5 Estate Planning Steps Literally Everyone Needs To Take

January 04, 2024

You may be thinking that you do not have the need for an estate plan or at least there is no harm in delaying getting started with estate planning.  The truth is that anyone with savings, debt, a spouse, children, a home, or a retirement plan needs to at least have the basics in place.

Hopefully, it’s true that you won’t need it for decades to come, but should something happen and you don’t have a plan, it could make a HUGE difference, sometimes even while you’re still alive.

Here are the 5 critical steps – make a plan to check these off the list today.

Step 1: Create or review your will

If you have a current will, congratulations! You have already taken an important step in the estate planning process. Your will controls the distribution of everything you own that doesn’t have a beneficiary designation and can also name a guardian for any minor children. Things that you pass via will include:

  • Tangible personal property like your home, your car, and all your stuff
  • Individually held financial accounts such as savings, checking, stocks, bonds, and mutual funds held outside retirement accounts which do not have a beneficiary designation.

Don’t have a will? If you die without a will, your state has laws that determine who gets your money called laws of intestacy. These laws vary from state to state but generally give first priority to your spouse and children. If you have neither, then blood relatives including parents, siblings, and others are your default heirs, under a specified order of priority. If no blood relatives can be found, your money goes to the state Treasury.

Protect your children! Should your minor children lose both parents, your will determines who will raise them and manage your money on their behalf until they reach the age of majority. If you die without a will, the state will name a guardian to take the children – and it may not be who you think is the most appropriate person!

In your will, you can designate a guardian for your children, as well as one or more alternates in the event your first choice is not available. You can name the same person, or a different one, to manage any money left to your children as well.

Step 2: Review your assets and update beneficiary designations

Many people think that once they have made a will, all of their assets will pass according to that document. Actually, a large number of your most valuable assets are not subject to probate, meaning they may NOT pass by will. Use this checklist to keep track of specific exceptions to your will.

Do you…

  • Own any bank accounts, mutual funds, or brokerage accounts in joint name with someone else?

-If yes, the joint account owner will automatically own the assets upon your death (in most cases). Also, in most states, you can designate an individual account to be “Payable On Death” (POD) or “Transfer On Death”(TOD) to a named beneficiary for the same result and the account will “skip” your will (and probate).

  • Own real estate with another person?

-If yes, real estate owned as joint ownership with rights of survivorship also does not pass by your will but goes directly to the other joint owner automatically.

  • Have insurance policies, annuity contracts, employer retirement plans and/or IRA’s?

-If yes, keep your beneficiaries updated.  All of these account types require you to name who will receive the account or policy value upon your death.  If you fail to name a beneficiary or all beneficiaries have died before you, the account will be payable to your estate.

  • Have a trust?

-If yes, your trust will determine how the trust property is distributed to beneficiaries, but only if you take the necessary steps to re-title accounts and other assets to the trust.  Failure to change the title to the name of your trust will cause them to pass by other means, regardless of what the trust says.

All of these exceptions pass directly to the person named, and not by your will. It is extremely important to keep your beneficiary designations up to date – it is not uncommon for older life insurance policies and previous employer retirement plans to be paid out to ex-spouses or other unintentional parties. Updating your will does not fix these accounts, since they are not subject to your will.

Step 3: Evaluate your insurance coverage

Whether your income stops due to death or disability, the effect on your family is the same. Where will the money come from to replace your paycheck? Insurance may be your best option. Without it, your family may need to sell assets, move to a less expensive home and/or disrupt college and retirement plans.

  • Life insurance. Use this calculator to get an idea of how much insurance you need to have in place. Once you decide on the right amount for you, be sure to find out what benefits you have through work first. Sometimes, you can get all of the life insurance you need there at the most affordable rates, but if you can’t, look into supplementing with a personal policy.
  • Disability insurance. This is your paycheck insurance – should something happen that keeps you from being able to work, this insurance kicks in to replace some of that until you’re able to work again. Statistically speaking, this is the insurance you’re more likely to use during your working years. First, confirm any coverage you have through work and find out if you can add to it, if necessary — most group plans are broken into Short-Term and Long-Term and often have lower premiums than individual policies. It’s important to know that most policies only provide 60 – 70% replacement income, so should you become disabled, you’ll still have a drop in income. Use this calculator to see if you need to purchase coverage beyond what you have through work.

Step 4: Check your powers of attorney

Remember that your will doesn’t take effect until you actually pass away, but what happens if you have an accident or are otherwise unable to make financial or healthcare decisions for yourself? You can designate someone else to make these decisions for you using the following important documents:

Advanced Directives – There are two types of documents, called advance directives, that can be prepared as part of your estate planning for future medical decisions.

  • Living Wills – If you have strong feelings about what type of medical care you want (or don’t want!) and you are unable to communicate, a living will can do it for you. This is a document that you can use to state under what circumstances you wish to be kept alive by artificial means. If you do not express your views in writing, all available means of treatment to maintain your life are usually provided, even if family members object. Therefore, if there are conditions where you would not want treatment, it is important that you state your wishes while you are able to do so.
  • Medical Power of Attorney – While the title and wording of this document may vary from state to state, most states permit a document that enables you to select someone to make medical decisions on your behalf. This power can only be exercised when you are unable to communicate but is not limited to situations where you are terminally ill.

Durable Power of Attorney – There can be a number of situations where you may need someone else to make financial transactions on your behalf. Whether you’re traveling overseas, in a coma, or sequestered in a jury, a document called a durable power of attorney permits the person named as your agent to sign documents, trade securities, and sell property. You do not have to be unable to act for yourself in order for your agent to act on your behalf.

The agent does have to act in good faith, and may not abuse the power of attorney for his/her own advantage. If you sign a power of attorney that is not specifically durable, the power is revoked upon your disability or inability to communicate. With a durable power of attorney, your agent can make the necessary transactions in order to pay your medical bills or make sure your family has the money they need.

Living Trust – Another method is to place your assets in a living trust. Don’t confuse this with the living will described above. Although they sound similar, they are very different. A trust is simply an arrangement that provides for a third party to manage your assets for a beneficiary, upon your death. A living trust allows you to start a similar arrangement while you are still alive. You can be your own trustee, and simply name a successor trustee to take over upon your death or disability. A living trust is a more expensive estate planning tool than a durable power of attorney, but it can also be customized to your specific needs. It is particularly useful for more complicated situations such as second families or people who own property in multiple states.

Step 5: Monitor your estate plan

Things change. That’s why you should review your estate plan whenever a life event occurs for you and your family. Even if it seems like nothing’s changed, you should review your estate plan every few years at a minimum. A good rule of thumb is that you should update your will any time someone enters or leaves your life (aka birth, marriage, divorce, death)

Documents to review

  • Your will and any trusts
  • Powers of attorney
  • Beneficiary designations on employer-sponsored retirement plans (401(k), 403(b), 457, etc), IRAs, life insurance policies, annuities, HSAs

An estate plan, like a financial plan, is always evolving as your life changes. It can be easy to delay making an estate plan because there are several important decisions you must make, but don’t fall victim to analysis paralysis. You can always change your documents as long as you’re still of sound mind, so choose what works for your life today, and then make updates as things change. Also, be sure to check with legal benefits offered by your employer to help with the estate planning process. 

The Important Questions Everyone Should Be Answering

October 30, 2017

It’s been a sad week in my neighborhood. One of our neighbors just down the street, a father and husband, was in a freak accident in his yard and was killed last Saturday. He was probably in his mid-40’s; much too young to die. I saw his widow a couple days ago, who is obviously still in shock, and her comment was, “he was supposed to be here,” and she is right.

Asking the tough questions

I am surprised by the effect that it has had on my husband and me. There are no guarantees that either of us will still be here tomorrow and this really drove it home for us. We found ourselves grappling with several big questions.

  • How would one of us handle the kids without the other there to help?
  • Would we move? Where to?
  • Do we really have adequate life insurance in place?
  • Where and how do we want to be buried?
  • What would have to be done with our financial accounts to change the ownership?
  • How would we make the immediate post-death decisions; on our own or would we be pressured by family members to do things a certain way?
  • Whose feelings are more important, the widow/er’s or the mom’s?

These are all loaded questions and not fun to hash out, but that’s what you have to do when making your estate plan. Many of us take a gamble that it will never happen, so why bother until we’re older? When does “older” get here?

The time is now

I challenge you, by the end of this year, to sit down on your own or with your spouse if you are married, and review all of these questions and figure out the answers. If it means digging out your old estate planning documents, then do that. If it means, creating new ones, do it. If it means talking to your bank and making sure you have beneficiaries on all accounts, make it happen. If you don’t know if you have enough life insurance, find out.

Even if you don’t end up using any of these plans, you benefit just by having the conversation. I know it’s helped my husband and I to clear up a few loose ends. Make it happen.

And, stay safe out there everybody, it’s a crazy world.

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What Happened When My Aunt Died With No Estate Plan (It Wasn’t Good)

September 29, 2017

When it comes to financial planning, any planner worth their salt will tell you that having the proper estate planning documents in place is essential to a complete plan, and yet so many people are still resistant to getting that step done. They wonder, isn’t estate planning for old people or the very rich? Why is estate planning so important?

A real-life example of the importance

Several years ago, the answer to that question became very clear to me when my aunt got sick, was incapacitated in the hospital, and subsequently died. She was a very smart woman who had a PhD and was dean of her college. She knew a lot about investments as I remember listening to her talk around my grandmother’s dining room table about various stocks she had in her portfolio. She was what most people would consider financially sophisticated.

But her lack of planning in one critical area left a hole that caused difficulties, was expensive and could have easily been avoided. Here are the critical estate planning steps that she missed, that everyone should take today, while they’re healthy and able:

1. Create or update your Last Will and Testament. This is your chance to direct assets that will go through the probate process to your preferred destinations after you’re gone. And if you have children, this is the only place to name guardians who will take care of your most precious assets, your kids.

My aunt had no will, to there was no clear indication where she wanted her property to go. So, it was distributed according to the laws of Tennessee, where she lived.

Each state is different in how they distribute the estates of those without a will, so just know that if you pass without a will, someone you’d rather not receive your money may end up with it anyway. Check with your employer to see if they offer a legal benefit that includes free will and estate planning document preparation — many do.

2. Update your beneficiary designations. These are found on any financial accounts that have a direct beneficiary, such as your 401(k), 403(b), IRA, HSA, life insurance policies, and annuity contracts.

My aunt had not completed any beneficiary designation forms which meant assets flowed through the probate estate. There can be two problems with a situation like this.

  • Estate assets pass according to the will but remember– if there is no will then it passes according to state law and perhaps not to the preferred destination.
  • It is especially important for retirement accounts to have a beneficiary designation so beneficiaries can stretch out required distributions over their lifetime. If no beneficiary is named, distributions may be required over a mandatory 5-year period which could lead to increased income taxes for the heirs.

3. Create or update a Healthcare Directive. This is your chance to tell healthcare providers which medical procedures you want and those you don’t want when at the end of your life (called a Living Will). This also will name someone who will make sure your health care decisions are followed (called a Healthcare Power of Attorney). Some states combine these in a single document while others keep them separate so it’s important to check what is required in your state.

My aunt also had no healthcare directive, so the days she spent incapacitated in a hospital were full of challenging and emotional decisions for the family, not knowing what healthcare treatment she preferred as her end of life neared.

4. Create or update a Durable Financial Power of Attorney. This gives a trusted family member or friend the power to manage your finances if you are unable to make decisions for yourself. This also would have been helpful so money could be moved around easily to pay household and medical bills that were stacking up while my aunt was in the hospital.

Estate planning isn’t just for people with kids and spouses

My beloved aunt was single and without children yet still needed these critical pieces of a financial plan, perhaps even more so than someone who was married. So, if you are unattached and think this doesn’t apply to you, please think again.

Estate planning is not just for our benefit but for our loved ones we leave behind to make it easier during the emotional trauma of death and the time afterwards. It’s not pleasant to think about dying but with a little bit of preparation, you can rest easier knowing your loved ones have been thought of and cared for in case something happens to you.

 

Quiz: Do You Get the Most Out of Your Benefits?

April 03, 2017

Today is Employee Benefits Day. How will you celebrate? Don’t worry. Celebrating Employee Benefits Day does not require you to make a special trip to the party store or spend a single dollar.

In fact, the best way to celebrate it is to recognize and appreciate the value of your employee benefits and to maximize them for your personal financial situation. Don’t know where to start? Take this quick quiz to test your benefits knowledge.

1) You have decided it’s time to prepare a will. Where might you most likely find links to basic estate planning tools?

a. The public library

b. Your employee assistance program (EAP)

c. Your retirement plan provider

d. The HR department

2) Next year you plan to get laser eye surgery to correct your vision. Where is the best place to save extra money pre-tax to pay for it?

a. A health savings account (HSA)

b. An employee stock purchase plan (ESPP)

c. A flexible spending account  (FSA)

d. A deferred compensation plan

3) Where you can save and invest for retirement so that the income after age 59 ½ will be tax-free?

a. Non-qualified stock options (NSOs)

b. Nowhere – there’s no such thing as tax-free retirement income

c. A cafeteria plan

d. A Roth 401(k)

4) During this year’s open enrollment, you choose a high deductible health plan (HDHP) because of the lower premiums. You have the option to save money pre-tax in an HSA to cover the deductible and a portion of out-of-pocket expenses. You should:

a. Skip the HSA. The point of choosing your health insurance was to save money.

b. Contribute no more than $1,000.

c. Contribute the maximum ($3,400 for an individual and $6,750 for a family in 2017). If you don’t need to use the money, you can roll it forward to future years.

d. Contribute no more than $1,500.

5) Taylor takes the train to work every day, Max drives and parks in the public garage and Jenna rides her bike. Who can use a pre-tax commuter benefits account offered by their employer?

a. Only Taylor. The point of pre-tax commuter benefits is to encourage employees to take public transportation.

b. Taylor and Max can contribute up to $255 per month in 2017, but not Jenna. There are no employer-sponsored bicycle benefits.

c. Everyone but contributions are from the employer only.

d. Taylor and Max can contribute up to $255 per month in 2017. Jenna can’t contribute pre-tax, but she can participate in her employer’s bicycle reimbursement program, for up to $20 per month in eligible expenses.

6) According to our recent financial wellness research, the single most important tool an employer can offer to boost employee retirement preparedness is:

a. A “bank at work” program

b. A retirement calculator

c. Incentive stock options (ISOs)

d. A target date fund

7) Which benefit replaces your income if you have an injury or illness which is not work-related?

a. Disability insurance

b. Long term care insurance

c. Workers compensation

d. Unemployment insurance

8) According to the 2016 Milliman Medical Index, what is the typical total cost for family coverage in an average employer-sponsored group health plan?

a. $25,826 for a preferred provider organization (PPO) plan

b. $6,742 for a health maintenance organization

c. $43,350 for a high deductible health plan (HDHP)

d. $15,003 for preferred provider organization (PPO)

9) Your employer will reimburse you up to $3,000 for an undergraduate course, a graduate course or a professional certification. How will the reimbursement be taxed?

a. Reimbursement for a professional certification will be taxed  but not reimbursement for college/university courses

b. Reimbursement for college/university courses will be taxed  but not reimbursement for professional certification

c. Tuition reimbursements are generally included in the employee’s taxable income

d. Tuition reimbursements of less than $5,250 are generally not included in the employee’s taxable income

10) What type of pre-tax benefit can you use to pay for after-school care expenses for your children?

a. Health savings account

b. None – after school care is not eligible for reimbursement

c. Education savings account

d. Dependent care flexible spending account

See the answers in italics below. How did you do? If you scored a 9 or higher, congratulations! Chances are that you see your employee benefits as an integral part of your overall compensation.

If you scored an 8 or lower, you may be leaving money on the table by not taking full advantage of everything your employer offers. If you have access to financial coaching via your workplace financial wellness program, consider setting up a time to talk to a planner about how you can fully maximize the value of your employee benefits. In addition, check out the blog posts for the rest of this week, which will focus on various aspects of your benefits.

Answers:  1 – b, 2 – c, 3 – d, 4 – c, 5 – d , 6 – b, 7 – a, 8 – a, 9 – d, 10 – d

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

How Charitable Contributions Can Reduce Your Estate Taxes

December 01, 2016

A few weeks ago, I wrote about whether you might have a taxable estate. If you’re unfortunate (or fortunate) enough to have an estate large enough to be subject to estate taxes, there are several ways you can reduce that liability while helping your favorite charity. Here are a couple of the most common:

Lifetime giving. If you give assets away before you die, they can reduce the total amount that you can pass on estate-tax free at death. For example, you can pass on $5.45 million (twice that as a married couple) tax-free in 2016. If you give away $1 million, your $5.45 million exemption is reduced by that $1 million to $4.45 million. Otherwise, people could easily give away their entire estate tax-free on their death bed.

There are a few exceptions to this though. One is that you can give away $14,000 per person to an unlimited number of people per year without reducing your estate tax exemption.  (You can use up to 5 years of that $14,000 exemption upfront by gifting it to a 529 education savings plan.) Another exception is for gifts made to charitable organizations. You can give an unlimited amount to charity while alive or at death without any estate or gift tax consequences.

Charitable remainder trust. A more sophisticated method is to use a type of irrevocable trust called a charitable remainder trust. In addition to reducing your estate taxes, this strategy can also reduce your income taxes and increase your after-tax investment income. That’s because you get a charitable deduction for the value of the assets donated to the trust, the trust can then sell the assets without a capital gains tax to pay you an income stream, and then the remainder is passed on to the charity estate tax-free at your death.

For example, let’s say that you have investments worth $1,000,000 that you originally purchased for $500,000. If you sold those investments and paid a 15% capital gains tax, you’d end up with $425,000 after-tax. If you earned  a 4% income from that, you’d have $17,000 of investment income.

On the other hand, if you donated the $1,000,000 of assets to a charitable remainder trust, you’d get a deduction of the $1,000,000 donation from your income taxes. At the 35% tax bracket, that would be worth $350k in tax savings (plus $38k from the net investment surtax). In addition, the trust can sell the investments without a capital gains tax and pay you a 4% income from the full $1,000,000 which would be about $40,000 per year or $23,000 more annual income than you would otherwise be getting after the capital gains tax.

The big downside is that you wouldn’t be able to pass the remainder on to your heirs. However, you can replace that inheritance by purchasing life insurance inside an irrevocable life insurance trust. Since the trust is irrevocable, the life insurance proceeds would not be part of your taxable estate.

Of course, there are other strategies to reduce your estate taxes so if you have a taxable estate, you’ll want to speak to a qualified estate planning attorney to understand all of your options. The main point is that you can do well for yourself by doing well for others. Now if only I had a taxable estate to worry about…

 

 

Do You Need a Will?

November 09, 2016

One of the five components of a complete financial plan is estate planning, the foundation of which is a last will & testament. Most people don’t really start thinking about a will until they have kids, but really, everyone should have one, even if it’s simply written on a napkin. Here’s what you need to know:

What is a will? Your will is a legal document that directs what happens to your stuff, names your executor (the person who will be in charge of making sure your stuff gets to whom you direct), and also names your preferred guardian for any minor children you leave behind.

Where can I get a will? First, check to see if your employer offers any type of legal benefit. Even small employers sometimes give you access to an online portal where you can complete a questionnaire and have a basic will created, which is how my husband and I did our first drafts just to get something on paper. Other employers offer the ability to pay a small payroll deduction for access to discount programs. Depending on the cost, it may make sense to join for one benefit year and then have your key estate planning documents drafted to get the full value.

You can also draft and print a will online through a couple of different services like Nolo or Legal Zoom. My first will was done this way and while an attorney reviews your document to ensure it complies with your state’s laws, it’s easy to mess up. I had just moved and put the wrong county of residence on mine, an error I didn’t know I’d made until it was too late to change it. I’m lucky that I don’t know if it would have made a difference, but that’s the big pitfall of the DIY will. A lawyer checks that it complies with legal standards, but would not be able to verify its correctness.

For people who own businesses, have blended families or even just a notable amount of wealth amassed, hiring an estate planning attorney is usually worth the additional cost to make sure the nuances that come along with more complex lives are properly addressed according to your wishes. My husband and I recently signed new wills with an attorney. She not only made sure our plan coordinated with our various savings and distribution wishes, but pointed out provisions we hadn’t thought of such as including money for our future children’s potential guardian to expand her home if needed to accommodate the added family members or allocating money for our future kids to travel to visit other family members like their aunts and uncles. Most lawyers charge a flat fee for this service, ranging from hundreds to thousands of dollars, depending on where you live and what other documents you also need drafted.

What makes a will valid? Each state has laws that dictate the rules. Yes, you can write your wishes on a cocktail napkin, but you have to sign it and many states require you to have two non-named witnesses also sign that you were the person that signed it.

This was actually a bit of a comical complicating factor in the signing of our wills. My husband and I had trouble finding a time when we were both available at the same time as our attorney when we could also have two non-named witnesses present. We finally met our attorney at my local health club where we asked other gym members to witness as we signed! A bit goofy, but it got the job done. A more common place to find witnesses is your local bank.

Me actually signing my will
Me actually signing my will

What happens if I don’t have a will when I die? Dying without a will is called dying “intestate,” and your estate is distributed according to your state’s laws. If you’re married, at least part of your estate will go to your spouse in all states. But if you’re not or heaven forbid, you both die at the same time, then the laws vary from state to state. In Illinois where I live, a person who is not married with no children would have their estate split equally between surviving parents and siblings.

I had a college friend whose live-in boyfriend died tragically in his 20’s. His parents weren’t fans of their living arrangement, so she was completely cut out of the funeral arrangements and of course, left high and dry when it came to his stuff. He owned the house they lived in, so she was suddenly homeless too. No one likes to think about dying too young, but a will would have at least made sure she could keep some physical mementos of his.

Can I change it? Yes, and that is an important point to remember. You want to draft your will for how your life is today. Then as life happens, you can always update your will for your new circumstances. Key events that should cause you to make an update would include marriage or divorce, birth or death of a named beneficiary or even a falling out with one of the administrators of your estate like your executor or guardian.

The bottom line is that life can get complicated very quickly, and dying without a will leaves the settlement of your estate to the county probate court where you live. You probably don’t want them making critical decisions for your loved ones. Do your family a favor and put your wishes in writing just to be sure.

 

 

The Parents’ Guide to Making a Will

October 31, 2016

Are you raising one of America’s 73.6 million children? If yes, do you have a will? If you don’t have one, you urgently need one. Don’t wait. A will, with a provision which names the person who should be the guardian of your children if you die, is the most important step in making sure your kids are raised by the people you would want to raise them.

What happens if you don’t have a will?

It’s not fun for any of us to think about what would happen if we died unexpectedly. That probably won’t happen, so you might be tempted to put it off thinking it’s silly to prepare for a worst case scenario. The problem is, if you die without a will which names a guardian for your children and specifies what funds are available to care for them, you have zero control over who raises your kids and how much money remains for their support. Your state’s courts, with government social services, is going to decide what happens to your kids, who raises them and how your money is divided up.

You need a will even if your spouse remains to take care of your children. If you die without a valid will, the courts will decide what happens to your assets according to a preset formula (e.g., some to the surviving spouse, some to the kids). Your spouse may not have full access or control over the money allocated to the children.

Don’t feel sheepish about not putting one together yet. According to a Caring.com survey, nearly half of American parents don’t have a will or living trust. Here’s how not to be one of them.

Make three decisions

Once you’ve decided you are going to make a will, it’s relatively straightforward to get started. You’ll need to make three critical decisions before you write anything up:

Name a guardian. Who is the best person to take care of your children until they are adults in the unlikely event that you are no longer living? Does that person share your values? Do they share your beliefs about parenting? Do they love your children?

FYI, in most cases where parents are divorced or unmarried, the default would be for the children to stay with the surviving biological parent, so if you have an objection to that, you’ll need to put that in writing. Choose your first and second choices for a personal guardian to include in your will. You’ll want to name a legal adult who has the time, energy and willingness to raise your children if needed. Before naming a personal guardian, make sure you’ve asked that person and they have agreed to accept the responsibility if needed.

Decide what happens to your money and stuff. Any assets that do not automatically pass according to their title or beneficiary (called “beneficiary of law,” such as property held as joint tenants with right of survivorship,  retirement accounts or life insurance) are included in this category. Make sure you fully designate what happens to your property, bank accounts and investments.

Minor children won’t be able to manage that money for themselves, and you may not want them to have full access to it until they are well established adults. Who will control the checkbook? Decide if that’s an individual – it could be a different person than the guardian if you prefer –  or a trust company.

Name an executor. An executor is a person named in your will (or appointed by the court if you die without a will) whose job is to carry out the instructions in your will. The executor takes care of your last financial business such as paying taxes/bills and re-titling property according to your will. Don’t forget to include a digital executor to control your online and social media accounts, who may or may not be the same as your financial executor. As with a guardian, make sure your executor is someone who is willing and capable to take on that kind of big responsibility.

Prepare your will

Once you’ve made the big three decisions, you’re ready to write your will. Here are some options for preparing a valid one:

Use an attorney. The biggest advantage to using an attorney to prepare a will is that — if you pick a qualified estate planning attorney – you can be more confident that it conforms to the laws of your state. The downside is that it’s more expensive. Check your employee benefits. You may have access to a prepaid legal program as a voluntary benefit or access to lower cost resources through your employee assistance program (EAP). The American Bar Association also offers an online state by state guide to wills and estates.

Use an online legal resource. If you need a basic will without a lot of personalization, an online resource may be a fit for your situation. Check with your EAP to see if you have access to any free or low cost will preparation services. There are also online will preparation sites such as Nolo.com and Legalzoom.com where you can make a will for a reasonable price.

Communicate your plans

Finally, a will won’t help if no one knows you have one. Let a few trusted people, such as a sibling, parent or close friend, know that you’ve prepared a will, and where they can find it if it’s needed. Make sure your executor knows how to access your will and has contact information where needed.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

How Can You Avoid Probate in Your State?

October 27, 2016

One of the most common estate planning goals is to avoid probate, which is the process by which the court processes your estate. That’s because probate is public, can cost thousands of dollars, and can take months of time before your heirs inherit your property. Contrary to popular belief, having a will does NOT avoid probate. Having a living trust can help you avoid probate in most states, but these can thousands of dollars for an estate planning attorney to draft. Here are some lower cost way to avoid probate that may be available in your state:

Titling assets jointly with rights of survivorship: When you pass away, these assets will immediately pass on to the joint owner. However, be aware that this is essentially a gift to the joint owner, which means they (and their creditors) will have full legal access to it. In addition, the asset will go through probate when the joint owner eventually passes away as well.

Adding beneficiaries by contract: When you have a living beneficiary on a retirement account, life insurance policy, annuity, 529 or Coverdell education savings account, or health savings account, those assets will not go through probate. Unlike with joint ownership, the beneficiaries do not own the account until you pass away and you can designate contingent beneficiaries in case the beneficiary passes before or at the same time as you. In some cases, the beneficiary can also continue the tax benefits of these accounts. The downside is that this option is not applicable to other types of assets.

POD or TOD: By adding a “payable on death” (POD) designation on a bank account or a “transfer on death” (TOD) designation to an investment account, you can avoid probate on these assets as well. Some states will even allow you to add a TOD designation to a vehicle registration and to real estate (often known as a beneficiary deed). However, many institutions may charge a nominal fee or not even allow it at all. This also can’t be used for most tangible possessions like furniture, jewelry, artwork, etc. For those, you might need a trust.

Your choice isn’t just between paying thousands of dollars for a living trust or allowing your estate to go through probate. Check to see what other options are available in your state. It may not benefit you now, but your heirs will thank you.

 

 

 

How to Find a Good Estate Planning Attorney

October 20, 2016

We help people with a lot of different issues at Financial Finesse, but one thing we can’t do is draft estate planning documents. So despite all those lawyer jokes we love, we do need them from time to time. But where and how can you find a good estate planning attorney?

First, make sure you hire an actual estate planning attorney. Estate planning is a specialized field that requires specific initial and ongoing education. A criminal defense lawyer who does some estate planning “on the side” may not be your best bet even if they’re your second cousin.

One place to start is with your workplace. See if your employer offers discounted legal services through either a pre-paid plan or an EAP (employee assistance program). While pre-paid plans are by definition, something you have to pay for, they can save you more in legal fees than they cost in membership fees. You can always choose not to renew after your estate planning is complete.

Another option is to ask family members, friends, and other professionals you work with for recommendations. Lawyers that you or someone else knows can be useful even if they practice in a different area because they tend to know other lawyers and which ones are most reputable. The same can be said for CPAs and financial advisers. After all, much of their professional success depends on building these relationships as a lot of their business comes from referrals.

You can also try your state or local bar association’s lawyer referral service for estate planning attorneys. You can find your local chapter’s site through the American Bar Association’s national Lawyer Referral Directory. There are also national estate planning organizations like the National Association of Estate Planners and Councils, The American College of Trust and Estate Counsel, the American Academy of Estate Planning Attorneys, the National Network of Estate Planning Attorneys, and the American Association of Trusts, Estates and Elder Law Attorneys.

Once you’ve found some prospects, don’t just hire one because they happen to be first on the list. Choosing the wrong attorney can end up costing you a lot of time and money so you’ll want to interview at least three. You might also want to check your state bar’s website to see if any disciplinary actions have been placed against them. Then you might want to ask some questions:

Who exactly will I be working with? You don’t want to find an attorney you really like only to discover that you’re handed off to a junior associate who you don’t like so much.

What are your credentials? Every attorney admitted to the bar in your state is technically qualified to practice law, but some have also obtained an estate planning specialization, a credential like the AEP (Accredited Estate Planner) designation or an LLM (Master of Laws) in an area like tax or estate planning.

How much experience do you have working with clients like me in similar situations? You don’t necessarily want to be the first person they’ve drafted this type of document for. See if you can talk to some of them.

How would you be paid? Whether you’re paying a fixed fee or an hourly rate, you’ll want some idea of what this would cost you and whether it’s worth it.

Do you have any questions for me? A good attorney will be focused on your situation and needs rather than theirs.

Finally, you’ll want to work with someone you like and trust so don’t discount the importance of personality and personal chemistry. In any case, I hope these tips help you choose a good attorney. The last thing you need is another reason for bad lawyer jokes.

 

Want more info on this or other financial topics? If you have a question you’d like answered on this blog, feel free to email me. You can also receive my future posts by following me on Twitter and/or subscribing to my posts on the blog home page.

 

The DIY Financial Checkup

August 08, 2016

When is the last time you had a financial checkup? Just like physical exams, regular financial exams lead to better overall financial health. While you can’t give yourself a thorough doctor’s exam, you can give yourself a comprehensive financial checkup with today’s abundance of useful online financial planning tools.

The first step in your diagnosis is to get all your important information organized in a central place. Some of this may be in paper form and some of it online. Gather these resources in advance so you have them on hand:

-your employee benefits such as retirement accounts, health/dental/vision insurance, disability insurance, HSA account, flexible spending accounts, commuter accounts, etc.

-the last month’s bank and brokerage account statements, including taxable accounts, IRAs and annuities

-a recent paycheck and your W4 (YTD cash flow statement if you are self-employed)

-estate planning documents, e.g., will, trust, power of attorney, healthcare directive

-additional insurance policies, e.g., homeowner’s, auto, umbrella liability, life, disability

-mortgage statement

-credit card statements, student loans, car loans, etc.

-financial plan, if you have one

-your budget, if you have one

What’s your financial position?

Pull together a summary of everything you own and everything you owe. (Download an easy net worth and budget worksheet here.) Subtract what you owe from what you own. That’s called your “net worth.”

Is your net worth positive or negative? Has it increased or decreased since the last time you calculated it and by what percentage? As my fellow planner Kelley Long says, “Your net worth is the ultimate measure of your ability to weather financial storms and maintain financial choices in life. The higher your net worth, the more financial freedom you can afford.”

Next, calculate your debt to income ratio by dividing your monthly gross pay by your total monthly recurring debt payments (mortgage, credit cards, student loans, car loans, etc.) The lower your debt to income ratio is, the better your financial position. FYI, mortgage lenders often look for a total debt to income ratio of no more than 36% of gross income.

Do you have sufficient cash reserves?

According to our 2016 Financial Stress Research, good cash management is the biggest differentiator between those workers who have no financial stress and those who have overwhelming financial stress. The foundation of cash management is a solid emergency fund to deal with inevitable unexpected events that happen to all of us. While the common guidance is to have at least three to six months in living expenses in savings or money market funds, it’s also important to make sure you have enough additional cash on hand to handle health, auto and property insurance deductibles as well as home and auto repairs. Bankrate.com has a helpful emergency savings calculator to figure out exactly how much you should keep in liquid savings. If your emergency fund could use some work, use this daily savings calculator to figure out how small savings, like $5 or $10 per day, can add up to a big cash cushion over time.

Could you survive a financial earthquake?

The purpose of insurance is to protect you and your family against catastrophic loss. The big idea behind insurance is that people pool their risks of catastrophic events. If you do suffer a loss and are adequately insured against it, you can be restored to your financial position before the loss. Do you have the insurance you need? Here are some guidelines for determining if you are sufficiently covered:

Health insurance – Everyone needs it, no excuses. If you don’t have health insurance, get it right away.

Disability income insurance – How would you pay the bills if you couldn’t work due to injury or illness? Many employers offer short and long term disability insurance. Make sure you take advantage of them during your next open enrollment period. This is particularly important if you are single or if you are the sole breadwinner in the family. To determine how much coverage you need and whether a supplemental policy is in order, use this calculator.

Life insurance – If someone else depends on your income for their living expenses, you need life insurance. There are different methods for determining how much insurance is ideal. For most people, the less expensive term insurance meets their needs. Use this calculator or download this worksheet to see if your coverage fits your situation. Subtract the coverage provided by your employer to determine what you need to purchase on your own.

Homeowner’s insurance – Per the Wall Street Journal, your homeowner’s insurance should provide enough to rebuild and furnish your home if it were wiped off the map. Does your policy reflect the current value of your home, any improvements you have made to it plus the cost to replace its contents? Basic homeowner’s policies do not cover you for things like floods and earthquakes. If those are common in your region, you may need to add specific coverage.

Renter’s insurance – Not a homeowner? When I was a young professional in Washington, D.C., my apartment was burglarized twice. Only then did I purchase renter’s insurance. Renter’s insurance covers the value of the stuff in your apartment that belongs to you like furniture, clothing and electronics. If the value of all those items exceeds the insurance deductible, consider renter’s insurance to cover your valuables.

Umbrella liability insurance – According to fellow planner Scott Spann, most people facing a judgment from civil litigation probably assume that their homeowner’s or auto policy would cover them. Low cost umbrella liability coverage provides an additional layer of protection in the case of a civil lawsuit. Consider policy coverage that is at least twice your net worth – more if you are a high earner.

Are you on track to replace 80% of your income in retirement?

Running a retirement calculator is like stepping on a scale. It is best done regularly in order to compare your results to your goal. Download our easy to use retirement estimator here.

While you may have run retirement estimates before, results can change depending on economic conditions. Review and update your assumptions about your savings rate, inflation and rate of return. For example, a recent report from McKinsey and Company suggests that investors may need to lower their sights, projecting that U.S. stock market returns over the next two decades could be between 4 and 6.5% annually.

If you’re not on track, what can you do to increase your retirement savings? Can you increase your contributions to a 401(k) or other employer-sponsored plan? Sign up for the contribution rate escalator. Contribute to a Roth or traditional IRA. According to our CEO, Liz Davidson, you can set yourself up for success by automating a process that would otherwise require a lot of effort and sacrifice.

How are you handling your taxes?

Did you get a big refund or owe a large sum on your most recent tax return? It may be time to adjust your withholding. This IRS withholding calculator can help you figure out the right number of allowances to claim.  Additionally, are you taking full advantage of tax-deferred retirement accounts, your health savings account, and flexible spending accounts? Make a list of what you need to change during your next open enrollment period.

Do your investments fit your situation?

Do you have a written plan to guide your investing decisions? If not, consider putting together an investment policy statement using this easy guide. Start by updating your risk tolerance by downloading this worksheet.

Has anything changed with your willingness or ability to take investment risk, your time horizon or your required rate of return? What about your inflation expectations or the kind of investments you are willing to make? Evaluate your current portfolio to see if it meets your updated goals and make changes if it doesn’t.

How much do your investments cost you in fees? Calculate your fees both as a flat dollar amount and as a percentage of your portfolio. Do you think you are getting your money’s worth?

Hint: if they are higher than 1%, consider changing brokerage firms or moving to lower fee alternatives such as index funds. Thinking about doing it yourself? Check out this blog post from fellow planner Erik Carter on how to save and invest on your own without getting eaten alive.

What happens to all this when you die?

Has anything changed since you first put together your estate plan? Take a look at all your retirement accounts and insurance policies and make sure your beneficiary designations reflect your current situation. Second, review your will and other estate planning documents such as a living trust, durable power of attorney, healthcare directive and guardianship provisions. Are the documents current and reflective of your wishes? What needs to be brought up-to-date?

Don’t have an estate plan? Follow these simple seven steps. Even if you do have a current estate plan, you may still need to develop a digital estate plan to express your wishes about what happens to your digital life.

Did you give yourself a financial checkup? How did it work out? Let me know by emailing me at [email protected]

Financial Planning Tips for New Stepparents

August 01, 2016

Do you have stepchildren?  If so, you’re not alone. According to the Pew Research Trust, more than four in ten Americans have at least one step-relative in their family.

Recently several of my fellow planners and I who are stepparents were talking about financial planning and step-families. One thing was clear: we love our stepchildren and can’t imagine life without them! We also agreed that getting married to someone who has children from a previous marriage requires a certain money mind shift. What should stepparents expect? How can new partners set themselves up for a harmonious and prosperous financial relationship?

Full Financial Disclosure

A Money magazine poll found 80% of married couples with children under 18 argue about money. Take this very seriously. Frequent arguments about money are a top predictor of divorce.

This can get even more complicated when there are factors such as child support, alimony, or divorce-related credit issues that accompany one or both spouses into remarriage. Accept upfront that this will add a level of complexity to the financial side of your relationship. Set some parameters during your engagement for how you will communicate about money and make financial decisions.

One of the best ways to head off financial discord is for each partner to lay all their financial cards on the table before tying the knot. Have a “full financial disclosure policy” in your relationship, which includes sharing and discussing what you own, what you owe, your credit reports, any ongoing financial obligations and any pending legal or financial problems – before you get married. To minimize conflict, fellow planner Kelley Long suggests couples set up a money meeting to explore each other’s beliefs and attitudes about money and how you’ll communicate about them when you disagree.

Managing Combined Cash Flow

Discuss in advance how you’ll pay for ongoing living expenses. An easy way to handle this is the “yours, mine and ours” method of budgeting. Make a spending plan for all your anticipated joint expenses such as housing, transportation, insurance, food, vacations, etc.

Decide how much each spouse will contribute from their income, net of retirement savings, to a joint account to cover joint expenditures. You keep what’s leftover in your individual accounts to handle as desired. If there are big disparities in income, consider having each spouse contribute proportionate to their income.  .

They’re Your Kids Now Too

If only one spouse has obligations from a previous marriage, this can be a trouble spot, so work out in advance whether you agree that child support, tuition and other kid-related expenses are part of your couple budget or the biological parent’s individual budget. I favor the first approach. In my relationship, we’ve always agreed that all child-related expenses for all the children are part of our joint budget and we discuss them like any other financial decision.

Fellow planner and stepparent Tania Brown agrees. “When you marry, it’s not his or her child’s expenses. It’s both of your expenses. Although blended you are one family.”

“Consider each child in your household, regardless of who the actual parent is, as YOUR CHILD,” counsels fellow planner Paul Wannemacher. “Do all you can to treat each child equally as possible and love them as your own. Financial considerations should never, ever be the determining factor affecting that love and commitment.”

Create a New Financial Plan

Going through the financial planning process together will help you and your new spouse reach consensus on your goals and how you will work to achieve them. The financial planning process allows you to identify financial priorities such as saving for retirement, buying a new home, paying for college or helping an aging parent, as well as steps you can take to get there. Retirement and college goals often look very different after going through divorce and remarriage. A CERTIFIED FINANCIAL PLANNER™ professional can broach difficult topics, facilitate discussions and help you reach agreement on a unified vision for your financial health as a blended family.

Redo Your Estate Plan

Our director of planner operations, Linda Robertson, encourages new stepparents to update their estate plans. New spouses should update wills, beneficiaries and trusts as many concerns can be addressed through good estate planning. She proposed that couples in good health consider life insurance to even out estate planning needs between children. “A spouse who is the joint owner or primary beneficiary on most of the marital assets could set their partner up with a decent life insurance policy that is split between his/her children so they don’t feel as if the stepparent is taking everything if their parent passes away first” said Robertson. Stepparents could also consider adding stepchildren as the contingent beneficiaries on their retirement accounts.

Keep Separate Assets Separate

Whether or not you have a pre-nuptial agreement, consider keeping assets you each acquired before your marriage in separate accounts. This is particularly important where there is divorce-related conflict with an ex-spouse. For the stepparent, this helps safeguard your separate property from inadvertent loss in case of a legal dispute arising from your partner’s previous divorce

How about you? Do you have any other financial planning tips for stepparents? Please share them via email at [email protected] or tweet me @cynthiameyer_FF.

 

Who Would You Trust With Your Money?

July 20, 2016

Would you hand a loaded weapon to someone you just met? No matter where you side on the gun debate, probably 99.99% of people would emphatically say “no!” Yet we are often asked to sign a power of attorney (POA), a document giving the power to make financial decisions on your behalf to people that you just met, and probably a lot more than 0.01% of us say, “yes” to that. Perhaps sometimes we should think twice about this.

I’m not saying that powers of attorney are a bad thing. It just means that financially speaking, they are like a loaded weapon. In the hands of someone with lots of training and experience and who you trust, they can be a lifesaver, but in the wrong hands, they can have disastrous results. So how can you make sure that you handle your POA properly?

First, decide if this is going to be a permanent agreement or conditional on certain things happening. A permanent POA is called a durable power of attorney and lasts until you revoke it. My wife of 23 years has my durable financial power of attorney because I trust her completely, and I travel a lot so I could be gone when an important document needs to be signed. That said, in today’s world of e-signatures, the “travel a lot” reason becomes less and less compelling. Because this kind of POA is the most powerful, it should also be used with the most caution.

A POA that kicks in based on certain conditions is called a springing power of attorney. This is often used in case you are ill or injured and unable to make decisions for yourself. A springing POA gives someone the ability to make those decisions instead of the probate court so it is a very important thing to have. Just remember that even though this POA is far less likely to be used, it still has the same power if it kicks in, so be sure to choose your POA wisely.

In terms of how to choose someone, it comes down to competence and confidence. Does this person have the education and experience to do the job AND do I trust them to look out for my interests and no one else’s, especially their own? You may choose your spouse or a close/trusted friend or family member, although these choices may change as you age. Just make sure that you let them know who your experts are – financial advisor, CPA, attorney – and vice versa. This way, they at least know where you prefer to get your expertise.

In some cases, you may need to give those experts a POA. This could be the case when it comes to a CPA who has to defend you from an IRS audit. That makes sense.

Again, just make sure that you have vetted this person. To properly vet them, you should probably interview 3 possible candidates for the job to see if your gut says that you trust them, but more importantly, you should check with the organization that gives them their credentials and with regulatory agencies to look for complaints before you give them a POA. If you have access to a service that does background checks, that would be ideal.

Financial advisors often get a limited POA to make investment decisions on your behalf if they manage your assets. This can be a good thing if it allows them to sell a stock about to tank while you are on a beach vacation, but make sure that it is very limited. Have an attorney review any limited POA or agreement giving an investment advisor “discretion” over your account.

Most of the time these are straightforward. You hired them to make the decisions on the investment choices within your risk tolerance, and this lets them do that. Beware, however, of an investing POA that allows them to invest in things like limited partnerships, LLCs, closely held companies, or basically anything that isn’t publicly traded. That is a big red flag and has often led to fraud.

Now you’ve had your “course in POA safety.” You should be ready to confidently appoint the right person to take your financial life in their hands. Who will you choose?

Want more helpful financial guidance, delivered every day? Sign up to receive the Financial Finesse Tip of the Day, written by financial planners who work with people like you every day. No sales pitch EVER (being unbiased is the foundation of what we do), just the best our awesome planners have to offer. Click here to join.

 

A Basic Estate Plan in 7 Simple Steps

July 15, 2016

What does your current estate plan look like today?  If you said you don’t have an estate plan, you’re not alone. LexisNexis says that 55% of adults in the U.S. don’t have a will in place, but you’re also probably wrong. Here’s why: the state you call home has a plan for your estate if you die without a will, trust, or other legal documents.

If your line of thinking about your estate is “What estate??? I don’t have anything left after my bills are paid” or “I’m single with no kids” or “I’m young and just getting started in my career,” understand that everyone has an estate (regardless of wealth) and should have an estate plan to make sure your individual, family, and financial goals are met. There are a few simple steps that can help you maintain control and protect the people (and organizations) that matter most to you. Here is a simple estate planning “to do” list to get you started:

Step 1: Set goals that matter to you. What do you want your estate plan to accomplish? Are you concerned about choosing a guardian for your children or protecting your kids’ inheritance from your spouse’s next spouse (remarriage happens!) after you’re gone?  Is charitable giving in your future plans? Give your estate plan more purpose and meaning by asking yourself these questions and writing down a list of the things that are most important to you!

Step 2: Evaluate your financial situation. Start by completing a net worth statement that includes a list of your assets and liabilities.  Once you’ve compiled a list of your financial resources, you are in a better position to determine who should receive your assets after you pass away. This step also involves reviewing your life insurance to cover your family’s needs for income, education costs and estate expenses. Reviewing disability insurance is just as important because it provides income protection for you and your family during your lifetime. For more information on life and disability insurance coverage, including needs calculators, visit LifeHappens.org.

Step 3: Have basic documents created. Here is a list of important documents that should be part of almost every estate plan:

  • Will
  • Advanced healthcare directive (living wills)
  • Medical power of attorney
  • Durable power of attorney

This is where your estate plan gets really personal. These important documents help you state your wishes for how to distribute assets when you die, name guardians for your children, and nominate someone to speak on your behalf if you can’t in a medical emergency. Get them done before you need them because by then, it will be too late.

Step 4: Update your beneficiary designations and title assets appropriately. Many people think that once a will has been created their estate planning work is done. That’s far from the truth, especially considering the fact that your will controls ONLY the distribution of assets that are subject to probate (the formal process of paying off debts and distributing property through the courts).

Not everything transfers through probate though. Any account with beneficiary designations such as insurance policies, retirement plans, IRAs, and annuities won’t go through probate. Any jointly owned property or accounts bypass probate as well as accounts designated as payable on death (POD) or transfer on death (TOD).

Step 5: Get organized. Have you ever been late for something and spent time frantically searching your house for your keys, only to find them in your hand? Not fun! Imagine searching for a family member’s bank account information, investment and retirement account statements, will, or key to a safe deposit box without any instructions or guidance during a time of grief.

It always makes sense to get your financial affairs organized. It’s also important to keep a list of online account passwords and digital assets in a convenient location for loved ones to access just in case something happens to you. I have a red folder in my desk labeled “When I’m Gone” with that list, and my kids and a few friends know where it is. Here’s a quick resource for what to consider about your online presence as it relates to your estate plan.

Step 6:  Communicate your plans to those involved in it. Discussing your intentions in advance can help avoid family conflicts and also minimize the potential for any confusion or questions regarding your true intentions. If you have a plan in place but nobody is aware of it, then your wishes may be ignored. If your plan is in place but no one knows about it, is it really a plan?

Step 7:  Review your plan regularly and as major life events occur. Life will undoubtedly throw a curve ball or two our way so it’s essential to review and adapt your plans periodically. Some situations that may require updates to your estate plan include marriage, the birth of a child (or grandchild), disability, the loss of a loved one, divorce, a financial windfall, or the creation or dissolution of a family business. If any of those life events occur, be sure to break out your documents, give them a quick read and highlight areas where a change is needed.

Let’s be honest. Estate planning isn’t always the most exciting topic (it’s quite morbid actually), but it is an important aspect of every personal financial plan. Be sure to personalize your goals and take action NOW so that you have a basic plan, at a minimum, to protect your family and people you care about the most. Some of these other steps are just good solid financial behaviors (not just for estate planning) to allow you to take control of your financial life.

 

Why I Left My Estate Planning to a Professional

July 08, 2016

Just a few days ago, we celebrated Independence Day by doing the traditional American thing – ate, drank and watched fireworks.  Fireworks are fun to watch and the 4th of July is always a great holiday as far as I’m concerned. Most years, I get to either be on a boat or near a marina and we watch fireworks over the water. There are usually two or three displays going on within minutes of each other, so the whole sky is lighting up, and it’s awesome to have some patriotic music playing from the speakers while enjoying the night sky lighting up. Family, friends, food, fireworks – a lot of good F words on the Fourth.

But all is not perfect even in the midst of celebrations. Last year, there were two NFL players who suffered significant injuries related to fireworks on the 4th.  Jason Pierre Paul of the New York Giants lost a portion of his hand in a grizzly accident and CJ Wilson of the Tampa Bay Buccaneers lost two fingers in a similar incident. Too many people are getting injured in at-home fireworks displays.

Not only are they getting hurt physically, financially, it’s a very expensive holiday! Americans will spend $800 million dollars this year. This is up almost $50 million from last year.

So let me wrap my head around this. Fireworks are expensive to shoot off at home (not to mention annoying to the neighbors who aren’t doing the same thing) and carry the risk of injury. Yep, sounds like a great plan! Maybe fireworks aren’t the best idea at home. Maybe it’s time to leave it to the professionals!

Another thing that I’m a fan of letting professionals handle is your estate plan. At one time, just about the only way to get your estate plan prepared was to visit your local attorney’s office. Today, there are a lot of low-priced software packages available at office supply stores,  there are countless free estate planning documents available on the Internet, and there are online companies like LegalZoom that can help you prepare estate planning documents.

Each of these alternatives can be a viable solution if you have very simple needs. But if your situation has more than a couple “moving parts” (kids, second marriage, second houses, owning a business, etc.) an attorney might still be the best option. Here are some basic documents and why I had a professional prepare them for me.

Will – This document lets the world know where you want “your stuff” to go after you die. My will was prepared by an attorney because my kids are still young (20, 17, 14) and if I die, there would be some money on the table from life insurance and retirement accounts. If they have my DNA, they may not become fiscally responsible until they are well out of their 20’s so my will creates a trust that doles out their inheritance at ages 25, 35 and 45 – with 25 being just a small (10 or 20%) dose, age 35 being a bigger slice of the pie and the balance paid out at 45. If they blow the age 25 payout, they will have a decade to live with that regret and the ability to make better decisions at later ages. Add in a divorce and not wanting my ex to get any assets after I die (she got plenty in the divorce), and you can see why working with an attorney was the right choice for me.

Living Will/Healthcare Power of Attorney – These documents nominate someone to talk to your medical team in the event you can’t and detail what life saving measures you want and don’t want taken in the event that you are in a grave condition. The reason that I had an attorney work with me on these documents is…Grey’s Anatomy!    When a patient gets rolled into Seattle Grace (early seasons, Grey-Sloan later) on a gurney, the ONLY thing the doctors are paying attention to is saving that patient’s life. Without getting into too much detail, my wishes aren’t to stick around if I can’t recognize my kids and friends so preserving life at all costs isn’t my plan. THAT is why it made sense for me to work with an attorney.

When it’s time for you to have your documents either prepared (NOW would be the right time if you don’t have them currently) or updated (if your life situation has changed or you have aged by more than a decade), consider the “moving parts” in your life. The greater the level of complexity in your life, the more likely it is that an attorney would be useful in drafting your estate plan. I’m not one who usually defends attorneys. I’m far more likely to make jokes about them, but when it comes to estate planning, let me be the first in line to say that they offer a service that is well worth the fee.

 

Digital Estate Planning in One Day

June 20, 2016

Recently, a notice popped up when I logged in to LinkedIn asking me if I wanted to endorse my friend Larry for certain skills and expertise. I think so highly of him, and I would willingly endorse him. There’s just one problem. Larry passed away several years ago.

What happens to your digital life when you die? Who can pay your electronic bills, shut off automatic debits to your checking account, and let your Facebook friends know you’re gone or get into your email account? Digital estate planning is the process of answering all those questions in advance, so that your survivors can easily wind down your digital financial presence and continue or discontinue your online and social media presence according to your wishes. A digital estate plan is essential to a well-constructed overall basic estate plan, which also includes a will, guardianship provisions for any minor children, beneficiary selections, an advance medical directive (e.g., living will), and durable powers of attorney for healthcare and finances.

Choose a digital executor

An “executor” is the person who carries out the instructions outlined in your estate plan. You’ll need to identify a trustworthy – and computer-savvy—person to be your digital executor and name them in your will. That may or may not be the same person who is your overall estate executor (who will have final authority over how your wishes are carried out).

Who would you want to control your website, blog or social media accounts after your death? If for some reason they were not available, who would be your backup choice? Make sure your digital executor knows you’ve chosen them as well as whom to contact in the event of your death. Discuss your overall goals for your online presence.

Take an inventory of your digital assets

If something happened to you, what tracks would you leave in cyberspace? Pull together everything in a central list:

Financial:

  • Bank and brokerage accounts
  • Employee benefits accounts, such as 401(k), FSA, HSA, etc.
  • Credit card and loan accounts
  • Other bills you pay online such as utilities, car loan, mortgage or gym memberships
  • PayPal, Apple Pay, Starbucks and other digital wallets
  • Amazon and other retail accounts
  • Cell phone account

Online/Social Media

  • Your blog or website
  • Email
  • Facebook, LinkedIn, Twitter, Instagram, Pinterest, Meetup, Snapchat, etc.
  • Music and video websites (Pandora, YouTube, Vimeo, Sonos, etc.)

Home and Office

  • Security system, heating/cooling, etc.
  • Computer and phone systems
  • Voicemail

Organize and store login information and passwords

This can be nerve-wracking. The best protection against identity theft is not to write your passwords down. Where will you store access information for all these accounts?

Consider a password vault or password manager. This will allow you to create one strong password you can remember and will also prompt you to update your weaker passwords for each of these sites. You would then create a way to get the master password to your digital executor upon your death. Don’t know where to start? PC Magazine compares the top choices here.

In any case, don’t just give the entire account and password list to your attorney to store in their paper files. That is too risky.  Consider an encrypted digital estate planning storage system such as Everplan or Principled Heart. An alternative could be to write them down and then keep them in a safe or safe deposit box. However, make sure your spouse or executor knows the combination to the safe or has the key to the safe deposit box!

Leave written instructions

Take some time to write down clear and comprehensive instructions, especially for websites and social media. What should happen with these accounts if you die? Should they be closed or taken down or maintained in memoriam? Who inherits them? Who manages them?

Check the user agreements of those sites to make sure your wishes can be implanted. Make sure your choice of digital executor is named in your written will. Don’t have a will? Check first with your HR department to see if you have access to a will creation program or legal consultation through a prepaid legal plan or employee assistance program.

Have you created a digital estate plan? What was your experience? Email me at [email protected] or follow me on Twitter @cynthiameyer_FF.

 

The Father’s Day Gift That Keeps On Giving

June 16, 2016

Are you looking for a last minute gift for Father’s Day? Instead of another necktie that he probably doesn’t need, why not a gift that keeps on giving: financial wellness? Of course, none of us can actually give someone financial wellness, but the next best thing would be our CEO’s new book What Your Financial Advisor Isn’t Telling You.

Don’t worry. If your dad is like mine and acts as his own financial advisor, this book could still apply because much of it covers essential personal finance information that financial advisors typically don’t tell their clients like how to build wealth in the first place. (Advisors generally won’t work with you unless you already have some wealth for them to manage.) If your dad does have an advisor, the book discusses how to best work with an advisor, how to know if he has the right advisor, and how to find a new one if necessary. Specifically, here are some topics that would be particularly useful for dads:

Life Insurance and Estate Planning. These are important topics for dads because they’re still typically the primary breadwinners in their families, and men generally don’t live as long as women. To really see the value of estate planning for dads and what specific steps they can take, see this blog post by my colleague Greg Ward.

Basic Money Management:Money is often cited as a top source of stress and an issue that couples fight about. It can be particularly difficult for new parents. Among all the other challenges are the additional expenses and possibly a loss of income if one parent takes some time off work. Having a better understanding of money management can lead to lower stress and more marital bliss for both mom and dad alike.

Investing. In my experience working with couples, the husband usually manages the family’s investments. However, it turns out that most would probably be better off letting their wives handle this since research has found that on average, women are better investors than men. This is because hormones like testosterone and cortisol can contribute to more overconfidence and less patience in men, which leads them to invest more in things they don’t fully understand, take bigger risks, and trade more frequently (which costs more money). Learning more about investing from an unbiased source can help them overcome their biology and become better investors.

What Your Financial Advisor Isn’t Telling You or a similar personal finance book can be a great Father’s Day gift that benefits the whole family. At the very least, it will be sure to cost you much less than the $116 average that people spend on a Father’s Day gift. You can always use those savings to buy him a nicer tie next year.

 

 

5 Areas That May Need Some Financial Spring Cleaning

March 31, 2016

With Easter weekend behind us and spring officially in the air, it’s time for some spring cleaning. Don’t forget about cleaning your financial life too. While it’s much easier to see the clutter in your home, the clutter in your finances could have much bigger consequences. Here are several areas that may need some cleaning up:

Your expenses. If you’ve never taken a look at what you spend money on, it can be a real eye-opener. Start by gathering at least 3 months’ of bank and credit card statements and record each expense. You can also use a tool like Mint or Yodlee MoneyCenter to track your spending online for free.

Then go through your expenses and see what areas of waste you can cut. Are there things you’re spending money on that you don’t really need? If you do need it, can you get it in a way that costs less? You can get some ideas for savings here.

Your credit report. It’s been estimated that about 70% of credit reports have errors that could be hurting your score. If you haven’t done so in the last 12 months, you can order a free copy of each of your 3 credit reports (TransUnion, Equifax, and Experian) at the official site: annualcreditreport.com and report any discrepancies. You can also improve your score by getting current on your bills and paying down debt. Just be aware that old debt falls off your credit report after 7 years and making a partial payment or even acknowledging the debt to the creditor can restart that clock so if it’s getting close and you’re past your state’s statute of limitations for being sued by a creditor, you may just want to wait it out.

Your retirement account. Do you have retirement accounts that you left at previous jobs? If so, your overall retirement portfolio may not be properly diversified or you may be paying more than you need to in fees. Unless you have employer stock or are taking advantage of some unique investment option in the plan, you might want to roll those accounts to your current employer’s plan or into an IRA to make them easier to manage.

Your savings and investment portfolio. Many people have accounts they’ve opened or investments they’ve bought for different reasons over the years and now their savings and investments are a cluttered mess. Having 10 different bank accounts or 5 US stock funds isn’t diversification. Here are some simple ways to make sure you’re properly diversified.

Your legal documents. Tax documents only need to be kept for 7 years at the most. After that, you might as well just shred them. Estate planning documents should be checked to make sure they’re still up-to-date. Once your spouse finds out that your ex is still listed as your beneficiary or your youngest child wasn’t included, it may be too late.

How about you? Have you spring cleaned any of your finances? If so, share your experiences in the comments section below.

 

One Step to Prevent Elder Abuse

January 12, 2016

When I was a financial advisor in private practice, my favorite clients were the elderly. They are so much fun to talk to and I learn so much from their life experience. My favorite group is the “World War II” generation. There is something special about the “generation that saved” the world. However, as they grow older, I realize that it is our turn to save them. Continue reading “One Step to Prevent Elder Abuse”

From Single to Married With a Baby

December 15, 2015

My friends often laugh at how quickly my life changed within about 18 months. I was happily single with plans to be a working woman with no husband and no kids. A friend of mine told me that I needed a life and suggested I check out a dating website. I said “never” but was intrigued… Continue reading “From Single to Married With a Baby”