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T&E TALK:  Common Mistakes That Can Derail Your Financial  Planning (Part 2)

Posted by Scott T. Ditman, CPA/PFS on Aug 8, 2016 7:00:00 AM
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In last week’s blog, I looked at cash flow planning and the impact of market forces as two overlooked areas of financial planning.  Two additional areas that frequently get insufficient attention include insurance planning and estate planning.

It is human nature to want to purchase insurance based solely on the lowest cost to you. This practice simply increases the odds that you will have inadequate protection, particularly when it comes to homeowners insurance. You may not even know if you are covered for such catastrophes as floods and tornados — until you file a claim.  Even if you have chosen your advisor well, you may forget to inform this person of changing circumstances such as home upgrades, additions to the home, or a change in the status of a property, say from your residence to a rental property. 

Your life insurance advisor is also an important part of your financial team along with your accountant and attorney. Life insurance can be a key component of your financial planning as it can provide liquidity to pay for projected estate taxes and other expenses when you are gone.  In addition, your insurance advisor should periodically review the policies with you to make sure that they are performing as planned.

Another way to wreak unexpected havoc on your estate plan is to have wills and other estate planning documents that are dated, have outlived their usefulness, or were not well thought out when initially drafted.  Here are a few examples to watch for:

  • Changes in the tax law that impact your planning
  • Dated documents might list former spouses or deceased persons as beneficiaries
  • Your selections for executors and/or trustees
  • Designated beneficiary forms for retirement plan accounts such as 401(k)s and IRAs
  • In some cases, you may have documents that leave large sums of money to minor children outright, or earmark funds for an individual who needs to have their inherited wealth managed by others

Financial planning is an organic process, not a one-time event. The process must take into account your entire life but must also change and evolve as your life moves on.  In effect, when your life changes, as in a birth, death, marriage, divorce, inheritance, it is a signal to look into the impact on your financial and estate planning and all associated documents.

If I have raised questions about your insurance or overall estate planning, contact me at SDitman@berdonllp.com or your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, New York Accountants, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.

Topics: T&E TALK

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