What is Your Financial Backup Plan, and Have You Conducted an Estate Audit?
In my decades of experience helping to build Ideal Futures, I’ve observed that a comprehensive financial plan can help increase the probability of financial wellness.
A financial plan is designed to help reduce future uncertainty. It provides a logical framework to navigate life’s inevitable financial challenges, such as recessions, inflation, unemployment, health issues, and cash flow needs. A plan also helps individuals determine an appropriate level of investment risk. Advisors are bound to a fiduciary duty to advise clients on the optimal level of risk needed for their plan’s implementation.
Household CFO
While a financial plan can maximize the likelihood of someone reaching their financial goals, the absence of a backup plan increases the risk of burdening their loved ones. For many couples, one spouse acts as the Chief Financial Officer (CFO), possessing the most in-depth knowledge of the family’s finances and making most financial decisions. This division of labor is efficient but creates a vulnerability if the family CFO becomes incapacitated or passes away.
This is where a financial backup plan, or a backup CFO, becomes crucial. A holistic financial advisory firm can step in and help execute the financial plan if the primary CFO is unavailable. Establishing this relationship proactively can be a beneficial approach.
An Example
Here’s a fictitious example that helps highlight this need. A financially savvy individual who managed his finances independently started experiencing health problems. His wife, though responsible for paying bills, was unaware of the extent of their $8 million in assets. Recognizing this vulnerability, he engaged a financial advisor as his backup plan and left a note for his wife to contact them if he passed away. Upon his passing, she followed his instructions.
Beyond potential Illinois estate tax implications, the deceased had many accounts at various financial institutions. Without designating a backup plan, settling the estate could have been significantly delayed and potentially diminished by unnecessary taxes.
Estate Audit
An estate audit would have further benefited this family. This audit is essentially a balance sheet listing all assets/accounts and liabilities/loans, including how accounts are titled and designated beneficiaries. It also includes wills, trusts, and powers of attorney for property and healthcare. This comprehensive overview reveals how assets will be distributed after the passing of both spouses and identifies any potential probate or tax issues.
For those pursuing their financial goals, we believe a customized financial plan is essential. To help minimize the risk of burdening loved ones, a financial backup plan and an estate audit can be equally important.
Limitations: The above is a hypothetical scenario-not involving an actual Savant client. This is intended for illustrative purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant.
Donald D. Duncan
Managing Partner / Financial Advisor
CFP®, CFA®, CPA/PFS, CSEP, MBA