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Estate Planning for the Worst Possible
Scenario — the Death of Both Spouses While the Kids Are Young
The reason why some parents hesitate to make an estate plan
is understandable. It calls into consideration your worst fears —
the possibility of your death or your kids facing life without
one or the other parent.
But what about an even worse scenario — the possibility that
you and your spouse could die at the same time or in close
succession by accident or illness. One might be reminded of the
situation of actor Christopher Reeve and his wife Dana; Dana
died of cancer within two years of her husband's death and they
left a teenaged son behind.
From the standpoint of individuals, planning generally gets
done with the mindset that one parent will be left to raise any
minor children and continue earning and investing for the
family. But in reality, you both should consider a plan that
accommodates the absolute worst scenario — the loss of both
parents and what would happen to your kids' lives and finances
if that happens.
Most financial experts advise you to revise your estate plan
every five years or as lifestyle issues change. It's important
to get help for the financial aspects of your estate plan as
well as legal instructions for the support, education and
general well-being of your kids. Here are some general topics to
explore with tax and estate attorneys as well as a financial
planner such as a CERTIFIED FINANCIAL PLANNER™ professional:
Talk first about who would best raise your kids. This
is clearly the most important decision you'll make. You need to
find the best person — or couple — to raise your kids if
something happens to both of you. You know better than anyone
else what hard and soft skills that will require — they need to
be people whose own lives won't blow apart by adding your kids
to the mix. It's also wise to name alternates in case the people
you name have a change of heart for any reason, or if something
happens to them.
Then talk about who will handle the money. After you
choose your guardian and your alternate, you need to build a
financial plan that will support those decision makers in the
best way possible. Many experts advise you to split the
responsibility of handling the kids and the money. This is a
personal decision, obviously, but the concept is a good one.
Absorbing someone else's kids into a new family in a tragic
situation is a tremendous responsibility with plenty of margin
for error. For some time, it will be a full-time job. The
appointment of a sharp financial trustee will allow you to
allocate resources for day-to-day living expenses, education
expenses and if there's money left over, for investment.
Start thinking through an estate plan. For most of us,
it's going to be a challenge simply to stretch what we have to
help our kids after we die. After all, when we go, there goes
the weekly paycheck. For individuals who own businesses or have
more substantial assets, the idea is to protect first those
assets and then continue to grow them as investments. The
trustee and whatever advisers you attach to this process will be
key. But the first step is to get some general advice on
managing the assets you can leave behind or backstopping your
kids' anticipated needs with various insurance options you can
put in place now.
About those insurance options. Some married couples
may elect to buy insurance together within the same policy.
These policies take the form of either a joint first-to-die or a
joint second-to-die (survivorship) design. With first-to-die,
the death benefit is paid at the death of the spouse who dies
first. With second-to-die, no death benefit is paid until both
spouses are deceased, and that makes them a useful
estate-planning vehicle in the right situation. Ask which policy
choices are right for you from a qualified agent.
Make sure you figure this worst-case scenario into your
education savings plans. Elementary, secondary and college
education costs — particularly if all are in private
schools — need to be factored into the estate picture, and a CFP®
professional might be useful in getting a savings plan in place
while you're alive that covers all possible events.
April 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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