Welcome to South Bay Financial Partners, here to help with over 20 years of expertise.
12th December 2017

21515 Hawthorne Blvd. Suite 200

Torrance, CA 90503

Estate Planning

Plan to Win

I spent last weekend bicycle racing, my favorite activity! It was the Master State Championship, so considered a “big race” to some and a stepping stone to the National Championships for others. Thinking about how racers deal with “big races” whether it’s the local weekend race or the World Championship, I realized how similar it is to investing and financial planning.

Everyone approaches both with wishful thoughts of “making it big”. Some are instantly pulled back by fear. Fear and doubt can make even the fastest person a loser. Often, fear prevents a racer from even showing up to the race, which is a guaranteed way to not win. Life is risky. That has to be accepted first. Then you can start looking at ways to limit failure and maximize gains.

Having a plan is a great way to start. But a plan that is ignored will get you nowhere. In bike racing, many people hire a coach to help make and execute a plan. I can’t tell you how many great racers will start to change their plan or equipment as they get closer to the “big race”. Change at the last minute is usually a great way to fail at meeting your goals.

Why do they do it? Fear. They think that if they work harder, longer, or have better equipment, that would guarantee a win. It usually leads to overtraining, poor recovery, bad form, and discomfort in the big race. If they worked their plan that is making them stronger and faster, they would actually be enhancing their chance of success far more. Coaches can be great at helping you stay focused on the plan, if you listen to them.

So how does this relate to investing? Many times people don’t make a plan because they’re afraid to think about that big college bill or if they’ll have enough money to live the way they’d like in retirement. Face it head on with a plan outlining how you’re going to make it happen. If you can’t do everything you want, it’s best to know that up front and get the most you can. Without a plan you are likely to miss out on goals that you could have achieved if you had a plan.

People also often invest emotionally. You want to buy low and sell high to be successful. While people know this intellectually, they often do just the opposite. They get excited as an investment price or the stock market goes up. As the prices go down people get scared and want to get out of the scary situation. Before you consider making a change to your investments first stop and think through whether you are making decisions based on emotions or information.

A solid plan will help you figure out where you are going and how you will get there. A financial advisor can help you build a solid plan and help you relax so you can maximize your plan with periodic reviews. Just like a training schedule, the plan is going to be different during different seasons (diversification targets will need to be updated occasionally). Your advisor can help you adapt your plan for the seasons as well as to address your personal goals in a thoughtful way. With or without an advisor, make a plan. Remember “not showing up” is a guaranteed way to not win. The more you follow and trust your plan, the more likely you are to win.

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Tara Unverzagt April 6, 2016 No Comments

What happens when you’re gone?

I was asked recently why one would establish a trust when estate planning. If you have a “simple situation”, a trust isn’t necessary. A simple situation would be if you and your spouse have only been married once, are still married, are US citizens, and don’t have children. If you want and expect your assets to go to your surviving spouse, you probably don’t need a trust. You may not even need a will. Many states have “default” actions when someone passes away that usually include assets being transferred to a surviving spouse.

If your estate is large or you have plans other than leaving your assets to your spouse, you may want to invest in a trust. A trust can help minimize estate taxes and control how your assets are distributed. If you have kids and do or don’t want to leave assets to them, a will may be sufficient, but the state and federal government can overrule your will. Also, a trust can give more options in transferring assets to a charity. If it’s important to you that your assets be distributed in a certain way, you will want to consider a trust.

Executing a will incurs probate tax which can be 2% to 7% of your assets. Since probate involves lawyers, you may have additional legal costs if there are disagreements on how assets should be distributed. The cost of a trust is approximately $2,000 and may need to be updated at various points of your life at additional expense. With a will or trust, you won’t have Federal estate tax if your assets total less than $5,430,000 in 2015 (this amount changes every year). If your assets are over this amount, you may be able to avoid some or all Federal estate taxes. You may have state taxes that vary from state to state.

If you have remarried, you also will want to consider a trust. In some states “surviving spouses”, even in a second marriage, have a right to claim up to half the estate. If there are children from more than one marriage, a trust is the best way to ensure assets are distributed the way you want.

To help minimize estate taxes, trusts can be generated at death. From a living trust that is active during your life, people often generate a marital trust at death to provide funds to a surviving spouse for the spouse’s life, with remaining assets going to the children upon the spouse’s death. This is usually paired with a family trust which has assets go directly to the children at death but retaining income for the remainder of the surviving spouse’s life. In some cases, there are more than two trusts generated to take care of various family members.

Most parents with special needs family members understand that they require special estate planning. A special needs trust can help them maximize the benefit of their resources after they pass. A trust can also help articulate what will happen to special needs family members and minor children. You can name a person to manage your financial assets and a different person to take care of your family members’ personal health and wellbeing.

If your situation is more complex than the “simple situation”, it’s important to contact an Estate Planning Attorney that understands the current laws. A good lawyer will also write provisions into a trust to automatically change as laws change. If you have a “simple situation” you will still want to research how your state handles assets on a person’s death. You may be surprised at what you learn.

If you’re comfortable with your assets going to your spouse and/or children in whatever way the state indicates, you don’t need a trust. If you care about what happens to your assets after death, a trust is sometimes the best way to go. A will can be contested which delays distribution, can be expensive, and may end in assets being distributed inappropriately. If you document your wishes in a trust, the courts make sure the instructions are executed as written.

All information provided is general in nature and not meant to be advice for you in particular. If you’d like to know more about how this topic relates to your situation, contact me at tara@southbayfinancialpartners.com.

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