Losing a loved one is an incredibly difficult experience that many people would prefer never to think about. But the unfortunate reality is that we will all pass one day, and the grief around losing someone is often exacerbated when there are no clear financial or estate plans in place. That’s why proper estate planning is a crucial component of a comprehensive financial plan, and it can be one way to alleviate the pain of loss. In this article, we’ll explore the top 5 tips for taking care of your loved ones through proper estate planning.
Clearly Define Your Wishes With a Last Will and Testament
The first step in creating a proper estate plan is to clearly define your wishes with a last will and testament. A will is a legal document that outlines how you want your assets to be distributed after you pass away. This document can include details about who should inherit your assets, as well as who you want to be responsible for managing your estate. Most importantly, a will is used to identify a legal guardian for your minor children should you pass away before they become legal adults. If you don’t specifically name a guardian, the choice will be made by the court with no input or consideration for your preferences.
Name a Trusted Person to Enact Your Plans
Once your wishes are outlined, you can name a trusted person to enact your plans. There are several documents you can use to make sure both you and your loved ones are fully protected in the event of incapacity or death.
These documents can provide comfort and alleviate unnecessary stress in what is an otherwise already extremely stressful situation.
- Medical directive: This document outlines what type of life-saving intervention you would like and in what situations it should be used. This can help your family find solace in their decisions because they know they align with your wishes.
- Healthcare proxy: Identifies a specific person who is authorized to make medical decisions on your behalf. Without a healthcare proxy, your medical decisions may be left to someone you didn’t choose.
- HIPAA authorization: Allows an authorized individual to receive your medical information in the event of an emergency. Not everyone in your family is automatically entitled to receive important medical information on your behalf. If there is someone specific you would like to make decisions, make sure they are also authorized to receive your healthcare information.
- Power of attorney (POA): Allows an authorized individual to make decisions on your behalf, including financial and business decisions. A POA can help in times when you are incapacitated due to illness, injury, or disability, or even if you are simply unavailable to make a decision (like if you are traveling).
If there are no documents in place, conflict can arise between who should make the decisions and what course of action should be taken. Take the guesswork out of your financial and medical wishes so your beneficiaries have a clear idea of your preferences.
Make Sure You Have Sufficient Resources in Place to Provide Support
Taking care of your loved ones doesn’t stop with having the proper documentation in place. It also involves making sure you have the right resources to provide ongoing support that is safeguarded from erosion by taxes or inflation. Insurance products like life insurance and annuities can be effective ways to accomplish this goal.
Life Insurance
Life insurance policies can be used to provide financial support for a variety of purposes, such as paying off debts, covering ongoing expenses, and providing for future needs. It’s also a tax-efficient way to provide for your loved ones since the death benefit is not considered income to the beneficiary.
The type and amount of coverage you need depends on your specific life situation, but there are two main types of life insurance:
- Term life insurance is typically the least expensive option since it provides coverage for a specified period of time only and does not have a cash value. Once the term lapses, the death benefit and premiums paid will be forfeited.
- Permanent life insurance is more expensive than term because it covers you for your entire life. As long as you pay the premiums, your beneficiaries will receive a death benefit when you die. Permanent life insurance also has an investment component known as cash value. This cash value grows over time and can be used to help pay premiums or it can be borrowed against in case of an emergency.
In general, you can consider 10 to 20 times your annual salary as a baseline amount of life insurance coverage. For instance, if you make $75,000 per year, consider $750,000 to $1.5 million in coverage. For a more detailed insurance analysis, be sure to consult with a financial professional.
Annuities
An annuity is an insurance product that pays out a stream of income either for a set period of time or for life. Similar to other insurance policies, you sign a contract with an insurance company where you agree to pay a premium amount (either lump sum or monthly payments). These funds are then invested by the insurance company and paid out to you at some point in the future. Annuities provide guaranteed income to the purchaser and can be structured to continue these payments to your spouse or other beneficiary after your passing. Some companies even offer inflation riders to protect the long-term purchasing power of your income.
Annuities will not make sense in every case, so be sure to consult a financial professional before purchasing any insurance product.
Make Provisions for Special-Needs Relatives
If you have a family member with special needs, it’s important to consider their long-term financial needs and make arrangements to make sure they are taken care of after you pass away. One option is to set up a special needs trust, which is a type of trust designed to provide ongoing financial support to a person with special needs without impacting their eligibility for government benefits. The trust can be set up to provide for their ongoing medical and living expenses, as well as other needs they may have. Another option is to designate a guardian for your special-needs loved one in your will. This person will be responsible for making decisions on their behalf and ensuring that their needs are met.
Engage the Help of Trusted, Qualified Professionals
Estate planning involves complex legal and financial issues that require the expertise of professionals with experience and credentials in estate planning, tax planning, and financial planning.
When selecting professionals to work with, it’s important to choose individuals who are experienced and knowledgeable in their field. Look for professionals who have specific experience, such as estate planning attorneys, financial advisors, and tax planners. These individuals can help you navigate the complexities of your plan, verify that your plan is legally sound, and minimize the impact of taxes on your estate.
At Wilkinson Wealth Management, we have the tools and experience to help you create a comprehensive financial plan that includes planning for your loved ones after you pass. For more information about how we can help, call 434-202-2521 or email susan.wilkinson@lpl.com to schedule an appointment.
About Tom Antonelli
Tom is a Senior Wealth Advisor / Financial Advisor at Wilkinson Wealth Management. He joined our team in 2019, is a Chartered Financial Analyst®, and has over 40 years of experience in investment and portfolio management. He believes that an individualized, custom investment process coordinated with the clients’ overall financial planning and wealth goals creates an excellent opportunity for success.
Tom is married and resides in Lynchburg, Virginia. He enjoys traveling with his family and friends, especially when it involves his favorite outdoor activities of skiing, tennis, and mountain biking.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Wilkinson Wealth Management, LPL Financial, and Private Advisor Group do not provide tax or legal advice or services.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice.
Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.