Why People Hire Us: Transition Planning

When you’re faced with a major decision, don’t let your finances suffer.  At Interactive Wealth, we understand how important it is to step back and properly evaluate your situation.  Action should only be taken after you’ve had time to reflect and consider your alternatives.  We’ll work with you to establish an environment of calm deliberation during:

  • Sudden changes in wealth (for better or worse)
  • Marriage or divorce
  • Birth or loss of a loved one
  • Career changes (whether welcomed or unexpected)
  • Other times of personal, professional or financial upheaval

Sudden Wealth Planning

What would you do with an extra $10,000?  Maybe pay down some debt like college loans or just take a much-needed vacation.  What if that $10,000 was actually a million dollars or even $10 million?  A windfall of that size requires a completely different approach.

Evaluate It

Just how wealthy are you now?  You’ll want to figure that out before you make any major life decisions like retirement.  Your first impulse may be to go out and buy a car or house, but that probably isn’t the smartest thing to do.  Even if you’re used to handling your own finances, now’s the time to watch your spending and craft a new plan.  Sudden wealth can turn a frugal shopper into an impulse buyer overnight.  You want your new wealth to last, so you’ll need to consider how to transition from your current situation to your future goals.

Start with the following questions to evaluate your short- and long-term needs and goals:

  • Do you have outstanding debt that you’d like to pay off?
  • Do you need more current income?
  • Do you plan to pay for your children’s education?
  • Do you plan to stay in Portland, Oregon?
  • Do you need to bolster your retirement savings?
  • Are you planning to buy a first or second home?
  • Are you considering giving to loved ones or a favorite charity?
  • Are there ways to minimize any upcoming income and estate taxes?

If you don’t already have a financial advisor, now is probably a good time to hire one.  A fee-only financial advisor who is also a CERTIFIED FINANCIAL PLANNING™ professional is a great place to start.  Be wary of salespeople pretending to be advisors looking to sell you something.  You’ll want an advisor and their employer to be fiduciaries.  That way you’ll know they won’t have any conflicts of interest and take an oath to look out for their clients’ best interest.  Contact Interactive Wealth for details on our fiduciary approach. 

Invest It

What will you do with your new assets?  Consider these questions:

  • Do you have enough money to pay your bills and your taxes?
  • How might investing increase or decrease your taxes?
  • Do you have assets that you could quickly sell if you needed cash in an emergency?
  • Are your investments growing quickly enough to keep up with or beat inflation?
  • Will you have enough money to meet your retirement needs and other long-term goals?
  • How much risk can you tolerate when investing?
  • How diversified are your investments?

The answers to these questions will help you formulate a new investment plan.  Remember not to rush your decision making.  You can always park your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit.  This will give you time to plan and think things through.  Once you’ve taken care of these basics, set aside some money to treat yourself to something you wouldn’t have bought or done before–it’s OK to have fun with some of your new money!

Insure It

It’s sad to say, but having money makes you more vulnerable to lawsuits.  Even if you now have the cash to pay for an unforeseen accident, it’s much smarter to re-evaluate your current risks and see if a change in your insurance coverage could help.  If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft.  Finally, it may be the right time to re-examine your life insurance needs.  More life insurance may be necessary to cover your estate tax bill so your beneficiaries receive more of your estate after taxes.

Plan It

Now that your wealth has increased, it’s time to re-evaluate your estate plan.  Estate planning involves conserving your money and putting it to work so that it best fulfills your goals.  It also means minimizing your taxes and creating financial security for your family.

Is your will up to date?  A will is the document that determines how your worldly possessions will be distributed after your death.  You’ll want to make sure that your current will accurately reflects your wishes.  If your newfound wealth is significant, you should meet with your attorney as soon as possible.  You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.

Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own.  For instance, if you have minor children, you should consider setting up a trust to protect their interests and control the age at which they receive their funds.  It’s probably also a good idea to consult a tax attorney or financial professional to look into the amount of federal estate tax and state death taxes that your estate may have to pay upon your death; if necessary, discuss ways to minimize them.

Act on It

Is gift giving part of your overall plan?  You may want to give gifts of cash or property to your loved ones or to your favorite charities.  It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members.  If you decide to give or lend any money, put everything in writing.  This will protect your rights and avoid hurt feelings down the road.  In particular, keep in mind that:

  • If you forgive a debt owed by a family member, you may owe gift tax on the transaction
  • You can make individual gifts of up to $14,000 (2018 limit) each calendar year without incurring any gift tax liability ($28,000 for 2018 if you are married, and you and your spouse can split the gift)
  • If you pay the school directly, you can give an unlimited amount to pay for someone’s education without having to pay gift tax (you can do the same with medical bills)
  • If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income

Enjoy It

Finally, don’t for get to enjoy your good fortune.  You shouldn’t feel guilty that you’ve been blessed.  You now have an opportunity to make a difference in a new way to your friends, family and favorite charities.

Learn How Our Fiduciary Approach Can Help You Transition Smoothly