Spring Cleaning: Three Financial Planning To-Do Items

At this time last year, we sent out a insights with this exact title, Spring Cleaning: Three Financial Planning To-Do Items. The purpose of the piece was to highlight three planning tasks that fall into the “not urgent, but important” list. Specifically, we focused on beneficiary designations, updating critical roles and empowering important decision makers. In that same spirit, this year we are focusing on three new spring-cleaning tasks: (1) making sure your assets are in the right place, (2) reviewing not just the aggregate value of the assets people are getting, but the identity of the assets and (3) considering the alignment of your values with your plan.

1. Asset Location

In a thirty-year planning career, I cannot tell you how many times a brilliant plan is wasted with poor execution. Clients build plans to care for the people they care about in a way that aligns with their values and goals. One planning technique often used to maximize the care for loved ones is to use a revocable trust. Having property owned by a revocable trust allows clients to control and enjoy all their property while they are alive but then pass that property in the most cost effective, simplest and most efficient method when they die. This planning technique works impeccably when the client’s property is owned by his or her trust. But if the property is never transferred to the trust, the technique fails miserably. So, as part of a spring-cleaning routine, clients should work with their advisers to insure ownership of their assets align with their plan. To do otherwise is both a waste of good money and creates undue stress on family.

2. The Right Property to the Right People

Another common planning mistake is to design an estate plan that focuses exclusively on the “how much” people get and not at all on the “what.” Parents and their advisers spend countless hours on ensuring that children receive a sufficient value of assets to accomplish all the legacy goals that are assigned to those assets. And that is incredibly important. But it is rare to see time focused on what the actual property is. The result of that lack of focus is that property gets left to people who do not value it and property gets left to people who cannot derive value from it. I’ve seen this a lot in my life’s work with family-owned businesses. Frequently, the business gets left to children who see its ownership as more burden than benefit. Oftentimes there is an emotional component to that dislike as well; with uninvolved children personalizing the business (1) as the parent who was never around and (2) a jealousy surrounding a deeper connection between parents and business involved siblings.

Finally, too often property gets left to children whose strengths are inconsistent with proper management of that property. That misalignment ranges from leaving marketable securities to the uninterested and uninformed to the disaster of leaving more “management dependent assets” such as rental real estate or a closely held business to children without the wherewithal to own them. So, as part of spring cleaning, work with your advisory team to do a deeper dive; not only the value of what your loved ones are getting, but whether they have the talents and inclination to grow the value of the actual property they are getting.

3. Aligning Plan with Values

A good wealth management plan ensures that the math works; that your assets and income are sufficient to accomplish your goals. A great plan goes a step further, putting meaning to money. In a plan, goals are critically important; they are the results by which we measure success. And the plan is a strategy wherein we align a set of behaviors to results; under my plan, if I earn X, invest Y and it grows by Z, then my goals will be met. And too often, this is where the analysis ends.

But success is not synonymous with happiness, fulfillment or meaning. Financial industry expert Carl Richards has a great saying about this phenomenon, getting to the top of the ladder and learning it was leaning on the wrong wall. Spring cleaning involves emptying the garage and the basement and discarding things which no longer provide the value they once provided. Likewise, Spring is the perfect time to reflect on financial goals and determine whether they are in service to values that no longer exist. Don’t get to the top of the ladder to find out its leaning on the wrong wall.

Now everyone has a spring-cleaning checklist that will make their plans more efficient, effective and human. As for that garage…

Spring Cleaning: Three Financial Planning To-Do’s

• Asset Location – making sure your assets are in the right place 
• The Right Property to the Right People - reviewing not just the aggregate value of the assets people are getting, but the identity of the assets 
• Aligning Plan with Values - considering the alignment of your values with your plan