A year ago, I moved my family to our home state after being away for seven years. I really wanted to be closer to my father. He was 84 years old and had been ill for a long time; he had survived kidney cancer, but his remaining kidney was failing and he had been on dialysis for five years. He wasn’t doing it right.
Six months later, my dad’s health worsened. He developed early-onset dementia and began refusing dialysis. My sister and I tried to do what we could for him, but he refused any help. My dad was hospitalized after, unknown to us, missing two dialysis treatments. We visited him in hospital where he refused further care, resulting in him requiring hospice care. A week later, at 3 am, I got the call: my father had passed away.
I had to plan my father’s property in the midst of the rubble. My father died without a power of attorney, which would have allowed my sister and me to receive treatment for him. He left no will or trust that described his wishes or intentions at the end of his life for his assets. To his confusion, he had also stopped paying his life insurance premiums, depriving the family of the protection he had invested in for years. My family not only had to bear the pain of my father’s death, but we had to bear the financial burden of his passing.
Three Tips for Estate Planning
People often express a desire to avoid burdening their children, but few complete all the necessary steps of estate planning. I would like to explore some in depth.
- The first of these steps is life insurance; Does the client have enough to pay for end-of-life care, including funeral costs?
- The second step to consider is a will, which will allow the client to dictate who gets what assets from their estate.
- The third and final step a client can take to protect their heirs is to establish a trust. Placing your assets in a trust will give the client more control over his estate.
I’ll start with life insurance. Traditionally, its main purpose is to replace a person’s paycheck in the event of an untimely death. The general rule of thumb is that a person should have 10 times their current salary as a death benefit. For example, if a person earns $100,000 per year, then he should have a million dollar life insurance policy. This is especially true when it comes to minor children or children going to college, as well as when the policyholder has an outstanding mortgage. Over time, you may find yourself with an empty nest with a mortgage that is paid off or close to being paid off. Your traditional life protection needs are likely in the rearview mirror. If you decide to continue coverage, it is often for an equally important purpose: to cover end-of-life expenses, such as burial and funeral costs. Small policies that cover final expenses can be purchased at a nominal cost, especially for those in good health. Even those with large net worth may consider keeping some life protection. Liquidating real estate or retirement accounts to pay final costs can be a long and arduous process.
Next, let’s cover wills. A will is a legal document that dictates how an estate will be distributed. Only 46% of Americans have a will, which means that most estates are resolved in probate court, a process that can take months or years to resolve. And it’s expensive. It’s not uncommon for an attorney to represent his or her fee as a percentage of the estate, which can be in the tens of thousands of dollars. The good news is that many assets can easily escape probate, even without a will. Any transfer on death instructions or beneficiary designations supersedes both the estate and wills. Therefore, it is vital to keep those designations up to date, so that assets can be delivered to their intended destination without interference or delay.
But is a will enough? Some may find value in going the extra step and building trust – an entity with the sole purpose of managing assets beyond your death. Trusts can be established for a variety of reasons, including tax reduction, estate evasion, or even improving Medicaid eligibility. But I want to focus on one of the most compelling trust attributes: the ability to predicate inheritance around contingencies. Maybe you don’t want your beneficiaries to spend your inheritance too quickly. Or maybe some of the intended recipients are struggling with drugs, alcohol, depression, or strained marriages. Leaving money in their hands can cause more harm than good, so a good trust will look to monitor how and when funds can be used in those situations. Contingencies can also be used to encourage good behavior, such as linking inheritance to college achievement, career advancement, or charitable donations. Your contingencies are only limited by your creativity and state law.
Summary and call to action
Many people do their best to control their assets while they live, but leave it all to chance in death. I have seen firsthand the pain, stress and suffering that this lack of planning can cause. Think to yourself: if something happened to me today, how would I want my money to improve the lives of my loved ones? How could you make life easier for them in the midst of what is already a painful transition? More importantly, get help putting those thoughts into action!
Financial Planner, Arcadia Financial Group
Jim Moran joined Arcadia in June 2021. His previous employer was Fidelity Investments, where he worked for over 20 years, his last position being Branch Manager, where he ran an office of financial planners. He has a bachelor’s degree in history from the University of New Hampshire. Jim currently lives in Concord, New Hampshire, with his wife and his two children.
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