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Thoughts on Estate Planning from the Ultra-Rich

Thomas Heath’s Washington Post column on how the ultra-rich talk to their kids about money may not give you a detailed plan for discussing finance with your children but it does give you some food for thought on estate planning. If you assumed that all wealthy people like talking about money because they have plenty of it, think again.

“Wealthy people on both sides of the equation — the wealth creators and the heirs — often consider it gauche to even discuss money. Some are embarrassed by it.”

One owner of a family business has each of this children talk with the family estate attorney when they reach the age of eighteen. And this talk is between the attorney and the eighteen-year-old while Dad sits out in the lobby. The talk at eighteen is preparation for turning 21, which the business owner considers the beginning of adulthood. He thinks a responsible adult will have a will and an estate plan.

Other business owners interviewed talked about establishing trusts and their philosophies on how a trust should be administered. Setting up a trust that allows access to money at different ages is one way to see to it that a child does not go through a huge amount of money with youthful exuberance.

There is also the stance taken by some very well known millionaires and billionaires: leave your children no money or a very small inheritance so can appreciate the value of hard work. One of the most famous wealthy Americans to do this was Andrew Carnegie; he said it would be ‘a disgrace to die a rich man.’

Whether you want to give your wealth away or pass it all down to your heirs, you will need a plan to distribute your resources because you cannot leave it up to chance and the courts. And this is where a Fee-Only financial planner can help. It is up to you to decide to do some estate planning before talking to your heirs or to do it in consultation with them. Either way, a Fee-Only financial planner can help you get started so you can design an estate plan that will meet your financial goals.

Give Your Investments Time to Grow

You may have heard talk of ‘helicopter parents,’ to refer to parents who won’t give their children space to grow because they are constantly hovering over them and perhaps even trying to do school assignments for them. Well, as Fee-Only financial advisor Margaret R. McDowell explains in “Don’t hover over your investments,’” you may be a ‘helicopter’ investor if you are not giving your investments time and space to grow.

As McDowell explains, all of out technological advances may be hurting our investment portfolio if we use the computer and phone apps to continuously check on our investments. While there are always exceptions, for the most part, you cannot expect instant returns on an investment. And sometimes investors who keep checking on an investment and find themselves disappointed are tempted to sell or switch to new investments without giving their money time to grow. It would be nice if all investment simply gained more and more as time went on but that is not the case. If you find that your investments dip or remain steady on one day that does not mean you are doomed.

While McDowell says that she does check client investments often, she suggests her clients take a break from checking on investments too frequently because:

“…the maturity and patience to adhere to a definitive time horizon is at odds with our instant gratification culture. Novice investors who want a home run within three weeks or even three months are often sorely disappointed to discover that successful investing resembles a marathon, not a sprint.”

While you should be aware of how your investments are doing, working with a Fee-Only financial advisor you can trust means that you do not need to hover. Your financial advisor can work with you to plan an investment strategy that will help you reach your long-term financial goals.

Financial Planning Lessons from the Founding Fathers

Money magazine’s Money Lessons of America’s Founding Fathers offers the kind of financial information about our country’s early leaders that may have been missing from your history textbook. Whether you can relate to the Founding Fathers or not, you can learn from their financial planning practices (or lack thereof).

Alexander Hamilton is all the rage these days because of the hit musical about his life. It is true that he may not have been given the credit he deserved for the creativity he showed in building our nation’s financial structure but it is also true that he did better for the country than he did for his own family. His widow was left in financial difficulty after his death.

While they were not exactly friends in real life, both Hamilton and Thomas Jefferson were known for spending too much money to impress others. They both earned plenty but their spending habits meant they did not leave a lot for their heirs.

If  you’re looking for a financial role model, consider the author of Poor Richard’s Almanac. As the article notes, Ben Franklin became the country’s first self-made millionaire, in part because of the media empire he founded. He had relatives operate franchises of his printing business. Franklin founded newspapers (published on his own presses) and used his position as postmaster general to further his publishing interests (something that might be frowned upon today). Ben Franklin had his flaws but overspending was not one of them–perhaps because he was older than some of the other Founding Fathers and felt less need to compete with them.

John Adams is noted not because he was so good with money but because he knew enough to get help from someone who was: his wife Abigail. Abigail Adams was a shrewd investor. She managed a lot of the family finances but still had to intervene to prevent her husband from making bad investments.

Grace and Frankie: Gray Divorce and Starting a Business

The Netflix show Grace and Frankie chronicles what happens when seventy-something frenemies Grace and Frankie learn that their husbands were not only partners in a law firm but also romantically involved. The two men decide they want to live out their days together so they divorce their wives.

In “‘Grace and Frankie Show Us How to Retire in Style,” financial advisor David Rae looks at lessons from the show. One is that while you can make plans, you should expect the unexpected. Retirement planning is important because you can adjust when something unexpected happens. If you have made no plans and have no savings, it will be tougher to handle the unexpected.

Rae also points out that Grace and Frankie’s living arrangements are becoming more popular. On the show, the two women become roommates when both end up at the beach house they had purchased with their former husbands. Rae discusses the financial, social, and emotional benefits older people can reap when they decided to live with a roommate.

The Huffington Post discussed the show again earlier this year in “Grace And Frankie’ Totally Nails What It Means To Be Getting Older.”  In the third season, Grace and Frankie decide to market and sell a line of sexual aids designed for older women. The two women are disappointed when they aren’t a good fit for an idea-centric business incubator and a bank denies them a 10-year loan. Writer Ann Brenoff zeroed in on the more obvious reasons that a young banker would not want to give a substantial loan to retirees who want to launch a business: age, gender, and the fact that he probably felt a distaste for the product they wanted to sell since younger people don’t like to think about the sex lives of older people.

However, another important and less obvious factor in the bank’s rejections is this:

“…older business borrowers aren’t great guarantors ― especially if, like Grace, they’ve been successful and are smart. Successful, smart people generally know to tie up their assets in retirement plans or trusts, which creditors can’t touch. If the borrowers die or are disabled, the bank is left dealing with heirs, who know nothing about the borrowers’ business.”

So smart retirement planning may keep you from getting a bank loan but it will make things easier for your heirs.

Millennials and Estate Planning

Yes, we know many Millennials don’t use paper to make lists but you get the idea–add estate planning to your to-do list.

The media spends a lot of time talking about Millennials. Experts analyze their spending habits, discuss how they will affect the economy, and sometimes chastise them for their financial planning or lack thereof. Earlier this year, NerdWallet decided to talk to this generation, saying, “Millennials, don’t forget estate planning” and noting that it is a mistake to think you can put off estate planning until you are in your 50s or 60s.

You may have heard talk of how Millennials tend not to buy homes, perhaps in part because they are burdened with student debt. They also came of age during the recession and may be cautious with money and big investments. While there is not one profile to encompass an entire generation, NerdWallet does observe, “…many millennials are responsible with their finances, contrary to sky-is-falling reports.” But they are still young and even financially responsible youth find it easy to delay estate planning because young people feel they have their whole lives ahead of them.

NerdWallet advises Millennials to consider estate planning for several reasons, including:

  • No matter your age, you will want health care directives in place should you lose the ability to speak for yourself.
  • Whether you choose to marry or live with a partner, an estate plan can make it possible for your loved ones to avoid certain legal hassles should you not be able to express your wishes.
  • An estate plan gives you a say in who will be a guardian for your child.

Since many of us Millennial or not, have a DIY approach to life, the article reminds us that you can easily look online to find ways to create estate planning documents with the added caution that while you can do it on your own, you may still want to get help from a professional. A Fee-Only financial advisor can give assist you with some of the intricacies of estate planning that you may not be aware of if you create your own documents online.

For Millennials (or anyone else) who want to take a minimalist approach to estate planning, NerdWallet also outlines “2 Estate-Planning Documents Millennials Need.”

Retirement Planning: Work More, Save More

The New York Times article “Rethinking Retirement for Longer Lives With Fewer Safety Nets” begins with the tale of a model future retiree: after growing up with parents who did not manage money well, the woman interviewed started saving in her late 20s and still eats homemade peanut butter and jelly sandwiches for lunch. Her fiscal responsibility (and the help of a financial planner) allowed her to weather the unexpected death of her husband and she is on track to retire before she is 65.

While this woman illustrates what is possible with careful reitrement planning, we also know that many of us have not built up our savings nor have we saved by not spending on things like lunch.

The article illuminates something that some people are not aware of—the retirement age was set at 65 in the 1930s when people were expected to need about 10 years of retirement income. Many of us will live longer than that and running out of retirement savings is a frightening prospect.

The article also points out that those who are self-employed have no choice but to take a DIY approach to retirement, however we would say that actually applies to everyone one. As we have mentioned before, you cannot just rely on your 401(k).

The New York Times suggests you either ‘work more, save more or both.’ And there are many options for working more —you can spend more years at your current job or in your current field or retire from one field and choose another. More retirees are working part-time; they may need the money or the part-time work can delay the need to take money from their retirement savings or delay receiving Social Security benefits.

It is important to know how much you have saved and to be realistic about just how long your current retirement nest egg will last. If you already know it won’t last long, save more and plan to work past what used to be traditional retirement age.

Sometimes Even a Financial Planner Has to Learn to Negotiate

Are you confident in your ability to negotiate?

In the Business Insider video, “A financial planner explains why starting a new job is the best time to negotiate salary,” a financial planner discussed how not negotiating her salary before accepting her first job really cost her. She had no idea that she even could negotiate. And the fact that she didn’t negotiate the salary on her first job set her up to earn less than she otherwise might have for years afterwards.

This planner started her career not long before a recession and became aware that she could negotiate as she grew into her profession. However, she was unable to reap the rewards of this knowledge when she started a different job because the economic downturn meant that companies just weren’t offering the kinds of salaries and benefits they had in the past. Had she begun her first job with a higher salary, she might have been able to use that as a jumping off point when interviewing for new jobs.

In the story mentioned above, not negotiating before accepting her first job offer set a financial planner on a path to earn less for a while but that doesn’t mean you should not try to negotiate even after your first job. The idea is that you should try to ask for what will benefit you before you start working. When an employer has chosen you and the relationship is new is when you want to ask for more. This is not to say that you cannot approach your employer later during your tenure with them but to say that it is easier in the very beginning. The employer is interested in your skill set and they believe in your potential. After you have worked for your employer for a while, they may still value you but you have to provide more evidence of what you have done for them in order to earn a higher salary or more benefits.

Negotiating before accepting a job is just one instance where you can leverage what you have to your advantage. The Muse offers tips on negotiation to help you get started.

Mothers Help Children Understand Financial Planning

The Money article, “Why Mothers Know Best About Money,” illustrates how mothers can make valuable contributions to their children’s understanding of money and financial planning.

Some of this motherly advice connects to financial planning in a direct way; the Money article notes that high percentages of the participants in a survey say their mothers taught them to look for sales, to use coupons, and to recognize the difference between a want and a need.

But there is so much more advice children get from their mothers that does not necessarily relate directly to money and finance yet it still can guide them as have more financial resources to manage and enter the workforce. As the article suggests:

“Life lessons like “don’t be late” and “practice, practice, practice” and “don’t be afraid to ask for help”…have direct application to the money world.”

Money connects “don’t be late” to the notion that it is important to pay bills on time. It also pays not to be late to work in order to stay employed and advance.

Not being afraid to ask for help means not being too proud to seek expert advice from a Fee-Only financial advisor. You may be very capable but that doesn’t mean you should rely totally on your own knowledge.

As you reflect on what financial advice you may have received from your mother, also consider the example you are providing for your children. The Money article sticks to tradition, describing the financial advice mothers impart as being on the ‘softer’ side. No matter how you characterize the financial advice a mother imparts, the important thing to remember is that whether you think about it or not, you are teaching your children about finance. Part of what they do with money will be a result of what you say but a good portion of your legacy of them will be based on what you do. They are watching your spending and saving habits carefully, so act accordingly.

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