Simply Money

Simply Money

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Important Estate Planning Questions

What is the status of your estate plan?

I’m not an estate planning attorney, but most of our clients have questions about strategically passing along assets to heirs in the event of their death.

Make no mistake, you should consider estate planning an integral part of your overall financial plan. I devote an entire chapter to it in my book, Personal Decision Points, because many of my appointments with clients quickly evolve into conversations about wills and trusts.

If you’re relatively new to the concept of estate planning, here are 3 things to consider.

1) Do you need life insurance?


We don’t sell life insurance, however, when appropriate, we make risk management recommendations as part of the comprehensive financial plan we build for our clients.

Generally speaking, if you plan on continuing to work and save for retirement, and you’re the household’s main income earner, you might need life insurance.

That’s because life insurance protects your family against income it would lose if you became deceased.

But if you’re currently retired, or nearing retirement, then it’s more likely (though not certain) that your children are no longer financially dependent. If you’ve saved well for retirement (which is merely one key factor), then it’s possible you no longer need life insurance.

In order to receive advice that you know is in your best interests, and so that you’ll clearly understand what your needs are, I recommend that you speak with your advisor before talking with your insurance agent.

2) Do you need a will?


A will is the foundation of an estate plan. If you have any assets or property or heirlooms, you almost certainly need one. A will not only allows you to control what will happen to your assets after you die, it should give everyone in your family peace of mind.

That’s because a will:

  • Identifies your executor
  • Protects your partner or spouse and children
  • Distributes your assets to beneficiaries
  • Usually still requires that your estate pass through probate

The days and months after a parent or spouse dies are chaotic and emotional. Please don’t place your family members in the position of having to debate what you would have wanted.

Remember, a will can be changed at any time prior to your death. Get it done now. And if it’s not perfect, you can update it as necessary.

A last reminder: The beneficiaries on your retirement accounts (IRAs, 401(k)) supersede the beneficiaries in your will. Every bit as important as creating a will is making certain your retirement account beneficiaries are up to date.

3) Do you need a trust?

It depends.

First, there are a couple of basic types of trusts: revocable/living trusts, and irrevocable trusts.

Revocable trusts can be changed (adding beneficiaries, etc.) by the owner at any time.

Conversely, while you can rarely change the terms of an Irrevocable trust, and while this would seem to be prohibitive, the advantage is that the assets in irrevocable trusts offer more protection from creditors (than do revocable trusts) in the case of a lawsuit. Plus, depending on the size of your estate, irrevocable trusts provide your heirs with some serious tax benefits.

Trusts are designed to ease the process of transferring your estate when you die. Obviously, what type of trust you may need will depend on your unique situation.

So, who needs one?

As with life insurance, there’s a lot of grey area. The more complex, and the larger your estate, the more likely you are to need one. Yet even with a simple will, you can still have some of your largest assets (home, property) transferred without probate simply by arranging joint ownership of the asset (likely with your spouse or partner).

Again, so you won’t be sold something you don’t need, speak with your advisor before consulting with an estate planning attorney.

Generally, a trust will:

  • Reduce estate and gift taxes
  • Bypass the probate court system to speed up the distribution of your assets
  • *Make the distribution of your assets conditional

That last bullet point is important. It means if you’ve saved well and have accrued an ample amount of assets, but for personal reasons you don’t want your 21-year old son to inherit $2 million in a lump sum, you can use a trust to spread out the distribution over time, or even make it conditional. For example, you could base a child’s inheritance on the achievement of milestones such as graduating from college.

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