Too often, life gets in the way of our best intentions – especially for busy corporate executives or small business owners. Time constraints of work and family and the distractions of the great outdoors of Colorado can let some important tasks fall through the cracks. Small business owners often find themselves overwhelmed with day to day operations of their business, performing tasks such as marketing, client meetings, product development, managing employees, paperwork, benefit decisions, and much more. Corporate executives are busy managing their teams, meeting revenue targets, cultivating new business acquisitions and sometimes-endless travel, among other things. With all these tasks at hand, protecting earning power and making sure their estate plan is in order are two of the most important wealth management topics that should be addressed, but are often overlooked.
The thought of estate planning is a daunting task to most people – but particularly for those whose days’ are consumed with so many other important tasks and decisions. There are many steps that become overwhelming during the process of estate planning and creating your will. First, you have to find a qualified attorney. And the hard work doesn’t end there – next you have to fill out a long multi-page questionnaire. This is often where the momentum ends because the last thing a busy corporate executive or small business owner wants to do is fill out more forms. If you utilize the services of a wealth manager who is already familiar with your assets and total picture, they can be of great assistance when completing the initial questionnaire for the attorney. After answering questions about your financial and personal situation, you then have to make some tough decisions – you have to determine an executor for your estate, a guardian for your children, trusts for y our children and where and how assets should ultimately be divided up. You also have to make decisions about your healthcare wishes. All of these decisions and appointments are not so straightforward.
Once you finally have your will and estate plan created, you then have the long process and checklist of things to do such as changing your beneficiaries, changing account titles, changing asset titles and possibly funding trusts. This list should be shared with your wealth manager so they can assist with as many things as possible. As a wealth manager, we have found that changing your beneficiaries is the commonly overlooked.
Protect your wealth and your family to avoid ever being in the situation of not having a will and estate plan. If you don’t have a will, the state effectively has a will for you. In other words, the state has a method for how your assets will be distributed and their method might not have been what you wanted or intended. Depending on your situation, your spouse may not get all of your assets, or your children might benefit in ways you had not desired.
Another issue that often goes unresolved is protecting your earning power. This is extremely important, especially if you are the sole income provider for your family. Unless you have accumulated enough assets to make work optional, you need to obtain life insurance. If you are a single wage earner, you need enough insurance to replace your salary minus the assets you have already accumulated. For example, if your salary is $200,000 and you are saving 25% of salary and you have accumulated $1,000,000 in assets (Incidentally this is very close to the correct saving rate for this level of income) your assets would provide approximately $40,000 per year, increased for inflation for the next 30 years (The 4% withdrawal rule). Given your pre-retirement spending was $150,000 ($200,000-25% savings), your portfolio would leave you needing to replace $110,000 of earning power. To arrive at the amount of insurance that would provide $110,000 of income, divide $110,000 by .04 to get approximately $2.75 million of life insurance. The amount of insurance needed could be further reduced by social security and the earning potential of a spouse. The amount of insurance you need decreases every year as you get closer to retirement. There are term policies that will allow you to reduce the amount of insurance you need each year and thus your annual cost of insurance.
If you are a busy corporate executive or small business owner, you need to make time to protect your wealth and your family and commit to making work optional by saving more.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail firstname.lastname@example.org.
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