As discussed in part one of our blog series, a wealth plan is an important tool for families in good times and bad. Regular maintenance is required to keep the plan updated and responsive to an individual or family’s needs and goals. In the next installment of our series, we share the step-by-step approach RKL Wealth Management advisors take to review their clients’ plan. For those just getting started, this process can also set the foundation for creating a new wealth plan.
Step 1: Get organized
As wealth grows, the complexity becomes increasingly difficult to manage. Organization helps impart a sense of control over the process and can alleviate anxiety. Knowing the size, scope and location of assets makes plan creation, review and updates easier. It also provides a clear road map for loved ones who might need to handle affairs at some point. Here is a list of steps to get organized:
- Create a list of advisors (attorney, accountant, investment advisor, insurance consultant, etc.) and contact information.
- Locate copies of all important financial documents, including but not limited to estate planning documents; life insurance policy statements; beneficiary designations for all retirement plan accounts and annuities; investment account statements; and deeds to real estate holdings.
- Create a personal balance sheet with asset values and titling of assets. Knowing what you own and how those assets are titled are critical to a wealth plan and its ongoing review and monitoring.
- Identify and confirm beneficiary designations for all life insurance policies, retirement plans, annuities and any other applicable asset.
Step 2: Stress test current situation
Once you are organized, it is time to stress test your plan under various scenarios, with the help of your advisors. Two broad questions are a good place to start: What happens if a crisis occurs tomorrow? What happens if you live to age 100? From there, assess a number of planning considerations, including:
Financial planning considerations
- Do I have a sufficient cash reserve to draw on in an emergency and cover at least six months of living expenses?
- How does a prolonged loss of income impact my plan?
- How does a significant decline in the markets impact my plan?
- What factors have changed since the last review? (New children or grandchildren, career change, health, etc.)
- What factors are likely to change in the future? In the next five or 10 years (retirement, sale of business, additions to family, etc.)?
- Do the cash flow projections still support my goals for retirement, college savings, etc.?
- Is there sufficient liquidity available to support my family if I am disabled or pass away? Review disability and life insurance policies, if any.
Estate planning considerations
- What happens if I die tomorrow?
- Who gets what and when? Does this disposition still make sense in light of any changes?
- Do the individuals and/or professionals named as fiduciaries still make sense (choice of executor; guardians for minor children; attorney-in-fact for general power of attorney and health care power of attorney; trustees, etc.)?
- Have there been any changes to the tax law or potential future changes that impact your plan?
Investment considerations
- What do I own and where are my investments located (retirement plans, individual or joint accounts, trusts, partnerships, etc.)?
- Are my investments still appropriate in light of current market conditions, risk tolerance and the review of my financial and estate plan?
- Does my investment portfolio still support my goals and objectives?
- What risks and opportunities exist in the current market environment?
Step 3: Monitor, Monitor, Monitor
A wealth plan is not a static document that never changes, nor is it a singular transaction to set and forget. On the contrary, wealth planning is a dynamic process that requires constant monitoring and revising because new challenges and opportunities will always arise. A wealth plan is the map that guides you through when life veers off course from original goals. To stay on track, wealth plans should be reviewed at least once a year.
The RKL Wealth Management team helps facilitate regular wealth plan reviews with clients to ensure progress, take stock of changes and pinpoint opportunities. Up next in our series, we will discuss how to seize opportunities during challenging times. As always, contact your RKL Wealth Management advisor with any questions.
