Being appointed a trustee over family assets can feel overwhelming if you aren't familiar with the ins and outs of family trusts. First things first; don't panic. It's a big responsibility, but nothing you can't handle if you've got the right financial advisor by your side.
So what does being a family trustee mean? In the simplest terms, you're being entrusted with handling the family's assets—bank accounts, businesses, real estate, you name it. This includes managing and distributing these assets in accordance with the grantor's wishes, as well as making good on the trust's tax filings.
Family trusts can take a couple of different forms. The first, known as a testamentary trust, is appointed after the grantor's death. The other is called a living trust, which is exactly what the name implies. This is when the grantor, who's still living, signs family assets over to you. This is a common occurrence, especially for what's known as the "sandwich generation." These are folks who are simultaneously raising children and caring for aging parents.
So why would a family member appoint you as trustee? The biggest benefit is that, after the grantor's death, it allows the family to sidestep the costly and time-intensive probate process. And as Legal Zoom points out, it also preserves privacy—there won't be any public record of your family's assets and debts. Another important feature of a family trust is that it protects beneficiaries, like children or disabled relatives, who aren't able to handle their assets on their own.
Now that you know what a trustee actually does, let's unpack some of the most common hurdles. Again, seeing it all in black and white may feel daunting, but knowledge is power. In my 24 years as a Certified Financial Planner, I can tell you that financial awareness is the first step in decreasing stress and putting yourself back in the driver's seat.
Common Challenges of Being a Trustee
The thing about managing a family trust is that—in money and in life—there are a lot of moving parts to consider. In addition to the actual assets, you also have to think about the well-being of the beneficiaries you've been tasked with protecting. After one parent passes away, for instance, you may have to take over the family trust for the surviving parent who's also battling dementia or another degenerative disease that leaves them unable to handle the task.
This is tricky because, well, you're human! In addition to grieving the loss of a parent, the responsibility of caring for other close family members likely weighs heavy on your heart. The same goes for similar situations, like acting on behalf of a disabled sibling. The crux of the problem here is the complexity of juggling these two components—the financial responsibility and your emotional health. One bit of consolation is that this is completely normal and to be expected.
This is precisely why outsourcing the task to a qualified third party is often the best way to go. At JJ Burns & Company, we act as impartial facilitators who are 100% guided by fiduciary duty. In other words, we do right by the grantor and carry out their wishes so that their beneficiaries are cared for as intended—no conflicts of interest, no drama. Every family has their share of baggage, old grudges, and decades-long dynamics. It's simply part of life, but it can create a real headache for those who are handling a family trust. Partnering with a third-party facilitator protects those relationships and takes the pressure off the trustee.
Whether you choose to manage it yourself or team up with a financial expert, a few tasks should be at the top of the to-do list. Chief among them is getting an accurate valuation of the estate as a whole. And through every step of the process, honesty and transparency should always reign supreme.
It's also in everyone's best interests to create some liquidity from assets from the get-go. To put it another way, which assets can be easily liquidated to free up cash for immediate financial responsibilities, like taxes?
Your Action Plan
The first order of business is putting together a competent team of professionals (a financial advisor, CPA, and attorney) to help you shoulder the responsibility. This will help eliminate any conflicts of interest so that you can truly act as an independent facilitator of the trust. From there, it's about really understanding each beneficiary’s needs versus wants.
Prior to becoming a trustee, for example, a sibling may have grown accustomed to an over-the-top annual allowance from your parents. But taking the financial reins may reveal that this isn't sustainable over the long haul, so appropriate changes need to be made to preserve the estate's longevity. This requires making well-informed decisions that are based on the facts, as well as the parameters of the trust. Above all, advisors can help guide the trustee every step of the way.
Keep the lines of communication open so that beneficiaries can articulate their needs and wants. And be sure to revisit your family's values as needed so that you're really preserving the grantor's legacy and wishes. If you get ensnared by financial details, it's easy to lose sight of what matters most—family. Throughout your journey as a trustee, come back to your family values again and again to help guide you.
At JJ Burns & Company, we understand the complicated family dynamics that come into play here. We're also well-versed in the many financial nuances and tax responsibilities that go hand in hand with taking over a family trust. With the right team behind you, the road ahead doesn't have to be a bumpy one.
If you've been diagnosed with a chronic illness, you already know that it affects more than just our physical health. Digesting the news and coming to terms with this new reality often takes a toll on our mental health, relationships, family life, career and finances.
The latter is particularly important. Chronic illnesses account for 86% of our nation's $2.7 trillion annual health care expenditures. What's more, researchers say it isn't uncommon for folks with chronic health conditions to spend hundreds—or even thousands—every year, on top of their regular insurance premiums. Things obviously vary widely depending on the type and severity of the condition, but the main takeaway is that if you aren't prepared, a chronic illness could do a number on your finances.
Like anything else, knowledge is the key to empowerment. At JJ Burns & Company, we’re no stranger to serving clients who are living with chronic conditions. Our first order of business is restoring your financial confidence and putting you back in the driver's seat. Here's how.
Get a Handle on Your New Health Care Expenses
Understanding your outgoing expenses is the foundation of every financial plan. This is especially true for those with a chronic illness. Depending on your diagnosis, you may find yourself up against a long list of new health care expenses. The average person battling Parkinson's disease, for example, spends close to $23,000 every year in medical expenses. Connect with your health care providers to get a clear idea of what you can expect. Between medications, doctor visits, therapies, medical equipment, home health care aides and the like, is it possible to ballpark your annual medical needs and expenses? (Joining a support group is a great way to connect with those who are in the trenches and can provide some valuable perspective.) From there, it's time to take a deep dive into your health insurance policy to project your out-of-pocket costs.
There are a lot of numbers to crunch, which is why it's always wise to sit down with your financial advisor to map out a big-picture plan before making any moves. (We'll touch on this more in a moment.)
Leverage Tax-Advantaged Accounts
Tax-friendly funds like health savings accounts (HSAs) and flexible spending accounts (FSAs) can go a long way in easing the financial burden of a chronic illness. Each lets participants earmark pre-tax money to be spent on eligible medical expenses. FSAs have a use-it-or-lose-it setup (funds don't roll over from year to year), whereas HSAs stay with you over the long haul.
An HSA is particularly good to have in your arsenal because not only can you withdraw from it for medical expenses tax-free at any time, those funds become 100% yours, no strings attached, once you turn 65. You can spend the balance any way you wish. Just keep in mind that HSAs are only available to those who have a high-deductible health plan. They also have contribution limits ($3,450 for single folks under 55; $6,850 for families). That said, it's worthwhile to check in with your employer about whether they offer an HSA. If not, you can open one on your own if you meet the eligibility requirements.
Continue Honoring Your Life
A new diagnosis, while certainly life-changing, doesn't have to derail your dreams. Instead, it's about balancing your life with this new reality. Once you've connected with your medical team and have a firm handle on what to expect, take the time to really revisit your bucket list. What experiences stand out to you the most? Which line items ignite a sense of excitement within you?
Let this intuition guide you and your financial advisor so that your financial plan stays aligned with your values. Sometimes a chronic illness can be a blessing in disguise in that it reminds you what's really important in life. Taking an extended family vacation and making memories together, for instance, may suddenly feel like the best use of your money.
Reevaluate Your Investment Strategy
This really underscores the importance of having an in-depth conversation with your financial advisor as early as possible. A chronic illness complicates your finances, which is why our clients never have to go it alone. Depending on your health situation, your advisor may suggest reallocating your assets to free up more liquidity. If your illness is preventing you from working, whether temporarily or permanently, responsibly bridging that income gap becomes priority number one.
At JJ Burns & Company, we don't believe in making rash decisions. Instead, we take the long view and consider your overall financial health before tweaking your investment strategy. Remember: Our goal is to set you up for long-term success and stability. This is where estate planning comes in.
Despite the misconception, this isn't reserved only for those knocking on death's door. On the contrary, it's a simple way for anyone, regardless of where they are in life, to preserve their wealth and safeguard their family's future. After all, this is what financial planning is all about.
After a period of relative calm in the markets, in recent days the increase in volatility in the stock market has resulted in renewed anxiety for many investors. From September 30–October 10, the US market (as measured by the Russell 3000 Index) fell 4.8%, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.
Exhibit 1 shows calendar year returns for the US stock market since 1979, as well as the largest intra-year declines that occurred during a given year. During this period, the average intra-year decline was about 14%. About half of the years observed had declines of more than 10%, and around a third had declines of more than 15%. Despite substantial intra-year drops, calendar year returns were positive in 33 years out of the 39 examined. This goes to show just how common market declines are and how difficult it is to say whether a large intra-year decline will result in negative returns over the entire year.
Reacting Impacts Performance
If one were to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing. In other words, it is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill. Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.
Exhibit 2 helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.
While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thoughtout investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.
Breaking up is hard to do, and it's something that's made even harder when it happens later in life. "Gray divorces," as they're called, are indeed on the rise. According to Pew Research Center, the divorce rate among folks aged 50 and over has doubled since the '90s. Most people in this boat find themselves in completely new terrain. The single life can be a disorienting new reality for those who've built a decades-long life with their partner.
Divvying up your assets and debts comes with the territory for any divorce, but I've learned over the years that those who split up later in life usually have more moving parts to consider. If emotional heartbreak is one side of the stress coin, disentangling your finances is the other.
Being thrown into new financial waters is often jolting for both parties, especially if you're the spouse who wasn't the breadwinner during the marriage. For the first time ever, you may find yourself 100% financially on your own. Do you know how to confidently manage your budget, long-term goals, and investment portfolio? Taking over the financial reins can be an intimidating experience for anyone, particularly those reeling from a midlife divorce.
Even if you were the primary earner, splitting up could majorly rock the lifestyle you've grown accustomed to living. Transitioning to the single life—which may or may not include alimony—is bound to disrupt your financial health. At JJ Burns & Company, we sit down with our clients and help them develop a detailed, customized financial strategy before any divorce plans are in motion. This is the best way to get a realistic snapshot of your new financial norm.
If you're contemplating a gray divorce of your own, it's wise to check in with your financial advisor about the best way to move forward. Doing so can help you sidestep these common pitfalls.
How it Might Impact Your Lifestyle (Especially in Retirement)
When all is said and done, the average cost of a divorce comes in at about $15,500, with some paying more than $100,000. This could potentially put a major dent in your retirement nest egg, especially if you're already behind on saving. What's more, your retirement accounts could very well be considered joint assets, and how they're split up varies from state to state. I won't dive too deeply into the legal technicalities here, but before you do anything, you need to know if you live in an equitable distribution state or a community property state. This directly dictates how your assets and debts are divided.
So what does this have to do with your retirement? While your original plan may have been to live out your golden years together, drawing on the same funds, a divorce may translate to a smaller payout for you. If you're approaching retirement age, this could mean downsizing your lifestyle or finding ways to make up the difference (i.e. delaying retirement or picking up a part-time job after you retire). Divorcing also means eventually cashing in on one person's Social Security benefits instead of two.
Again, there are a lot of moving parts. Every couple is different, but knowledge is power. Before making any decisions, we always advise our clients to zoom out and look at the big picture. The end goal is knowing you can still enjoy a comfortable quality of life should you divorce.
How the New Tax Law Factors into the Equation
Making the decision to divorce is one that's inherently emotional. Be that as it may, some couples know deep in their bones that going their separate ways is the healthiest path forward for everyone. Couples who agree that divorce is the best option are in somewhat of an unorthodox situation these days—thanks to the new tax reform plan taking effect January 2019, it might be in your financial best interest to split up sooner rather than later. Why? As the law reads right now, alimony payments count as a tax deduction. Once the new tax reform goes through, the tax break for spousal support payments will be eliminated.
In simple terms, divorcing will most likely get even more expensive. In no way are we encouraging married couples to break up—anyone who's endured a divorce knows how painful it is. However, if divorce already feels right in your heart, the new tax reform is worth your attention.
While money certainly can't buy happiness, it can empower us to live a life that's more in line with our values. As gray divorces continue trending, it's definitely worthwhile to weigh the financial repercussions before signing on the dotted line. At the end of the day, being our client means knowing that we're taking the long view when it comes to your financial health, whether you're partnered or single.
Everyone believes in a good cause and wants to support a charity close to their hearts. Whether it’s donating goods or services, volunteering or making a financial contribution, any contribution helps.
While some people have more financial resources than others, there is a chance that may change at various times in your life. When you’re just starting out, you’re learning about savings and how to create a budget. Then, you may be thinking about a family and looking to purchase a home. Later on, it’s time to retire and you may have more disposable income to allocate.
As CFP® professionals, we can help you evaluate your financial situation to include the right amount of giving to an organization that means a lot to you—without impacting your other goals. Here are some key ways to determine how much you can reasonably give.
Look closely at your current situation. What are your regular expenses each month such as housing, entertainment, personal services and loans? No matter what your financial situation, before you give to charity, you want to ensure that all the basics are taken care of – including long term retirement savings goals.
Determine a percentage of your income. A rule of thumb for most people is to give about two percent of their yearly income. However, if you tithe, it may be 10 percent or more. With this number in mind, you can plan on how to reach your giving goals.
Be strategic – and creative. If your company offers matching contributions, take advantage of their generosity. Perhaps decide on putting aside a certain percentage of your yearly bonus to charity. Or maybe you have an interest or a skill that you can use as an entrepreneurial business and donate the proceeds.
Examine the trade-offs. If giving is important to you, you may want to rearrange things in other areas of your life. Does leasing your vehicle rather than purchasing give you additional financial options? Can offering a week at your vacation home when you’re not using it provide something extra for your favorite charity? Simple changes can make a big difference.
Prioritize your giving. If you regularly offer $500 here, $2,500 there, as well as purchase a table at a couple of benefit auctions, you can quickly derail your charitable budget without realizing it. Lead with your head instead of your heart and select a few organizations that are most important to you to maximize your giving impact.
Consider monthly vs. yearly contributions. If your income fluctuates each month, it may make sense to make a one-time donation each year; if you like the feeling of having a recurring payment made each month, that’s terrific, too. It all comes down to your preference. Whether it’s monthly or yearly, your charity will be most appreciative.
Make your money count. Take the time to research how the organization spends its money. What percentage goes to salaries and overhead costs compared to the charity’s mission? Charity Navigator, BBB Wise Giving Alliance and Charity Watch are watchdog groups that can help you make informed decisions.
Maximize your tax deductions. When you give, you not only want the personal satisfaction of helping a good cause, but also a financial benefit. While it’s fun to attend a gala or participate in a golf tournament, you may make your money go farther if you write a check directly to the charity. If you itemize your taxes, you can deduct the full amount of your donation. On the other hand, when you attend an event, you can only write off a portion of your ticket, because the costs associated with the event, such as dinner or entertainment, are not counted as part of your donation.
As always, do your due diligence. Not every charity is what it says it is – in fact, it may not be a charity at all and simply use a similar-sounding name. The above-mentioned charitable watchdog organizations are a good place to start when choosing which organizations to support.
For more information and guidance on charitable giving, a CFP® professional can help you clarify your financial objectives and determine which charitable giving options are best suited to help you meet your goals.