Archive for August, 2011

The best way to introduce the concept of heritage planning is to ask you to do a simple mental exercise.

If you could look 50 years into the future and witness a gathering of your entire family, what would you like to see going on?  What kinds of conversations would you like to hear?  What would you want your family to feel?

Now think about the financial and estate planning you have done to date and ask yourself this question:

How far will that planning get me towards the picture of my family that I’ve just envisioned?

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Article summary: the differences between, and uses for, power of attorney, medical power of attorney, and living will documents.

These three papers are part of what we call your essential documents (the other being your Will).  These documents specifically allow other people to make certain medical or financial decisions for you, in the event you are incapacitated or otherwise unable to decide for yourself.  The catch, of course, is that the power these documents provide has to be granted in advance of the incapacitating event.

Put another way, you should probably have these documents drawn up before you are diagnosed with a mental or terminal illness, or have a catastrophic incident. More »

If you’re invested in the stock market, the month of August may have left you feeling a little woozy.  Since August 1, the US stock market has had daily losses in excess of 4% three times (and is working on a fourth as I write this).  It’s also had two days in excess of 4% gains.  The second week of August particularly was a roller coaster (down 6.5%, up 4.5%, down 4%, and up 4.5% on consecutive days).  If you regularly pay attention to your stock market investments, it’s enough to drive you crazy.  If you are no longer working and are living off your retirement assets, it can be downright frightening.

The Wall Street Journal had a short article in its Aug. 16 edition on investing lessons drawn from Sam Walton (founder of Wal-Mart) and his family, the wealthiest family in America.  It  essentially boils down to two very important principles: 1) plan (and act) for the long run and 2) maintain as much financial flexibility as possible for the short run.

Good principles to invest by, and ones that can help make the short term volatility a little less stomach-churning.

Article summary: What a will is, what things you must have to make your will legal, common parts to a will, and some other things to be aware of when making out your will.

Will (n.): a legal declaration of a person’s wishes regarding the disposal of his or her property after death, especially: a formally executed, written instrument by which a person makes disposition of his or her estate to take effect after death.

It sounds a little ominous, when written like that.  Maybe it’s easier to read it like this:

Will (n.): the desire, inclination, or choice of a person.

That’s a little easier to cope with.

In previous blog posts we’ve covered common excuses people give for not creating a will and looked at a few real-life examples where having a will is better than not having one.  Now let’s examine the will in a little more detail, and touch on the legal (probate) process all wills eventually go through.

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At least, that’s what SmartMoney (part of the Wall Street Journal network) calls them, though that may be overselling the point a bit.

Now that we are eight months removed from the Tax Relief Act of 2010, tax and estate planning professionals have had a good chance to digest some of the implications of the Act.  Among the things SmartMoney notes are potential changes to asset protection strategies, certain types of trusts, and the hazards posed by individual states that have their own estate tax regime (16 of them, plus the District of Colombia).  The most salient point for me is the one on “formula clauses” in wills.  Excerpt:

Let’s say you and your spouse have $4 million, divided equally. Your will, prepared in 2001, might very well call for “an amount up to the federal estate-tax exemption” to be transferred to a trust for the benefit of your children, with the balance passing to your spouse. The exemption in 2001 was $675,000, so if you died that year with a $2 million estate, the former amount went to the trust, and $1.3 million went to your spouse.

It’s a different story now that the estate-tax exemption has risen to $5 million. If you die tomorrow with a $2 million estate, the same wording would deliver all that money to the trust. Your spouse gets nothing.

Changes in estate law should always be an opportunity for you to re-look at your will and the rest of your intentional estate plan, just to ensure that what you want to happen when you pass away is actually what will happen.

Article summary: We consider some real-life scenarios in which an intentional estate plan would be beneficial.  State probate law is an inflexible, one-size-fits-all estate distribution option that is unlikely to meet with the approval of the deceased or the heirs in most of these cases.

Last week I talked about three common reasons people give for not wanting to create an estate plan.  Let’s take a look now at some good reasons to make an intentional estate plan.  It is important to realize there are common family dynamics that state probate laws do not consider.

If any of these situations describe your family and you have your own ideas on how your assets should be taken care of upon your death, you’re going to need to be proactive.  Otherwise, you’re at the mercy of the courts and the law.

Consider these various scenarios:

• You are childless and have always been so.
• You have children who are still minors.
• You have children who are deceased…who had kids of their own before they passed away…or who were childless before they passed away.
• You have step-children.
• You have adopted children.
• You have estranged children.
• You have a special needs child…or more than one.
• You have children of vastly different ages, stations in life, income-producing capacity, money-management skills, or levels of maturity.

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The Wall Street Journal takes a look at what can happen to your digital life after you pass away.  WSJ recommends making a list of your online accounts, usernames, and passwords to help those you leave behind close the doors on that part of your life.  I believe this is a need that will only grow stronger as more people shift more of their lives online in the coming decades.

In another real life example of how it pays to be completely clear on who gets what when it comes to passing assets, we have this story from Illinois.  This might have been prevented if the father had been more explicit in his wishes, or at least recognized the potential for conflict ahead of time.  As it is, it’s another sad example of how (any amount of) money can potentially strain family relations upon the death of the parents.

As an aside, for many years The ACU Foundation used to give away a book called Who Gets Grandma’s Yellow Pie Plate?, which focuses on how to go about distributing unique, priceless family heirlooms when there is more than one heir.  We have a handful left in our office (I just checked – about 15 copies as of this writing); if you’d like one at no charge, just contact our office.  You can also find them through Amazon for about $7 at the link above.

In today’s regular post, I mentioned the possibility of creating a do-it-yourself will using software.  I came across this article that discusses Consumer Reports look at three different DIY will software packages.  CR created different wills from those software packages and had the completed documents reviewed by a law school professor who specializes in estates and trusts.

Upshot: DIY software might be okay for very basic wills, but not much else.  Money quote:

“We found one good use for all three of these products — education,” said Tobie Stanger, Senior Editor, Consumer Reports Money Adviser. “Going through the interviews forces you to think about issues like who should be the alternative executor, and who gets your estate if your spouse and kids don’t survive you. This information is easier to digest in interview form than reading is as straight estate law.”

Article summary: Between 60-70% of Americans do not have any formal estate plan.  We take a closer look at three common reasons given for not creating an estate plan.

Depending on the study you read, somewhere between 6 and 7 out of every 10 Americans do not have a will, let alone an estate plan.

At The ACU Foundation, we operate under the assumption that every adult needs an intentional estate plan.  Young or old, rich or poor, six children or none – we believe everyone needs an estate plan, and everyone can create an estate plan.  Yes, that means you.

But why do we think it’s so important?  And what kinds of things keep people from actually following through with creating an estate plan?

Let’s start with a simple definition: what is an intentional estate plan? More »