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Estate Planning is for Everyone
Though most Americans are aware that they need a will,
the majority haven't prepared one, to say nothing of a more
comprehensive estate plan to avoid probate or save on estate taxes.
And unfortunately many who have thought about what should happen to
their property when they die haven't updated their plan in years.
The objective of an estate plan is to protect your
assets and make sure your instructions are followed should you become
permanently disabled or die (who take care of you or who will get
your stuff). Some of the tools used to accomplish this are very
simple and other are very complicated. Although there are a lot of
printed forms and software packages that can assist you in planning
your estate you would be well served to consult an estate planning
attorney. Once you're gone mistakes are hard to correct and a poorly
designed estate plan can do more harm than good.
Estate planning is a family issue and is not just for
seniors citizens. Therefore we will make a few suggestions as to what
an estate plan might look like at different stages in one's life.
Young Single Adult
Even a young single adult needs to have a some kind of
estate plan. Every year thousands of young adults are disabled or die
unexpectedly. Without some kind of plan you would be imposing the
burden of your final expenses or worse yet the expense of providing
for all of your needs on a third party. Most likely your parents.
Although these things do happen, they are not the norm and you should
be planning for the future.
These are the items associated with a thorough plan:
-
Will
- Living Will
- Health Care Power of Attorney
- Durable Power of Attorney
- Life Insurance
- Disability and Long-term Care Insurance
Young Married Couple with Children
Having children increases the importance of having a
well thought out estate plan. What would happen if you or your spouse
or both of you were to die or become disabled? Would this have a
financial impact on your family's life style? It doesn't have too.
Appoint a guardian, in your will or trust, to care for
your children in the event that something happened to you and your
spouse. Make sure that your guardian is a willing appointee and make
sure that there will be sufficient resources in your estate to
provide for your children. If your financial resources are limited,
the best way to build an estate is with life insurance.
Life insurance can also be used to replace the income
of a deceased spouse. It is advisable to have coverage that will
provide a benefit equal to at least 5 years of the deceased spouses
income. If your spouse doesn't have an income, but stays at home with
the children you must try to establish the value of those services.
These are the items associated with a through plan:
Middle Aged (40 - 55)
At this point we are going to be optimistic and assume
that life is good and that you have been fortunate enough to
accumulate some wealth. As we accumulate wealth we must consider what
will happen to it when we are gone.
If your estate value is in excess of $650,000 you will
need to do some serious planning to reduce the expenses associated
with estate taxes and probate. There are several kinds of trusts and
gift giving techniques that can be used to reduce the size of your
estate. The most common, the AB trust, is one that couples use. Each
spouse leaves property to their children with the condition that the
surviving spouse has the right to use the income that the property
produces for as long as they live. In 2006, an AB trust will be able
to shield up to $2 million from estate taxes.
Although protecting your estate from estate shrinkage
is important, most estates are never subject to estate taxes. The
more important issue will be those you leave behind, your spouse and
children. There will likely be income replacement issues that you
will want to plan for. (These issues discussed above in young married
adults w/children)
Additional, because you should be in the prime income
earning years of your life you should have plan to deal with an
unexpected disability. The facts show that you are more likely to be
disabled during these years than you are to die. Disability and
Long-term Care insurance are a very inexpensive way to protect
against the devastating expenses associated with a long term disability.
These are the items associated with a through plan:
Senior Citizens
Because most senior citizens have a will and have done
some planning we would like to focus on making sure it is up to date
and complete.
Many people have wills that were created 20 or 30
years ago. Although they may still be legally binding, they may not
be. What happens if you move to another state or one of your
beneficiaries should proceed you. There are many reasons why you
should keep your plan updated. If you do not, your estate may end up
being probated by the state and they will determine how your assets
will be distributed.
If you have a large estate (over $650,000 in value)
you should probably consider using a trust to reduce expenses
associated with probate and estate taxes. (Discussed above)
Although it is not likely you would need disability
insurance at this stage in your life, long-term care insurance
deserves a very careful look. Rates are based on your age of issue.
This means the earlier you take out coverage (younger age) the lower
the premiums. Government statistics indicate, over 50% of women and
33% of men age 65 and older will need assistance with activities of
daily living or enter a nursing home in their lifetime.* If you have
assets to protect long-term care insurance would seem to be the
logical choice to protect yourself against the high cost associated
with this type of care.
These are the items associated with a thorough plan:
Although we never hope for the worst we should always
prepare for it. A well developed plan can turn the most devastating
situation into a time of reflection and provide you and your family
with the peace of knowing that all of your financial burdens will be covered.
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