Financial Planning Essentials: Overlooked Details Can Lead to Crisis
A recent survey conducted by WalletHub revealed that financial security remains a pressing concern for many Americans. Among the participants, 35% cited unplanned emergencies as their top financial worry, while 23% expressed fears about insufficient retirement savings. Additionally, 16% were anxious about job loss. These statistics underscore a common thread: a lack of savings and inadequate planning for unexpected economic events.
To mitigate these fears, it is crucial to build an emergency fund and save for retirement. However, financial planning extends beyond these fundamental objectives. Neglecting other essential areas can lead to unforeseen complications for individuals and their heirs.
Importance of Current Estate Planning
One significant aspect of financial security is having an up-to-date estate plan. A certified public accountant (CPA) recently referred a widow to financial planner Teri Parker after the death of her husband left her overwhelmed and distressed about their financial situation. The couple had not completed any estate planning prior to his passing, which resulted in a chaotic probate process in California.
The late husband owned several rental properties, but when he asked his wife to sign a spousal transfer deed relinquishing her ownership rights, the implications were not clear to her at the time. As a result, she now finds herself entitled to only one-third of the estate, with two-thirds allocated to their children. The widow had never anticipated receiving such a small portion of the estate that they had built together.
Probate can be an expensive and lengthy process. Costs associated with attorney fees and court expenses will be deducted from the estate before any distributions are made. The stress of managing the real estate portfolio has added to her burden, reinforcing the importance of proper estate planning. Had the properties been placed in a trust, the transition to the surviving spouse would have been much smoother, avoiding the need to share assets with others.
Understanding Investment Decisions
Another crucial aspect of financial planning involves understanding investment decisions. A client of Parker’s faced a significant setback when she sold a piece of valuable land. Believing it was time to liquidate the asset to fund her retirement, she enlisted a Realtor to sell the property, which sold quickly.
During the process, the Realtor suggested a 1031 exchange, allowing her to defer capital gains taxes by reinvesting in like-kind property. The agent proposed purchasing a 50% interest in a commercial property, which sounded appealing. Unfortunately, the financial projections provided were inaccurate, and she learned too late that she was only purchasing a minority interest in the property, contrary to what she had been promised.
Had she consulted a financial adviser or an attorney experienced in 1031 exchanges, the situation might have been different. The complexities of such transactions require professional oversight, which could have helped her avoid a significant financial setback.
Regularly Review Asset Titles
Another client recently discovered that shares of stock were still held in her deceased mother’s name, prompting her to seek assistance. Although the stock had limited value, it was significant enough to warrant attention. Her mother had established a trust and will but failed to update the investment account’s title to reflect the trust.
As a result, the client must now navigate the probate process in her mother’s state of residence to resolve the matter. This situation, while not overly complicated, is a nuisance that could have been easily avoided with proper asset titling.
It is advisable to conduct an annual review of asset titles to ensure everything is correctly aligned with estate planning documents. Individuals should not assume that their attorneys have made the necessary updates; it is essential to take personal responsibility for ensuring that titles on financial accounts and other assets are current.
By focusing on these often-overlooked details, individuals can effectively safeguard their financial futures. Proper planning can save time, money, and stress for both families and heirs. Even seemingly minor details can lead to significant complications if not addressed.
Teri Parker, a certified financial planner and vice president at CAPTRUST Financial Advisors, emphasizes that meticulous attention to financial planning can prevent a variety of potential crises. With over two decades of experience in financial planning and investment management, she encourages individuals to prioritize their financial health by seeking professional guidance and regularly reviewing their plans. For inquiries, she can be reached via email at [email protected].
