Many people nearing or beginning retirement find that their financial concerns become more complex--and
that there's more to consider than simply how to accumulate dollars. And yet, in their simplest form, most
people,s objectives still point toward one desire: peace of mind for themselves and their families. That's
the foundation of Heritage Planning: the reality that, behind the performance ratings, the search for "hot"
investments, and superstar money managers, your financial concerns are Actually pretty basic: helping
yourself, helping your children, and helping your parents.
The Process of Heritage Planning
The process behind Heritage Planning begins with identifying goals. Once you've determined and
prioritized your goals, one of our advisers can help you identify various strategies that might fit your
situation and work with you on the specific steps to put these strategies into action.
The information provided here focuses on helping yourself and provides a starting point for a discussion
with your financial adviser about how well your financial plan reflects your needs today, so that you can
lay a foundation for proceeding next to the planning necessary to help your family. Companion brochures,
available from your adviser, and additional web pages address
Helping Your Children and
Helping Your Parents.
Asking The Questions: You Already May Have Started The Planning Process
The questions you may be asking yourself now can be a good first step in arriving at goals:
- "How much annual income will we really need in retirement--and what size nest egg might
- "Is there anything I can do to reduce my tax bill?"
- "Is there some way to put the built-up cash value of my insurance to better use?"
- "Who will make financial decisions if my spouse or I becomes incapacitated?"
- "How hard would it be on my spouse or children to figure out my finances if I should pass away
- "Do we really need this big house now that we're retired?"
- "Is my portfolio too aggressive at my age?"
- "What are the financial planning implications of our moving to another state?"
- "My nest egg seems comfortable, until I think of my father living 25 years in retirement. Do I really
- "Who will make medical decisions for me if something should happen?"
- "Is it time to put together a will?"
- "When should I update my will?"
- "I know we'll be spending a lot of time at our vacation home...would it pay to establish a permanent
residency there? What's involved?"
- "Could I be getting more tax benefits from my charitable giving?"
- "Now that we've paid off the mortgage, does our insurance picture change at all?"
- "At what point should I begin tapping my IRA? 401(k)? Annuities?"
- "Long-term care insurance and Medigap insurance...these aren't something I need. Right?"
- "Just how much do my children need to know about my estate planning?"
- "Should I take my chances with a lump-sum distribution from my pension or opt for the annual
Better-than-average investment performance may well be one of your goals. But if you're really "planning,"
your goals might also include these:
- ...a retirement free of money worries
- ...a nest egg that lasts as long as you do
- ...an investment portfolio that keeps pace with rising costs
- ...as much investment income as you can earn--while still being able to sleep at night
- ...paying your fair share of taxes, but no more
- ...the confidence that you've made prudent decisions on date-of-retirement issues
- ...peace of mind knowing that a health crisis won't lead to a financial crisis
- ...assurance that your estate brings happiness, not stress
Once you've set goals, we can point you toward the strategies that help you achieve those goals. While
they all won't apply to everyone, the strategies below can help you get a feel for the wide variety of
options available to you.
- Review overall investment selections, including allocations across asset classes and whether to
invest a portion of your portfolio more aggressively.
- Practice dollar-cost averaging, or consistent investing, particularly in volatile markets.
- Quantify the potential risk exposure of your current investment portfolio.
- Review insurance coverage.
- Evaluate opportunities to reduce taxes.
- Consider trust options that allow you to control the timing and ownership of transfers from your
estate, both before and after your death.
With strategies in place, we can help you develop action steps. (Individual situations vary, and these
steps may not be appropriate for everyone.)
- Consider combination fixed/variable annuities that split an investment betwwen a guaranteed-rate
portion and a variable portion--offering you principal guarantees as well as opportunity for tax
- Pay off your mortgage early...or refinance it, depending on your tax circumstances.
- Purchase long-term care insurance.
- Designate someone you trust to make financial decisions for you in case of your incapacity.
- Consider single-state municipal bonds for potential double--or triplle tax-free earnings.
(A small portion of income may be subject to state, federal, and/or alternative minimum tax.)
- Use an irrevocable trust to shift tax liability for an income-producing asset.
- Make gifts of highly appreciated assets.
- Ensure appropriate asset registration on estate-planning documents and insurance policies.
- If self-employed, forego taking lump-sum distribution of retirement assets in order to provide greater
asset protection from business creditors.
- Create a family limited partnership as a gifting vehicle to allow both tax benefits and control of an
asset over your lifetime.
- Create a "Q-Tip" trust to provide income to a spouse while at the same time ensuring passage of
principal to others, such as children of a prior marriage.
- Execute a "Power of Appointment," permitting a trust beneficiary to alter previously irrevocable
trust terms under certain conditions.
- Participate fully in employer-sponsored tax-deferred retirement plans such as 401(k)s and other
tax qualified plans such as 403(b)s, if eligible.
No Plan Is Forever
All to often, families assume that a financial plan or strategy developed at one stage will be appropriate
forever. These hypothetical examples highlight the dollars-and-cents value of making sure your planning
is ongoing and reflects any changing circumstances.
Tax advantages at a price. About the time their children were in college, John and Mary
Jones invested substantial amounts in tax-free mutual funds. The funds' performance has been good, and
in those high-earning years the Jones were very pleased with the impact on their tax bills. Today,
however, with both Jones retired and in a lower tax bracket, those same assets invested in many kinds of
taxable investments actually could generate higher after-tax returns. Approximate cost to the Jones of
this tax "advantage": $175 a month.
Blind devotion to tax deferral. Rather than touch a tax-deferred account, William Gibbons
liquidated hundreds of shares of low-basis stock throughout his retirement--incurring capital gains taxes
well in excess of the tax bite that would have resulted from tapping his tax-deferred assets. What's more,
at his death, his tax-deferred assets were subject to a federal "success tax"--the penalty on excess
accumulation in tax-deferred accounts.
Sharing the wealth. After her husband passed away, Mrs. Brown wanted to ensure that if
something were to happen to her, her daughter Jill would have immediate access to all her assets without
delay and expense of probate and estate taxes. To achieve this, Mrs. Brown was careful to maintain joint
registration with her daughter on all of her major assets. When Mrs. Brown died, however, Jill learned that
while the joint registrations did provide her immediate access to the assets, they did not have any effect
on the taxability of Mrs. Brown's estate, which was well in excess of $600,000. As a result, the majority of
her mother's assets were considered part of her mother's estate, and thus subject to estate tax. The
estate tax may have been reduced or eliminated had Mrs. Brown explored the use of trusts and other
strategies. The cost: thousands of dollars in unnecessary estate tax.
A living will that doesn't survive. After caring for her mother through terminal illness, Sue
Reid was determined to make clear her own intentions regarding medical measures that prolong life at any
cost. She carefully spelled out her wishes with the help of a physician friend, had the document notarized,
and secured it in a safe deposit box. Sue's wishes may yet be respected. But in many cases an informal
document will not survive challenges, and a legal tangle would embroil her family in controversy when they
least need the stress. The best course would have been to have an attorney prepare a proper living will.
Big gain, Big pain. Jerry Scanlon was delighted with the mutual fund his coworker
recommended to him. Five stars, cover of Money--and best of all, Jerry was able to invest just
before January, when the fund closed it's doors to new investors. Jerry was delighted--that is, until he
received a substantial check from the fund: a capital gains distribution of several thousand dollars for
the year, for portfolio appreciation he wasn't around to appeciate. Cost to Jerry of "getting in before the
doors closed": thousands of dollars in capital gains tax.
More details on these issues and many others are available.
Please understand that while this information was gathered from sources believed to be reliable, it is only
a starting point and is generic in nature. Therefore its accuracy cannot be guaranteed for every situation.
We encourage you to contact our office so that we may evaluate each situation independently and offer
accurate advice based on individual needs. We also encourage you to discuss any recommendations with
an attorney or tax advisor. If you do not have an attorney or tax advisor, we will be happy to refer you to
For more information or a list of other Heritage Planning educational materials on helping your parents, contact:
Richard M. Smith
Professional Educators Benefits Company
Post Office Box 37102
Tallahassee, Florida 32315-7102