If not for yourself, prepare a living will for the sake of your loved ones.
Financial and estate planning are only two of the many steps needed to ensure a smooth and comfortable future. Financial planning, whether done on your own or with a certified financial planner (CFP), helps ensure your savings and investments over time will last through a selected age. Additionally, estate planning is generally done in conjunction with a certified public accountant (CPA), CFP, and an estate attorney.
But even with constructive financial planning, individuals often miss an essential piece of the planning puzzle: obtaining a will. According to Forbes, “Incredibly, 51 percent of Americans age 55 to 64 don’t have wills … Worse, 62 percent of those age 45 to 54—and 67 percent of women that age—haven’t drafted wills.”1
Better than the alternative
Important questions should be answered before deciding on a type of will and the level of detail required in your estate planning. If someone dies without a will, the probate court in the state of permanent residence will determine how that person’s assets and property are dispersed. A state judge makes the final determination. This includes and is not limited to: awarding any and all family members who are eligible to make a claim on your property, business, and wealth; appointing guardians and trustees for your minor children; having your personal affairs fully vetted in public with loss of privacy; ancillary probate for out-of-state property; and more.
This process can become expensive and subtracts from the bottom-line net result of final property and asset distribution. All of this could be potentially avoided with even a simple will. However, as an estate becomes more complex, so too do wills and related estate planning documents, such as assorted and specific trusts.
Face reality head on
Hoping that family members will work it out after you’re gone is a recipe for financial hardship. The time and legalities involved with estate planning may at times seem overwhelming and costly; however, inaction may prove to be more expensive and cause emotional trouble that could be avoided with planning.
Wills should always be part of the process, especially if a minor child or children are involved, a family business is operating, and personal assets are not titled correctly. This also requires electing one or more trustees and guardians who will ensure the terms of your will and wishes are fulfilled.
The goal should be to maximize the passing of assets to heirs, minimizing estate taxes, making charitable bequests, and having your final wishes honored. Financial and estate planning can help avoid probate, which can be a long, drawn-out process open to public scrutiny.
The fees charged by the professionals administering and determining the value of an estate can add up quickly. Wills need not be expensive, and self-directed kits are available for simple wills and uncomplicated estates. But when in doubt, a conversation with an estate attorney may be a prudent course of action.
Will substitutes and beneficiaries
Life insurance and estate planning go hand in hand. A multitude of different life insurance products exist (i.e., term, universal, variable, whole or second-to-die life policies, and annuities), and costs can vary depending on the product purchased. Life insurance policies, bank accounts, brokerage accounts, and financial assets are also known as will substitutes and should have both primary and contingent beneficiaries listed.
The individuals listed ensure your wishes are fulfilled and also grant peace of mind to those you wish to receive the life insurance policy payout. Understanding that when you first established the beneficiary list and your ultimate passing may be years apart, contingent beneficiaries will receive the payout benefit should the primary beneficiary be deceased.
This money, passing tax-free to the beneficiary, could help with expenses incurred by your death, such as hiring someone to help with household and family responsibilities, loss of your work income, funding college, or other needs. As a matter of law, legal contracts with named beneficiaries supersede what may be stated in a will. But while alive, the owner of a policy or account can change the beneficiary. Life’s events are ongoing, and as family dynamics change in the face of marriage, divorce, birth, death, charitable donations, and more, so should beneficiary designations when appropriate.
Prepare for tax liability
In addition to ensuring your property and assets are distributed according to your wishes, the possibility of estate taxes should also prompt planning to reduce the potential tax liability arising from a death.
For example: If life insurance is placed in an irrevocable life insurance trust, benefits are received tax free by a beneficiary and not included in a decedent’s gross estate. Therefore, depending on your personal, family, and business circumstances, decisions are best made sooner than later.
Unfortunately, no one is privy to the details and timing of life’s end, so being proactive may be the difference between ensuring your ultimate wishes are fulfilled or left to chance. In consultation with professionals, planning can help mitigate the stress and tax ramifications after death and maximize the proceeds received by your beneficiaries. Do it for them, if not for yourself.
William Wolfson, DC, FICC, MS, MPASSM is a financial consultant and adviser. He is a member of the Financial Planning Association of Long Island, the New York State delegate to the American Chiropractic Association, and a member of the New York and Florida chiropractic associations. He retired after 27 years of chiropractic practice and can be contacted at firstname.lastname@example.org.
DISCLAIMER: The information in this article is for informational purposes only and not provided as legal advice. Contact your attorney to obtain advice with respect to specific legal issues. The opinions expressed are solely those of the author.
1 Eisenberg R. “Americans’ Ostrich Approach To Estate Planning.” Forbes. http://www.forbes.com/sites/nextavenue/2014/04/09/americans-ostrich-approach-to-estate-planning/. Published April 9, 2014. Accessed November 2014.