I get calls every week from investors wanting to know the best place to invest money. It’s a reasonable question, but I often find that the investor is focused on the wrong part of their financial situation.
Does it really matter if an investor can get a 12% return rather than 6%, if they ignore their estate planning situation and pay the government an unnecessary $100,000 in taxes? Wouldn’t it make more sense for an investor to focus on the best way to save that $100,000 than focusing on how to invest $50,000 to earn another $3,000 per year?
The answer is obvious, but it’s not how many people behave.
Why do investors behave in this way? Most investors incorrectly believe that estate planning is about giving money away and losing control over their assets.
If you listen to many professionals, it sounds like estate planning is about relinquishing control of your assets. When in fact, estate planning is about maintaining control of your assets.
If you don’t like how the government spends your money, estate planning will redirect how your money is spent, based on your desires. Therefore, estate planning is about taking maximum control of your money to be directed based on your desires, not the government’s or other family member’s desires.
Other reasons that investors fail to do estate planning include just plain ignorance or mistakes in their knowledge. Some investors still think that if they have a trust, they’ll pay no estate taxes. This is a widely held misconception.
Other investors hate talking about estate planning because they’ll have to confront mortality. And as mentioned before, some investors think that estate planning means giving money away. In fact, good estate planning starts with making sure you have ample resources for yourself. Only when that is ascertained, can estate planning begin. Estate planning boils down to one simple issue; do you want to have control of your money?
How do you start? Completing a questionnaire that most lawyers and Retirement and Estate Planning professionals use when completing a will helps you focus on your goals, assets and desires.
The questionnaire is followed up with an interview to help translate the answers into specific desires. Then, work to determine ways to achieve what you want to have happen. This avoids the mistake that many make, by jumping right into the tools (trusts, gifting, insurance), only to learn later that the tools don’t work as desired.
So if you really want to make a big difference in your financial picture, it may make more sense to focus on estate planning than on how to get a higher percentage on your investments.