says Gorton, a veteran Certified Public Accountant and Certified Financial Planner™, and head of Gorton Financial Group (www.gortonfinancialgroup.com).

“Unfortunately, after some have listed their items and even checked a few things off, they forget about one important item that really counts after they’ve ‘kicked the bucket’ – their will.”

Only about 40 percent of adults in America have a will, which is probably due to people not wanting to be reminded of their own mortality and that life will go on without them, he says.

“But what’s the alternative? If you die without one, the state decides what becomes of your property, without regard to your priorities,” says Gorton, who also advocates his clients make use of a written income plan (WIP), a living document that helps organize financial priorities. “Why not enjoy the fact that a will is an instrument of power? Youget to decide who gets what.”

Since so many adults don’t have a will, many don’t understand how they work. Gorton breaks down wills into four basic parts:

• Executors — Most wills begin by naming an executor, the person responsible for carrying out the wishes outlined in the will. Duties include assessing the value of the estate, gathering the assets, paying inheritance tax and other debts if necessary, and distributing assets among beneficiaries. It is recommended that you name at least two executors in case your first choice is unable to fulfill the obligation.

• Guardians — A will allows you to designate a guardian for your minor children. Whomever you appoint, you will want to make sure beforehand that the individual is able and willing to assume the responsibility. For many people, this is the most important part of a will since, if you die without naming a guardian, the court will decide who takes care of your children.

• Gifts — This section enables you to identify people or organizations to whom you wish to give gifts of money or specific possessions, such as family heirlooms or a car. You can also specify conditional gifts, such as a sum of money to a young daughter, but only when she reaches a certain age.

• Estate — Your estate encompasses everything you own, including real property, financial investments, cash and personal possessions. Once you have identified specific gifts you would like to distribute, you can apportion the rest of your estate
in equal shares among your heirs, or you can split it into percentages. For example, you may decide to give 45 percent each to two children and the remaining 10 percent to a sibling.

“You’re not legally required to have a professional write a will for you, but I highly recommend you get certified help because these documents are often contested by people who are unhappy with the decisions you made,” he says. “After working a lifetime for your assets, you deserve to have them go where you want after you’re gone, and your family will be grateful to you for not leaving them with the headache of trying to sort out your estate.”

About Jeff Gorton, CPA, CFP®

Jeff Gorton is a Certified Public Accountant and a Certified Financial Planner™ specializing in individual tax and retirement planning. He is also an Investment Advisor Representative under Alphastar Capital Management, an SEC Registered Investment Advisor, and has a life and health insurance license. Gorton works with individuals and their families to create and protect their financial legacies. He specializes in working with retirees in the areas of tax planning, benefits, retirement planning, estate planning and safe money techniques. He received his BBA in Accounting from the University of Oklahoma. Gorton previously worked for 10 years as the Chief Financial Officer for a large retail organization, overseeing their accounting, benefits and 401(k) retirement plans.