Estate Planning: The Fifth Key In Our RichLife Retirement Success Strategy™
Whether you realize it or not, you have an estate. Your estate consists of everything you own — your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, and your personal possessions.
And, the one thing everyone has in common is that none of your estate is going with you when you pass.
If you're like most people I speak with, you want to control how those things are given to the people or organizations you care most about.
To ensure your wishes are carried out, you need to provide instructions to let everyone know who is getting what and when they are getting it.
And you want make sure this happens with the least amount of taxes, legal fees, and court costs.
What I've found after working with over 4,000 people over the past 20 years, too many people just don't have a plan in place for their estate. They usually put off estate planning because they're not old enough and have plenty of time left, they're too busy to worry about something they'd rather not even think about, or they just don't know who can help them.
Here's the problem with that...
If you don't have a plan for your estate, your state most definitely has one for it, and I can guarantee that you won't like it one little bit.
To create your Estate Plan, you will need your estate planning documents -- wills, powers of attorney, and in some states and special situations, trusts.
The reason you want to have a will in place is because it helps to avoid probate.
Probate can tie up assets for a long time during the process of closing out an estate, meaning your beneficiaries aren't getting access to those assets as quickly as possible.
Probate can be very expensive. And, those costs will eat away at your assets while your estate is getting resolved.
A will can also help prevent in-fighting with siblings and other family members. I've seen rifts between siblings escalate to the point where the entire family unit is fractured forever -- something no parent wants to see happen.
You will need to have a financial power of attorney and medical directive set up.
These documents give legal permission to the person of your choosing to make financial and medical decisions on your behalf when you are no longer able to do that for yourself.
You also need to make sure that your assets are titled correctly. And by that I mean, we want to make sure our beneficiaries are set up the way we want the them to be.
Here's a quick story to show you what I mean...
Early on in my career I had a lady -- Catherine -- come to see me. She was FURIOUS because her husband of 28 years had passed away and his $475,000 401(k) had never been changed out of his ex-wife's name.
EVERY single penny in that 401(k) went to his ex-wife when he died. And, there was absolutely NOTHING Catherine could do about it.
Catherine and her husband had never really given any thought to it over the years -- probably assuming it had been done automatically when they got married -- and they never did annual reviews to make sure things were set up they way they wanted them to be.
Catherine paid dearly for that oversight.
Your pre-tax retirement investment accounts require a designated beneficiary when they are setup.
It's up to you to make sure you have the correct beneficiary assigned to the account. You don't want to have what happened to Catherine happen to your spouse.
When it comes to after-tax accounts -- bank accounts, brokerage accounts -- you need to make sure you have a TOD (transferrable on death) or a POD (payable on death) designation that names who those accounts go to.
Unlike pre-tax accounts, after-tax accounts do NOT require the assignment of a beneficiary when you set them up.
I know it sounds like a lot of information to stay on top of. And, it is. That's why I recommend doing an annual review of your assets.
That way you have a clear picture of all your assets, what kind of assets they are -- pre-tax, after-tax, tax-free, and that they have the proper beneficiary designation attached to them so you can avoid these costly mistakes.
In most instances, it makes sense to work with a qualified local attorney who can help you set these estate planning documents up correctly.
Wrapping things up...
Here is your 4 step Estate Planning checklist:
1. A current will
2. A current financial power of attorney
3. A current medical power of attorney
4. Current asset titling
Your action item(s) for this month is to get all of them checked off!