An Estate Planning Story
It’s 8:06 am on Monday and a young lady walks in to my office carrying two banker’s boxes in her arms. With a distraught look on her face, she asks “can you help me with this?” She explains that four months ago her father died and one month later, her mother died. In the two banker’s boxes were years of bank statements from multiple banks, a single investment firm statement, an annuity statement and months of 401-k statements. Digging to the bottom of the boxes, I even found stock certificates in the father’s name.
Empathetically, I said, “Let’s see what I can do. Do you have a copy of the will?” She replied, “They didn’t have one.”
Over the next few weeks, I sorted the statements by institution and by month. I also reviewed the beneficiary designations on the annuity and 401-k. She did have a copy of their most recent tax return which was helpful in auditing the inventory of assets that I created. I presented her with my findings and assisted her in contacting each institution to find out if “payable on death” was on any of the bank accounts or investment account. The annuity and 401-k had beneficiary designations where the wife was listed, and POD was on none of the bank accounts or investment account.
Unfortunately, the young lady was forced to hire an attorney and go to the court to open the estates, resulting in probate and thousands of dollars and months of time.
This story is not uncommon. I meet rich, middle class and poor; young and old that do not have a will. However, a simple trip to an attorney could have prevented much wasted time and legal expense. The attorney would have drawn up a simple will and listed the spouses as each other’s beneficiary with the daughter as a contingent beneficiary. The bank accounts and investment firm account could have had “payable on death”, which is a common request and form that you can ask your bank and/or investment firm to put on your accounts, CD’s, etc… The stock certificates could have been booked into an investment account with payable on death and lastly, the annuity and 401-k could have had the daughter listed as a contingent beneficiary. A contingent beneficiary is who receives the assets should the primary beneficiary not be alive.
All of these assets could have avoided probate with these simple steps.
Estate planning is not complex or costly compared to the difficulty of settling an estate where no planning was done. If you would like a copy of my “ESTATE PLANNING CHECKLIST” and/or for an appointment to discuss creating or reviewing your estate plan, give us a call to set an appointment. 731-285-0097. The checklist and appointment are free and with no obligation. Both could save your family valuable time and resources at a very difficult and emotional time in their life.
What am I paying?
This is a common question on the minds of most with money in an investment account, annuity, IRA, 401-k, etc… There are primarily three types of relationships clients have with their financial advisors:
Commission: The advisor or agent receives a commission for selling an investment. In this arrangement, neither the client or advisor/agent have any control over this cost unless it is an equity or option transaction, in which case the cost is generally negotiated based on the size of the transaction. Mutual funds and annuities have a fixed cost and the advisor/agent is required to provide a prospectus which outlines upfront costs, ongoing costs, surrender charges, etc… Mutual fund and annuity costs are the same from broker dealer to broker dealer in a commission arrangement.
Advisory asset management: In this arrangement, the advisor is acting as a fiduciary and makes decisions on what to invest in based on factors such as the client’s objective for the investment, age, financial needs, liquidity needs and emotional tolerance for risk. The advisor is paid a percentage of the assets on an annual basis. No commission or upfront costs as well as surrender fees are allowed in this arrangement.
So for example, if an advisor charges an advisory fee of 1% and the client invested $100,000.00, the advisor would receive $1,000.00 for the year for their services. In my firm that includes advising the client, selecting, monitoring the investments and periodically rebalancing the account. The fee is generally calculated on a quarterly or monthly basis but is based on an annual basis. In my example, if the investment account earned ten percent making it $110,000.00, the fee would be $1,100.00 the next year. Conversely, should the account lose ten percent resulting in a value of $90,000.00, the fee would be $900.00. You can see in this relationship; the advisor has a vested interest in the performance of the account.
Many modern investment relationships are established in this manner. Some investment firms will not allow commission accounts. However, not until the last decade, almost all investment relationships were commission based.
Advisory consultation: Like other professionals such as attorneys and Certified Public Accountants, some financial advisors can offer advice for a fee. The fee may be charged by the task or by the hour. For example, if you wanted a comprehensive retirement plan but wanted to leave your assets with another advisor, you could engage with an advisor to create and monitor the plan for an upfront set fee with an annual fee or pay them by the hour. These costs are negotiable and are set by the advisor. Not all advisors are allowed by their firm to engage in this manner.
In my opinion, I would hire a Certified Financial Planner™ Practitioner for this type of arrangement. To learn more about what a CFP® is and to locate one in your area, click: HERE
At Davis Wealth Services, we offer all three arrangements and which is best for you depends on several factors such as financial needs, activity in the account (low or high) and whether you want to relinquish the responsibility of making decisions completely to the advisor. If you would like to discuss your current account(s) with other institutions and/or our fees for service, please give Kim or Charity a call to set an appointment. 731-285-0097.
We sincerely hope that you stay warm and safe during these cold days we are experiencing. Here's to your health, wealth and happiness.
Cheers!
*This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.