Money Talks: Estate planning tools

Marco Eagle

As easy as the rainy season is to predict every summer here in paradise, so too is the importance of proper estate planning. When we step back and consider the steps taken in our investing lives, the basics are simple. As working investors in the early stages, clearly the main objective would be accumulation and growth. This is the basis for participation in retirement plans such as IRA’s, 401-k plans, etc.

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The next stage is the retirement stage when the focus shifts form accumulation to preservation and maintenance of the nest egg. The importance of preserving and protecting assets during retirement cannot be overstated. While meaningful growth should be a component of any retirement plan, the ability to protect our purchasing power during retirement is generally goal number one. Of course, we should not discount the importance of generating a predictable stream of income during retirement so as to avoid compromising one’s lifestyle.

The ability to enjoy a comfortable retirement perhaps carries the most weight for many. The longevity of successful retirement cannot be overstated, thus the importance of building, preserving and protecting ones assets during retirement.

The final stage of successful retirement planning and the often overlooked stage may be categorized as the estate planning phase, or the strategy of a succession plan with which to pass assets down to the next generation. Many retired investors are focused on the importance of passing a legacy to their beneficiaries. Although there are varying degrees importance for retired investors as to how much should be passed on to the legacy generation, the ability to successfully create an estate plan requires yet another often misunderstood stage of planning.

There are a myriad of estate planning tools available with which to execute a given estate plan. Many are familiar with the establishment of a personal trust whereby the assets are transferred into the name of a trust for the purpose of transferring the assets at death. The reality is that while the investor is alive, the trust is nothing more than a legal document, or roadmap, which allows the investors to exercise some control after they are deceased. As morbid as the subject may sound to some, the importance cannot be overstated from both a taxable standpoint as well as an allocation standpoint as far as who receives what and how much. This is exactly what the estate plan can execute.

When establishing the estate plan, many have embraced options which may assist the investors in achieving their final objectives when passing assets to the next generation. Many retired investors have found comfort in exercising control with an effective plan to pass assets to their beneficiaries without the need of trusts, or even the cumbersome chore of probating the estate upon death. The ability for many types of insured annuity strategies to pass assets immediately to the beneficiaries without the need of probate has broad appeal to many. The ability to avoid probate often makes this a popular strategy while making the assets available immediately after the death certificate is issued. This is perhaps one of the more popular estate planning tools for the simplicity and ease of implementation.

Of course, the cornerstone of estate planning for many is the incorporation of life insurance which allows the beneficiaries to inherit assets, generally speaking, tax free. The ability to avoid a taxable event upon passing of assets has a high rate of appeal based on both taxes as well as overall portfolio values. While there are a number of permutations within the life insurance arena, the reality is that there can be a high costs associated with the implementation of life insurance once into retirement.

A little known tool for generating tax free asset transfers may be categorized as essentially a “modified” insured index strategy. This dandy little tool allows investors to enjoy all of the benefits of an insured annuity while alive, such as the ability to take income, grow the assets while avoiding market based losses and the ability to walk away from the program at any time. Upon passing, the assets will pass tax free to the beneficiaries. Certainly this leads to the life of a SWAN, Sleep Well At Night.

William F. Hague is a managing partner of Hague Wealth Management; 239-389-1999 or The opinions and observations stated above are those of the columnist.