However, some want you to believe that you need only purchase a form to have an effective estate plan. Using this form, you are told, can save money and — best of all — the form is valid in all 50 states.
Statistics tell us that it is very likely one or both of our parents will end up in a nursing home or rehabilitation center for an extended period. If you’re like most people, you do not know a whole lot about your parent’s finances.
Balancing careers, children, college funds and aging parents present the same-old scenario, but this time to a new generation with a different value system. Members of Generation X, who straddle a fairly wide age range, from late 30s to early 50s, are feeling the crunch of being responsible for their children and their parent’s needs. How will they ever get a handle on their savings for retirement? U.S. News & World Report reminds us in its article “Essential Strategies for Generation X” that with the right strategies, Gen Xers can find a money-life balance. Keep in mind that Gen X has been financially devastated twice: when the tech bubble burst and again during the financial crisis. This makes these individuals dubious about the future. Let’s look at three strategies for those in the new sandwich generation to help make certain that the financial needs of their aging parents and children are met, and at the same time, ensuring that they don’t sacrifice their own financial future. For You. Determine your financial health by calculating your net worth. This includes your savings, personal investment accounts, retirement plan accounts, and real estate, minus credit card debts, your mortgage and miscellaneous debt. Take off any items that won’t appreciate or be consumed in retirement, like a car or jewelry. Then review investments to be sure they’re performing consistently with your needs and expectations. Develop a plan to tackle debt and identify existing and projected expenses. Once you have all this information, use a basic retirement calculator to see if you’re on track to meet your retirement spending needs. A basic calculator probably won’t let you input different scenarios or make detailed assumptions. Most will assume that you will need 70-80% of your current salary in retirement, but this may not be the case if you’re a big saver. Create a contingency plan for premature death and disability. Ask an attorney to draft your will and other estate planning documents. Make sure that your will includes naming a guardian for your minor children so that you get to name the person who raises them. Have the attorney create powers of attorney and powers of attorney for health care so that you and your partner are prepared for incapacity. For Your Children. Look at the resources available to fund your children’s education. Don’t put your retirement plan in jeopardy by paying for an expense you can't afford, including your children's college. Be open minded about state schools, or having your kids attend a local college for two years, then transfer to another college for a “brand name” diploma. For Your Parents. See where your parents are financially because you may need to factor unexpected expenses into your plan if your parents need financial assistance. This will save time in the future if you know where to track down this information. Ask if they have an estate plan, and if they do not, have them meet with your estate planning attorney to have a plan created.…
There’s an easy way for select assets to be passed to heirs, with no need for probate. It’s called the beneficiary designation. Your will is a document that is used to pass property and assets to your heirs, but it’s not the only way. Certain accounts or assets have beneficiary designations, where you provide instructions on who is to receive assets when you die. Most people don’t realize that the beneficiary designation is more powerful than the will, and directions in a will are overruled by the beneficiary designation. Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities, and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts. Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations: Failing to name a beneficiary. Many people never name a beneficiary for retirement accounts or life insurance. If you don’t name a beneficiary for life insurance or retirement accounts, the financial company has it owns rules about where the assets will go after you die. For life insurance, the proceeds will usually be paid to your estate. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your attorney about creating a trust to be named as the beneficiary. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also…
No matter what line of work you are in, estate planning has facets that apply to everyone, and it comes down to documenting wishes and avoiding probate and unnecessary taxes. Too many people put it off, but, in general, the sooner you do it, the better.
