Last month’s column focused on the importance of appointing an executor in a will to ensure that the financial assets you have accumulated are distributed according to your wishes.
However, the executor is only appointed in the case of your death. What might happen financially should you become incapacitated due to illness or disability?
A proper estate plan will help ease this worry by documenting who you want to appoint as the “financial durable power of attorney.”
The person you select will have the right to make decisions in your best interest regarding bill payments, real estate transactions and other financial considerations.
The selection of this individual is just as important as the selection of the executor and could be the same person. However, financial decisions might require more business acumen than one you might entrust with the rest of your estate. Before appointing someone in your legal documents, make sure to discuss with them their willingness to serve.
If you have appointed someone in documents that have already been executed, review this decision and if changes are necessary, coordinate updating the paperwork with your attorney.
Because the year is winding down, there are many action items to consider implementing during the next three months. They include:
- Increasing the percentage allocation to your retirement plan or IRA(s) — especially if you received a raise this year.
- Reviewing the asset allocation of your savings buckets as outlined in this column’s March and April publications. Visit The Record’s “Cents & Sensibility” section for a refresher.
Significant gains in the stock market during the past 12 months may have pushed your stock allocation to new highs.
For example, if a year ago your risk tolerance reflected a 60% allocation to stocks and 40% allocation to bonds, and you did not rebalance these exposures, the stock market gains of approximately 40% in the past year and minimal returns from bonds will have increased the allocation to stocks to equal 67% of your assets, not the 60% you may have planned.
Consider taking steps to rebalance by selling outperforming stocks to buy bonds or replenish your money market balances.
- Funding amounts for college savings plans.
- Making gifts to charitable organizations and receiving a match from your company if it offers such a program.
- Making gifts to charitable organizations by donating shares of securities that have benefitted from the outsized stock market gains.
- Providing your children with a gift before year-end at a level that does not exceed the IRS’ annual gift tax exclusion of $15,000 per donor or $30,000 per couple. If your child is subject to a lower tax rate, a good strategy is to gift a share of appreciated securities and they can sell at a lower capital gains tax rate.
A final recommendation this month is not to let the flurry of discussion regarding possible changes to current tax laws delay any of the actions outlined above. The impact on your financial security will be positive no matter what bill is passed by Congress.
Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a graduate of Sacred Heart Academy.
