Wealth preservation Featured

8:00pm EDT April 25, 2008

You’ve worked hard your entire life. Whatever your assets may include, if they aren’t distributed according to a plan tailored to your unique circumstances, both you and your beneficiaries ultimately lose out.

“I consider myself a financial adviser to the family,” explained Angie Hager, CFA, CFP®, investment manager for BPM Wealth Management LLC. “And every family is different.”

The key to successful estate planning, she emphasized, is planning for every conceivable eventuality.

“For example, if you want to pass down the family business or the baseball you caught at the World Series, but you don’t provide the cash or liquidity to pay the taxes on it, your heirs will have to sell it, and it would move out of the family.”

Smart Business spoke with Hager about devising a plan that works for you.

How does estate planning protect assets, and how are the directives of a trust carried out?

A trust is a legal agreement that protects assets in complicated situations. The trustee may play quarterback and make decisions as to whom the assets are distributed and how they are distributed. For example, a trust is especially helpful when the trustor has the intention of leaving assets to children of a current spouse, and there are also children or a spouse from a former marriage involved. Another example would be a situation in which the beneficiary of the assets might not be prepared or mature enough to receive the assets, and the trustee may be asked to distribute a limited amount of the assets to the beneficiary on an annual basis. In either of these situations and many more, proper planning in advance can ensure that there are legal instructions and a trustee in place to follow your wishes.

Trusts can also ensure that assets are properly directed to charitable organizations.

In addition to monetary assets, what kind of unusual assets can trusts aid in passing down?

Assets like artwork, antiques or possessions you love can also be protected with a trust. Unusual assets are not easily marketable, and you wouldn’t be able to sell them quickly. A trust allows you to give specific instructions to the trustee or general guidance to the beneficiary on those types of assets.

What might happen if a trust is not properly designed and implemented?

When there is no trust in place or the trust is incomplete or out of date, assets may go to the wrong beneficiary or might be seized by the court altogether. Perhaps your trust was designed for your once-current family structure but was not updated when you remarried. If the trust weren’t properly redesigned, the court might step in and follow probate laws, resulting in your intended beneficiaries receiving a fraction of the assets you had hoped to leave them.

How can assets from trusts be protected from litigation, divorce and other claims?

The beneficiary of the trust doesn’t actually own the trust entity but rather receives assets from it. If the beneficiary had been given the same amount of assets in cash, the assets would belong to the beneficiary and would therefore be more vulnerable to legal claims.

How can you avoid simple mistakes when planning?

When we go through the planning process with clients, we confirm that the designated beneficiaries on the IRA and life insurance policy are the right people. We also check clients’ investment accounts, their houses and/or real estate. If those should be in a living trust or other trusts, we make sure it’s funded correctly.

Advisers should generally review all trust information every two years, asking the client what has changed and confirming that what has already been set up is still accurate. From an investment standpoint, the client should be reminded that one objective is for these assets to continue to grow while they are protected and preserved. There should be an appropriate asset allocation and adequate diversification to ensure continued growth for the next generation.

To be certain that your assets are distributed the way you want, it is important to use a team of professionals. In addition to a financial adviser, you need to involve an estate attorney and a tax accountant. If it is a complex trust, you will also need the assistance of a trust officer. Oftentimes, your financial adviser can coordinate the efforts of all of these professionals.

The successor trustee is also an important person in the design of the trust. Should you become incompetent, your successor trustee, someone who thinks like you and will stand firm on your decisions, will step in to make sure your wishes are carried out. He or she should be compatible with your survivors.

You have worked hard to earn and grow your assets. Take the time to design a proper trust to be sure that all of your hard work is properly distributed to those who matter most to you and that the means are provided for them to receive and enjoy your generosity.

ANGIE HAGER, CFA, CFP®, is an investment manager for BPM Wealth Management. Reach her at ahager@bpmwealth.com or (415) 288-6277.