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How to Choose the Right Estate Planning Attorney

How to Choose the Right Estate Planning Attorney

Choosing the right estate planning attorney can be important for many reasons. However, knowing who to choose isn’t always very straightforward. The best estate planning attorney in your area might not be the best one for your situation. As such, you should consider focusing on the attorney’s technical skills, personality, wisdom, and values.

Here are three factors to consider when choosing an estate planning attorney:

1. Are they are technically proficient?

First, the right estate planning attorney for you must be technically proficient. Indeed, they need to know estate and trust law inside and out. But more importantly, they need to understand how it applies to someone like you.

In addition, they need to stay current by familiarizing themselves with existing and any expected legislation changes. And they need to know how all these things apply to your unique situation and location, as state-by-state inheritance and estate laws can vary significantly.

When evaluating an estate planning attorney’s technical skills, consider the following:

Specialty — what percentage of their work pertains to trust and estate planning?

Jurisdiction — what jurisdictions and physical locations do their expertise cover?

Differentiation — what sets them apart from their competitors?

Risk Management — how do they manage and communicate the potential risks you face?

Operations and accountability — how do they ensure proper action is taken to complete the estate plan, and what’s their ongoing review process?

2. Do they work with clients like you?

Once you’ve found an estate planning attorney with the technical expertise you need, determine whether they work with clients like you.

While many estate planning techniques and strategies are common, some are not. Ideally, you want to find an estate planning attorney who works with clients just like you when it comes to attributes like net worth, asset and income types, family dynamics, and legacy goals. Ask potential attorneys what their typical client profile looks like. For example:

  • Do they work with business owners?
  • Are their typical clients part of traditional or blended families?
  • What’s the average net worth of their clientele?

If you’ve recently experienced a $10 million windfall but your prospective attorney typically works with smaller clients, it may be best to look elsewhere. Often, the strategies, considerations and techniques to plan for a six-figure net worth aren’t the same as those that are needed for a seven- or eight-figure net worth.

3. Do they feel like a good fit?

Lastly, the right estate planning attorney for you must feel like a fit.

Consider their personality — does it jibe with you and your family? Remember that your attorney will work closely with your immediate family to communicate and implement your estate plan. Therefore, find someone who is likely to be a good fit, so you can develop a healthy working relationship.

In addition, consider your prospective attorney’s values, legacy views, wisdom and personal experiences. Indeed, many attorneys will do their best to understand and implement your unique wishes. However, some may have conflicting views, thereby creating some unnecessary challenges.

You can start by identifying your own thoughts on legacy, stewardship, and multi-generational wealth, and then finding an attorney with similar ideas. This will help ensure that your wishes are fully understood and implemented in the best possible way.

Sherwood Wealth Management provides our clients with customized investment management and comprehensive financial planning services to help them organize, grow, and protect their assets. Please contact us if you’d like to learn more about how we work with affluent individuals and families in Aspen, CO and beyond.

This article was also featured in the Post Independent.

Stock Market Volatility Is Spiking, But Don’t Panic

Market Volatility Is Spiking

Markets are off to a bumpy start so far this year, and many investors are concerned about what this means for their investment portfolios. Indeed, record-high levels of inflation, the likelihood of rising interest rates, and the ongoing Russia-Ukraine conflict are causing fear and uncertainty in financial markets. But just because market turbulence is uncomfortable doesn’t mean it’s time to panic. If you’re a long-term investor (i.e., you don’t need to access your funds for at least 10 years), it’s important to keep market volatility in perspective.

What’s Causing Recent Market Volatility?

Rising inflation has been a source of concern for investors since the start of the year. Ongoing supply chain issues and labor shortages due to the Covid-19 pandemic sparked an uptick in prices beginning in early 2021. Though the Federal Reserve initially dismissed rising prices as transitory, it has since adjusted its stance. Now, it seems likely the Fed will raise interest rates 0.25% this month.

However, the Fed has been very transparent about its intention to increase interest rates. Consequently, markets are unlikely to react strongly to the news if the Fed proceeds as planned. Instead, investors remain focused on the conflict in Ukraine, which has caused a surge in oil prices and pushed U.S. stock prices lower.

Geopolitical Events & The U.S. Stock Market

U.S. stocks have been on a rollercoaster ride since Russia invaded Ukraine. And while volatility is unsettling, it’s not unusual given the many uncertainties this conflict creates. Though we don’t know how this will play out, nor do we know how long it will last, we are likely to see more volatility in the near-term.

On the bright side, stock market volatility has historically been short-lived following geopolitical events. In the United States, the median stock market drawdown due to geopolitical shocks was -5.7%, according to data from Deutsche Bank. Moreover, these drawdowns tend to take around three weeks to reach a bottom and an additional three weeks to recover. On average, the market was 13% higher from the bottom 12 months after.

Other data shows that since World War II, U.S. stocks were higher three months after a geopolitical shock, on average. And following about two-thirds of those events, they were higher after only one month.

What Does Market Volatility Mean for Long-Term Investors?

Unfortunately, volatility is the price investors pay for investing in stocks. But the good news is long-term investors tend to be rewarded for enduring these periods of discomfort. Finance professionals refer to this concept as the equity risk premium. Investors can expect to earn a higher rate of return on stocks over time to compensate them for taking on higher levels of risk.

In fact, the average annualized return of the S&P 500 Index since its inception in 1926 through the end of 2021 is 10.5%. That includes every correction and bear market since the index’s inception.

In other words, while volatility is an ever-present force, the equity risk premium endures. It’s this trade-off that allows long-term stock investors to outpace inflation and grow their financial resources for the future. Moreover, volatility often provides investors with the opportunity to purchase stocks at discounted prices, which can boost returns over time.

Bottom Line: Stay the Course

Historically, investors who stay the course during periods of uncertainty ultimately reap the rewards. We have no reason to believe this time will be different.

If you’re considering abandoning your investment plan, turn off the news and focus on what you can control instead. In addition, avoid checking your account balances too frequently. This may provoke you to make unnecessary trades that aren’t in your best interest. Lastly, consider working with a trusted financial advisor like Sherwood Wealth Management, who can help you develop an investment strategy that’s aligned with your goals, time horizon, and tolerance for risk. 

This article was also featured in the Post Independent.

Don’t Need Your RMD This Year? Consider Donating It to Charity.

Donating Your RMD to Charity

It’s that time of year again. Temperatures are falling, days are getting shorter, and the holidays are just around the corner. And if you’re 72 or older or recently inherited a traditional IRA, it may be your last chance to take required minimum distributions (RMDs). But what if you don’t need the money? To avoid paying taxes on income you don’t need this year, consider donating your RMD to charity.

What Is a Required Minimum Distribution?

A required minimum distribution (RMD) is the amount of money you must withdraw from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA). The purpose of RMDs is to prevent individuals from using certain types of retirement accounts to avoid paying taxes.

Prior to 2020, account owners had to begin taking RMDs at age 70 ½. However, in 2020 the age changed to 72 as part of the SECURE Act.

In addition, the SECURE Act of 2019 changed the rules for inherited IRAs so that certain heirs may have less time (10 years maximum) to draw down an IRA. This primarily applies to non-spouse beneficiaries who inherit an IRA from someone who passed away in 2020 or later. Spousal beneficiaries and certain eligible non-spouse beneficiaries may be allowed to take RMDs over their life expectancy.

How Are RMDs Taxed?

In most cases, RMDs are treated as ordinary income for tax purposes. However, you don’t have to pay taxes on your basis (any amount you already paid taxes on).

What Happens If You Miss an RMD?

While there are some exceptions, failing to take an RMD typically results in a harsh penalty from the IRS. Indeed, Uncle Sam collects 50% of the shortfall plus taxes. So, if your RMD is $40,000 and you only withdraw $20,000, for example, you’d owe a $10,000 penalty plus income tax on the $20,000 shortfall.

If you miss an RMD, you can ask the IRS for relief by filing Form 5329 with a letter of explanation. However, there are safeguards you can put in place to avoid forgetting. For example, you can hire a fiduciary financial advisor to help you plan.

Donating Your RMD to Charity

Depending on the size of your withdrawal and your other sources of taxable income, RMDs may push you into a higher tax bracket. Or they can increase your tax bill in a year when your taxable income is already higher-than-normal. Fortunately, there are strategies you can leverage to avoid these potential tax consequences.

For example, if you don’t need the income, one option is donating your RMD to charity. A qualified charitable distribution (QCD) allows IRA owners to transfer up to $100,000 directly to charity each year.

A QCD can satisfy all or part of your RMD, depending on your income needs. (You can also donate more than your RMD, so long as you stay below the $100,000 threshold.) QCDs are non-taxable and don’t increase your adjusted gross income (AGI) as an RMD would. A lower AGI may also expand your eligibility for certain tax credits that you otherwise wouldn’t qualify for. 

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet the full requirement. In other words, if you decide to do a QCD to reduce your tax liability, be sure to make the QCD before making any other withdrawals from your account.

Planning Is Key When It Comes to RMDs

Required distributions can significantly impact your tax situation if you don’t have a strategy for taking them. Whether you’re in retirement or you’ve recently inherited an IRA, it’s important to plan your withdrawals accordingly to avoid unnecessary tax consequences.

Remember: a QCD is just one option for managing RMDs. There may be other strategies that make more sense for you and your family. Consider working with a fiduciary financial advisor like Sherwood Wealth Management. We can help you develop a withdrawal strategy that helps you achieve your financial objectives while minimizing your annual tax bill. Please schedule a call to get started.

This article also appeared in the Post Independent.