Different Times, Different Planning

Planning (financial, estate, insurance, and other) steps must be tailored to
fit different phases of ones life. Although we each wind through life milestones
in our own unique order, identifying how planning typically changes over time
will help you identify steps you might want to take now, or reconsider in the
future. Too often, people assume “estate planning” is only for the 60-and-over
set. There is no age barrier to planning, and it is about much more than just
wills. Here are a few practical ideas for those under 60:

20s – Too young to plan, so you do nothing? Big mistake!

Terri Schiavo was in her early 20’s when tragedy struck. Being that she was
so young, no one imagined such a disaster would occur. At such a young age, you
may not have much by way of finances, or legal complications, but you should at
least sign a living will and health care proxy (whereby the living will
memorializes your wishes concerning your health care in the event that you are
unable to speak them yourself, and a health care proxy designates an agent to
carry out your wishes stated in the living will). As we have said before: it’s
always better to be safe than sorry.

Whether you’re back-packing through Indonesia, or just off to college,
someone back home should have the authority to take care of tax, legal and
financial matters for you. Regardless of how many pennies are in your checking
account, you also want to sign a durable power of attorney naming a parent or
someone else to act if you are unable to do so.

Key Tips:

Here’s a list of ideas to implement.

Communicate key passwords, account information and other private data to a
trusted person in the event of an emergency.

Get liability and property insurance. Don’t ignore insurance, as too many
young people do, because your belongings are not valuable. If you own a car, or
rent an apartment, you face liability risks. You also need the coverage to
protect whatever belongings you have. It’s also good to get in the habit of
insuring your valuable items.

Living Together Agreement: Living with someone – it may seem like nirvana,
but if it doesn’t work out it could be a mess. Who keeps the car? Who has the
liability for that 5 year lease you signed? Prepare a living together agreement
that addresses key issues you might face if the relationship falters.

Start saving today! Invest the maximum amount in your IRA every year from
when you first start working, and those simple contributions, invested and
compounded, will be worth a tremendous amounts in the future. Save now. Again,
even if it is a little, get into the habit.

30’s – Life is simple, focused on career and other issues, but don’t forget
finances.

At this stage of your life, you are probably career-oriented, and are
planning/starting a family. Your financial matters are also becoming more
serious and time consuming.

Personal Excess Liability Insurance: Get a personal excess liability
insurance policy to cover your auto, home/apartment and other risks. You’re
probably starting to save and build up your assets, and you need to protect them
with more than just the basic coverage.

Disability Insurance: Buy disability insurance if you don’t have it. If the
cost is a burden, lengthen the waiting period, but don’t go without coverage.
The risk of a long term disability is substantial as you start to enter prime
earning periods. Also, at a time in your life when savings are limited, you
probably cannot afford to live without your expected income.

Will and Testament: At this point, if you haven’t signed a will, hire a
lawyer and have a will prepared that addresses your current, and near term
anticipated changes.

Family: Take steps to protect your children: Trusts, college savings, and
emergency medical forms are a good start. Formally name persons to whom you
would entrust the care of your children in the event that you are unable to do
so yourself. It is important to discuss this with the person you designate. Make
sure they know that you are designating them. No one should be surprised with
that sort of information, especially in an emergency.

You will likely need life insurance to protect a spouse and/or children. Be
sure you have enough coverage to really provide the protection they need. It is
probably worth it to spend the extra few dollars to ensure that your family
will really be provided for in the case of your death. Remember, if you want
the principal to remain intact (e.g., pay “income” to your spouse, and on
his/her death leave the principal to the kids) your surviving spouse or partner
can only withdraw about 4% a year if the remainder beneficiaries (e.g., your
children) are to inherit an inflation adjusted principal value. Do you really
have enough coverage? To avoid state estate tax, possibly federal estate tax,
risks of your surviving spouse’s new partner, etc. be sure your life insurance
is owned by a trust.

Your assets may be modest, but you’re likely to want to protect them from
lawsuits and claims (perhaps at this stage you own a couple of cars, have a
house and a business, all of which create exposure). You might be able to own
your house jointly with your spouse, and thereby have some protection from
either of your creditors. Consider funding an IRA, even if non-deductible,
since the assets in the IRA are protected from lawsuits. You don’t want to lose
the assets that you have accumulated.

Business: Review the structure of your professional practice or business and
be certain that the structure provides protection from your personal assets. Also, make sure
that you have systems in place so that formalities are adhered to. In the event
of a claim against your practice, you don’t want to lose your personal
assets. Do not let growth detract you from vital administrative matters.

Plan Ahead: Do not neglect your retirement planning. Even if you are
strapped putting money away for kids’ college and paying the mortgage on your
new McMansion, salt something, even a small amount, away.

40’s – You realize the Cleaver Family was only a TV show: You’re on your
second marriage, your adult son just moved into your basement, and you’re
dealing with aging parents.

You are probably in the middle of your prime earning years. Your expenses
are adding up, but you seem to have things under control.

Parents: Be sure your parents have signed, at least, living wills and health
care proxies, so that you, or your siblings, will be able to help them when
necessary in ways that they want to be helped.

It’s a touchy subject, but make sure your parents are managing their
finances. If they get taken for a ride by one of the many hucksters out there,
you may end up supplementing their resources (instead of your retirement). When
approaching the subject, don’t speak to them forcefully, or act as if you know
better than they do. Instead, ask them about their finances, just to make sure
they are on top of things. Also, truly explain some ideas that you have for
them. Often times, elderly people will say no to certain options, simply because
they don’t fully understand all of the concepts.

Re-evaluate: So now that you have been through at least one divorce, or you
have at least become more realistic about the odds for your kids having a
divorce, call your attorney back and re-write your will to bequeath assets in
lifetime trusts rather than outright once your child reaches some specified
age. With age comes experience, and you know that at different times, your heirs
may need more cash available than during others.

Re-evaluate your investment allocations as part of an overall financial
review. A mile-high overview and reality check is important at every life
phase. If you are surprised to find that you will not be able to retire at the
age you thought, or the age your parents did, you may want to shift towards a
more aggressive investment posture if your time horizon is in fact longer, and
you want to meet your benchmarks.

Secure a home equity line to provide emergency cash. By this stage of your
life, you’ve likely built enough equity that this can be a great resource in an
emergency (no, not to pay for that trip to Tahiti!). This might enable you to
put otherwise idle cash balances to better use (i. e. , more fully invested for
retirement as mentioned above).

50’s – You realize that you really do want to retire one day; Estate planning
is real, and long term care insurance is a major cocktail conversation topic.
You have accumulated assets and want to protect them. Your kids have moved out
of the house, and may even have children of your own. You and your wife are
beginning to enjoy the quiet life, and the thoughts of retirement keep popping
into your heads.

Long Term Care Insurance: Yes, its time to start thinking about long term
care insurance. Evaluate the options and what really makes sense before
committing. Take your time to get through the puffery to see what the real
facts are. Nursing homes are extremely expensive, and you do not want to burden
your children with such an expense.

Revocable Living Trust: Now that you have a comprehensive will and estate
plan in place (yes, you need a “plan” even if they repeal the estate tax),
consider the benefits of a revocable living trust. This can be a tremendous
technique to manage and control your assets if you become disabled or subject
to a long term illness (the probate avoidance issues are often over rated).

Odds and Ends: Review all your insurance coverage and needs. If you’re in
prime earnings years, be sure life and disability coverage is adequate. If
you’ve accumulated substantial savings, perhaps disability insurance may no
longer be as necessary.

If you have a professional practice or a closely held business, create a
viable succession plan (bringing in an associate, a buy sell, merging with a
bigger company, etc. ). For example, while you might have simply relied on
insurance when you were younger in your career, that insurance becomes more
costly, and your practice or business may have grown to the point where a more
sophisticated plan is appropriate. You do not want the business that you have
worked towards your entire career to crumble when you retire.

You will face your own unique timetable and planning needs, but they will
change over time and will need to be re-evaluated and updated.