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4 factors you must consider with your financial and estate planning

by Susan Wright | Contributor
March 3, 2023


Creating and maintaining plans that are based on your short- and long-term financial objectives should ideally work like a well-oiled machine. Think about it like the engine of a sports car. While there are many different components involved under the hood, they must all work seamlessly together – and even if just one of the pieces is missing or not working properly, it can impact the entire operation of the vehicle, and possibly leave you and your loved ones stranded on the side of the road.

With that in mind, it is absolutely essential that you consider the whole picture when you are building your financial, retirement income and estate plans, because in many ways, they all must fit together and move in the same direction so that you – and your loved ones – can safely get where you’re going.

Likewise, if you encounter any unexpected roadblocks or detours along the way, one or all of these plans may have to be updated, based on your current – and potential future – situation, so that the whole operation doesn’t veer off course.

Have you put your financial and asset transfer wishes in place yet?

If not, it is critical that you keep them all coordinated. And, if you have already begun this process, when was the last time you had your financial and estate plan “tuned up?” If it has been a while, it may be time to do a financial and estate “safety check.”

Which financial “phase” are you in?

Even if you have built up a sizeable net worth, what ultimately ends up happening with your assets and other property will depend in large part on the planning that you have done. So, making sure that you have the right type of planning in place for both the short- and long-term horizon is essential.

Most people go through three key “phases” of their financial life. These are the:

  • Accumulation phase
  • Distribution phase
  • Transfer phase
Short term/Long term street sign

Each of these differ – and not only do all of these phases require good planning in and of themselves, but they should also be “linked” together so that the strategies for reaching your goals remains consistent.

The accumulation phase typically involves saving, investing and building up assets. This is usually during your working and earning years. While in the accumulation phase of life, many people are able to take on a bit more risk in return for the opportunity to grow their assets and net worth.

Later on, the distribution phase usually begins when you (and/or your spouse) exit the working world and enter into retirement. It is during this time that people need to generate income – which includes stretching out that cash flow to last as long as it is needed. With life expectancy today longer than it was even just a few decades ago, it is not uncommon for people to require retirement income for 20 or more years. So, having an income plan in place can be key to whether you live a worry-free retirement or spend your time concerned about whether or not you’ll be able to pay your expenses in the future.

The transfer phase starts when an individual (or their spouse, in some cases) passes away. Many people have a goal of leaving behind assets for their loved ones and/or leaving a legacy by donating assets to a favorite charity or other organization that is close to their heart.

Unfortunately, though, without a proper estate plan in place, assets that are transferred to survivors could be heavily taxed, which could reduce the amount that is actually received by 50% – or possibly even more.

In order to prepare for the transfer phase, many individuals and couples will draft a will and/or set up various types of trusts to help with transferring assets in a more seamless and tax-efficient manner.

Unfortunately, many people only focus on the accumulation and distribution stages, and forgo financial planning for the distribution phase. But this can lead to a long list of unpleasant consequences, such as:

  • Property and assets being transferred to someone other than the recipient(s) you had intended
  • Transfers being held up by the time-consuming probate process – which can also reduce the value of the estate, due to court costs and other related fees
  • Creditors and financial predators taking a share of the assets – in some cases, whether or not they truly have the right to them
  • The intricate and personal details of your financial life being open to access by the public

So, even if you have a rock-solid financial and retirement income plan in place, without proper estate planning too, everything that you have worked so hard for could be compromised upon death and/or disability.

The difference between a financial plan and an estate plan

Many people are under the impression that financial planning and estate planning are one in the same. But, although financial planning and estate planning both focus on asset-related concepts, there are big differences between the two.

For instance, financial planning is much more centered around growing wealth and reaching various financial goals during a person or a couple’s lifetime. These could include one or more of the following:

  • Generating income in retirement
  • Handling the receipt of a financial windfall, such as an inheritance
  • Preparing for marriage or divorce
  • Planning for the birth or adoption of a child
  • Planning and paying for future college education
  • Buying or selling a business
  • Saving for the down payment on a new home

Therefore, the primary goal of a financial plan is to incorporate tools and strategies that work together to move you toward such objectives – both short- and long-term – and to regularly review the plan and make updates as necessary. Often, a financial planner is used for guidance in these areas.

On the other hand, estate planning involves managing wealth once it has been accumulated, as well as distributing assets and property at the appropriate time and to the appropriate people and/or entities.

In addition, estate planning is also a process for mapping out what will happen to one’s wealth if or when they are unable to manage it themselves – due to an illness, accident, or disability – and when they pass away.

So simply, financial planning is the process by which you accumulate wealth, while estate planning addresses how you can protect – and ultimately distribute – that wealth to the people and causes you care about.

Estate plans can incorporate a myriad of different strategies for achieving goals like:

  • Efficiently transferring assets after death
  • Minimizing taxes
  • Donating to charity/leaving a legacy
  • Ensuring that a loved one with special needs is financially secure
  • Avoiding the costly and time-consuming probate process
  • Preparing wills and trusts
  • Drafting powers of attorney for health care and financial needs
  • Setting up guardianship for minor children (if applicable)

Planning one’s estate wishes will typically involve a team of professional advisors, such as a(n):

  • Attorney
  • Insurance or financial professional
  • CPA or accountant

Because financial and estate planning can differ in their approach, it will usually require different professionals. Even so, however, a financial plan and an estate plan are still related, and as such, they must work together. Therefore, there are certain criteria that you must include in your overall plan(s).

4 essential factors to consider when building and maintaining your financial and estate plans

Whether you are just starting to build your financial and estate plan – or you have plans already in place and you want to ensure that they are updated and working in conjunction with one another – there are four factors that are essential to success. These include the following:

  • Matching all of your financial accounts and strategies with your objectives
  • Determining who may make decisions for you if you’re no longer able to do so
  • Keeping all of your account beneficiaries up to date
  • Deciding how you want your assets distributed

Matching financial accounts and strategies with objectives

Think back to the different decades throughout your lifetime. As you do, it is possible that you remember some of your key financial objectives early on in your adult life. As an example, in your 20s, some of your key goals may have been to accumulate enough money to make a down payment on a house and/or protect your growing family from the loss of income if you were to become disabled and unable to continue working.

Next, fast forward to more recent years when you may be much more concerned about making sure that your income lasts for the remainder of your life and that the assets you’ve worked hard for go to their intended recipients upon your passing in the future.

Different life stages can often come with different financial goals. For example, the former may require you to analyze various growth-oriented investments that allow your portfolio to rise over time, whereas the latter typically requires you to have a will and other important documents in place for asset protection. But even so, the tools and strategies that you have in place must all work together, rather than existing in their own separate “silos.”

For instance, are your financial assets such as IRAs (individual retirement accounts), brokerage accounts, annuities, bank accounts and life insurance policies all coordinated with your estate planning objectives?

If not, it is vital that you work with a financial professional who is well-versed in putting all of the “pieces” together so that your financial and estate plans remain in harmony with each other, because if they don’t, some of your goals and strategies could actually end up canceling out the others.

Determining who will make health care and financial decisions

Although nobody likes to think about it, there is the possibility of needing some type of health care and/or long-term care in the future – and unfortunately, this care can be expensive. It can also involve making some extremely important decisions.

But if you are not able to act on your own behalf, it is critical that you have someone else in place who can do so with your best interests at heart. This is why both health care and financial powers of attorney should be in place. In fact, these are integral components of a good estate plan.

A durable power of attorney for health care is a document that lets you name someone else to make decisions regarding your care in case you are unable to make those decisions yourself. This document provides this individual – who is referred to as your “agent” – instructions about the type of medical treatment that you do and do not want.

Further, if you have specific wishes about your health care, a durable power of attorney for health care can ensure that those are honored – even if you are not physically or mentally able to tell your doctors what you want yourself.

Without a durable power of attorney for health care in place, your state will generally have the following people – in order of priority – in place to decide on your care:

  • Court-appointed guardian or conservator
  • Spouse or domestic partner
  • Adult children
  • Adult siblings
  • Close friends
  • Nearest living relative

But these individuals might not be the ones who you want making such decisions on your behalf. Just some of the health care choices they could make include the following:

  • Whether to admit or discharge you from a hospital or a nursing home facility
  • Which treatments and medications you do or do not wish to receive
  • Who has access to your medical records

Given that, you must take into consideration who you trust enough to comply with your specific wishes, and in turn, designate them as your health care power of attorney.

Likewise, a financial power of attorney is a legal document that grants a trusted agent the authority to act on your behalf in financial matters during your lifetime if you become incapacitated, either on a temporary or long-term basis. These powers are typically automatically extinguished upon your death.

The authority that is outlined in the financial power of attorney may be fairly broad, or alternatively, it could limit the “agent” to only specific duties. Agents who are named in a financial power of attorney are legally able to make decisions about your finances, property and other assets.

Some of the allowable actions may include:

  • Bill paying
  • Investing
  • Filing your income tax return
  • Buying and/or selling property and assets (for your benefit)

The financial power of attorney is automatically terminated after your passing. This means that your agent may only make financial decisions for you while you are alive. In order to deal with financial matters after your death, it will be up to an executor who is named in your will. Therefore, it is important that all of your plans and team members coordinate and are aware of your intended decisions. It is also critical that you have a valid will in place.

Keeping all of your beneficiaries updated

Another key factor in coordinating your financial and estate plans and strategies is keeping your beneficiaries updated, as well as ensuring that they reflect the same planning goals as the distributions of your other assets.

Choosing beneficiaries is not just a one-and-done situation, though. This is primarily because as life changes, so can the people who are in it. So, you will want to ensure that your designated beneficiaries are always up to date.

Otherwise, an ex-spouse or partner could end up inheriting a large sum of money from your life insurance policy or retirement plan. You could also run the risk of disinheriting a loved one. For example, if a new grandchild is born after you have named your beneficiaries, but you neglect to add them to the list of recipients for certain assets, they could end up with nothing while the others receive a nice gift from you.

One strategy for potentially alleviating issues like this is in the way you word beneficiary designations on your accounts and/or policies. For instance, rather than naming all of your children or grandchildren individually, you could instead state “all of my children/grandchildren at the time of my passing.”

Even so, though, it is still important that you review your beneficiaries at least once a year, or even more often if you have experienced any type of major life change, such as:

  • Marriage or divorce
  • Death of a spouse
  • Birth or adoption of a child/grandchild
  • Purchase or sale of a home or business
  • Retirement

Deciding how to distribute your assets

While you may have a last will and testament in place, are you sure that your accounts and other assets will be distributed to the recipient(s) of your choosing in the event of your passing away? If not, this is where a good solid estate plan comes in.

Distributing assets to loved ones can be a kind gesture and a great way to leave a legacy for the people and organizations you care about. But it can also equate to a big pay day for Uncle Sam in the form of taxes if your asset transfers aren’t properly set up. Even more of your estate could be trimmed away if it goes through the probate process after you’ve passed away.

Those who have high net worths can face federal estate tax on assets that exceed a certain dollar amount. Over time, the estate tax exemption (i.e., the amount that is shielded from federal estate taxes) has risen. However, it is possible that this figure may drop drastically in 2026, when the provisions of the Tax Cuts and Jobs Act “sunset.” This, in turn, could leave many at risk of taxation.

History of Estate Tax Exemptions

1980s - Estates Under $400K

1990s - Estates Under $600K

2000s - Estates Under $1.2M

2010 - Estates Under $2.5M

2013 - Estates Under $5.5M

2018 - Estates Under $11.18M

2019 - Estates Under $11.4M

2020 - Estates Under $11.58M

2021 – Estates Under $11.70M

2022 – Estates Under $12.06M

2023 – Estates Under $12.92M


Many states in the U.S. also impose estate taxation at the state level. So, if you reside in one of these states, the amount of property or assets that your loved ones will receive could be trimmed even further.

Even if you do not feel like you are “wealthy enough,” it is still important to have an estate plan in place so that you can better ensure that what you’ve built up over your lifetime is properly protected for those you love – as well as from creditors and other types of financial “predators.”

For instance, if you do not have a valid will in place, your state law could determine who inherits your assets, as well as who will be in charge of settling your estate. Also, if you have children who are still minors, without a plan that names specific guardians for them in the event of your death, a court may make that decision for you instead – and it may not be what you had in mind. This, in turn, can be life altering for those you have left behind, at an already difficult time for them.

In addition, even if you are currently in good health, the odds of becoming disabled at some time in your lifetime may be higher than you’d like to think. For instance, men have a 43% chance of becoming seriously disabled during their working years, and women have a 54% chance of becoming disabled.

Even if you are under age 35, there is a one in three chance that you may be disabled for at least six months during the course of your career. Do you really want to risk your future financial security – and that of your loved ones – given these odds?

While an estate plan can be extremely beneficial in the case of one’s death, the safety net it can provide could also be crucial for you and your loved ones if you become ill or injured and are not able to earn an income – either on a temporary or permanent basis.

With all of this in mind, creating and maintaining an estate plan is truly important, as it can embrace your overall financial and wealth protection and preservation, while also putting everything together into one convenient package that provides direction for your wishes, along with the tools for doing so.

Although the mechanics of estate planning might seem somewhat daunting at first, working with an experienced professional can help move you in the right direction, given your particular goals and objectives.

Are your financial planning choices coordinated with your overall estate plan?

As you move through life, it is likely that your financial objectives will change. For example, early on, your primary goal may have been to accumulate savings “for the future.” A clear financial plan can help with determining the right assets, accounts and strategies you should use.

Next, as you inch closer to retirement, your key objectives may switch to planning for one or more streams of income that will ideally last for the rest of your (and your spouse’s, if applicable) lifetime. A comprehensive financial plan, then, should also incorporate retirement income-generating strategies.

Alliance America can help

Alliance America is an insurance and financial services company dedicated to the art of personal financial planning. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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