GUIDE TO WEALTH MANAGEMENT

� Managing Your Elderly Parents’ Finances...S2

� What’s a Wealth Manager, and Why Do You Need One?...S4

� Estate Planning Mistakes: Lessons from the Stars...S6

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Managing Your Elderly Parents’ Finances By Christopher Hosford

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No man (or woman) is an island, and individuals generally have more people to worry about financially than just themselves. These include spouses, children and, often, elderly parents.

With parents, the most important concern is their future, and sometimes that means taking the financial reins.

But when is an appropriate time? “Immediately” may be the answer if a parent suffers a physical crisis and becomes incapacitated. If arrangements haven’t been planned for in advance, however, taking the reins may be difficult and expensive. For the best results, arrange these details as early as possible.

Irene Zelterman is executive director of Hearthside Care Coordinators, a Brooklyn-based firm that specializes in helping people cope with the challenges of caring for older and physically-challenged adults. Ms. Zelterman says of all the little and great concerns that the elderly face, financial insecurity is perhaps the biggest.

A desire for control“Money seems to be the last thing they want to lose control of,” Ms. Zelterman says. “But when the kids do take over, [parents become] relieved. I’ve never seen them not relieved. It’s important to just do it.”

As for identifying the proper time to transition responsibility, Ms. Zelterman says adult children should watch for mail piling up, or parents’ failure to pay physician co-pays.

“Go with where the pain is,” she suggests. “If they say they’re overwhelmed by their bills, that’s when you can say, ‘let me take care of it.’ You don’t have to [be aggressive].”

The AARP suggests a multi-step approach to this delicate situation, beginning with an offer to relieve concern. Start the conversation with a positive question like, “How can I help make sure your finances are handled with your wishes in mind?” Assure the parent(s) that you’re looking out for their best interests.

You’ll want to ask for permission to review bank accounts and investment information, insurance policies, mortgages and deeds, other loans, pensions and Social Security statements. And don’t forget the contents of safe deposit boxes.

AARP also suggests talking to parents about putting their legal affairs in order and placing their wishes in writing. This includes creating or updating a will or other estate plans, designating a financial representative through a power of attorney, and composing legal documents to guide future health care decisions.

Power of attorney is essentialThe most essential document allowing an adult child to act on his or her parents’ behalf is power of attorney, which should be arranged for when the parents are still able to understand the situation. Gaining this authority will allow the designated power of attorney to deal with banks, wealth management advisors and creditors. If left too late, and the parent or parents are truly incapacitated, the only recourse may be going to court to seek guardianship, which can be lengthy and expensive.

Adult children also should be on the alert for scams aimed at their parents. This might be revealed in the parents’ checkbook or insurance claim forms. The FBI maintains a list of typical scams that the elderly fall for (www.fbi.gov/scams-safety/fraud/seniors), which includes equipment manufacturers offering “free” products and then charging for them, and unnecessary and sometimes fake tests provided at retirement homes or shopping malls.

Perhaps most distressing of all is when one adult child recognizes patterns of elder financial abuse at the hands of another adult child or caregiver. The actions run the gamut from out-and-out theft and forgery to having the elderly person sign a deed, will or power of attorney through deception, coercion or undue influence.

Elder financial abuse can be difficult to detect. The National Committee for the Prevention of Elder Abuse notes such signals as unpaid bills and withdrawals or transfers between and from bank accounts that the older person cannot explain. Sometimes the withdrawals can be accounted for, perhaps indicating that the parent was scammed. Staying in close contact with the parents’ financial advisor or tax preparer also can illuminate early signs of abuse.

Watching for warning signsRed flags may also appear when the other sibling or caregiver has substance abuse, gambling or financial problems, or is verbal in expressing fear that the parent will get sick and use up what they thought would be an inheritance.

“Nearly every time I lecture on financial abuse, people will approach me with their personal stories,” Elizabeth Loewy, a Manhattan assistant district attorney, told Consumer Reports. Loewy was a lead prosecutor in the 2009 conviction of Anthony D. Marshall for defrauding and stealing from his elderly mother, philanthropist Brooke Astor.

“They will talk to me about their grandmother, aunt or neighbor, usually a senior with cognitive issues, who had ‘this problem,’” Loewy says. “And it’s like a light will go on, and they’ll ask, ‘So this could be a crime?’” �

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Why do you need a wealth manager?To boost the value of your investments, you say? Yes, wealth managers help clients to identify potentially profitable stocks, bonds and mutual funds. But they do far more than just manage investments.

In seeking and adopting wealth management advice, it’s the big picture that counts. Wealth managers help you prepare for retirement. They determine the allocation of investments based on life’s realities. They help with inheritance issues and the transfer of assets, including businesses, to heirs. They help preserve wealth as well as manage it.

Wealth managers are more than investment guides — they can be true financial partners.

“A lot of wealth management is about making sure you don’t hurt yourself,” says Peter L. Maltin, principal with Maltin Wealth Management, based in Paramus, NJ.

One-off advice“The key is, wealth management isn’t a cookie-cutter situation,” Mr. Maltin says. “Rather, a wealth manager looks at a client as an individual, and doesn’t simply put you in an investment model along with everyone else.”

A white paper published in March by Vanguard details the value of wealth management advice, in particular when it comes to what the firm calls “alpha,” or relationship-based, services. These services — such as financial planning, discipline and guidance — go beyond trying to outperform the market.

The paper, titled “Putting a Value on Your Value,” cites seven “quantification modules” that constitute strengths wealth managers bring to the table. These modules include asset allocation, cost-effective implementation, rebalancing investments, behavioral coaching, asset location, considering withdrawals and total return versus income investing.

“[The topic] is as subjective and unique as each individual investor,” concludes Vanguard’s four-author team headed by Francis M. Kinniry, Jr. “For some investors, the value of working with an advisor is peace of mind. Although this value does not lend itself to objective quantification, it is very real nonetheless. For others, we found that working with an advisor can add about 3% in net returns.”

Let’s look at just a few of a wealth manager’s typical responsibilities:

Retirement planning. “What’s your number?” is a basic question wealth managers ask of their clients. That’s the amount of money a person needs, and will be able to spend, upon retirement. This can fall under Vanguard’s “behavioral coaching” topic, as well.

“I had a meeting recently with someone who spends $300,000 a year, [but] in order to meet his retirement

goal he can spend no more than $120,000,” Mr. Maltin notes. “That’s a dramatic conversation to have.”

Rebalancing investments. Individual investors who manage their own portfolios can be prone to “irrational exuberance,” to employ the memorable phrase of former Federal Reserve Board Chairman Alan Greenspan. This entails buying and selling without a clear view of proper portfolio balance.

Vanguard notes a do-it-yourself

investor may pad his or her

portfolio a bit, but “The true benefit

of rebalancing is… controlling risk.

If the portfolio is not rebalanced,

the likely result is a portfolio that

is over-weighted to equities and

therefore more vulnerable to

equity-market corrections.”

Fiduciary responsibility. A consideration when hiring a wealth manager is how he or she is compensated. Some wealth managers are compensated based on a small percentage of the client’s holdings, while others earn commissions on the investments they sell to clients. Some firms offer both arrangements.

Whichever model is employed, clients should feel assured that an investment decision is being made for his or her own good. “The question to ask is, ‘is your advisor working for you or for his company?’” Mr. Maltin says.

Asset allocation. Among the biggest investment stories recently was Bill Gross leaving his longtime post as CEO of investment management firm Pacific Investment Management Company (PIMCO) to become a portfolio manager at Janus Funds. Given Mr. Gross’ reputation as a premier bond-fund manager, it fomented concern about the future of PIMCO and the funds it manages.

In response, Mr. Maltin sent a letter to clients analyzing the turmoil and his decision to immediately eliminate two PIMCO investments held in client portfolios because of their volatility. But he noted other concerns, which typify the comprehensive wealth managers’ view.

“There could be negative tax impacts due to the sale of the underlying investments,” Mr. Maltin wrote of Gross’ quick decision to rid portfolios of the PIMCO funds. “This had been a concern of ours before this announcement.” �

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As the year draws to a close, it’s worthwhile to huddle with wealth management and tax experts to ensure all loose ends are tied up and all financial matters are squared away. But not everyone does — and this oversight can be catastrophic.

For recent examples, look to the deaths of actors James Gandolfini, 51, and Philip Seymour Hoffman, 46. News of their passing echoed throughout the world of entertainment, but estate planners and the financially savvy took note, as well.

Why? Mr. Gandolfini of “The Sopranos” fame and Mr. Hoffman, an Academy Award winner, left behind financial messes that put their families at an extreme tax disadvantage. It has been estimated that Mr. Gandolfini died with an estate worth about $70 million, but with some 80% left unprotected against death taxes of about 55%. Mr. Hoffman’s heirs, meanwhile, will see some 40% of his $35 million net worth go to taxes.

It didn’t have to be that way.

Whatever one’s wealth, no one

wants to see a lifetime’s worth of

work taken from loved ones. Death

and taxes may be inevitable, but the

blow of the latter can be mitigated

quite a bit, experts say.

Dealing with the difficult“Dying is an emotionally difficult thing to come to grips with, but it will happen 100% of the time,” says Jared J. Finkelstein, senior vice president at Lee, Nolan and Koroghlian, a New York-based estate, insurance and financial strategies firm. “So, if you know it’s going to happen, are you prepared when the government comes with its hand out?”

In August, the Reelz channel debuted its “Celebrity Legacies” television series. Its first episode explored the financial ramifications of Gandolfini’s death for his two young children, a current wife and a former wife.

Instead of using a revocable living trust to keep his affairs private and separate from probate court, Mr. Gandolfini relied primarily on his will, according to Danielle and Andy Mayoras, estate planning and probate litigation attorneys who appear on “Celebrity Legacies.” Probate courts are expensive, and unwanted publicity exacerbates family tensions, they said.

Further, Mr. Gandolfini did not consider his children’s youth and if they would be ready to inherit millions of dollars. His daughter is currently two-years-old — she will inherit 20% of the balance of Mr. Gandolfini’s assets

when she reaches 21, whether or not she’s prepared to handle it, the Mayorases said.

Avoiding a fire sale“A lot of what Mr. Gandolfini gifted was property, which is illiquid,” Mr. Finkelstein says, citing the actor’s Italian and New York City residences. “But upon death, the IRS wants its cut. How does the family come up with $40 million they don’t have? They have to go into fire-sale mode.”

According to the Mayorases’ analysis, Mr. Gandolfini could have placed his assets in trusts for a more sophisticated estate tax situation and to avoid probate court. This still would have allowed Gandolfini to provide for family and friends, but without the hefty estate tax bill.

“On the plus side, Gandolfini designated his 14-year-old son as the beneficiary of a $7 million life insurance policy, which the boy will receive tax-free,” Mr. Finkelstein added. “So, he did the right thing in this situation.”

As for Mr. Hoffman, he too relied on a will rather than trusts. He last updated his will 10 years ago, providing for one son but not for two daughters who were born later. Also, the will didn’t mention Mr. Hoffman’s mother, brother or any of his philanthropic causes, which

included nonprofit theaters.Mr. Hoffman’s lifestyle choices may have also

hampered his estate planning efforts. First, it’s not clear if Mr. Hoffman had a life insurance policy — but with a lifelong struggle with drugs, he may not have been insurable. Secondly, Mr. Hoffman was not married to Mimi O’Donnell, the mother of his children. As a result, her estate tax liability will be significant.

“Nobody expects things to happen, so you have to plan,” Mr. Finkelstein says. “The goal of good estate planning is making sure money goes where you want it to go.” �

Guide To Wealth Management is published by Crain’s Custom

Connections Studio. For more information, please contact

Trish Henry at (212) 210-0711 or thenry@crainsnewyork.com.

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Estate Planning Mistakes: LESSONS FROM THE STARSBy Christopher Hosford

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