Estate Planning

I have some time to think instead of act lately. A bit different but I think useful.

My favourite thought paradigm is estate planning, so that has been getting some refreshment.

Estate plans are a process not an event

Estate planning addresses a fundamental fact. All of the money you have now and all of the money you will receive in the future will end up in one of three piles. You will spend it on living from now until the second death of a couple. You will give some away or leave it to others. You will lose some – primarily taxes, but poor investment approaches and poor product selection can add to the losses.

We can all easily agree that as we approach the problem, loss avoidance will be high on our list of things to address.

Avoiding losses

There are two aspects to this and people generally only address one of them.

  1. Avoid costs that appear at death. Probate fees, income taxes, estate taxes where legislated, valuation, accounting and legal fees.
  2. Costs that arise while living. Income taxes being prominent, but there are others too.

Losses at death

Costs that appear at death can be dealt with by competent professionals. A value freeze is a common approach. Joint ownership with right of survivorship another. Trusts are not unusual. The costs that seem to be regularly missed include the cost to acquire liquidity. Liquidity is necessary to pay the new costs and it is also necessary for equalization among the heirs, charitable bequests, and to overcome negotiated losses where assets are sold. Soft costs like animosity amongst the heirs is an insideous cost and easiest to resolve. No one fights over which bank the cheque is drawn on, they do fight over heirlooms and family monuments like businesses, farms, vacation properties, and the family home.

Losses while living

Most people see a loss to be something they had and now it is gone. The money sent to the government as a tax instalment for example.That sort of loss is easy enough to see and is often solvable People have worked on that sort of issue for a long time and have become good at it. Insurance is a tool for that, too.

The harder to address losses are the ones that result from never having had the money you could have had. Paying too much for something or buying a product you don’t need at all. Happens to us all.

What about investing in “age appropriate” assets. Many olde rpeople own short bonds, bank deposits, money market funds and cash becasue they have been told volatility is their enemy. They are right but as always, only in a single context. “Right” is always contextual. Suppose you have $1,000,000 in investable assets. Your bank has told you that volatility could harm you, but they do so usually without context. and as a result you tend to earn a highly taxable 2% or so on the money.

Suppose you found that you needed neither the income form the money nor the captial itself. In essence, you are the steward for that money on behalf of whoever your heirs may be. If ther eis only one, and they had $1,000,000 would they invest it in highly liquid investments. Maybe but only if they could see the need in the short run. If they would hold it for the long run, they would likely own an equity-heavy balanced fund. Likely somehting like 70% equities. The cost over 15 years is stunning. $1,000,000 growing at 1% after taxes becomes $1,161,000. $1,000,000 growing at 5% after taxes becomes $2,079,000.

That’s an easy $900,000 for you and your family by adding just one variable to the context. You don’t need the money while living. It is not especially difficult to establish how much of what yuo own today will apear in your estate. For sure or probably When you know the variables well enough and the range within which they work, you get better answers.

Overview

It is a mistake to see your estate only in the context of death. Estate management begins today and lasts until about 18 months after the second death. Use all the variables and techniques to your advantage.

Be sure to have the paper in order. Well-drafted wills and powers of attorney matter.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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