Routine Checkups — Beneficial to Your Bottom Line

Ron Johnson is a physical therapist who loves to play basketball. During a routine medical checkup he “flunked” his stress test. It turned out that Ron had heart disease and needed quadruple bypass surgery. Fortunately, Ron’s heart disease was found and corrected before he had a heart attack.

Like an annual medical checkup, a Financial Plan Review can uncover something amiss. At BWFA, we contact our Financial Planning clients annually to remind them that it is time to review their financial plans.

Recently, we contacted our clients Early and Happy Retiree and suggested that we get together to review their plan. Although the Retirees had no particular financial planning concerns, they agreed to come in for the review. During the review process, we found several important things amiss.

We had completed the Retirees’ Retirement Plan several years ago, but had not reviewed their estate plan. We decided to make estate planning the focus of our review and, in doing so, we made several discoveries:

  • Original documents — The documents that Early gave us to review were dated 1997, but included a letter from his attorney that referenced a living trust dated 2000. After consulting with Early, he found the living trust dated in 2000. Discovering the 2000 living trust document now, prevented a lot of confusion from arising later. It also showed that the more recent document had not been implemented. A living trust is only effective if assets have been properly transferred to the trust, and Early had never taken the steps to transfer the assets.
  • Federal Estate Tax Exemption — The Retirees’ estate documents were set up to fund a bypass trust to the full amount allowed by Federal law ($2,000,000 in 2006-2008). Although setting up a bypass trust like this was standard procedure in the year 2000, under current tax law, this strategy does not provide enough flexibility in their estate plan and may actually result in more taxes. That’s because their documents didn’t take into account the current situation with Maryland estate taxes.
  • Qualified Terminable Interest Property Trust (QTIP) — The estate tax exemption in Maryland is $1.0 million. Amounts in excess of $1.0 million are subject to the Maryland estate tax. By funding a $2 million bypass trust, Early would actually be creating a tax liability in Maryland upon his death. Maryland recently passed legislation that allows you to delay the payment of the estate tax until the surviving spouse’s death by setting up a QTIP. Since Early’s living trust was written in 2000, it did not include the special Maryland QTIP provisions.
  • Memorandum — Happy’s living trust referenced a memorandum that lists how she wishes her items of emotional value (jewelry, furniture, etc.) to be distributed. Happy said she had forgotten to make the list. She had wanted to make a list because she wanted to make sure members of her family received certain items. But, without a list no one would know what her wishes were or where the items are located.

Even when clients feel they have everything in order, often problems exist. A key part of our retirement and estate planning process is to identify problems like these and provide solutions. In other words, we want to help you maintain your financial health. As a result of their Financial Plan Review, the Retirees updated their estate documents and took the necessary steps to implement their plan. Now they are assured that their estate plan will allow them to maintain family harmony, minimize taxes and fulfill their wishes. At the end of our meeting, both Early and Happy thought it would be a good idea to schedule their next review.