Ditch Your Estate Plan?

Estate planning is vital for people with significant wealth. A properly structured plan can aid in the successful distribution of your assets to those you love. Transferring assets to your beneficiaries, while avoiding estate taxes, is paramount for most individuals.

Estate planning is primarily a one-time event. You meet with your attorney, create a will or trust, and then you put it in your safe. The documents probably contain standard language to transfer money to your children, relatives, or charities once you’re deceased.

Of course, you’ll have no control over how your estate plan will turn out because you’ll be dead. The successful distribution of your estate will rely on others, hopefully people you trust, to honor your wishes. Yes, your instructions are written and recorded, but your executor still must execute. The beneficiary can pursue legal action if they’re aware of a breach of fiduciary duty by the trustee.

An addition to your estate plan is a wealth transfer plan. A wealth transfer plan is a process allowing you to give money away while you’re living. You will be able to control the assets, distribution, and timing of your gifts.

For example, if you give money to your children and they’re excellent stewards of your gift, then you can entrust them with more money. If they aren’t, you can limit how much money they’ll receive in the future. It’s a test run.

The same is true for gifts to churches, charities, and organizations. You’ll be able to witness how they handle your donation. If they do it well, you can be confident they’ll treat your future gifts in the same manner. If they’re poor stewards, you can remove them from your estate plan.

A wealth transfer plan will allow you to actively manage your distributions, a luxury you won’t have with your estate plan once you’re gone.

His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. ~ Matthew 25:21

A few years ago, I was having a conversation with a client about her estate plan. We discussed giving her money away sooner rather than later. She wanted to support her family financially while experiencing the joy of giving. She decided to help the younger generation with their education. As a result, her gifts will bear fruit for decades. Her giving has not hindered her financial plan, if anything, it has been enhanced.

A wealth transfer plan will also help your beneficiaries because they’ll be part of the process. No one likes surprises, even if it’s millions of dollars. A large, unexpected gift may do more harm than good, especially if your kids don’t have the experience to manage substantial wealth. Including children in the conversation about how you plan to distribute your estate will set expectations for all. Your family will remain united and, hopefully, sibling rivalries will be avoided.

Estate planning involves trust, love and respect. If you put significant restrictions on your children before they can receive their money, you probably don’t trust them much. It’s a lack of trust if you make your children adhere to several rules or jump through hoops to be compliant with your wishes.  What is the message you’re sending? I love you, but… If you don’t trust your kids with how they’ll spend the money, don’t give them any. Setting up a trust with trap doors won’t change their behavior or your faith in their ability to meet your demands. Of course, if your kids are minors or have special needs, then a trust is recommended.

Giving through a wealth transfer program will educate your kids on how best to handle money. Your experience and wisdom can help them become better stewards of resources. Working together as a family will pay dividends for years to come.

Wisdom, like an inheritance, is a good thing and benefits those who see the sun. Wisdom is a shelter as money is a shelter, but the advantage of knowledge is this: Wisdom preserves those who have it. ~ Ecclesiastes 7:11-12

Randy Alcorn said, “You can’t take it with you, but you can send it ahead.” Wise words. There are no banks in Heaven. What’s the point of dying with millions, or billions, of dollars? Why not distribute your estate while you can?

Here are a few questions to ask if you want to create a wealth transfer program.

Why are you saving money? What’s the goal for your resources? A financial plan can answer these questions. Your plan can create multiple giving scenarios and strategies. The plan will quantify and clarify your goals.

Who will receive your money? When will they receive it? How will they receive it? The timing and titling of your assets is important.

Do you own a business? Who will run it when your gone? Do your kids want to be business owners? Do they have the capacity to operate a company? If you have multiple children, who will call the shots?

What if your wrong? If your giving plan isn’t working, you can make changes while you’re alive and in control. After your gone, your estate plan is irrevocable.

So, should you ditch your estate plan? No. A thoughtful wealth transfer plan, coupled with your estate plan, will benefit many – especially you and your family. You’ll be able to witness the joy of giving and they’ll be able to create a solid foundation. Win-win.

Naked I came from my mother’s womb, and naked I will depart. The Lord gave, and the Lord has taken away; may the name of the Lord be praised. ~ Job 21:1-2

December 13, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process to help our clients pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

Did You Die Today?

Few people like to ponder their mortality, but what if you didn’t make it home from work today? Is your estate set up to handle your passing? Is your family? If they walked into your home, would they be able to find your important documents? What would you leave behind? What are your final wishes? A sudden death may leave a lot of unanswered questions.

Now that you’re deceased, your estate is in the hands of a loved one who will become the executor or executrix of your affairs. They now have the task of honoring your wishes and settling your estate, and, depending on the size of your estate, this may take a few months to several years.

First, do you have a will or living trust? These items will make life easier for your loved ones. If you have spent time addressing your wishes in a will or trust, then your administrator will be able to honor them in a timely fashion.

Of course, if you don’t have a will or trust, it will be a headache (nightmare) for your loved ones. They’ll be left to figure out your final wishes – no easy task.  Dying without a will or trust may also expose your estate to a hefty estate tax, today this rate is 40%.

Do you own pets? Pets need to be fed and cared for daily. Do you have a caregiver for your dog or cat? Who will inherit your animals? If you have more exotic pets like horses, birds, or reptiles, then finding a caregiver for these animals may be a bit more challenging.

Have you updated your beneficiary designations? Will your ex-spouse benefit, financially, from your death? Updating your beneficiary data is easy, so spend a few moments reviewing your retirement accounts and life insurance policies to make sure you have the correct loved ones listed. If you die without listed beneficiaries, your assets will flow to your estate.

Do you own life insurance? Is it enough to pay off all your debts? Carrying the necessary amount is prudent and recommended so that your love ones are not saddled with your debt burdens. If you don’t carry life insurance, or need more, purchase a term policy. It will be your cheapest and most efficient insurance option. Credit cards, mortgages, car loans, and other obligations need to be paid off and this can be done with cash or life insurance proceeds.

Have you thought about life after death? Do you use Facebook, Twitter, LinkedIn, Instagram, Snapchat, Match.com, etc.? Your social media accounts will last forever, and forever is a long time. Your estate documents should reflect your social media accounts and passwords, so your administrator can shut them down. This is also true for your email accounts.

Who will notify your friends and family? Establishing a calling tree is recommended to let your loved ones know you’ve passed away. Your contact list should be listed in your estate documents.

Were you in the military? Do you want a military burial? Will your family be eligible for veteran benefits?

Who has access to your house? Do you have a family member or trusted friend who has a spare key? You’ll need someone to retrieve your mail and tend to other household items like cleaning and yardwork. It’s important to continue to receive mail so your administrator can make sure they’re closing all your accounts like cable and utilities. If you don’t have someone close by, your mail can be forwarded to your administrator.

Who will write your obituary? Have you identified a loved one to write your story? Have you written your own? You want to go out on a high note, so pick someone who can make you look great!

Where will you be buried? Will you be buried? You might prefer cremation. In any event, do you have a family plot or resting place for your ashes?

Don’t leave your estate to chance. It’s imperative to spend a few hours addressing your death. Listing assets, wishes, and other important items in your will is imperative. It’s also important to talk to your children, relatives, or friends, about your estate. The more they know about your affairs, the better.

I also recommend leaving a love letter to your friends and family, so that if you died today they’d be able to start the estate process. What is a love letter? It’s a letter for your loved ones to let them know where your important documents are located and instructions on who to contact for help and guidance. It should be kept in an area where it can be easily found.

I pray you live a long, happy, healthy life free of strife and challenges, so you don’t have to deal with this morbid topic for many moons. Regardless of when you will die, it makes sense to let your loved ones know that you have a plan in place for your passing.

And the dust returns to the earth as it was, and the spirit returns to God who gave it. ~ Ecclesiastes 12:7


Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

My fee will be less than $2,000,000.

In the mid-90’s I received a call from a client asking me how I would invest a lot of money.   I asked him how much money.   He was reluctant to give me an answer at first because of the large sum of money.  He had to eventually tell me the amount so that I could give him my advice.  The money he received was life altering for him and his entire family.

As the story goes, my client received an inheritance from his uncle who lived in the mid-west.   My client was the sole beneficiary to his uncle’s estate.    He was both delighted and nervous to be in a position to receive this substantial inheritance.   When the money arrived we decided to invest it in a 6 month U.S. Treasury Bill so we could buy some time to develop a plan while taking advantage of the government guarantee.

Here is the rub.  His uncle did not have any type of estate plan.  As a result, my client had to write a check to the IRS for over $2,000,000 to cover the estate tax!   This was a tough pill to swallow.   My client had just written the largest check of his life and it went to pay taxes!

After the money had been sent to the IRS, we started to build a game plan so that his beneficiaries would not be burdened with sending one red cent to the government when he and his wife passed away.  I referred him to an attorney who helped him establish a number of trusts so that the assets would be protected for the generations to follow.  I assembled a portfolio that consisted mostly of California tax free municipal bonds and high quality dividend paying stocks.

What is behind the $2,000,000 fee?  Not long after he wrote his colossal check to the IRS he asked me what the fee would be to set up the investment accounts and family trusts.   I told him my fee will be less than $2,000,000.   He got a nice chuckle from my comment.

He and his wife passed away a few years ago and the trusts and investments that we set up are still going strong today and his beneficiaries did not send any money to the IRS for estate taxes!

A little planning can go a long way potentially spanning generations.

For I know the plans I have for you,” declares the Lord, “plans to prosper you and not to harm you, plans to give you hope and a future.  Jeremiah 29:11 

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC in Austin, TX.  www.parrottwealth.com.






Worse Than A Stock Market Correction?

Investors constantly scan the horizon looking for a stock market correction.  While investors sit on their front porch anticipating a stock market correction they leave their back door wide open.  Stock market crashes can be painful but a poor estate plan can cause permanent damage to your wealth.

Individuals spend most of their free financial time focusing on their stocks, bonds and funds without paying much attention to the state of their estate.  It’s not easy to ponder your mortality but it’s necessary if you want to protect your hard-earned dollars for your family.

Here are a few areas that can cause heart ache to your estate plan.

  1. No will or trust. If you die without a will or trust, it’s possible to lose 40% of your estate to the federal government in the form of an estate tax.  In addition to your tax loss, your remaining estate may end up in the wrong hands.  A client of mine inherited $4 million from his rich uncle who died without proper estate documents and, thus, my client had to write a $2 million check to the IRS for estate taxes.
  2. No life insurance. Individuals who own little or no life insurance run the risk of losing their assets to creditors in the untimely event of a death.  I’ve talked to several people who do not insure the stay at home spouse.   The breadwinner assumes, incorrectly, they’ll be able to take care of the home financially if the non-breadwinner spouse passes away.  How much life insurance is enough?  At a minimum, you should own enough life insurance to pay off all your debts, provide for your spouse’s life time income, and fund your children’s college education.
  3. No long-term care insurance. Long term care insurance is becoming a must have item.  The average monthly cost for LTC insurance is about $5,000.   The average stay in a LTC facility is about four years.  If you and your spouse enter a LTC facility at the same time, it’s possible you may spend $480,000 or more.  If you have the investments to self-insure, then LTC insurance might not be needed.  However, if you use your assets to pay for LTC, your family will be left without those resources.
  4. No beneficiary. It takes about two minutes to update your beneficiary information on your retirement accounts and insurance policies.  A beneficiary designation overrides all your estate documents including your family will and trust.   This might not be an issue if you’re happily married and don’t have any children.  However, if you are divorced and you forget to update your beneficiary information, then your assets may end up in the hands of your ex-spouse!
  5. No Umbrella Policy. An umbrella policy is cost effective way to protect your property.  The cost of adding a few extra million of insurance coverage to your property and casualty policy is minimal.  A house with a pool or horses or some other attraction should have an umbrella policy.

A solid financial and estate foundation will help protect your assets while you’re living and long after you’re gone.  I would recommend spending some time updating your insurance and estate planning documents.   After all, an ounce of provision is worth a pound of cure.

I have seen something else under the sun: The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all. ~ Ecclesiastes 9:11.

Bill Parrott is the President and CEO of Parrott Wealth Management.   For more information on financial planning and investment management, please visit www.parrottwealth.com.  Thank you.

March 21, 2017