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Prep Steps to Getting Your Estate in Order
The best estate planning begins early and is usually sparked
or adjusted by major transitions in life — when a marriage is
beginning or breaking up, when a baby's on the way, or when a
major career change or inheritance increases an individual's
assets or the assets of an entire family.
It's important to coordinate financial planning with estate
planning because what you do with your money today will have a
direct impact on the estate your heirs will receive years from
now. It all starts with basic spending and planning goals.
Here's a general road map to that process:
Start with a trained financial planner. Whether you
plan to stay single, remarry or move in with a new partner, it's
good to get a baseline look at your finances as early as
possible before estate planning can begin. A CERTIFIED FINANCIAL
PLANNER™ professional can help you review your new current
spending and savings needs, compare strategies to achieve
long-term goals, such as college and retirement and give you
critical tools to protect your assets and loved ones if you die
suddenly.
Talk with a trained estate attorney about wills and other
critical documents. True, there are software programs and
other kit solutions available to write basic wills, powers of
attorney and certain simple trust agreements. These packages
offer short-term savings but have the potential for greater
costs in the long run if you choose the wrong package or fail to
follow all instructions to the letter. It makes more sense to
coordinate your financial planner's activities with an estate
attorney who can tailor an overall estate plan specific to your
needs. Even if you are very young with few assets, get some
solid advice in this area so you'll be able to manage and adapt
such planning as you age and your finances get more complex.
It's usually a good idea to revisit your estate plan every five
years or whenever you have a major life change.
Make a guardianship game plan for your kids. It's not
enough to plan how money and assets will go to your children if
you or your spouse die suddenly or are incapacitated. If your
children are minors, it's particularly important to make sure
you and your spouse have a guardianship plan for their
upbringing as well as any assets they may inherit. You should
give your chosen guardians a road map on how to handle the
assets you leave behind. You should also ask your proposed
guardians before you name them, while you still have the chance
to name someone else if your first choice is unable or unwilling
to carry out that responsibility. If there are any trust or
wealth issues that will become effective for your children once
they reach adulthood, it's important to establish an efficient
legal structure, such as a trust created under your will for
distributing those assets. A trust under your will would name a
trustee who can train and guide your kids through that financial
transition.
Plan for kids who have special needs. If one of your
children is disabled and is expected to need lifetime assistance
of some type, then you should consult a qualified attorney to
help you create a special needs trust. It will help protect your
child from having to give up any public or social financial
assistance as well as access to special doctors, medical help,
specific prescriptions or treatments that could be taken away if
they were to personally inherit assets that would disqualify
them for these programs. When such assets are held in a properly
designed special needs trust, they are not counted as the
child's assets. The advantage is that those trust assets may
still be used to support their housing or other personal living
needs.
Get solid insurance protection in place. If you are
married or are single with a child to care for, you really
should consider purchasing insurance that will cover any
eventuality. Not only will adequate life insurance benefit your
family, but you and your family will also benefit from adequate
health, property/casualty and disability insurance. If you're
newly single, you need the best health coverage you can afford
for yourself and your kids, but life, property, liability and
disability insurance becomes doubly important, particularly if
you failed to address those needs during the divorce. Even if
your ex-spouse is cooperative with financial support, it's wise
to insure yourself as if they weren't. A qualified financial
planner should be able to review those options in detail.
Review all your investments for primary ownership and
beneficiary information. While you are married, appropriate
designation of property as separate, joint, or (if applicable)
community property can provide legal, tax and asset protection
advantages. In a divorce situation, even if you were advised
correctly to change the names on assets you and your spouse were
dividing between yourselves, you should perform a post-divorce
to review that the ownership names and beneficiary designations
are indeed correct on those assets. And most importantly, to
make sure all beneficiary information is correct.
Plan for multi-generational issues. For individuals and
couples with elderly parents and/or young kids starting out on
their own, it might be smart to do a multi-generational estate
checkup at the same time. Why? Because in families with
significant assets or other pressing financial issues involving
businesses or dependents, each generation's wishes for the
dispersal of shared or personal assets should be documented
legally and shared with all the relevant parties. In some
families, this may mean the future of a multi-generational family
business, perhaps one of the most complex estate issues any
family will face. For other families, the assets may consist
mainly of cash, property and other investments, but similar
problems can occur when all the parties aren't on the same page
about who will get what, how and when they will get it, and who
is in charge during the process.
Activate trusts and other estate transfer mechanisms.
It is surprising how often estate attorneys and other people in
the advisory process fail to get their clients to actually title
assets in the name of living trusts and other mechanisms to
transfer wealth. It's not enough to set these mechanisms up — get step-by-step instruction on what needs to be done to make
them effective.
Make sure your health and financial representatives know
your wishes. Often people tell a close friend or relative
that they have been given power of attorney over health and
financial decisions of a loved one, but there's no further
effort to share those wishes or show them what their legal
documents specifically instruct them to do. Both sides should go
over this information as soon as the person agrees to be the
other's representative.
December 2009 — 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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