8/22/2012 3:51 PM ET|
7 money musts before you die
Are you your family's CFO? Part of your job is to make sure your loved ones aren't left clueless -- or poor -- when you depart this world.
Recently, my colleague Nancy Anderson wrote an interesting post about how various financial planners at our company manage their finances with their spouses. Most of the planners involved their spouses, but in many families that's simply not the case. Since you're reading this, you probably at least help manage your household's finances. You may even go it alone -- or with little involvement from your spouse. This may work well now, but what if something were to happen to you? How would your spouse manage without you?
While no one has figured out how to live forever, you can take steps to prepare your loved ones to go on without you. Here are seven moves you should make to leave your family as financially secure as you can:
1. Make sure you have adequate life insurance. This is the first and most basic step. You don't want your family to struggle to pay the bills and put food on the table without your income, yet, according to a recent study (.pdf form), about 41% of American adults have no life insurance. Of those who have it, about 40% rely solely on their employer's coverage, but this usually provides coverage only in the amount of one or two times your annual salary. This may be enough for some families to readjust, but if your spouse can't make the mortgage payment alone, and if he or she would be unwilling or unable to sell the home, you might want to make sure you have enough life insurance to pay off the loan. Even that amount might not be enough coverage. (Do you have enough life insurance? Find out with this MSN Money quiz.)
Once you know how much you need, consider purchasing a low-cost term policy from a highly rated insurer for the maximum length of time you might need the coverage. For example, if you need the policy just to pay off the mortgage and you have 15 years left on the loan, a 15-year term policy should be enough. Purchasing a more expensive whole- or universal-life policy could encourage you to get less than you need or force you to drop the policy if financial difficulties make the premiums unaffordable. It may be tempting to purchase additional coverage through your employer, but keep in mind that if your health deteriorates, you may no longer be able to purchase a policy on your own after you leave your job. Finally, choosing a highly rated insurer means a better chance that the insurance company will still be in business when your family needs it. You can search for policies that meet these criteria at sites like Term4Sale and Insure.com.
2. Keep your beneficiaries updated on retirement accounts, annuities and life insurance policies. You may have hastily put someone down as your beneficiary when you opened your individual retirement account -- or even left it blank. This could lead to your ex-spouse inheriting most of your assets, your child being unintentionally disinherited or your heirs having to pay higher taxes and probate fees than necessary. (All things being equal, there is an advantage in making your spouse the sole beneficiary of your retirement accounts, because he or she can roll your accounts into his or her own to postpone taxation; children and other heirs can't do that.)
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3. Research whether you can add beneficiaries to your other assets. Some states allow you to add beneficiaries to bank and investment accounts, and even to your home and vehicles, saving your heirs the time and cost of probate. Simply ask your bank for a "payable on death" form and your investment company for a "transfer on death" form. There are a few more steps for homes and vehicles, but the process is still relatively simple. With these forms of ownership, your beneficiaries would simply need to provide a death certificate and a valid form of identification to take ownership of the property. Otherwise, they may have to wait months and pay legal fees before having access to the money or property.
4. Draft a will. While you may not mind having the court decide who will inherit your property, you probably don't want it deciding who will raise your children. For parents, being able to name their children's guardian if something should happen to both adults is often overlooked, yet that is one of the most important things a will dictates. You can get instructions and templates for writing a basic will online but it's a good idea to have a qualified estate-planning attorney review your documents (which should cost less than having the attorney write the will from scratch).
5. Consider creating a trust. Do you have a taxable estate (currently $5.12 million but scheduled to drop to $1 million next year), property in multiple states, a child with special needs or a will that might be contested? These are all reasons to consider hiring an attorney to draft a trust. It's more expensive than a will, but it can be worth the cost if you have a complex financial or family situation.
6. Try to involve your spouse in family finances. This may be easier said than done, but it's worth a try. Set aside a time to review your finances. Recommend your favorite personal finance publications or shows. Invite your mate to a financial workshop. At the very least, introduce him or her to any financial professionals you work with.
7. Make a record of where everything is. You can draft the greatest estate-planning documents, set up the perfect accounts and work with all the right professionals, but that won't do your spouse much good if no one can find those things -- or even knows they exist. One of our planners uses the financial website Mint.com partly to record his family's financial assets. Others prefer to keep everything written down and in a safe. Find the system that works for you.
These steps may seem simple, but you'd be surprised by how few people have taken all of them. It's not as if we don't love our families; we just don't like to think about death. Still, it is one of the few certainties we have in the financial world (along with taxes and market fluctuations). It's not a question of "if" but "when" -- and whether your family will be prepared.
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Now I have much more "stuff", my wife has passed away, we had no children, and I have to decide who gets what, including what I want to distribute to my late wife's family. They have worked to keep me involved, even giving me my wife's share of her father's estate even though he passed away two years after she did. It saved me, at the time, and I will not forget that generosity. I deserves and requires reciprocity. A fact that will complicate my final will and testament.
Before I can write/draft a more current will, however, I need an accurate description of all of my assets. The bank accounts and the value of my home are relatively easy, but my other possessions (i.e. high quality furniture, etc) is more difficult to estimate. Some of it is high-quality, 50 year old stuff from Ethan Allen and Thomasville. I have no idea what it is truly worth. My first thought is to hire an insurance loss estimator, as an independent contractor to do a good faith survey. After that the will would be easy.
Any thoughts on the subject?
Why think ahead live day by day, Ye sure! plan all you want. That in a blink of eye you life can change.
You might be 20, 30, 40, even 50 years and start planning for death, No-one really knows when they are going to die (unless you have a deadly illness).
The best advise I have heard is don't drown in debt, save a little and live a lot without hurting no-one.
Children and families will continue to live, they carry for a time and then the dead are forgotten.
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