Estate Distribution PlanningEstate Planning
You've worked your entire life accumulating your estate, why would you let someone else determine what happens to it? Regardless of your net worth, it is important to establish a solid estate plan. You have the opportunity when you pass to decide who will get what, how they will get it, and when they will get it. If you do not make these decisions and allocate things as you would like them, then someone else will. Ask yourself if you really want an anonymous third-party telling you who should receive your assets, keepsakes, heirlooms, and memories? We strongly feel that estate planning is an essential part of every financial plan. As with other topics, we've started a collection of relevant articles on estate planning. We hope that you will find the articles informative, and urge you to not wait to begin the estate planning process.How to Approach Will and Trust Preparation
Last Updated (Thursday, 07 August 2008 08:19)
Will your family know what to do when you die? Will all the members affected know how to act in response if you become disabled? Are you personally prepared to deal with a disability-related early retirement? If not, it will not be your plans that fail. The problem will be the failure to plan!
Common Will and Trust Preparation Pitfalls
Every year, every family, should be sure to educate themselves to be prepared for the worst of circumstances. Yet, most people do not bother to take the time to implement some essential measures.Many do not have adequate amounts of life insurance. Others neglect their wills. Many people with complex needs have only a crude will when a carefully drawn out trust is really needed. Some even haphazardly purchase financial products and have not spent the necessary time developing an overall financial plan.
Everyone's estate is planned, either actively or passively. Either you maintain control, or the government controls it for you. If you do not bother, your family may suffer undue pressure and expense because of court proceedings. You can avoid all this by understanding the need for will and trust preparation and planning ahead.
Reasons to Plan Your Will and Trusts
For example, suppose you have a minor child. You would not think of leaving him/her alone without a baby sitter. Nor would you allow someone else to decide who that baby sitter should be. Correspondingly, you will want to select a guardian (and alternate guardians) in your will.Your family members or even your spouse cannot be expected to know all your financial arrangements. You can save them a lot of anguish by keeping records current, including bank account numbers, insurance policies, real estate deeds and records, stocks, bonds and other investments, wills, trust agreements, employee benefit records, birth certificates, marriage license, military service records and Social Security information.
Employee benefit accounts and beneficiary arrangements change frequently, and often it is appropriate to change prior elections.
It is important to keep an inventory of all your property, mortgage information and an informal letter of instructions regarding estate administration.
It is also essential to make sure you are doing everything possible to guarantee adequate income at retirement. Take full advantage of savings, investments, insurance, individual retirement accounts and all the products and services available to you. Your professional financial planner may help you understand the advantages and disadvantages of each.
Special Arrangements May Be Needed
You owe it to yourself and your loved ones to become informed, and to teach them now, how to make decisions and properly handle money. Maintaining your financial safety often means that you or your spouse, if you are not well, may not have to handle money, run a business or manage an investment portfolio. It would be unfair and unwise to thrust these burdens on to the wrong person.If you have a mentally challenged, learning disabled or physically handicapped child, you must plan ahead. Such children may never be able to care for themselves. The same might apply to a parent or dependent sibling. Such cases call for special legal arrangements, and frequently require special funding efforts to be effective.
Every closely held business owner should consider what will happen if a business partner dies or becomes disabled. What will happen to your successors if you meet with an accident? Could your spouse or children take over if they had to? Would you want them to? If there are no written and binding plans, could the wrong people take control of your business?
Suppose you are single. Who will act in your behalf later, if you do not act for yourself now?
You may have important charitable objectives. Government cutbacks have shifted some responsibility for social services back to the public, and many worthwhile organizations have an even greater need for funds. You may be contributing both your time and money now -- what about a legacy after your death?
Benefits of Planning
Controlled estate planning will systematically uncover problems and gaps in your estate and provide solutions. For example, you can plan against:- Excessive transfer costs - The improper plan or group of documents might cause too much tax, payable too soon, coupled with other needless expenses.
- Lack of liquidity - Or not enough cash to pay taxes and other predictable expenses. This could result in the forced sale of your liquid assets or other income producing property. This is an especially critical factor for owners of closely held businesses or investment real estate.
- Improper disposition of assets - This could result in the estate being disposed of in equal but inequitable shares among your children, even if their needs vary greatly. It may also be an improper dispersion of assets to leave two or three hundred thousand dollars in life insurance to a 21-year-old child or to a spouse - without the benefit of a trust arrangements to prioritize for proper investment - or to preclude wild spending.
- Inadequate income if disability occurs - Electing the maximum benefits from your employer-sponsored plans, and filling in the gaps with personal disability coverage and insurance waivers of premium.
- Inadequate income for your family at your death - To maintain your standard of living, the family will typically need 80 percent of your present gross income (though often it can be even higher). This must be adjusted periodically for inflation, additional debts incurred, education funding needs and special family circumstances.
How to Proceed With Will and Trust Preparation
The best place to begin is to sit down with a qualified financial advisor and check all your insurance. Then review your will and trust, making sure these documents will do what they are supposed to do in the most effective manner.Inform your heirs, before they become heirs, where your personal and financial documents are located -- especially a durable power of attorney. If you are married, measure your needs each year, establish your priorities, and then develop and put into effect plans to make sure that your financial future is protected.
It is not necessary to cancel and entirely redraw your legal instrument. A will can be modified by a codicil (amendment), and some forms of trust agreements are also subject to alteration. Of course, your estate planning attorney will be familiar with the correct procedures.
The time to implement adequate will and trust preparation is now. Schedule time to meet with your qualified financial advisor at Brock and Associates, LLC, and make sure that you control your assets and your future.
Brock and Associates, LLC is a Utah based financial planning firm. We specialize in retirement, estate, legacy, and tax planning.
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Control Your Assets or Someone Else Will
Last Updated (Monday, 28 July 2008 13:31)
Written by Hank Brock
First, and most important, planning is control. You want to determine who will get what, how they will get it, and when they will get it.
How are assets distributed? Let's look at an example. Robert, whose children were grown and gone, decided that the simplest thing he could do was leave 100 percent of his assets to his wife, Ann. He figured she'd take care of distributing things fairly among their children.
What happened? Robert died unexpectedly at the age of 58. Ann was only 53. She remarried, and took 100 percent of Robert's assets with her.
Eighteen years later Ann died, leaving all her assets to her second husband. Twelve years later he died, leaving all his assets-which now included Robert's original assets-to his children. Remember: These are people Robert never even knew existed.
What about Robert's children? In essence, they were disinherited. That's clearly not what Robert had intended, but the way he designated his assets be distributed, that's exactly what happened. Think that doesn't happen very often? Think again. It's actually quite common.
So, how are your assets distributed to your intended heirs after you die? Your assets will probably go through probate, either by the operation of law or because their trust was not set up properly. Many people think that just because they've prepared a will, their assets won't go through the expense and delay of probate. Nothing could be further from the truth.
Your will may not necessarily have the final say. The probate judge does.
In certain cases, your assets will be distributed by "operation of law." That could happen, for example, if property was held by you and your spouse in joint tenancy with rights of survivorship. It could also happen if you've named a specific beneficiary-through a life insurance policy, retirement plan, tax-sheltered annuity, pension, or profit-sharing plan.
In those cases, your assets pass directly to the beneficiary you designated. Your assets may also be distributed by operation of law if you die without a will. In that situation, you're considered to have died "intestate." In essence, the state in which you live writes your "will" for you. Often, your state's "will" can be quite onerous. Consider the following "will" which contains some typical provisions, and which may be applicable to you.
On the surface, this may make sense. But examining further, does it really? For example, your children are either older or younger. If they're grown and gone, do you want two-thirds of your assets going to them rather than your spouse? If they're young children at home, do you want your spouse having to account to them for what he or she is doing with their money? The questions go on ...
You should also be aware that mutual funds, CDs, real estate, checking accounts, savings accounts, vehicles, stocks, bonds, and many other assets normally do not pass according to the operation of law but will go through the probate process.
The message here is clear: Do something about your estate plan. Don't let money stop you. A reputable attorney will usually prepare a simple will for $125 to $200. Don't rely on the will and trust "kits" offered for $10 on late-night television and in magazines. The court may consider them valid, but you will have forfeited the professional counsel you deserve.
Why is professional counsel so important? Assume that you go to the library and read an article on tonsillectomy. From that article, you figure out how to perform a tonsillectomy. Then you decide that you can do it easily and for much less money than a surgeon charges for the procedure. So you go to the bathroom mirror, open wide, and go to work.
Are you properly trained? Hardly. Can you perform a proper tonsillectomy? No way. So what makes you think you can properly interpret all the complicated estate laws from a $10 do-it-yourself kit?
Even if you're a surgeon who is completely trained in performing tonsillectomies, you're not going to do one on yourself. You'll hire another surgeon to do it for you.
The following excerpt was taken from "Your Complete Guide to Money Happiness." For more information on Hank's book visit our Recommended Reading page...
Hank Brock is President of Brock and Associates, LLC and author of "Your Complete Guide to Money Happiness." For almost 30 years Hank has been providing sound estate planning advice.