Abigail Gunderson, Senior Wealth Advisor, discusses how parents can approach conversations about inheritance, estate planning, and financial transparency with their adult children in MarketWatch.
Abigail Gunderson, Senior Wealth Advisor, shares guidance for couples on navigating financial compatibility, budgeting, and communication before marriage in InvestmentNews.
Abigail Gunderson, Senior Wealth Advisor, discusses how financial infidelity and hidden debt can impact retirement planning, while offering strategies couples can use to improve transparency and protect their long-term financial security in GOBankingRates.
Some of the most rewarding work I do is with clients who are in or approaching retirement. I get to see my clients pursue their passions without distraction, deepen their relationships with family, and use the wealth they have earned to make the world around them a better place.
That is not to say it’s easy work.
With more than 11 years of advising Tanglewood clients, my experience has shown me that the emotional side of retirement planning cannot be separated from the financial side. The math has to work, yes. But emotional resilience plays a huge role in making that math work. When you are emotionally engaged in your retirement plan, you manage your wealth… but you also make sure the right decisions are being made, and the right people are involved at every stage.
Emotional resilience can also be seen as the capacity to prioritize what truly matters. That means maintaining a financially sustainable lifestyle, organizing everything you will need when life catches you off guard, and building trust and confidence in the people who support you.
We are approaching the end of the year as I write this. But no matter when you read this article, consider it an open invitation to run down your own emotional resilience checklist to stay on track with your own retirement plan. Here are a few suggestions:
Consolidate and simplify what you can. Build your net-worth statement. How easy is it for you to access all your financial accounts? How many logins and passwords do you have to manage? No one has an easy, straightforward financial life. Throughout the course of your wealth-building years, you will inevitably have several banking, investment, and retirement accounts from different jobs, localities, and phases of your life.
Many of those accounts need to stay separate for good reasons. It is likely that your decumulation strategy will concentrate your wealth into different types of accounts to manage your long-term tax exposure. But you do not have to make it harder on yourself. Are there any accounts that you could consolidate? The more you can simplify and eliminate unnecessary accounts, the easier it will be for you and your advisor to manage your wealth as a unified whole.
That consolidation goes double for your subscription accounts. According to CNET, the average household sinks about $1,000 a year into subscription fees. That money adds up over time. I am not suggesting you cancel everything, but I would like you to think about how often you use your subscription services. For that matter, how much are you enjoying the services those subscriptions provide? Are they adding value to your life now, or is it a fee you pay because you might want the option to watch some shows on your “must watch list” or simply “too busy” to find the time to cancel them?
When you take control of where your money is located and how it is used, you lessen the cognitive load of managing your finances for the long haul. You build intentionality back into your finances.
Another way to build intentionality and emotional resilience is to check in with your team. Your advisor works with your estate and tax planning professionals. Are there any documents that need updating to better reflect your retirement plan and the legacy you want to create? Are your beneficiary designations up to date and consistent with your plans? How easy is it for you and your team to access the forms and information you need?
Verifying beneficiary designations is one of the simplest yet powerful steps you can take to secure your legacy. Ensuring that your designations are clearly identified and consistent with your overall retirement and legacy plan is more than just an administrative task–it is emotional reassurance. By taking the time to confirm that the right people will benefit from your life’s work, you gain peace of mind and clarity.
Your advisor and estate planning professionals can guide you through this process, making sure your designations reflect your intentions. Revisiting these decisions regularly with your team ensures they evolve alongside your financial and personal goals, further aligning with the legacy you wish to leave behind.
It might sound a little silly to call it “self-care” to talk to your advisors about your finances. But it can provide genuine emotional relief knowing that your loved ones are cared for and that your own financial path is headed in the right direction.
Proactive tax and investment planning is another way to build both financial security and emotional resilience. Collaborating with your wealth advisor and CPA not only ensures your tax situation aligns with your long-term goals but also reduces the stress often associated with tax season. Your advisory team can suggest tax saving strategies you were unaware of that are complementary to your values and philanthropic goals, or take advantage of lower tax brackets at retirement to further legacy goals for your heirs.
Think of it as an investment in your peace of mind. Knowing that your finances are in order and that you are taking full advantage of available tax-saving strategies can provide a sense of control and empowerment. Regular planning meetings can feel like an act of self-care, helping you navigate financial complexities with confidence and focus on what matters most in your life.
Finally, check in with your family. No one is an island, no matter how wealthy they are. Your partner should be an active participant in your retirement plan. Your loved ones should know what your intentions are. It is likely that some of them want to broach the topic with you but are worried they might upset you or say the wrong thing. Instead, invite them into the conversation.
The more trusted people in your life who understand your intentions, the more likely they are to support you on your retirement journey, act in accordance with your wishes and contribute to the legacy you have worked to build.
Whether you verify beneficiary designations, simplify financial accounts, or proactively manage taxes, each step builds resilience into your financial plan and creates a stronger foundation for your future.
If you aren’t sure how to navigate these conversations or would like to discuss your retirement plan in greater depth, contact your wealth advisor or schedule an introductory meeting by contacting us here.
Happy holidays!
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust established by one spouse (grantor) for the benefit of the other spouse, children and grandchildren (beneficiaries). It has become a popular estate planning strategy in the face of an unknown future for estate and gift taxes.
Estate and Gift Tax Benefits. One of the primary advantages of a SLAT is the ability to potentially reduce or eliminate future estate taxes. With the estate tax exclusion at $13.61M for 2024 (set to revert to about $7M in 2026), gifting assets to a SLAT can capture the current high exemption. In addition, the appreciation of the SLAT assets (over time) is effectively removed from the grantor’s taxable estate at death. (Of course, irrevocable gifts must total over $7M in order to improve on the status quo exemption after 2025.)
Grantor’s Continued Access to Assets. Though a SLAT is irrevocable, it can also be flexible. The grantor spouse has indirect access to trust income (and in some cases, trust principal) through the distributions made to the beneficiary spouse which is available, if needed, for as long as the beneficiary spouse remains alive. It enhances the couple’s ability to maintain their desired standard of living.
Asset Protection. Assets in a SLAT are typically shielded from the claims of the beneficiary’s creditors.
Key Considerations for SLATs
Grantor’s Tax Status. Though the SLAT is a separate legal entity, the grantor is responsible for paying taxes on trust income. In essence, this is an additional “gift” to the trust beneficiaries and another way to minimize the grantor’s estate tax exposure.
Assets Gifted to a SLAT. Assets transferred to a SLAT by a spouse must be the grantor’s separate property. In community property states, this can be effectively done by partitioning assets.
Note that there is no step-up in basis for assets gifted to a SLAT at the death of either the grantor or beneficiary. However, they are excluded from the grantor’s and beneficiary’s estates.
Reciprocal Trust Doctrine. The IRS has a set of rules that need to be considered in the planning process. Reciprocal SLATs may be disallowed. That is where each spouse funds a nearly identical SLAT trust for the other. Differences can be implemented by varying the distribution terms, powers, or year of creation for each SLAT.
Spousal Relationship. The full advantages of a SLAT are best maintained if the spouses remain married throughout the existence of the trust. In the event of a divorce, complications may arise. Discuss with an Estate Attorney and your Wealth Advisor if this strategy is appropriate for your family’s wealth transfer plans.
A Roth IRA conversion occurs when you move funds from a Traditional IRA or a SEP/SIMPLE IRA into a Roth IRA. Since an account holder is making a distribution of tax deferred dollars during a conversion, the funds converted are taxed as ordinary income in the year of conversion.
However, funds in a Roth IRA continue to grow tax-free throughout the account holder’s lifetime. (A 5-year holding rule applies to each conversion).
The current marginal tax bracket is lower today than at actual distribution. This could be the case when clients are living on investment income from taxable accounts and expect significant Required Minimum Distributions (RMD) in the future from Traditional/SEP/SIMPLE IRAs.
For married couples, one spouse expects to outlive the other spouse. A surviving spouse transitions to a “Single” taxpayer which is subject to higher tax rates at lower income levels. The converted Roth funds can serve as tax-free income to supplement taxable sources of income and maintain the survivor’s current standard of living.
Huge charitable deductions or carryforwards. A Roth conversion fills up the income that helps absorb a greater percentage of the charitable deduction. (Charitable deductions are subject to Adjusted Gross Income limitations).
Net Operating Loss (NOL) Carryforwards. Ordinary income taxes from a Roth conversion can offset NOL losses in years where businesses may be experiencing setbacks or did not generate any profits.
Roth IRA funds are an excellent vehicle to maximize funds for transferring wealth to the next generation. When non-spouse beneficiaries inherit Roth IRA accounts, the account can continue to grow tax free until the last day of the 10th year following the year of the decedent’s death. (Some exceptions apply.)
High income earners at top brackets can convert now before rates sunset at the end of 2025. Depending on a client’s overall financial situation, it may make sense for high-income earners to consider conversions at 37% today which is still more favorable than the anticipated top tax rate reversion back to 39.6% in 2026. (This provision within the Tax Cuts and Jobs Act of 2017 expires at the end of 2025.)
Cash is available for tax payment. Cash is available outside of qualified accounts and not needed for living expenses.
Higher taxable income can result in increased Medicare insurance premiums. For those who are paying Medicare premiums for Part B and D, a Roth conversion will increase taxable income which could affect the Income-Related Monthly Adjustment Amount (IRMAA) that future premiums are based on. Note – the benefits of tax-free compounding on a Roth IRA for an owner’s lifetime can outweigh the additional premium dollars that are spent.
Consider Net Investment Income Tax. Clients need to be aware that a conversion that increases their Modified Adjusted Gross Income (MAGI) levels over $200K (Single) or $250K (Married filing joint) will be subject to the 3.8% “net investment income tax” (Medicare surtax).
Our tax planning tools can help estimate the optimal amount for conversion based on each client’s unique situation. Please contact your Wealth Advisor to help evaluate a Roth conversion strategy that may enhance your wealth plan.
With inflation rates topping 8% last year, the average American household is spending significantly more for the same goods compared to the previous year. Here are three ways you can address the impact of inflation.
Budget Creep occurs when your expenses are consequently going up due to the increasing cost of goods brought about by inflation. Though reviewing a budget is hardly anyone’s favorite pastime, the effort could be an eye opener when you determine where those hard-earned dollars are being spent. Most of our clients can afford everyday luxuries but are also practical. How much more did your favorite restaurants cost this past year? Review your subscriptions (streaming services, for example) that auto renew each year. For fixed expenses such as utilities, internet, insurance, this may be a good time to check your rates and shop around. Using a resource like powertochoose.com can be very helpful in keeping energy costs down.
With the increased costs of rebuilding homes caused by the aftermath of natural disasters and high inflation, review your home coverage limits. Most insurance companies use cost estimators annually to reflect current construction prices. However, consider adding a “Guaranteed Rebuilding Cost” endorsement. Although this comes with an additional premium, it provides piece of mind knowing the policy will pay the full cost of rebuilding even if it exceeds policy limits.
Make an inventory of all the valuables in your home. Consider getting an updated appraisal when renewing scheduled coverages to reflect any increased values of personal property.
If you have cash sitting in the bank that exceeds your emergency reserves, check your interest rates. Three of the well-known bank chains are paying as low as 0.01% – 0.15%! In today’s high inflationary environment, you are leaving money on the table by holding cash at such low rates.
As of this writing, Schwab’s Value Advantage Money Market fund is currently yielding 4.26% while 1-Year Treasury Rate are now 4.75%. These are significantly better cash vehicles to combat inflation’s toll on purchasing power. Tanglewood uses these short-term investment options in your portfolio whenever possible and can facilitate getting a client’s other cash holdings working harder as well.
I recently visited my mother across the globe. Though in relatively good health, the pandemic aged her in some ways. We shared many laughs along with serious conversations about her finances and her desire to live at home as long as possible.
Since many of us have parents who are aging (or YOU are the aging parent), it is prudent to have discussions about their wishes, aspects of their lives that are important to them, dreams that have yet to be fulfilled, concerns about the future, and plans for potential incapacity or illness.
Make sure that your parents’ legal documents are in order. Have your parents executed a Will, a Living Trust, and/or Durable Powers of Attorney for financial matters and healthcare? Are they up to date? Do you know where they are?
Discuss your parents’ preferences regarding healthcare. Do they have doctors who they trust? If they are currently sick, what type of treatments would they consider and how will this impact their finances? Do they have medical directives that state the use or termination of life-sustaining care in case of terminal illness?
Housing considerations. Talk openly about moving to an Assisted Living Facility if they can not easily manage living at home. Or, do they prefer caregivers to help at home with daily activities such as driving, getting dressed or cooking?
Learn about your parents’ financial resources. What type of assets do they own? Are adequate funds earmarked for medical needs or prolonged illness? Do they have any insurance policies (life, auto, property, long-term care) and are they all current? Find out where they keep their password information for their digital accounts and smart phones (for access to two-factor authentication if necessary).
Discuss with family members what their roles and responsibilities are. Should a parent become incapacitated, is there a child who can devote their time to their care? What are the options available if no one is available to assist full time?
Ask what your parents’ preferences are for end-of-life arrangements. Do they want to be buried or cremated and where? Do they own any prepaid funeral plans or a burial plot?
Having these important and difficult discussions empowers children to make decisions that are consistent with their parents’ wishes which will positively contribute towards their more rewarding and peaceful twilight years.
How property is titled is a crucial part of any well-designed estate plan. The lack of coordination between asset ownership and estate planning documents can inadvertently lead to unwanted consequences.
Many of our clients own joint accounts that are either titled as Tenants in Common (TENCOM) or Joint Tenants With Rights of Survivorship (JTWROS). The difference can significantly affect the asset distribution outcome.
Assets that pass through a will are referred to as probate assets. A typical example is a TENCOM account. It is owned by multiple individuals who each have a separate, but undivided interest. At death, the decedent’s share must go through probate and follows the will’s instructions.
In a JTWROS account, each owner has an undivided interest and survivorship rights. This means a decedent’s share passes to the surviving owner(s) by “Operation of Law”, therefore – bypassing probate – and independent of the will’s instructions. For spouses, a JTWROS account can be an efficient way to pass assets to each other at the first death in the right circumstances, such as spouses who have no children or simple wills leaving assets outright to each other.
Oftentimes, one or both spouses want to ensure that their children (or children from a previous marriage) inherit assets. Their estate plan may incorporate the creation of a trust that provides income and/or principal to their surviving spouse and children. A TENCOM accomplishes this since the deceased spouse’s half of the account flows through the estate to fund the trust. The other half is distributed outright to the surviving spouse.
However, a JTWROS account may completely negate a planning strategy that called for the creation of trusts. Unless there are other funds earmarked. The JTWROS assets will transfer outright to the surviving spouse and not be available to fund the trust.
Avoiding probate at death is a goal that more people are incorporating in their estate plans. Accounts that transfer assets directly to their intended heirs can accomplish this. Should this be your goal, make sure a separate account is set aside which can be easily accessed by your executor. This is to provide funds for final bills, funeral expenses, costs, and taxes related to settling the estate.
