Adjusting your wealth plan at three important life stages

An effective wealth plan can be the key to building and preserving wealth, meeting your long- and short-term financial goals, and cementing your legacy.

To be effective, however, your wealth plan must be revisited on a regular basis to make sure it reflects important changes in your life. Planning is not a matter of “set it and forget it”: New concerns, responsibilities, or goals often appear as you reach certain life milestones. Today, you may be focused on building wealth, advancing your career, or growing your business. Later, you may be looking for ways to provide financial support for the people you love, or to transition your assets and build your legacy.

“Each stage brings different goals and concerns, and your wealth plan needs to evolve to address them,” says Isaac Bradley, wealth planning strategist for Wells Fargo Wealth & Investment Management. “A client with young children is going to have a very different plan than a client who is trying to transition a business to his adult children.”

Here, Bradley shares three major life events likely to have the biggest impact on your finances, along with some perspective on how to adjust your wealth plan to prepare for each transition:

Launching a career or a business

What are you working toward? Being strategic means having a long-term view, so think about retirement from the beginning. “One of the biggest mistakes many people make is waiting until they are about to retire to start planning,” Bradley says. Instead, building a retirement plan is something that should align with building your career.

Effective retirement planning considers not only any assets and income but also future expenses, tax liability, and life expectancy. For example, your benefits may include company stock as a bonus or at a reduced price. Be sure to consult with your advisor for help in implementing tax-efficient investment strategies and hedging strategies to balance a portfolio that could be heavily weighted with company stock. If you have a deferred compensation plan, it’s important to consider how and when you will exercise those options as you get closer to retirement.

For business owners, it’s never too early to start thinking about whether you hope to sell, turn over ownership to the next generation, or continue to own the company after you retire from a more active role, Bradley says. Successful exit planning means developing a continuity plan and making sure a strong management team is in place for the future. This plan can also help strengthen your business and prepare it for unexpected events.

 Caring for family

Having someone who depends on you financially — whether a spouse, an aging parent, or a child — is often what prompts clients to get serious about wealth planning, Bradley says.

In many families of means, parents set up a trust with the help of their estate planning attorney to help take care of their children’s future needs. “If something happens, you don’t want your young children to get a large sum of money before they are ready to handle the responsibility of wealth,” Bradley explains. A properly written and funded trust can document your wishes in the event of the unexpected, including designating a trustee who will manage and distribute assets in the trust according to your stated guidelines.

In addition, a revocable trust can keep the assets it contains out of probate and provide your heirs with some privacy, he says, while allowing flexibility for amendment by you as the grantor if there is a change in your situation.

The birth or adoption of a child is a good time to make sure your beneficiary designations are up to date. This may include reviewing life insurance policies; individual retirement accounts (IRAs); 401(k) plans; annuities; and many types of employment benefits, such as stock options and deferred compensation.

As you adjust your plan, you will want to determine how much life insurance you need to help protect your children or other dependents if you pass away, and what type of life insurance scenario meets your needs. For example, a cash value life insurance policy can offer steady tax-free dividends while also providing financial reassurance to your heirs. If you are concerned that a life insurance payout may pose an estate tax burden, you may want to explore options such as an irrevocable life insurance trust.

Thinking about your legacy

Your wealth plan is a roadmap that leads to a lasting legacy, whether it’s building a business, providing for future generations, or making a difference through philanthropy.

Bradley notes that legacy planning isn’t just about what happens to your assets after you die. For some clients, lifetime transfers can be beneficial. For example, some types of trusts allow you to move an asset such as a business interest or a real estate portfolio out of your estate for tax purposes but still allow you to retain some control.

Another benefit of transferring wealth to a family member or to a charity while you’re alive is that you get to enjoy and see the positive impact of your gift.

As part of the planning process, your tax and legal advisors can discuss the advantages of different types of trusts and help you understand your choices from a tax perspective.

Other reasons to update your plan

In addition to those three major life changes, you should revise your plan anytime there is a change in your marital status, health, income, or overall net worth, Bradley says. It’s especially important in connection with a liquidity event such as the sale of a business or in anticipation of receiving an inheritance. The sooner you discuss the possibility of these types of liquidity events with your advisor, the more planning opportunities may be available.

Keep in mind that even if assets are properly titled when you develop your estate plan, assets acquired after that will need to be reviewed to ensure that they are owned in the proper form and included in the plan.

Even if you haven’t experienced a major life event, it’s still a good idea to meet with your advisors once a year to review your plan and adjust it as needed. That’s also a good time to talk through any concerns you have with your advisor.

“Our hope is that our clients feel comfortable sharing family issues, whether it’s an addiction problem of a relative or you’re afraid your son or daughter might get a divorce,” Bradley says. “It’s important to consider what might happen and to plan as much as you can in advance. The more you share, the better your plan will be.”