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As you look to the future and prepare for the inevitable, there are some important matters to take care of out of consideration for your loved ones. The potential for physical incapacitation and eventuality death create the responsibility to minimize emotional pain for your loved ones by assuring that your wealth is passed down as you intended and that your estate isn’t unnecessarily diminished by poor financial or healthcare planning.
Many people realize this but fail to act, procrastinating until it’s too late. Those who make these preparations can enjoy peace of mind for themselves and those they love.
Of course, there’s much to attend to. Here’s a list of some of the most important items:
- Make sure your will is in order—fully updated to reflect your current wishes, and with the correct beneficiaries designated. Also, work with an experienced estate planning attorney to make sure the will achieves your goals. In many cases, what’s known as a simple will won’t adequately fulfill your intent because this won’t account for changing circumstances among beneficiaries and adjust bequests accordingly. Because of this, it’s often preferable to have what’s known as a normal will combined with a testamentary trust. Testamentary trusts are funded by estates and include instructions on who gets what, when they get it and, sometimes, what they can do with the money. Such trusts can be used to assure that children and grandchildren receive what you intend in the event that your spouse remarries and then bequeaths property to his or her new spouse. They also may protect heirs in the event of a lawsuit or a divorce, and from their own poor judgment (possibly stemming from alcohol or drug abuse) or youthful indiscretion.
- Prepare a living will. Also known as an advance directive, this is a set of instructions on how you’d like to be cared for if you become completely incapacitated—e.g., if you’re on life support--and can’t make decisions.
- Arrange a durable power of attorney. This is a critical document for financial and healthcare decisions in the event you’re incapacitated. It empowers the person you have designated as your agent to make such decisions on your behalf.
- Appoint a guardian if needed. If you have minor children, appointing a suitable guardian to raise your children in case you suddenly pass on is paramount for their well-being.
- Make sure life insurance policies are up to date and that the correct beneficiaries are designated. Also, be aware that investment accounts may include beneficiary designations, including transfer-on-death (TOD) provisions, which can cause confusion if they conflict with provisions of your will. In most instances, designations of beneficiaries on investment accounts will supersede those named in wills. Check with the companies holding your investments to make sure the beneficiaries listed, which you may have filled in decades ago, are those you want now and that these designations support your will. For bank accounts, consider adding payable-on-death (POD) provisions, which allow beneficiary designations.
- Depending on your financial situation, consider long-term care insurance, particularly after reaching your mid-50s. Many people don’t realize that Medicare basically doesn’t cover this, and that they must pay for this care out-of-pocket if they lack insurance. The high cost of this care, sometimes more than $120,000 a year, can drain your assets, significantly reducing your estate. So long-term care insurance may be worth considering. To avoid conflicts of interest, be sure to get advice on this from an advisor who doesn’t earn a commission by arranging this coverage.
- Assemble your financial records, including account log-in passwords and estate planning documents, in one place, organize them in a manner easily understood, and show a loved one where they’re kept. Also, consider providing copies to your financial advisors in the event that your documents are destroyed by a fire or flood. Another substantive way to guide your loved ones is to include with your will a letter of instruction. This is a letter that: provides practical information such as the location of house keys, car keys, safe-deposit box keys and the addresses of banks where those boxes are located; assigns jewelry, furniture and other household items to specific heirs if this isn’t already covered in the will; states the location of pending bills so they can be paid; and provides contact information for your attorney, insurance companies, financial advisor and accountant.
For many, it’s not easy to make these preparations. By doing so, you’ll be able to sleep better, knowing your loved ones are taken care of. And it will serve as a final expression of your love for them.
Tim Decker is president of ISI Financial Group (www.isifinancialgroup.com), a wealth management firm in Lancaster, and a fee-only financial planner (he sells no products). His weekly call-in radio show, Financial Freedom, airs Saturdays at 10 a.m. on WHP580 AM.
This content is based upon information believed to be accurate by ISI Financial Group, Inc. However, it is not intended to provide specific financial advice. You should always seek professional guidance before making any financial or legal decisions, as everyone’s needs are different.
