[vc_row][vc_column][vc_cta h2=””]Personal finance goes beyond an annual meeting with a wealth manager or contributing funds to a savings account. Oftentimes it is a culmination of lifelong experiences containing seemingly insurmountable pitfalls and heartening triumphs. Setting goals and striving to achieve them plays a pivotal role in shaping such experiences. Conversations about basic money skills between parents and their children may have a major influence on their future financial behavior. This three-part series takes a more personal look at events throughout different stages in life that may be used to reflect upon the importance of laying a solid foundation for financial success.[/vc_cta][vc_column_text responsive_align=”left”]

Part two of a 3-part series about a financial life journey

Trevor Scheid, CFP® – Senior Client Associate

Part 1: It started with a piggy bank 


At age 22, Penny had a college degree, new career, and a boyfriend. She got a job at an engineering firm and was rising up the ranks. Boyfriend Ramón became husband Ramón, and after a few years, they were parents of twins. Ramón stayed at home to raise the kids, while Penny returned to work.

Penny was good at managing her personal cash flows, and she trusted her financial advisor to handle her investments and financial plan. Getting married and having kids presented more planning opportunities, and also questions, such as, what if Penny or Ramón became disabled or incapacitated? What if they both passed away unexpectedly?

The couple met with their financial advisor and an estate planning attorney to create a plan to address:

Control of Assets

The financial advisor explained that a revocable trust would allow for Penny and Ramón’s assets to transfer outside of the probate system. They could control distributions to beneficiaries based on attaining specified ages or meeting certain needs (health, education, maintenance or support). If irrevocable trusts were created upon death, this would also provide some asset protection for beneficiaries.

Living Will

Medical wishes are to be carried out according to predetermined instructions, and arguably as important as listing these wishes, is selecting the right people to carry them out. Naming each other as Medical Power of Attorney would only get Penny and Ramón so far. What if they were both incapacitated? Their financial advisor said that having at least two successor powers of attorney would help reduce this risk.

Last Will and Testament

The estate planning attorney asked who would serve as the twins’ guardian if they were minors upon Penny and Ramón’s death. Penny didn’t have siblings, but Ramón had a sister who had a stable career and loved the twins. If the sister was unable to serve in that role, Penny and Ramón would need to consider a successor guardian because they didn’t have any other immediate family living near them.

Durable Power of Attorney

If most of Penny and Ramón’s assets would be held in a revocable trust, successor trustees would be able to handle distribution of assets accordingly. But what about assets that were not held in trust, such as retirement accounts? Designating successor durable powers of attorney would bridge this gap.

Written Instructions

Penny and Ramón wanted their successors to have quick access to important documents in the event of an emergency. They put together written instructions that listed where to find copies of their estate plan documents, social security numbers, financial documents, and login information.

They then scheduled follow-up meetings with their financial advisor and insurance agents to discuss:

Disability Insurance

Penny’s employer paid for short-term and long-term disability insurance for Penny. Her financial advisor noted that if benefits were ever paid out through these policies, the income would be treated as taxable income to Penny since her employer paid the premiums. If she purchased her own supplemental disability insurance, benefits would not be taxable to her.

Term Life Insurance

If Penny were to pass away, there wouldn’t be enough income to support the family, and Ramón would have to work full-time. If Ramón died, Penny would need additional support to raise the children. In both scenarios, daycare/nanny expenses would consume a sizable part of their income and their standard of living would need a serious adjustment. The financial advisor explained that term life insurance would provide financial relief to cover the period of time until the twins were out of college. They would be able to withstand an unexpected death if the kids were financially independent, based on Penny and Ramón’s projected savings rate.

Property and Casualty Insurance

Much of Penny and Ramón’s wealth was invested in their home, as their mortgage was their largest monthly expense. Protecting this asset in the event of a catastrophic loss was critical. The insurance agent reviewed the differences between named perils and open perils, a cash out option, and other related policy features. Penny and Ramón both had clean driving records, so auto insurance was affordable compared to what some of their friends were paying. They also wanted an umbrella policy to protect their assets from potential litigation. Adding uninsured/underinsured motorist coverage was a good idea in the event they were involved in a accident with an uninsured driver and racked up significant expenses.

With all of their estate planning documents and insurance policies in place, Penny and Ramón felt confident they would not be strained financially if tragedy struck. They continued to stay disciplined and saved 20 percent of their income, which was forming a comfortable nest egg for retirement.

Divorce Forces Change

After the twins went off to college, Penny and Ramón eventually realized that they had been growing apart. After many conversations, it seemed that divorce inevitable. They met with their financial advisor to discuss divorce as it related to their financial plan. He explained that they would need to update their beneficiary designations, review their advance directives and last wills, and dissolve their revocable trust, among other things. All of their assets would likely be divided in half. Additionally, since Penny was making significantly more money than Ramón, and their standard of living had grown over the years, she would likely be required to pay alimony for several years or until he remarried.

Creating a Legacy

Divorced and with half of her assets gone, Penny’s financial advisor reminded her that she was still on track to retire early and meet all of her goals. With a blank canvas in front of her and a nest egg to fall back on, she started her own engineering firm. The business flourished and she knew that its sustained growth would require a dedicated team, so she met with a retirement plan consultant to look at what options would help her to attract and retain the employees she hired.

After many mostly prosperous years, Penny reflected on all of the hard work she and her team of engineers had put into the firm. She called her financial advisor to schedule a meeting to begin discussing her pending retirement and decumulation of assets.


Coming up next month: Part 3 of Penny’s financial journey.[/vc_column_text][vc_empty_space height=”45px”][vc_column_text responsive_align=”left”]

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