When helping a family member or friend with their personal finances, you may meet with their investment managers, accountants, attorneys, and other professionals. Comprehensive information and timely interaction with these advisors can lead to advantageous financial outcomes such as reduced tax liability, more robust insurance coverage, easier estate administration, and more.
Over our years of working with our clients and their advisors, we’ve encountered various situations where informed communication with other professionals has helped avoid or resolve issues. Here we provide some examples that may be helpful as you assist a friend or loved one.
Learn more about personal finance managers in this article.
Investment Management and Tax Issues
Marcia’s investment portfolio incurred large capital gains on stock sales. She also had incurred considerable medical expenses. Once we met with her investment manager and financial planner and informed them of her medical expenses, they gained a new outlook on the requirements of her portfolio. These expenses offset Marcia’s capital gains completely and reduced the benefit from tax-free municipal bonds.
Whitney informed us of her sizable capital gain incurred earlier that year from selling a home she had owned for a long time. She also told us she needed to generate more income from her investment portfolio to cover her husband’s caregiving expenses.
We helped Whitney understand how these problems were linked and formulated questions she could ask her investment advisor at their portfolio review session. There she learned that since her portfolio’s fixed-income component had significant losses in the same tax year, selling those assets would raise needed funds and offset a portion of the gain from the house sale.
Joyce was new to personal finance management, as her husband could no longer handle the family finances because of dementia.
While meeting with Joyce, we discovered she was in a high tax bracket and reviewed her previous year’s tax return. We identified her sources of income – annuity and Social Security payments, dividends and interest, and capital gains. We then reviewed her deductions – primarily medical expenses and charitable contributions. With her husband in an assisted living facility, we met with her accountant to find out what, if anything, could be done to generate income in a more tax-efficient manner.
Key Points
Tax liabilities from capital gains can sometimes be offset with the help of a strategically oriented accountant, but only if the information is shared in a timely manner.
Report any changes in spending patterns and demands on investment portfolios to financial advisors and accountants within the tax year they occur. This will help maximize the portfolio’s performance and tax efficiency.
Estate Planning Issues
Margot had become frail and was mindful that she was aging without the benefit of family nearby. She asked for our help in reviewing her estate planning documents.
We realized that the people she had appointed years ago as her agents under Power of Attorney, executor, and Health Care Proxy were no longer suitable. These fiduciaries could not take on the responsibilities of her medical and financial management as they were ill or lived far away. In addition, the attorney who prepared her initial documents had retired.
We helped Margo identify new fiduciaries, connect with a new attorney, articulate her estate planning objectives, and gather the necessary documents. The attorney recommended a revocable trust and a new will. The trust would permit Margot’s funds to be accessed after her death. Her trustee would be able to pay expenses, easily sell or transfer ownership of her condo, and avoid the cost and time of probate.
Ian and Catherine came to us through an attorney who had just completed their estate planning documents. We were asked to review their finances to help them budget for a possible move to an assisted living facility.
We noticed that their investment accounts were part of their revocable trusts, but their bank accounts were not. Either their estate attorney was unaware that all accounts were not retitled to the trusts or had deferred to the client’s wishes not to retitle them.
We asked Ian and Catherine about their reluctance to retitle and learned they thought the trust designation would slow or restrict access to funds. We enlisted bankers to explain that retitling the accounts to the trusts would not create issues, so they opted to do so.
Key Points
It is hard enough for people to develop estate plans, let alone update them as conditions change for the principal or the fiduciaries. The hands-on involvement of a trusted friend, family member, or professional advisor can help overcome obstacles.
Property Insurance Issues
Our older clients’ insurance policies do not often reflect their real estate’s current value or title changes on property deeds.
Deborah told us, to our surprise, that she did not have homeowner’s insurance coverage for her expensive condo. Her decreasing capability to handle her financial affairs resulted in her not paying the insurance premiums, so the policy lapsed. Since she did not have a mortgage, no outside entity required her to maintain the policy.
We brought in an insurance broker to write her a new policy. Since her home’s value had appreciated considerably in recent years, she followed our recommendation to increase the coverage.
Sasha owned two co-op apartments – one her home and one her workspace. In addition, she was renovating a summer home out of state.
In the process of paying bills, we noticed she had minimal to no insurance coverage on the properties. Sasha explained her thinking about the value of insurance coverage. For instance, she self-insured most of the loss or damage risk to her valuable art pieces.
We brought in an insurance broker who appraised Sasha’s properties and possessions and demonstrated the relatively low cost of coverage vs. replacement value.
Jackson was paying for an insurance policy on a co-op apartment. He had made only a few changes in the 20 years since he bought it.
An insurance broker was able to appraise Jackson’s home and write a new policy that properly reflected the increased value. She also added an umbrella coverage for nominal cost. The additional coverage would protect Jackson from possible lawsuits by fraudsters trying to exploit a wealthy person.
Elsa has a co-op apartment that was placed in a revocable trust several years ago. We reviewed her documents and pointed out that her homeowner’s policy needed to be retitled to her trust.
Key Points
While assisting your aging loved one or friend, review their insurance policies to confirm they have the coverage they need and are not paying more than is justified.
Check that premiums are paid regularly, that there’s sufficient liability coverage for their valuable assets, and that the policies match the titles of those assets.
Review the policies periodically with an insurance broker. They can help determine if your family member’s or friend’s valuables and real property are not under- or over-insured.