Several years ago, a family friend died in a small plane crash. The grief and anguish over his loss were poignant. When this man died, however, his financial house was in immaculate order.
The goals he and his wife had set for their young children were accomplished. Though achieving them alone, his wife was able to do all the things she wanted to do. Today, she lives a comfortable life. Their children had money for missions, college and advanced degrees.
Once you are gone (and that often comes without warning) you can't fix what you didn't do. Many people assume that after their demise, their money and assets will go to their family. But without correct planning, as much as 49% of your estate could go to the IRS -- before your children get anything.
Statistics show that only 41% of Americans have a prepared will or estate plan and a sufficient amount of life insurance. Worse yet, only a third of families with children have made the necessary decisions regarding the appointment of a guardian and how the financial needs of their children will be met.
If you and your spouse were to die without these plans being made, you may unknowingly give the court power to make crucial decisions about your children and the distribution of your estate.
There are several things to consider when putting your financial house in order.
First is your will. Is it current, or have you had two children since you last looked at it? The purpose of your will is to specify how you want your assets distributed. It names your executor and the guardian of your children. Moreover, it helps eliminate bickering and hurt feelings if your instructions are described with meticulous detail.
Do you still have enough insurance? Maybe your youngest son was married last year and you have too much. Do you have the correct types? Life, disability, health and long-term care should all be considered.
Trusts are not just for millionaires. There are several types of trusts, each with different benefits. Trusts can provide advantages over a simple will. They can be used to avoid probate and its associated costs. Unlike a will, which is a public document, trusts are private. They therefore protect the privacy of your estate plan. An estate-planning attorney can help you determine which trust will best suit your needs.
Proactive estate planning also is not just for the rich and famous. Proper planning will allow you to transfer assets quickly while minimizing settlement costs. If your total assets exceed $1,000,000, planning ahead will be very beneficial to your heirs. Once you’ve determined your assets, consult with a financial planner and attorney to put together the correct plan.
It’s a good idea to estimate your estate taxes – you’re probably worth more than you think. Again, a professional financial planner or attorney can help you prepare for your individual needs. Life insurance can be a valuable tool when dealing with estate taxes and the administration costs of settling your estate.
Since your net worth changes many times throughout your life, ensuring your family’s financial future is an evolving process. Children are born, grow up, and leave. Parents grow older. The worth of a business grows. Financial needs evolve with each of these changes.
Being prepared with the correct plan in place will reduce the heartache and eliminate the headaches of death. Start now. While you are setting your own financial house in order, check with your parents. Discuss and explain to your children the provisions you are making. Let them know that you have prepared so they need not fear.