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Law Office of Rick Todd Blog

Thursday, June 16, 2016

Retirement Planning and Estate Planning

It’s not uncommon for someone with retirement planning questions to realize they also need to prepare for estate planning and vice versa. Estate planning attorneys and financial planners routinely work together, and it’s not unheard of for an attorney to hold CFP (Certified Financial Planner) designation. Retirement planning tends to be a lifelong endeavor while estate planning happens only on occasion, usually when someone has an event in his or her life which makes them realize they need to prepare to manage their affairs after they pass on. In a city like Columbia, Maryland, households have greater income and require more sophisticated financial/estate planning.

Assets that are for retirement and for death are treated very differently by the government. Inheriting a 401k retirement can result in a heavy tax burden if you are not the spouse of the deceased. With “term life insurance,” beneficiaries typically pay no taxes when the policies are paid out. It’s those crucial differences that help an individual to determine where the bulk of their savings are going to go.

Throughout an individual’s life, it’s recommended that you “map” out where your savings should go. During your working years, it probably makes sense to save as much as possible in retirement accounts, along with a generous investment in term life insurance. As an individual gets older, retires, and spends down his retirement savings, the biggest asset in the individual’s portfolio will probably be a home.

Because a person’s wealth is no longer locked away in a retirement account or in a life insurance pay out as a person ages, it makes sense to revisit the estate plan periodically in his or her life. Estate plans that emphasize insurance and who was to be the beneficiary of a retirement plan should be changed to also look at who will take ownership of the primary residence.

In short, it may not make sense to leave an estate plan untouched for decades while obsessing over a retirement plan. In fact, adjustments to a retirement plan that include different asset allocation changes (depending on what is going on in the market) can often lead to disastrous results. Estate plan changes are far more benign and are done not to make money but to maximize an inheritance for a loved one. 


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The Law Offices of Rick Todd is located in Columbia, MD and Chevy Chase, MD (Friendship Heights) serve clients throughout Clarksville, Columbia, Ellicott City, Fulton, Rockville, Bethesda, Potomac, Laurel, Howard County, Montgomery County, and Washington D.C.



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