Tuesday, November 29, 2011

Estate Planning Essentials

Provided by:

Regina Beatty, CRPC

Mosaic Consulting

Private Wealth Advisors

One Northgate Square

Greensburg, PA 15601



The purpose of an estate plan is to take care of your loved ones, and your legacy, after you’re gone. But the logistics of how to do that may not be so obvious.

While the basics are straightforward—you likely have a will and have filled out beneficiary forms for investment accounts and insurance policies—you may not be sure about when and how to implement more sophisticated tools such as trusts. “There is no one-size-fits-all approach,” says Elizabeth Schwartz, an estate planning attorney in Miami. “The process will be different for everybody because each estate has a unique set of circumstances to consider: number, if any, of children, how complicated your assets are, the maturity of your beneficiaries; it’s really a bespoke process every time.”

Still, there are some common focal points that can help you begin. Often, Schwartz says, life changes—from an illness to a new marriage—are common catalysts that force some to begin thinking about their estate plan. But a more proactive approach has advantages, from ensuring tax efficiency to guaranteeing family harmony.

First steps

If you don’t already have a will, draft one now. This can be as simple as working with a lawyer to spell out who will serve as guardian to your young children or who will serve as trustee to distribute your assets and oversee the execution of your estate plan.

At the same time you write your will, draft a durable power of attorney giving the person you name the authority to manage your financial affairs if you are unable to. Likewise, a healthcare proxy authorizes someone you trust to make medical decisions on your behalf, and it’s a good idea anytime—especially if you are single.

Turn to trusts

Trusts are powerful tools that can allow you to pass a portion of your wealth to your heirs in tax-efficient ways, set limits on the ways the assets can be used, and provide a degree of protection for the recipients. Generally, trusts are seen as something that only those who enjoy “family wealth” should consider. “But there’s no real threshold,” Schwartz says. “It’s different for each situation. Something as simple as having minor children or a spendthrift family member may call for the creation of a trust.”

Many people establish trusts in their early to mid-50s, when they’ve accumulated significant wealth and have begun thinking about their legacies. That said, you may hit that threshold much earlier. To determine whether a trust makes sense for your long-term plans, it’s important to square your vision of the future with the tools available to create it and the tax laws that will form it. Because of this, it’s important to review your assets with your tax professional and your financial advisor every couple of years.

Consider long-term care costs

Long-term care (LTC) insurance can help you protect your assets and those of your family if you become chronically ill. Schwartz recommends shopping for a policy at about age 50. That age represents a sweet spot: You’re young and likely healthy enough to qualify for a cost-effective policy, and you’re earning enough to pay for it.

The policies’ expense raises the question: Why bother? A quick review of long-term care costs illustrates the importance of protecting against the possibility of a chronic condition. Today’s 65-year-olds have a 40% chance of entering a nursing home, according to the Dept. of Health and Human Services.* The cost can be steep and may put a sizable dent in the assets you were hoping to leave to loved ones.

Keep it up

Tackling those steps is a good foundation, but a solid estate plan needs regular maintenance. Be sure to review your documents every three to five years to make sure they still reflect your wishes and changing life situations, such as deaths and births in your family. Also, a significant shift in your financial situation, real estate purchases and sales, a substantial inheritance, or changes to the tax code would be a good time to check in with your advisors.

“There are no hard-and-fast rules as you’re doing this work,” Schwartz says. “Talk to your advisor and your estate planning attorney. There’s never a bad time to do this work—just know that it’s never too soon.”

The content of this material was provided to you by Lincoln Financial Advisors Corp. or Lincoln Financial Securities Corporation for its representatives and their clients.

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