I get calls every week from investors wanting to know the best place to invest money. It's a reasonable question, but I often find that the investor is focused on the wrong part their financial situation. Does it really matter if an investor can get a 12% return rather than 6%, if they ignore their estate planning situation and pay the government an unnecessary $500,000? Wouldn't it make more sense for an investor to focus on the best way to save that $500,000 than focusing on how to invest $50,000 to earn another $3,000 per year? The answer is obvious, but it's not how many people behave.
Why do investors behave in this way? Most investors incorrectly believe that estate planning is about giving money away and losing control over their assets. This mistaken perception is promoted by attorneys and advisors who provide shallow advice about simplistic strategies of gifting money away or giving it to charity.
For example, a common recommendation is to place money in an irrevocable trust in order to remove it from your estate. That common suggestion means you lose control. If these advisors really kept current with their field, they would also know that money can be made exempt from estate taxes while still giving you access to the funds. You do not need to lose control.
If you listen to many advisors, it sounds like estate planning is about relinquishing control of your assets. When in fact, estate planning is about maintaining control of your assets. Just look what happens if you do not utilize estate planning - the government takes control over your money and here's how they spend your estate taxes:
34% |
Defense |
21% |
Interest on National Debt |
14% |
Physical and Community Development |
28% |
Social Programs |
3% |
Law Enforcement |
If you don't like how the government spends your money, estate planning will redirect how your money is spent, based on your desires. Therefore, estate planning is about taking maximum control of your money to be directed based on your desires, not the government's desires. Other reasons that investors fail to do estate planning include just plain ignorance or mistakes in their knowledge. Some investors still think that if they have a living trust, they'll pay no estate taxes. This is a widely held misconception. Other investors hate talking about estate planning because they'll have to confront mortality. And as mentioned before, some investors think that estate planning means giving money away. In fact, good estate planning starts with making sure you have ample resources for yourself. Only when that is ascertained, can estate planning begin. Others think their estate planning problem will go away because the government is raising the level on the estate tax exemption. But they forget that as the government raises this level over the next 8 years, their estate will also rise in value. So, there is really no savings gained.
Estate planning boils down to one simple issue—do you want to have control of your money?
How do you start? We start by having clients complete a questionnaire that helps them focus on their goals and desires. The questionnaire is followed up with an interview to help translate the answers into specific desires. Only then, do we go to work to determine ways to achieve what our client wants. This avoids the mistake that many make, by jumping right into the tools (trusts, gifting, insurance), only to learn later that the tools don't work as desired.
So if you really want to make a big difference in your financial picture, it may make more sense to focus on estate planning than on how to get a higher percentage on your investments (a percentage that the government may get most of anyway).
To get started on the process, please phone our office to schedule your first meeting.