Owning Your Next Chapter

For many individuals, the job of actively and responsibly managing significant wealth was not necessarily an outcome they anticipated. Whatever your back story, Summit Trail wants to help you own your next chapter.

Personal financial management is both science and art. It encompasses technical topics (legal structuring, tax filing, investing) where laws, regulations, experience, and data can be used to drive to an optimized solution. Additionally, it includes softer topics (priorities, relationships, and personal values) where there are multiple appropriate approaches and no quantifiable right or wrong answers.

Putting Your Team Together

As you contemplate your needs and the management of your assets and liabilities in this new chapter, it is important to assess your coverage team to determine if a change is in order. With your significant wealth and new circumstances, have you outgrown your tax advisor? Was the team of past advisors primarily there to support your former or deceased spouse, and do you still trust them to act in your best interest? Is the scale of your assets prompting you to engage a more sophisticated investment advisor?

A team of professionals who work together on your behalf will help you get to better outcomes. Many financial advisors have worked with specific attorneys, accountants, and industry experts on behalf of other clients, so they bring pre-existing relationships and efficiencies that could benefit you in building your team. Asking one advisor whom you trust, or a friend who is in a similar wealth position as you, for recommendations is an easy way to start.

Legal Documents that Work for You

Updating your estate planning documents should be one of the first steps as you organize your financial affairs. At the center should be a living trust – where the grantor, trustee, and beneficiary are all the same person. Two primary benefits of holding assets in trust are privacy and avoidance of probate, which can be costly and lengthy, with assets locked up during that interim period. Assets held in trust, however, can be distributed directly to the subsequent beneficiaries after the grantor’s death, per the language and guidance of the trust document.

The exercise of planning the posthumous disposition of your assets requires reflection on the people, values, and causes that matter to you. The assets held in a living trust are yours – to spend, save, grow, and gift – so long as you are living, but the trust structure allows you to be specific about what happens to your assets next and ensures that your directions are carried out in a timely, streamlined manner.

After establishing the trust, be sure to take the time to retitle bank and investment accounts as well as other assets to your new trust. A will, the second important document, can designate guardians for minor children and also capture assets not titled in your living trust and direct them to “pour over” into the trust.

Other documents that are standard in an estate planning package are a durable power of attorney and a health care proxy. These documents authorize another person to make decisions on your behalf – relating to your assets, liabilities, and health care – when you are unable to do so yourself.

If you already have documents in place, ask yourself whether they still serve you well given your new responsibility. For example, is the person named as power of attorney one you still trust to act in your best interest? Are there beneficiaries designated in your trust you would like to modify? Additionally, both state and federal tax law changes periodically, so reviewing your documents with an attorney every five years or so is a good practice.

Accounts in Your Name

You will also need to establish or update the appropriate accounts for your new chapter. This may include managed or brokerage accounts for your investments, retirement accounts for qualified assets, and checking and banking accounts for day-to-day spending. Keep in mind that cash held in a bank account is only insured up to $250,000 (unless there is more than one “beneficial owner” for the account).

If you have a former or late spouse, a division and/or reallocation of retirement assets may be in order. You can roll qualified assets from one retirement account to another, so long as you maintain the appropriate account type. There are many rules governing qualified accounts, so this is an area where professional guidance is key. You also should confirm the beneficiaries that are named for each of your retirement accounts.

The Federal Deposit Insurance Corporation (“FDIC”) provides deposit insurance to protect your money in the event of a bank failure. Your deposits are automatically insured to at least $250,000 at each FDIC-insured bank.

Asking the Right Questions

Managing your wealth wisely requires accounting for a myriad of factors, and there are ways to build a plan that include both quantitative and qualitative approaches. Some questions that may be relevant in this new chapter include:

• What are my annual spending needs, and will my current assets cover these needs?

• Are there significant changes that will take place in the future (e.g. a real estate acquisition or downsizing, business liquidity event, children’s milestone events) that could lead to new assets or expenses?

• Where do I plan to have residency and how will that impact my overall tax picture?

• What are priorities for my money while I am living versus after I am gone?

We often ask our clients, “What is this wealth for? At the end of the day, what do you really want the wealth to accomplish?” Though the questions are simple enough, they can prompt clients to reflect on what is most important to them.

Putting Your Plan in Place

With objectives identified, you can develop the course for your new chapter and beyond. Your plan may include further estate planning to prioritize generational wealth transfer in a tax efficient manner, or perhaps to establish a charitable entity. Within the framework of your plan, you will want to ensure that the optimal assets and investments are in each of the buckets.

Certain assets will be better or worse candidates for use towards different goals. For example, you would want to fund a charitable entity with highly-appreciated assets to maximize the tax benefit. Additionally, if you set up an irrevocable trust for the benefit of children, you may designate that as a grantor trust or non-grantor trust, and you would allocate certain assets accordingly. The grantor trust would require you as grantor to cover the taxes associated with the assets held in the trust, effectively gifting the value of that tax burden to the trust’s beneficiaries. However, there are times when it is more efficient (or practical) for the trust to be its own tax-paying entity. Your objectives and priorities will also influence the strategic allocation of your investments – in terms of risk level and liquidity – as well as your use of credit and financing.

Moving Forward

A good plan is clear but flexible, allowing you the freedom to adapt as circumstances change but always keeping you directionally on course. With a trusted team, updated documents and accounts, and a clear plan, starting a new chapter should feel comfortable, if not invigorating. Your significant wealth provides ample paper and ink, but the story is yours to build.