Retirement Watch Lighthouse Logo

5 Important Estate Planning Steps for Your Portfolio – An Estate Planning Checklist

Last update on: Aug 07 2020

How will your investment portfolio and other assets be managed in the future? The odds are that, after you no longer are managing the assets, nothing good is going to happen. Many people neglect to include an investment portfolio transition in their Estate Planning process, so the returns flounder or worse. Many individuals going through an estate planning process don’t realize this is an issue or know how to incorporate a portfolio transition in your plan. You spent decades building your investment portfolio. You saved, and you invested those savings well. One of your goals, of course, was to have a nest egg for your retirement years. Another goal for many people is to leave as much of the portfolio as possible as a legacy to support a surviving spouse, children and maybe even grandchildren.

Other people probably helped you achieve that investment success. Of course, you use one or more newsletters, including Retirement Watch, to help make decisions. You might also work with a broker, financial and estate planning professional, or investment advisor. Perhaps you have enough money that you work with more than one financial professional.

All that work is likely to come unraveled and your financial process dismembered after you leave the portfolio to others. It’s natural for people to assume their survivors will continue to manage the money using the same people and process that built the wealth. Unfortunately, often that’s an invalid assumption.

The data are clear that one of the first actions of surviving spouses and children who inherit wealth is to fire the financial professionals who helped the deceased build and manage the wealth. About 66% of children fire their parents’ financial advisor after inheriting the wealth, according to a recent survey by InvestmentNews. Others surveys over the years had similar results, with some reporting higher firing rates. Here at Retirement Watch, we regularly receive cancellations from surviving spouses or children of our members who have passed.

Perhaps this is a major reason research shows that 70% of family wealth disappears by the end of the second generation and that 90% is gone by the end of the third generation.

You need a process to create a successful transition of your investment assets, ensuring that the assets last and really help the next generation. Consider including these steps in your estate planning process.

• Determine your hopes and goals for the investment assets, and discover what plans your heirs would have for the money.

If you plan to split the portfolio among the heirs, each heir might not have enough wealth to continue managing the investments the way you did.

Parents and children often don’t talk about inheritance issues, but even a very general discussion will give you an idea of how important it is to establish a transition for your portfolio. Sometimes the likely heirs have plans to spend a lot of the money, so there won’t be much left to manage. Instead of accumulating it for the future, they might have more immediate spending goals such as home improvements (or a new home), college education for the children, or debt repayments.

At other times, though, there are no immediate spending plans and the inheritance is valuable enough the heirs could keep managing the money the way you did. Then, there are steps you can take to increase the probability it will be managed successfully.

• Educate the children.

Too often, children don’t have the same financial knowledge or expertise as their parents who accumulated some wealth. You can learn the level of your heirs’ expertise by asking how much money they are saving and how they choose the investments. It also is a good opportunity to share how you’ve accumulated the investment portfolio.

Let your heirs know how you manage the money. Tell them your basic philosophy about managing the portfolio. Explain the resources that helped you, including newsletters, books, web sites, financial advisors and any others you use.

• Introduce the children.

The heirs need to know more than what you’ve done and with whom you’ve worked. They need some personal relationships or experience. It also takes time for the heirs to understand and develop confidence in your resources. For example, try to include the heirs in some meetings or conversations with any financial advisors you rely on and believe they should continue to use. Or encourage separate meetings so they can get to know each other.

This also is a good way for you to learn whether what worked for you will work for the next generation of owners. Sometimes a financial advisor isn’t interested in building a multi-generational business or has trouble communicating with younger people. In that case, you might want to consider moving part of your portfolio to a different advisor who has the same basic financial philosophy but would be able to transition more successfully to the next generation.

• Show the value.

Financial advisors who have been successful in retaining the second generation as clients say they did so by performing services for the younger generation while the parents still were around. Often, services performed for the children are considered part of the work for the parents. For example, they might offer advice on buying a first home, saving for a child’s college education or any other life event. Some Retirement Watch members buy gift memberships for their adult children because they believe the children would benefit from reading it and should be thinking about the issues we discuss. It’s also a good way for parents and adult children to begin conversations about estate planning, investments and other issues.

It’s up to you to include your loved ones in the relationship with your financial advisors or expose them to your financial resources. It can take a long time for the next generation to fully grasp the importance of the resources and how to use them. The earlier you start, the better.

These days, younger people need time to see the value of your financial resources, because they are used to receiving most things free or at an extreme discount online.

• The last resort.

One way to maximize the probability that the money will last for a while and be managed the way you want is to leave it in a trust. You can appoint a trustee who will ensure your wishes are followed when it comes to investing and distributing the money. Of course, it costs money to set up a trust. Depending on the terms of the trust, it also could limit your children’s ability to spend the money when they need it. The transition of the investment portfolio and other valuable assets is an overlooked part of most estate planning steps. It takes time to do it right. If you want your investment portfolio to provide a legacy, start the process now.



Log In

Forgot Password