Financial and Legacy Planning Essentials Part 1 of 3

By: Patrick R. Lyte, the Financial Network Group Legacy

Photo of Patrick LyteFinancial management and legacy planning is essential and here is why. You work hard during working years (pre-retirement years) to maximize your earnings (income), to fund and maintain your lifestyle (spending budget), save, invest and build wealth to live off of in retirement and leave a strong financial legacy. The planning process requires focusing on life time financial goals, setting priorities, fine tuning and adjusting your goals, objectives and strategies to take advantage of favorable tax laws, manage and mitigate risk of changing financial markets and products to your advantage/and benefit.


Accomplishment of your goal and objectives often requires the development and implementation of a comprehensive financial plans a critical task that necessitates the involvement of competent professionals (financial advisors, planners, accountants, attorneys, and other key service providers). The primary purpose of their involvement – to provide expert advice, assistance and guidance during the development and implementation of your comprehensive personal financial management, estate and legacy plans. Including executions of suitable strategies designed to facilitate achievement your financial goals and objectives.


Scope of Plans: Your comprehensive financial plan should addresses the areas of cash management, asset and investment portfolio management, life style funding needs, retirement nest egg building (funding), taxes, estate and legacy matters, gifts and bequest issues.


Cash Flow Management: Effective cash flow management is an integral part of personal financial management, from beginning to end.


Cash Budget: The cash flow budget takes into account all lifestyle expenses, all sources of income, taxes, wealth accumulation strategies, and the effects of inflation. Cash inflows can come from employment income and rental, debt you obtained, sale of assets and investments income. While, cash outflows represents funds used to pay expenses and taxes, reduce or pay-off debt obligations, purchase assets, acquired investments.


Assets: Assets are a use of cash when they are purchased and a source of cash when they are sold. Investment assets that produce income can be a valuable source of cash throughout the life of the asset/investment. A primary strategy is to ensure that the most tax-favorable assets are used and disposed to provided needed or expected cash flow or cover budget shortfalls, in a manner that seeks to defer capital gains as long as possible; avoid any potential distribution penalties; redeem/liquidate in order by total return rates, from lowest to highest return.


The objective is to build, maintain, secure reliable income sources; this is a primary goal/objective for the rest of your life. The challenge therefore, is to ensure that your income equal or exceeds your expenses and to avoid or minimize periods of deficit spending. Therefore, ensuring that projected cash needs (cash shortfalls) are identified in the generation of the plan is an important function of process; and here are two primary strategies:


  • Targeted Deficit Coverage Strategy – which is relevant during pre-retirement period for major anticipated expenditures (e.g., a boat, house, car etc.) requiring the liquidation of assets to cover the purchases, instead of cash from available income sources.
  • Full Deficit Coverage Strategy – this strategy is most relevant in the post-retirement period.   Full deficit coverage assumes that all expenses are covered in full according to the deficit coverage strategy. If no expenses are targeted, no assets will be liquidated to cover cash the cash shortfalls.



Below are some examples financial management, estate and legacy planning goals, objectives strategy and action plan


Current Life Style – Goals & Objectives:

  • The continued growth and management of your personal finances successfully.
  • Effectively manage personal finances (sources and uses of funds).


Strategy and Action Plan:

  • Saving and investing wisely to meet life style funding needs.
    • Save each month and investing the funds saved in (non-qualified fund) diversified investment portfolio to be allocated according to the suggested allocation model.
    • Establishing, maintaining and employing sound investment management, policies, strategies and actions plan.
    • Seeking and obtaining advice and information from credible sources.
  • Establishing and maintaining a sound realist cash flow financial management budget


Cash Flow – An adequate cash reserve eliminates the need to use credit or disturb your portfolio when faced with unexpected expenses or investment opportunities. A tiered reserve enables you to earn a higher rate of return on funds less likely to be in immediate demand while still maintaining liquidity.


Income and Disbursements (Expenses):

  • Source of Income:-Employment, Investment, Business, etc.
  • Life style spending/needs – Discretionary and non-Discretionary


Strategies and Recommendations:

  • Maintenance of a reserve sufficient to cover six months of expenses.
  • Continue to make annual pretax deductible retirement contributions (or Traditional IRA contributions if eligible)
  • Refinancing your mortgage, to take advantage of lower rates.
  • Review your existing mortgage debt to ensure the interest rate is competitive in today’s market. You may be able to reduce your debt payments and free up cash flow for other expenditures if you can obtain a lower rate mortgage.
  • In addition, since interest on consumer debt is not tax deductible while interest on a home loan is, within certain limits, is deductible; as you look to refinance your mortgage, consider transferring your existing auto loans into the new mortgage.


College Education Savings and Investment:


Goals & Objectives: To provide college education funding for your children and grandchildren.


Strategies and Action Plan:

  • Establishing and Maintain – Section 529 College Savings Plans.
  • Use retirement saving and investment to – withdrawal funds.


Retirement – Goals and Objectives:

  • Enjoy a financial safe secure retirement
  • Take advantage of retirement saving plan and benefit of tax deferral.



Strategies and Action Plan:

  • Build and maintain an adequate financial asset base (nest egg) and sources of revenue/income.
  • Contribute the maximum you can afford and/or allowable by law to your employer sponsored retirement plan(s) and IRA (Roth and regular).


Estate and Legacy Planning

  • Establish and maintain a Last Will and Testament.
  • Establish and maintain a Revocable Living Trust.
  • Establish and maintain Irrevocable Life Insurance Trust.
  • Consider utilizing a multi-generation asset transfer strategy.


Objectives & Benefits:

  • Facilitate a smooth transition, transfer and disposition estate assets.
  • Avoid and /or /minimize probate cost and issues.
  • Taxes- reduce and/or minimize taxable estate; to minimize income taxes liability and maximize tax savings, benefits, credit and deduction.

Using Trust(s)

Irrevocable and revocable trusts are the two most popular types of trusts that are used for estate and legacy planning purposes. As an estate owner you can choose to place some or all your assets in either an irrevocable trust or a revocable living trust, also known as an inter vivo trust. While both type of these trusts are used to transfer and hold property for designated beneficiaries outside of the reach of the probate courts and process; the revocable trust is the more preferred type of trust commonly used for estate planning purposes. Some other added benefits of using a revocable trust are:

  • You can change it merely by amending the trust anytime during your lifetime.
  • You can name yourself as the primary trustee(s) and some else as the successor trustee(s); thereby, designating the person(s) whom you want to man
  • Age the trust assets after your demise.
  • You will in effect retain control and ownership rights to property transferred into the trust, while you are alive; this mean that you can sell it, spend it, give it away; in short and do anything you wish.
  • It will provide for continuation of cash flows from assets and investments that will not be interrupted by death.
  • It will reduce or eliminate the possibility of court challenges by disgruntled heirs to your estate.
  • It will allow for an easy way to handle your affairs should you become incapacitated.
  • It will ensure that your plans and affairs will be kept private.


Stay tuned for part 2 of 3 on “Financial and Legacy Planning Essentials” in the next issue of Ethnic Online.



Your Life & Legacy Matters. Seek us out for competent advice and guidance.
PO Box 600562, Newton, Massachusetts 02460
Telephone: 617-306-9672





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