Most people approach their financial planning on a piecemeal basis. They look at their portfolio every now and then. They talk to an estate planner every 10 or 20 years, even though it should be more frequent. They buy their life insurance in a vacuum and never look at it again. They buy and sell homes without connecting that transaction to anything but getting a mortgage approval. They deal with the loss of a spouse or job as if it’s just another blip in the screen.
Transitions that are sudden do need to be dealt with in the sudden manner in which they may have appeared. But these transitions often have deeper implications that may impact other areas of your financial life, and you must resist sticking your head in the sand over your transition issue and addressing it in the context of your overall life, financial and personal.
The major transitions that impact people we know are retirement, sale of a business, divorce, the total disability of an adult child, loss of a business or life partner and maybe for the lucky ones, an inheritance. Some of these are negative transitions, some are positive transitions and some can go either way. But in the case of any of the above, it is a time that calls for a top to bottom review of your entire financial situation.
For inherited assets, after a brief grieving period you must assess what this inheritance means to you and perhaps more importantly, investigate whether there are any postmortem planning opportunities to mitigate the cost or tax burden within the estate of the deceased.
The loss of a spouse is never easy, whether you had time to say goodbye or it was a sudden unexpected departure. If you are like the pop star Prince and had no estate plan, the months following your loss may be exceptionally painful as you are dragged through an extended and possible contested period of settling the estate. But even if you had a current estate plan, this transition may require revisions to your plan or changes in some of your beneficiary elections. In some states, even though no tax may be due, a death tax return may still be necessary to remove any state liens placed on real estate where the deceased was an owner.
In the case of divorce, much time is devoted to the financial settlement of the marital assets, child custody issues or the future division of earnings. But most divorce attorneys do not help you address your entire list of financial issues beyond the negotiating and crafting of a settlement agreement. This ‘clean start’ is a signal that your entire financial picture needs to be re-examined.
If there is nothing else that you get from this article, understand that transitions in general require a thorough examination of everything. If you know of an upcoming transition, get on it now.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.
