It’s the little things…Financial Planning Hawaii’s Top Catches of 2013Submitted by Financial Planning Hawaii on February 18th, 2014
Back in December, my practice was profiled in a Wall Street Journal piece titled, “Minding the Small Details in a Financial Review”. The piece was particularly gratifying because it helps validate my view that the non-investment aspects of one’s financial plan are every bit as important as the investment management. In my opinion, the financial planning profession remains far too investment-centric. It has been my experience that the most costly financial mistakes people make often have nothing to do with asset allocation or selection decisions, but rather errors caused by mundane oversights and/or a lack of knowledge of esoteric rules unrelated to the investment process.
By taking time to obsess over all of the little details of our clients’ financial lives, we are often able to make a difference in families’ lives that goes far beyond merely picking a good stock, bond, or mutual fund. While many planners and advisors eschew this sort of work because it is tedious and time consuming, we eagerly approach each review as a treasure hunt, and find it personally rewarding to catch potential planning mistakes. Below are some of the top catches of 2013.
- A 73 year old married client with children had $400,000+ in a company 401(k) account with no beneficiary designation. Had he passed away without naming a beneficiary, the full amount would be taxable as income at a high marginal rate in the year of his death and would have been subject to probate.
- A married couple client had prepared advance health care directives naming only each other as alternate agents. In the event of simultaneous incapacitation, the document would be of little use.
- A couple who had dutifully taken time to draft their estate planning documents placed the final document binder their attorney gave them in a bank safe deposit box that no one else knew existed or would have likely found.
- A wife had no idea that her husband had $300,000 of life insurance protection on his life. In the event of his death, she would not even have known to file a claim.
- A married couple with three young children had made no guardianship provisions for their children.
- A review of a client’s 130+ page employee benefits handbook revealed that his company offered a stipend for estate planning document preparation and a merit-based scholarship program.
- In reviewing a different client’s benefits handbook, we discovered that he was entitled to a $20,000 annual pension at retirement that he did not know he had!
- A divorced client was pleased to learn that she will qualify to receive social security income benefits off of her former husband’s social security earnings base because she was married longer than 10 years.
- A couple had not updated the beneficiary forms on their life insurance policies to reflect the births of their children.
- A review of an elderly client’s auto and homeowner’s policy information revealed that she was unaware that she was carrying only the minimum automobile liability protection. I recommended contacting her agent to increase the limit to the maximum allowed under the policy.
- A client with children applying to college was unaware that transferring assets from the child’s name to a custodial 529 plan would be beneficial for financial aid planning purposes.
- In coordination with their attorneys, we helped a number of Massachusetts clients shelter the first $1-2 million of their net worth from that state’s onerous 9%-16% inheritance tax. For one client who passed away in 2013, raising awareness of this issue saved her estate approximately $90,000 in MA estate taxes.
This list is far from all inclusive, but it should give a good general sense of why we think it is important to “sweat the small stuff”. While we do not claim to know every obscure rule or to be able to catch every potential pitfall, as per above, the routine “catches” we do make can definitely make a difference.