Life Insurance

A Will is an Essential Component of Estate Planning

Drafting a will is a fundamental and essential component of estate planning.

Drafting a will with an experienced estate planning attorney helps avoid unnecessary work and perhaps some stress, when a family member passes away. A will permits the heirs to act with the decedent’s wishes in mind and can make certain that assets and possessions are passed to the correct individuals or organizations.

The Delaware County Daily Times’ recent article, “Senior Life: Things people should know about creating wills,” says that estate planning can be complicated. That’s the reason why many people use an experienced attorney to get the job done right. Attorneys who specialize in estate planning will typically discuss the following topics with their clients.

  • Assets: Create a list of known assets and determine which of those are covered by the will and which have to be passed on according to other estate laws, such as through joint tenancy or a beneficiary designation, like life insurance policies or retirement plan proceeds. A will also can dispose of other assets, such as photographs, mementos and jewelry.
  • Guardianship: Parents with minor children should include a clause regarding whom they want to become the guardians for their underage children or dependents. (For more about this, download Mastry Law’s FREE report A Parent’s Guide to Protecting Your Children Through Estate Planning.
  • Pets: Some people use their will to instruct the guardianship of pets and to leave assets for their care. However, remember that pets don’t have the legal capacity to own property, so don’t give money directly to pets in a will.
  • Funeral instructions: Finalizing probate won’t occur until after the funeral, so wishes may go unheeded.
  • Executor: This individual is a trusted person who will carry out the terms of the will. She should be willing to serve and be capable of executing the will.

Those who die without a valid will become intestate. This results in the estate being settled based upon the laws where that person lived. A court-appointed administrator will serve in the capacity to transfer property. This administrator will be bound by the laws of the state and may make decisions that go against the decedent’s wishes.

To avoid this, a will and other estate planning documents are critical. Talk to an estate planning attorney or download a FREE copy of our estate planning book, Failing to Plan is Planning to Fail.

Reference: The Delaware County Daily Times (January 7, 2019) “Senior Life: Things people should know about creating wills”

What’s the Difference Between Per Capita And Per Stirpes Beneficiary Designations?

A will covers the distribution of most assets upon your death. However, any assets that require beneficiary designations, like 401(k), IRAs, annuities, or life insurance policies, are distributed according to the designation for that account. A beneficiary designation takes precedence over the instructions in a will or trust.

Benzinga’s recent article addresses this question: “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?” Have you changed the beneficiary designations, since the account or policy was first started? If you need to update your beneficiary designation, talk to the company responsible for maintaining the account. They’ll send you a form to complete, sign and return. Keep a copy for your own records.

You should also name a contingent beneficiary to receive the account, in case the primary beneficiary passes away before you can update the beneficiary list. Without a listed contingency, your account designation goes to a default, based on the original agreement you signed and the state law.

With per capita distribution, all members of a particular group receive an equal share of the distribution. Within a will or trust, that group can be your children, all your combined descendants, or named individuals. Under per capita, the share of any beneficiary that precedes you in death is shared equally among the remaining beneficiaries. Within a beneficiary designation, per capita typically means an equal distribution among your children.

Per stirpes distribution uses a generational approach. If a named beneficiary precedes you in death, then the benefits would pass on to that person’s children in equal parts. Spouses are generally not part of a per stirpes distribution.

Assume that you had two children. With per stirpes, if one child were to precede you in death, the other child would receive half, and the children of the deceased child would get the other half.

Create a list of all your accounts that have beneficiary designations and keep it with your will. If you don’t have a copy of the latest beneficiary designation form, write down the primary beneficiary, contingent beneficiary, and the date the beneficiary designation was last updated for each one.

Remember, it’s important to keep both your will and all beneficiary designations up to date.

Reference: Benzinga (December 26, 2018) “Estate Planning: What Are Per Capita And Per Stirpes Beneficiary Designations?”

Can Beneficiary Designations Help Simplify the Estate Planning Process?

Often overlooked, the beneficiary designation can be one of the easiest ways to move assets directly to heirs without going through the probate process.

Many accounts and financial products will allow you to designate a beneficiary.  The beneficiary is the person who will receive the asset directly when the owner passes away. This is something that most of us encounter when we open a bank account, purchase an insurance policy or start a retirement savings plan, according to the article, “A simple way to simplify estate planning,” appearing in the Tupelo (MS) Daily Journal.

MP900442211The type of assets that allow beneficiary designations also include annuities, transfer-on-death investment accounts, pay-on-death bank accounts, stock options and executive deferred compensation plans.

Remembering who the beneficiary is on these accounts can be difficult. However, when you consider the consequences of having the incorrect person named on the asset, it’s well worth the effort. Due to the importance of the beneficiary designation, note these reminders:

  • Designate beneficiaries. Without this, assets can be tied up in probate court, resulting in delays, costs and unfavorable tax treatment.
  • List a primary and contingent beneficiary. It is common to have a spouse as primary beneficiary, and a child as contingent, which lets the asset pass to the child if the spouse has also passed away. You can also name a charity you support to be the contingent.
  • Keep things up-to-date. Any time there’s a birth, adoption, death, marriage or divorce, you should review your accounts and polices.
  • Go through the instructions on the form before signing it. Beneficiary forms can vary, so review each one.
  • Coordinate your beneficiary designations with your will or trust documents. If they don’t, it could cause the probate process to be delayed.
  • Work with an estate planning attorney before naming a trust as a beneficiary. Tax consequences may be different for a trust than for an individual, so some situations make a trust a wise option.
  • Know the tax consequences of naming a beneficiary of a particular asset. That’s because every asset does not have the same tax treatment.

Far too many people learn the hard way, that whatever is on the beneficiary designation determines who receives the asset, no matter what is in your will. Make a list of all of assets that have a beneficiary designation and review it when you review your estate plan. If you don’t have a contingency beneficiary, add that as well. Your estate planning attorney will be able to help you if you run into any questions and to ensure that your beneficiary designations align with your overall estate planning goals.

Reference: Tupelo Daily Journal (November 2, 2018) “A simple way to simplify estate planning”

Do I Have All the Beneficiaries Set Up Correctly on My Assets?

The typical example is an ex-spouse getting all your retirement savings. However, what if you have a child with an opioid addition, you die, and he or she inherits hundreds of thousands of dollars—that vanish in less than a year?

The assets that you own can be passed to your family members in three basic ways: title of ownership is transferred, you name them to inherit assets in your will, or they are the designated beneficiaries named on your various banking and investment accounts and insurance policies.

Many of our assets are transferred through this beneficiary designation, yet we don’t spend enough time tracking and updating these names.

When’s the last time you’ve reviewed your beneficiaries? This question was explored in a recent InsideNoVa article, “Naming Beneficiaries: A Quick Tip to Reduce the Surprise Factor.”

For example, if your checking account is titled in your spouse’s and your name “with rights of survivorship” (WROS), you effectively co-own the account. That one should be all set, at least until the surviving spouse dies.

Your will instructs your executor on the transfer of any assets that aren’t transferred by title or contract. That’s probably at least some of your estate. Therefore, if you don’t have a will, make an appointment with an estate planning attorney to make sure you have this important document.

Next, the beneficiary designation contacts for assets like your retirement accounts, pension plans and insurance policies should be reviewed whenever there’s a major life event, like a birth or adoption of a child, a divorce, or a marriage.

Bigstock-Financial-consultant-presents--14508974Start the process by identifying all the accounts you own, including life insurance policies, annuities, investments, etc. that will pass by beneficiary designation. You should then see who the primary and secondary beneficiaries are for each. You can usually assign percentages to your beneficiaries. Therefore, you could name your spouse as primary beneficiary, 100%. Your children could then be secondary beneficiaries in equal shares.

Some contracts allow you to have your funds be distributed “per stirpes.” In that case, if you name your three children as primary beneficiaries, they each would receive a third. However, if your eldest son dies with you, with per stirpes, his share will go to his children.

In addition, there may be situations when you might designate a trust as a beneficiary. This can get complicated, so work with an experienced trust and estate attorney.

Don’t overlook this detail, as it can have a very big impact, and not always for the good, on your family and loved ones.

Reference: InsideNoVa (October 26, 2018) “Naming Beneficiaries: A Quick Tip to Reduce the Surprise Factor”

How Does Life Insurance Work in Estate Planning?

Life insurance can be useful in paying off debt, covering funeral costs and serving as a useful resource so that estate proceeds or any one person’s savings don’t have to be tapped.

Life insurance may be the least sexy part of the transition from one farming generation to another, but this financial tool can be very valuable. If parents or grandparents have planned properly, the proceeds from the life insurance may provide the funds that permit the farm to stay in the family. The proceeds, which are not subject to estate taxes, can be used to buy out the non-farming siblings so that the family ownership of the land can continue to another generation.

Estate PlanSuccessful Farming’s recent article, “Using Life Insurance in Estate Planning,” quotes David Bau, a University of Minnesota Extension educator based in Worthington, Minnesota. He says, “Life insurance is expensive, but it’s still a very good tool in the process. The farming heirs can have insurance on their parents, and they can use that money to buy out the estate.”

Farm families typically can’t afford enough insurance to cover the increase in land values over several decades. Therefore. life insurance can be a tool to provide some fairness to the process and keep the farming business viable.

Term insurance covers death risk and increases in cost, as the covered person ages. Whole and universal life policies include a savings component with the term insurance, and these types of policies may grow in value over time.

Life insurance has many uses, including the following:

  • Paying estate taxes. Even though few families are likely to be hit by estate taxes with the federal tax reform, some states also have estate taxes;
  • Paying off debts, estate settlement costs and funeral expenses;
  • Savings in whole life policies can be borrowed to cover retirement or nursing home costs for the older generation (but it reduces the proceeds that might go to heirs); and
  • Providing an inheritance to non-farm heirs.

To get the benefits of life insurance, do some careful planning with an experienced attorney and avoid common pitfalls. For example, if you don’t want insurance proceeds to be included in a taxable estate, the heirs need to own the policy. The use of life insurance for paying estate taxes also really isn’t helpful for farmers whose spreads may not be worth as much as the nearly $22 million that a couple can now pass to a new generation tax-free. It should instead be part of an estate planning process designed to provide a fair transition to a new generation.

You don’t have to be a farmer to want to pass along your property and assets to the next generation. But you do need to sit down with an estate planning attorney to make sure that your wishes will be documented, and your will and estate plan is ready to protect your family.

Reference: Successful Farming (October 5, 2018)“Using Life Insurance in Estate Planning”

How Much Life Insurance Do You Need?

Everyone’s needs are different. For most people, one large policy is enough. However, what if your life is not like everyone else’s? How do you know how much coverage you need?

Most people never really think about adding more life insurance, once they buy a policy. They figure they have that policy and insurance through their job. However, what if you wanted to have more coverage? This recent article fromNerd Wallet, “Can You Have More Than One Life Insurance Policy?”explains some life insurance basics.

Money treeFirst, you can own several policies from different companies. However, when you apply, insurance companies will inquire about your existing coverage to make certain that the amount you want is reasonable.

It’s not uncommon to purchase a lot of coverage without any problems. An insurance agent will usually ask why you need a great amount of coverage, if the total coverage would exceed 20 to 30 times your income.

A frequent need to purchase life insurance coverage is to replace income in the event that the main income-earner passes away prematurely. The answer to this is term life insurance. This policy will cover you for a certain period, like 10, 20, or 30 years. Hopefully, when the term expires, you won’t require that life insurance, because your debts are paid, and you’ve finished raising your family.

Rather than purchasing one large policy, you could get multiple policies of different lengths and amounts to match your family’s needs over time. As an example, instead of getting a single 30-year $1 million policy, you could buy three policies: a 10-year for $500,000; a 20-year, $300,000 policy, and a 30-year, $200,000 policy. This type of “laddering” strategy can save money, and it can work, if coverage needs decrease. This way, you can predict them accurately. At least, that’s the theory.

Note: if you decide to buy just a single policy and discover later that you don’t need as much life insurance coverage, most carriers will let you lower the coverage and pay less.

There are also other reasons to buy coverage, besides replacing income. These can include small-business owner needs, long-term care and estate planning.

Before you invest a lot of money into life insurance, speak with your estate planning attorney. They’ll be able to explain the role that insurance plays in estate planning and outline your general insurance needs.

Reference: Nerd Wallet (September 17, 2018)“Can You Have More Than One Life Insurance Policy?”

Single Parents Need to Plan and Balance for Financial Stability

In addition to naming a guardian in a will, there are five other critical financial moves.

Without the security of a spouse’s income, single parents must balance their children’s needs with their own retirement savings goals.

MP900448410Single parents who have to say no to their children over and over again, struggle with wanting to say yes when money is tight and there’s no room in the budget for the latest fashions or games.  However, the last thing a single parent wants to do is convey a lack of financial discipline. A financial plan can help a single parent stay on track.

CNBC’s recent article, “Five financial essentials for single parents,” says that when single parents try to satisfy their kids, it can lead to a severe unintended consequence: placing their children ahead of their own retirement needs.

In addition to naming a guardian in a will, there are five other critical financial moves.

  1. Set up an emergency cushion. A solid emergency fund is the initial step. You should have three to nine months' expenses in that fund. Don’t forget to add whatever costs the kids have each month, like sports and activity fees, school lunches, clothing, and school supplies.
  2. Check on the right amount of insurance.Life insurance can help your family cope financially without your income. Your income could be lost through illness, so consider disability insurance. If you own a home, purchase flood insurance.
  3. Create definitive savings goals. You most likely have things that you'd like to do for your family, such as purchase a home, pay for college or plan a special vacation. Each of these will be on a different timeline. Divide this into near-, medium-, and long-term savings goals. Your near-term goals will happen within five years. The way in which you invest these three silos of money is based upon your unique time horizon. If you have decades before you retire or need to pay tuition for a newborn, you can take on more risk. Examine your allocation among these accounts and review them once a year, to see if the amounts you're putting in each—and the investment strategies—still match your goals.
  4. Have a set savings percentage. There's no set number that works for everyone. There are recommendations to save at least 6% or 9% of your income, but it’s not always possible. If you can only save $30 a month, do it and be glad! Just creating a positive habit of saving is important. Even if you save as little $10 a month, do it with the notion that you'll increase the amount, when your finances permit. A good rule of thumb is to put away 10% of your gross, not take-home, pay and as you get raises, increase your savings rate. Developing that disciplined habit of saving can help you accomplish many of your financial goals.
  5. Make your retirement plan. With your savings and Social Security, achieving a 50% replacement of income may be enough for people with modest salaries. However, a person who earns $100,000 will be more likely to want 85 to 90% of income. Therefore, they’ll have to save more. In sum, the more you have, the more you’ll need to save to be able to spend the same amount of money and live the same way in retirement.

For those lucky enough to work at a company with a retirement plan, contribute as much as you can, especially if your employer offers a match to your IRA contribution. If your company does not have any kind of retirement savings plan in place, the next best thing is to set up your own IRA and have money taken from your paycheck automatically. How much you save is up to you, but saving something is better than nothing.

Reference: CNBC (August 20, 2018)“Five financial essentials for single parents”

Will Your Adult Children Be Impacted by Your Retirement?

An important discussion between parents and children is how you want to live.

If your children depend on you financially or they’ve come to count on you as a regular babysitter, you’ll all need to address what comes after you retire.

25543329453_9991c191f2_oSeniors who have been looking forward to moving to a less expensive area, living in an RV as long as their health permits or downsizing in every possible way, may need to consider others in their lives who will be affected by these changes.

US News & World Report’s recent article, “The Talk to Have With Your Kids Before You Retire,”acknowledges that this can be uncomfortable for some parents.  However, parents need to prepare adult children for their impending retirement. It’s crucial to begin financial discussions early in retirement. That makes it easier in later years, when cognitive decline can affect decision-making. Talk with your children about these things regarding your retirement:

Notice. Your retirement may affect your children, especially if you plan to move or are assisting them financially. Let them know of your retirement plan five years prior to leaving the workforce, and remind them about it every now and then.

Financial info.Some parents don’t want their kids to know the details of their finances, while others share information and even involve them in the process. If you’re more open and honest with your kids about your financial information, they’ll feel secure that their parents are OK. If you are struggling, you should also let them know that.

Financial support. You may need to stop supporting your kids so that you can retire. If you have a kid living with you in the house and you’re helping to pay their bills, start working on a strategy to get them off your payroll and out of the house.

Estate plan.Talking to your children about your estate planning to avoid confusion and sibling rivalry during a very stressful time. Talk about which child will be executor, so there are no surprises.

New lifestyle.An important discussion between parents and children is how you want to live. This includes location, which might change with the seasons, deciding if you want to live close to children and grandchildren, or prefer a spot with opportunities to enjoy retirement. You should also let your kids know your preferences for an assisted living facility or a nursing home, and discuss paying for long-term care.

Share important contact information.Give your children a list of your legal and financial team members: estate planning attorney, CPA, financial advisor, banker and any other professional who they would need to be in touch with, if something happened to you. If someone other than your children is your executor or successor trustee, that person should have the same information.

Reference: US News & World Report (June 8, 2018) “The Talk to Have With Your Kids Before You Retire”

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