A year ago, I brought my family back to our home country after being away for seven years. I couldn’t wait to be closer to my father. He was 84 years old and had been ill for a very long time; he was a kidney cancer survivor, but his remaining kidney had failed and he had been on dialysis for five years. He was not doing well.
Six months later, my father’s health deteriorated. He developed dementia early on and began to refuse dialysis. My sister and I tried to do what we could for him, but he refused to help us. My father was hospitalized after unwittingly missing two dialysis treatments. We visited him in the hospital where he again refused treatment, which forced him to receive palliative care. A week later, at 3 a.m., I received the call: My father had passed away.
I had to plan my father’s estate in the middle of the wreckage. My father died without a power of attorney, which would have allowed my sister and I to treat him. He left no will or trust outlining his end-of-life wishes or intentions for his assets. In his confusion, he had also stopped paying his life insurance premiums, depriving the family of the protection he had invested in for years. Not only did my family have to bear the grief of my father’s death, we had to bear the financial burden of his death.
Three estate planning tips
Frequently, people express a desire to avoid overburdening their children, but few complete all the necessary steps in estate planning. I would like to explore a few in depth.
- The first of these stages is life insurance; does the client have enough to pay for end-of-life care, including funeral costs?
- The second step to consider is a will, which will allow the client to dictate who receives what assets from their estate.
- The third and final step that a client can take to protect their heirs is to create a trust. Placing their assets in a trust will give the client more control over their estate.
I’ll start with life insurance. Traditionally, its main purpose has been to replace a person’s paycheck in the event of premature death. The rule of thumb is that a person should have 10 times their current salary as a death benefit. For example, if a person earns $ 100,000 a year, they should have a million dollar life insurance policy. This is especially true where minor children or college-related children are involved, as well as when the policyholder has an outstanding mortgage. Over time, you could end up with a mortgage that is either paid off or about to be paid off. Your traditional life protection needs are probably in the rearview mirror. If you decide to maintain coverage, it is often for an equally important purpose: to cover end-of-life expenses, such as burial and funeral costs. Small policies that cover final expenses can be purchased at minimal cost, especially for healthy people. Even those with large estates can consider retaining some life protection. Liquidating home or retirement accounts to pay final costs can be a long and arduous process.
Next, let’s cover wills. A will is a legal document that dictates how an estate is to be distributed. Only 46% of Americans have a will, which means most estates are settled in an estate court, which involves a process that can take months or years to settle. And it is expensive. It is not uncommon for a lawyer to represent their fees as a percentage of the estate, which can run into the tens of thousands of dollars. The good news is that many assets can easily escape probate, even without a will. Any transfer on death instructions or beneficiary designation replaces both probate and wills. Therefore, it is essential to keep these designations up to date, so that the assets can be delivered to their intended destination without interference or delay.
But is a will enough? Some may find it helpful to take it that extra step and build confidence – an entity whose sole purpose is to administer assets beyond your death. Trusts can be established for a variety of reasons, including tax reduction, probate avoidance, or even improving Medicaid eligibility. But I want to focus on one of the most compelling attributes of trust: the ability to predict inheritance around contingencies. Maybe you don’t want your beneficiaries to spend their inheritance too quickly. Or maybe some of the intended recipients struggle with drugs, alcohol, depression, or strained marriages. Leaving money on their knees can cause more harm than good, so a good trust will seek to monitor how and when funds can be used in these situations. Contingencies can also be used to encourage good behavior, such as linking the legacy to academic success, career advancement or charitable giving. Your eventualities are only bound by your creativity and the law of the state.
Summary and call to action
Many people go to great lengths to exercise control over their property while they are alive, but leave everything to chance in the event of death. I have seen with my own eyes the pain, stress and suffering that this lack of planning can require. Do you think: if something happened to me today, how would I want my money to improve the lives of those I love? How can I make their life easier for them in the midst of an already painful transition? Most importantly, get help putting those thoughts into action!
Financial planner, Arcadia Financial Group
Jim Moran joined Arcadia in June 2021. His previous employer was Fidelity Investments, where he had worked for over 20 years, his last role being that of Branch Manager, in which he ran a firm of financial planners. He holds a Bachelor of Arts in History from the University of New Hampshire. Jim currently lives in Concord, New Hampshire, with his wife and two sons.
The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger has not been compensated in any way.