Where is your money and how will you get at it…when you need it most? Having a plan to get at what you need when you need it is the core of financial planning. Developing a “Money Access Plan” or M.A.P. is essential.
Consider these situations:
- Are you suddenly on your own or forced to assume greater responsibility for your financial future?
- Unsure about whether you’re on the right track with your savings and investments?
- Finding yourself with new responsibilities, such as the care of a child or an aging parent?
- Facing other life events, such as marriage, divorce, the sale of a family business, or a career change?
- Too busy to become a financial expert but need to make sure your assets are being managed appropriately?
- Or maybe you simply feel your assets could be invested or protected better than they are now.
These are only some of the many circumstances that prompt people to contact someone who can help them address their financial questions and issues. This may be especially true for women, who live longer than men on average and therefore may face an even greater challenge in making their assets last over that longer life span.
One of the best things you can do for yourself and your family is to be prepared to manage your finances responsibly. Even if you see investing as overwhelming or complicated and boring, you need to know the basics behind a well-thought-out investment strategy — at least enough to protect yourself from fraud and/or communicate effectively with a financial professional or spouse. If you feel that consulting an expert might be helpful, don’t postpone making that call. The sooner you get your questions answered, the sooner you’ll be able to pay more attention to the things — family, friends, career, hobbies — that an organized financial life could help you enjoy.
WHO NEEDS ESTATE PLANNING?
- OVER 18
- YOUNG & SINGLE
- UNMARRIED COUPLES
- MARRIED COUPLES
- MARRIED WITH CHILDREN
- ELDERLY OR ILL
Since incapacity can strike anyone at
If you’re young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don’t, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).
You’ve committed to a life partner but aren’t legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.
For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse’s estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning. You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die’s estate tax exclusion, and a credit shelter trust created at the first spouse’s death may still be advantageous for several reasons: Portability may be lost if the surviving spouse remarries and is later widowed again The trust can protect any appreciation of assets from estate tax at the second spouse’s death The trust can provide protection of assets from the reach of the surviving spouse’s creditors Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse (but a $152,000 annual exclusion, for 2018, is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.
If you’re married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them. You may also want to consult an attorney about establishing a trust to manage your children’s assets in the event that both you and your spouse die at the same time. You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.
If you’re in your 30s, you may be feeling comfortable. You’ve accumulated some wealth and you’re thinking about retirement. Here’s where estate planning overlaps with retirement planning. It’s just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).
Depending on the size of your estate, you may need to be concerned about estate taxes. For 2018, $11,180,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent. Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2018, the GST tax exemption is also $11,180,000, and the top tax rate is 40 percent. Note: The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half. Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.
If you’re elderly or ill, you’ll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.
A financial professional can apply his or her skills to your specific needs. Just as important, you have someone who can answer questions about things that you may find confusing or anxiety-provoking. When the financial markets go through one of their periodic downturns, having someone you can turn to may help you make sense of it all.
If you don’t feel confident about your knowledge of investing or specific financial products and services, having someone who monitors the financial markets every day can be helpful. After all, if you hire people to do things like cut your hair, work on your
How much annual income will you need?
If you aren’t able to answer this question, you’re not ready to make a decision about retiring. And, if it’s been more than a year since you’ve thought about it, it’s time to revisit your calculations. Your whole retirement income plan starts with your target annual income, and there are a significant number of factors to consider; start out with a poor estimate of your needs, and your plan is off-track before you’ve even begun.
Determine Your Retirement Income Needs
It’s common to discuss desired annual retirement income as a percentage of your current income. Depending on who you’re talking to, that percentage could be anywhere from 60 to 90 percent, or even more. The appeal of this approach lies in its simplicity. The problem, however, is that it doesn’t account for your specific situation. To determine your specific needs, you may want to estimate your annual retirement expenses.
Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you retire.
A good investment portfolio will spread your risk
It is an almost universally accepted concept that most portfolios should include a mix of investments, such as stocks, bonds, mutual funds, and other investment vehicles. A portfolio should also be balanced. That is, the portfolio should contain investments with varying levels and types of risk to help minimize the overall impact if one of the portfolio holdings declines significantly.
Many investors make the mistake of putting all their eggs in one basket. For example, if you invest in one stock, and that stock goes through the roof, a fortune can be made. On the other hand, that stock can lose all its value, resulting in a total loss of your investment. Spreading your investment over multiple asset classes should help reduce your risk of losing your entire investment. However, remember that there is no guarantee that any investment strategy will be successful and that all investing involves risk, including the possible loss of principal.
Consider an analysis of your current coverage:
Do you currently have the appropriate amount and type?
Whether you need more or less, is there anything better available?
Over the last few years, life insurance is one thing that has actually gotten cheaper – and better. Changes in interest rates, mortality rates, and the regulatory environment make today’s products much different than they were even a few years ago. There are many options in the market today that feature longer guarantees, more flexible premiums, and additional features and benefits that were unheard of until recently. Reviewing your life insurance doesn’t have to mean buying more insurance. Much like any other part of your financial strategy, it needs to be something that works perfectly – for your situation.