Creating an estate plan? Here’s a breakdown of how to make sure it stands the test of time and market turbulence. You’ll also get pointers on reducing liabilities with the right insurances and protections.
Start with a Risk Management Plan
First, there is the question of how resilient your portfolio is. You may have a solid view of risk, but perhaps there are a few areas where you might not be so sure.
Risk management plans offer an eagle-eye view of what may prevent the transfer of your wealth.
Below are some considerations to minimize risk as you develop an estate plan:
Exposure to Litigation and Claims
Once a claim has been made, some asset protection strategies are subject to attacks. They may be reversed by a judge or jury because such transfers could be deemed as fraudulent conveyances.
Various strategies can help protect your beneficiaries from their inherited assets being pulled into a lawsuit.
Creating a trust is a popular solution to do so. Trusts can maintain your intended estate plan during the event of a family event, such as divorce or the death of a child.
Another way to minimize possible litigation and claims is to review your estate plan periodically. For example, your retirement goals and household members may change throughout the years.
The more you keep tabs on your estate plan, the better the chances are that your final wishes will be fulfilled without conflict.
Want to test out how your estate plan would play out in the real world? Consider quantitative analysis (QA). Estate planners can utilize QA techniques, such as mathematical models and research, to help you understand how your portfolio would behave in specific economic and social conditions.
QA may also take away much of the financial guesswork of estate planning. Many people visualize their wealth as a single portfolio. It may be in your best interest to disaggregate it according to your different intended uses.
Many estate advisors will use the Monte Carlo Simulation. This system presents a wide range of outcomes to help clients pick the best estate plan strategy.
While an estate plan reflects your personal wishes, some family members may feel left out. Do you anticipate anyone feeling less than pleased with your will? Might they be aggrieved enough to file a lawsuit and challenge a will or trust?
Transparency and clear communication can nip these potential risks in the bud. Write down your final wishes well in advance through a well-worded will, trust, and other documents.
Without solid documentation, your assets could end up in the hands of unintended beneficiaries. To ensure that your final wishes are honored, seek out certified financial experts, attorneys, and other estate planning professionals.
You may feel like you can do estate planning alone, but an expert eye is likely needed to help point out additional “danger spots.”
Set Up a Risk Profile
When you’re constructing the best-fit estate plan, your advisors should set up a risk profile. This is a basic outline of how much risk you’re willing to take to meet your goals.
In brief, they will ask how upset you would be when the market goes down. Many advisors start with a questionnaire that will help them see how upset you’d be if you lost a certain percentage of your portfolio in a given year.
Another test could be your psychological reaction to loss. Would your first inclination be to start putting your money into safer alternatives? Or would you stay the course?
Setting up a risk profile will help your advisor construct a plan at a risk level you’d realistically accept—no matter how the markets behave. For example, you may be able to take greater risk with an investment portfolio for the long term if you know you’ll be able to count on a pension.
Need Help Creating Your Estate Plan?
We hope you are taking steps to preserve your hard-earned wealth today. An estate plan can ensure a safety cushion for loved ones for generations to come. It can also support the causes that were most meaningful to you in this life.
SLD offers specialist expertise in estate tax planning, and can project tax liability under different scenarios, as well as explain various estate planning tools. Contact one of our experts today to take the next step in protecting your assets and providing for your loved ones in the future.
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