The 6 things that every investor should be doing

This planning checkup should include both a review of the planning that is already in place, as well as a look forward to evaluating any planning opportunities that you may leverage in a bear market. What follows is a list of important planning considerations for these difficult times, starting with a “back to basics” check-in, and moving on to wealth transfer and tax planning opportunities that may be relevant to some of you.

1. Update Your Will and/or Living Trust, and Financial Power of Attorney. If you have recently experienced a major life change (e.g., divorce, marriage, birth of a child, change in financial situation), we should review your basic planning documents as part of your planning checkup. The Last Will & Testament, and the Living Trust if you have one, dictate how the assets are disposed of upon death and who manages that process (i.e., the executor or trustee). Take a close look at the dispositive provisions (who gets what, and how and when they get it) and the Executor, Trustee and Guardian appointments to make sure they are aligned with his current financial and personal situation. The financial Power of Attorney appoints the individual, referred to as the agent, who will handle your financial matters during their lifetime if you are unable to do so. In addition to ensuring that the appropriate person is named as agent, you may want to discuss with the attorney the need for additional financial powers of attorney if you have certain complex assets (like a business) or assets located in other states.

2. Update Advance Health Care Directive. In this document, which is also known as a “living will,” you appoint the individual who will make health care decisions for you in the event you are unable to do so. It also makes your end-of-life wishes known.

3. Review and update beneficiary designations for retirement accounts and insurance. The disposition of retirement assets and insurance policies are generally controlled by beneficiary designation, not by the terms of your will or living trust. You can also take this opportunity to ensure that you have considered the impact the recently passed SECURE Act and CARES Act have had on your retirement planning. In addition to thinking about the planning documents, it is also important to check in with your parents and other family members to see if their planning documents are up to date.

4. Review wealth transfer planning that is already in place. For planning devices that were previously implemented, consult with the Estate Planning Attorney to see if any adjustments should (or can) be made considering the current market decline. Some examples of the types of planning that you may want to review are:

• Grantor-retained annuity trust (GRAT). If you funded a GRAT with an asset prior to the market dip, depending on the term of the GRAT and the recent decline in value of the stock, it may no longer be a viable transfer technique. You should discuss alternative planning options with your Estate Planning Attorney.

• Charitable remainder trust (CRT). If the existing CRT has recently suffered a steep drop in value, you may want to discuss the options for early termination of the CRT with your tax professional.

• Previously funded irrevocable trusts. If the trust is a “grantor” trust, consider “swapping” an asset with current appreciation potential for an asset of equivalent value (but less appreciation potential) owned by the trust — this may transfer additional value to the trust beneficiaries without additional tax cost. If the trust is a “nongrantor” trust and it currently owns an asset that is a better fit for your personal portfolio (for tax reasons, control reasons, etc.), purchasing the asset from the trust while the value is low should mitigate the trust’s income tax liability on the sale.

5. Consider new wealth transfer opportunities. If you can transfer wealth to the next generation prior to death, now may be the time to do it. There are several planning opportunities that work well in this type of economic environment of low asset values and interest rates. An example of one of these opportunities is:

• Gifting assets experiencing a dip in value, like marketable securities or real estate. The lower the asset value at the time of the gift, the less of the client’s lifetime exemption is required to shelter the gift from gift tax. This leaves more of the exemption available to use later in life, or upon death. Additionally, not only is the value of the gifted asset out of the client’s estate post-gift, but also any future appreciation.

6. Consider the Idea of Having a Family Meeting. During this time, it is a great time to have a discussion with adult children on your estate planning documents, long term care planning and your investment asset allocation. We can help you facilitate this discussion by reviewing your planning before the meeting and by running the meeting. We are an important part of the family team of advisors, but we are not a family member. Thus, we can help keep the meeting on track and help everyone to be better informed.

Not all these items will apply to you. However, everyone can benefit from a planning checkup. While you cannot control the Covid-19 or the market volatility that has ensued, this is something you can do to improve your financial situation. Let us help you. Please feel free to reach out to us at 201-843-0044.