Judson Embry (Photo courtesy of WSFS)
Having a sound investment strategy is paramount when it comes to managing your future assets. But just as important is making sure your estate plan is closely aligned with these investment choices. The combination of how you currently manage your assets and how you plan to pass them on to your beneficiaries can have a major impact on your wealth and safety.
To understand the interplay between investment strategies and estate planning, it is necessary to recognize the end goal of each. Investment strategies generally seek to achieve a specific financial outcome, such as growth, income or capital preservation over a period of time. Estate planning, on the other hand, focuses on efficiently transferring accumulated assets to your heirs or selected beneficiaries while minimizing tax liability and fulfilling specific estate wishes.
Reconciling these two aspects involves several key factors.
Be consistent with your goals and objectives
Your investment choices should reflect your estate planning goals and objectives while aligning with your risk tolerance. Once your goals are defined and your risk tolerance is established, choose the appropriate mix of stocks, bonds, cash or alternative investments. This is often referred to as “asset allocation.”
Diversification is key. These types of assets generally require exposure to domestic and international investments, as well as companies of different market capitalizations (small, mid-size and large) and different investment sectors such as energy, technology and healthcare.
Tax Considerations
Investment decisions can have significant estate, gift, transfer, capital gain, and income tax implications for you and your heirs. For example, high growth investments can lead to large capital gains that can impact your estate tax liability and your beneficiaries. Individuals with taxable estates are less uncommon now than they were a few years ago. However, unless Congress acts, the expiration of certain provisions of the Tax Cuts and Jobs Act may necessitate tax planning discussions by January 1, 2026.
Legal Structure and Ownership
How assets are legally held affects how they are passed on upon death. Investments held in a joint trust, IRA, or trust can have different effects on estate planning. For example, assets held in a revocable trust can avoid probate, allowing for a smoother, more private transition. Properly titling investment accounts according to your estate planning goals is very important.
Beneficiary designation
It’s important to regularly update and adjust beneficiary designations for retirement plans, life insurance, and other accounts. These designations often take precedence over instructions set out in a will or trust, so keeping them up to date will ensure that your investment assets are distributed according to your estate plan intentions.
Communicate life events and changes to your advisor
Frequent communication between your financial advisor, tax accountant, and estate planning attorney ensures that all aspects of your wealth management are aligned, and together these professionals can identify potential conflicts, inefficiencies, or opportunities between your investment strategy and your estate plan.
Review and adjust regularly
Financial markets and personal circumstances both change. It is essential to regularly review both your investment strategy and your estate plan. Such reviews allow you to adapt to changes such as new tax laws, shifts in the economy, and life events such as marriage, divorce, and childbirth.
Estate planning is essential to protecting your legacy and ensuring your assets are distributed according to your wishes. Understanding these important considerations and seeking professional advice if necessary can help you protect your estate, minimize potential disputes, and ensure the financial well-being of your loved ones long after you’re gone.
Judson Embry is an Investment Advisor at Bryn Mawr Trust. He provides tactical asset allocation, investment management and economic commentary to high net worth individuals, families and institutional investors. He previously worked as a financial advisor and trust consultant before joining Bryn Mawr Trust in 2023. Judson is a Certified Trust and Fiduciary Advisor (CTFA) and attended Shippensburg University.
