- Consumer
Estate Planning Week Various Q&As
Estate Planning Week
By: Martin M. Shenkman, CPA, MBA, PFS, JD
The third week of October 2009 has been declared as
“estate planning week” to help motivate and encourage Americans to undertake
the estate, financial, tax, savings, retirement and related planning they need
to secure their futures and their family/loved ones well being. Following are
some common questions and answers people are asking.
Question Do I save for my
retirement or my kid’s college education?
Answer
√ Assess your current situation
and make a decision that fits your circumstances.
√ What options for college might
you have that influence the decision? Is your child likely to qualify for a
scholarship, financial aid or a loan? These might enable you to focus more on
retirement savings.
√ What options might you have
for retirement? Do you anticipate an inheritance that might fill the gap? Do
you have the type of career, job or hobby that will enable you to work beyond
the age many retire? Might you realistically relocate to a less costly area
thereby lowering your retirement costs? These might enable you to focus more on
college savings.
√ The younger you are the more
weight can be placed on college. How old were you when you had your
children?
Question When is the right time
to tackle my will?
Answer
√ Now. There is no benefit for
delay.
√ Now. If money is tight, get it
done more inexpensively by cutting reasonable corners, not by not addressing
it.
√ You need more than just a
will. You need a power of attorney so someone can handle financial matters if
you cannot. You need a living will and health proxy so someone can handle
medical decisions if you cannot.
√ If you don’t have a will state
law will determine where your estate is distributed. This is rarely what anyone
wants.
Question Will I ever be able to
retire?
Answer
√ Don’t
answer or respond out of fear. Do the math, look at the details. If you focus
on imponderables you won’t make them happen. Instead focus on:
- What can I do to increase savings?
- What can I do to cut expenses?
- What can I do to earn more at work, on my savings and
with hobbies?
Focus on specific steps and making progress toward the
goal. Reframe the question to: “What can I doe to make retirement more likely
and more secure?”
√ Define “retirement?” Do you
have to stop working at age 65? Is there a real reason? Remember, when the age
65 retirement first become commonly talked about life expectancy was much
lower. How do you retire? You might be able to integrate a reduced work
schedule, converting a hobby into a part time income and take other steps to
redefine retirement to make it economically feasible. These steps might even
make your post “retirement” years more rewarding and stimulating.
√ Do the math. Hire
professionals to help guide you. What are the assumptions you are using to
figure out when and how to retire? Often, some small steps early on can make a
huge difference later. Saving a little more each year, being open minded to
moving to a less costly region of the country, or scaling down to a less costly
home, or just working a year or two more, is all it takes. Remember, working a
couple more years means instead of spending down savings in those years, you’re
saving and compounding prior savings.
Question How can making hard
decisions can actually make my life easier?
Answer
√ Human nature is to put off
making a tough decision if you aren’t forced to do it now. You might put off
seeing a doctor about a pain in your arm for a while, but when it gets really
painful you won’t delay longer. The pain is the driver/motivator.
But choosing not to write a will or sign a power of attorney won’t cause any
current pain. The only driver is the knowledge that your family and/or loved
ones will suffer terribly financially, have potentially drawn out and difficult
legal entanglements, and worse.
√ Putting off making important
estate or financial decisions doesn’t make the decisions easier, it usually
makes them harder.
√ The longer you wait to make
vital financial or legal decisions the fewer options you will have! If you
don’t sign a will, power of attorney or health proxy, and you suffer a stroke
or accident, you may no longer have the competence to address these vital and
personal matters. State law or a local court will determine your fate (perhaps
by appointing a guardian), and the financial and legal treatment of your
estate.
√ Confronting a tough financial
or estate planning decision early makes it easier. If you buy needed life
insurance while you are younger and healthier it will be cheaper (it may not
even be available if you wait too long). If your retirement savings are
inadequate, saving even a modest amount each month now on which earnings
compound may make achieving your goals feasible. Waiting a few years to deal
with it may make your goals impossible to achieve.
√ Delaying investing is one of
the big reasons investors on average do much worse then the market. You should
determine an optimal allocation and periodically have your wealth manager
rebalance your portfolio towards that target allocation. It’s also pretty
common knowledge that many, perhaps most, individual investors buy high and
sell low (not a typo). The rate of return on the United States stock market
over the past 20 years was about 11.8 percent, while during the same time
period the average stock mutual fund investors garnered only about a 4.5% rate
of return. It might be tough to invest today, but if you wait for times to be
comfortable, you’ll be replicating the error most individual investors
make.
Question How do I, the sandwich
generation, prioritize between my parents and children?
Answer
√ Assess your current situation
and make a decision that fits your circumstances.
√ What options for your parents
might they have available that influence the decision? Are your parents likely
to qualify for a government programs or aide? Do you have siblings or other
family members that might help? Might your parents realistically relocate to a
less costly area thereby lowering their living costs? What about moving in with
you? These might enable you to focus more on saving for your
children.
√ What options might you have
for your children? Are there cost saving measures you can take? Scholarships?
These might enable you to focus more on helping your parents?
√ The specific needs of each of
your parents and children need to be weighed. What specific needs for each are
you meeting? If there is a medical cost for either that will likely take
priority over everything else. Try prioritizing and seeing the extent to which
that will sole some of the decisions involved.
Question I have a young
family. How can I be proactive by tackling a
will?
Answer
√ If you don’t name a guardian
for your children. A court will choose who raises your children.
Did that get your attention?
√ If you don’t name a successor
guardian for your children and the only guardian you name cannot serve, a court
will have to choose who fills the void.
√ If you don’t set up trust for
minor children to manage their money the funds may end up in a court
administered fund.
√ If you don’t buy life
insurance and your estate is modest, your children may have a horribly
difficult time having a reasonable lifestyle.
√ If you love your family act to
protect them.
Question What do I
do I’m unprepared as I approach my Golden Years?
Answer
√ Be a Boy Scout! Remember the
Motto “Be Prepared.” If you don’t prepare for your retirement no one else will
do it for you.
√ Consult with a financial
planner or CPA to jumpstart your planning. Getting a professional,
knowledgeable and objective review may be the most important step to
fast-tracking your planning (and getting realistic).
√ Perhaps you feel unprepared
because your definition or time for retirement is unrealistic. Redefine
“retirement?” Pick an age to retire that is realistic for your financial
position. How do you retire? You might be able to integrate a reduced work
schedule, converting a hobby into a part time income and take other steps to
redefine retirement to make it economically feasible. These steps might even
make your post “retirement” years more rewarding and stimulating.
√ Do the math. Start reducing
expenses and increasing savings today. Remember that the 8th wonder
of the world is “compounding”.
Question What hard
decisions must I make about marriage and money?
Answer
√ Communicate openly and involve
both of you in all major decisions.
√ Both of you need to be
comfortable with the decisions made. If either of you is not, discuss the
different views and arrive at a reasonable compromise that works. If it proves
difficult, involve an independent professional.
√ Remember if you become sick
and disabled, or die, your spouse will likely be the person handling all of
these matters. Not involving your spouse actively in all aspects of planning
will make your disability more precarious financially, and potentially
jeopardize the financial security of your spouse and loved ones if you die.
√ Get a prenuptial agreement or
post-nuptial agreement to simplify the process of unwinding the relationship if
it does not succeed.
Question Where
should I save to ensure a solid financial ground?
Answer
√ Watch the insurance limits on
your accounts. FDIC insurance covers all types of deposits received at an
insured bank, including deposits in checking, NOW, and savings accounts, money
market deposit accounts, and time deposits such as certificates of deposit
(CDs). The basic insurance amount is $250,000 per depositor, per insured
bank. The $250,000 amount applies to all depositors of an insured
bank. Deposits in separate branches of an insured bank are not
separately insured. Deposits in one insured bank are insured separately from
deposits in another insured bank. Deposits maintained in different
categories of legal ownership at the same bank can be separately insured.
Therefore, it is possible to have deposits of more than $250,000 at one insured
bank and still be fully insured. The $250,000 may be reduced in the future so
be alert for changes.
√ There are other insurances and
protections available. Inquire depending on the type of account you have.
Securities Investor Protection Corporation, or SIPC provides protection for
security accounts. There is also private insurance coverage on some
accounts.
√ Avoid investment clutter. Too
many accounts in too many institutions can undermine your estate and financial
plan. Often accounts name beneficiaries or have co-owners so that these
accounts are not distributed by your will on death. This can wreak havoc with
the best plans. Too many accounts makes it difficult or impossible to monitor
your investment asset allocation thereby undermining key financial
planning.
Question How can I
adjust your lifestyle to save more during these tough economic
times?
Answer
√ Do a budget. Sounds boring.
How do you loose weight? Eat less and exercise more. Boring but real! Forget
the fancy programs and esoteric concepts. Figure out what you are spending
money on and start finding places you can shave costs. Start with the least
painful and move towards the more difficult. It’s like when you were a kid and
twisted your friends arm until she screamed “uncle.” Cut away. Don’t overlook
little items. The small items add up.
√ Look for less costly options
for common things you do. Take the long view, however. Deferring maintenance on
your home heating system may cost much more in the long run.
- Instead of paying for a gym membership walk or jog
outside. - By bulk grains, beans and foods instead of costly
prepared, canned or frozen foods. - Eat out less often.
- Wash and hang clothes instead of paying for dry
cleaning. - Cancel subscriptions and use free on-line media.
- Be creative — each person has their own large and
small ways to save and change. - The little stuff counts.