Saturday, July 19, 2008

Risk Tolerance And The Estate Plan

The recent sell off in the stock market has investors reevaluating their investment risk tolerance. Beyond ones investment risk tolerance, all investor should ensure they include this evaluation within an overall financial plan. A key aspect of the financial plan is establishing a comprehensive estate plan.

Setting up an estate plan can be a difficult undertaking because some aspects of the estate plan deal with events that take place upon ones death. A recent article in the American Association of Individual Investors, Reassessing Your Risk Tolerance? Don't Overlook Estate Planning, notes:
[estate planning] provides peace of mind that your assets will pass according to your wishes at the least cost and administrative burden. Whatever one's reasons for taking the risk of not planning, there is no doubt that it is a risk that one should not take.
A key aspect of an estate plan is having a properly executed will. The will identifies how some assets are transferred upon ones death. Not having a will can result in the state determining how your assets are distributed after your death. Not many people want the state involved in these type of personal decisions. Additionally, assets can be transferred outside of a will via stipulations in assets like IRAs, 401(k)s and life insurance contracts.

The AAII article details six simple questions one can address in constructing an estate plan:
  1. Identify the goals,
  2. Gather the data and make assumptions,
  3. Evaluate the feasibility of your goals,
  4. Develop your strategies,
  5. Implement the decisions, and
  6. Review your progress.
The conclusion of the AAII article notes, "once you have recognized the risks of not having an estate plan, and how relatively simple it can be to establish one, then perhaps you will be motivated to go through the process outlined above. At a minimum, a will and powers of attorney, coordinated with the proper titling of assets and beneficiary designations, can help you to administer your assets during life and at death..."

To find out more detail on an overall financial plan, I wrote a post mid year last year, Financial Planning Toolkit from CCH, that highlights a free website with information on overall financial planning. Included in the CCH website is the topic of estate planning.

Reassessing Your Risk Tolerance? Don't Overlook Estate Planning
American Association of Individual Investors
By: Ellen J. Boling, CFP

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