Retirement Income Blog

Will planning, trust planning and estate planning is not just for older people.  It’s for anyone that wants to avoid heartache for those they love. It’s simply a asset of instructions to distribute property to those who you want to have your property. 

If you have a will your property will go to those you want to have it and there is no other way for you to have this assurance because the State will determine who gets your assets if you don’t have a will.  Additionally, by planning your will, friction and arguments will be lessened among beneficiaries.  Without your instructions, how will they know who gets what?  Moreover, the potential for large legal fees and court costs can be minimized because you avoid litigation among family members.  And of course, with proper will planning, The estate will be settled more promptly.  A good retirement planning calculator will help you estimate the size of your estate to be planned.

The major aspects of the planning are
1. To decide who you want to name as beneficiaries (both primary and contingent)
2. What you want each beneficiary to receive
3. You can name an executor/executrix to manage the distribution of your assets
4. If you have children, can name a guardian to care
5. Make an charitable bequests

Some people avoid will estate planning because of superstition—that if they plan the distribution of their assets they will die.  You will be comforted to know that there is no research or statistics to support this.  In fact, there’s a statistics floating around that 75% of attorneys die without a will.  That would support the case that people without a will are more likely to die!  So plan and prepare your will now!

Don’t delay estate planning because there are things you cannot decide.  For example, if you are torn about which beneficiaries to indicate or what to leave them, just have a will made anyway with your “best guess.”  You can always change it later.  And since you can use will planning and preparation software, you can change your mind as often as you desire without cost.  Or you may be undecided about charitable beneficiaries.  Again, you can change, add or delete charities at any time to your will.

Below find the information you need.  If you don’t want to prepare your own will, it’s a relatively inexpensive attorney’s fee to have it done. 

• Names and address of each beneficiary.  If a relative, state relationship.
• If any of your beneficiaries were to predecease you, name the contingent beneficiary (next in line)
• List specific bequests to be made to each of those persons listed above. Describe the gift, the amount of money or percentage of the estate to each recipient.  It’s best to use percentages.
• Names and addresses of charities for charitable requests and amount (again, best if a percent of your estate)
• If minor children are living at the time of making a will, you should name a guardian for their care. 
• Appoint your executrix/executor. Husband and wife often name each other. Specify if they will serve without being bonded in administering your estate. Again an alternate should be named.

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One of the topics we cover on this blog is estate planning as its unlikely you will spend every last dime before you die.  So let’s consider trust planning and how to leave assets to your heirs, just in case there’s some money left over.

I am a big fan of leaving money in trust to provide trust income to your heirs and not leaving assets outright.  Leaving assets outright has several problems:

• Your heirs may blow the money, intentionally or not
• The creditors of your heirs can get at it
• An alienated spouse can get at it (if they are clever)

If you leave money in trust, you can set it to give your heirs a trust income and not expose the principal to any of the above problems.  Of course, you can provide additional flexibility through the trustee.  You can empower the trustee (the person who is responsible for the trust on behalf of your heirs), to make discretionary distributions of trust income.  For example, if you your heirs get $20,000 annually from the trust, you can empower the trustee to make additional distributions of trust income or trust principal for certain purposes such as education or starting a business or buying real estate.

It’s important that the trust distribute its income each year because trust income left in the trust is taxed at very high rates:

By distributing the trust income to the beneficiary, the trust will not pay any tax and the income will be taxed to the beneficiary at much lower rates.

How important is trust planning?  You can consult retirement income calculators to see how much income you need, how much of your assets are likely to not be exhausted and to what extent to carry out estate planning.

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You may hear a lot about retirement planning. Estate planning is an essential part of retirement planning although many people aren’t aware of all that it encompasses. So they put it off until it’s often too late. Many assume that trust and estate planning is for the wealthy.  But that’s not so.

Let’s take a look at what estate planning addresses and why it’s important to begin it ASAP.

Estate planning services address these key questions:
• Do you want input into how you’d like to be taken care of when you become incapacitated?
• Do you want to be sure that your assets go to the people you choose when you die?
• Would you like to eliminate or minimize needless loss of some or all of your assets when you need long term care?
• Would you like to minimize excessive taxes on what you want to give your beneficiaries?
• Do you want to prevent public exposure, costs and delays of probate?

These are important questions and virtually everyone will answer ‘yes’ to all of them. Making arrangements to satisfy each question is what estate planning services are all about.

But what’s especially important is making arrangements to address these questions ASAP because of these 4 circumstances:
1. You never know when you’ll die
2. You never know when you’ll become mentally incapacitated
3. You never know when you may need long term care
4. Arranging satisfactory solutions to some of these questions requires 3 to 5 years lead time - at least - before these circumstances occur!

Consequences of not addressing these questions are:

Incapacitation:

• You’re treated in a manner you would never wish to be.
• Someone other than your choice determines how your money is used and distributed.
• Your assets go to someone not of your choice:
• With no will, your assets will be distributed according to state rules – not your wishes.
• Without a trust, you must trust your current spouse to give assets to your previous children

Long term care:
Without long term care insurance or a lot of wealth, paying direct long term care costs can wipe out a small estate easily.  Can you afford to do so?  Check the retirement income calculator.
Gift and estate taxes:
If you’re estate is worth some millions of dollars, estate and gift taxes above an uncertain exclusion level in years beyond 2010, can rob up to 45% of it.
Probate:
Public exposure on who’s getting what can trigger legal claims and hard feelings between potential beneficiaries and other relatives.

The table shows you estate planning services to address each estate planning question.

Estate Planning Questions and Tools
Estate planning questions Tools to address it
How should you be taken care of? • Living will or
• health care power of attorney
• Springing power of attorney
Assure your assets go to beneficiary of your choice? • Will
• Trusts
• Joint ownership
• Appropriate designation for beneficiary on account type (insurance, IRAs, bank accounts)
Lose your assets to long term care costs? • Medicaid planning (early transfers and gifting)
• Long term care insurance
Lose your assets to excessive estate and gift taxes? • Annual gift exclusion
• By-pass Trust
• Irrevocable trusts
Avoid probate? • Avoid sole ownership of any assets
• Revocable living trusts

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