This is a post you don’t want to read or think about. It’s about what happens to your money and what’s left of your hard-earned wealth when you’re dead. It’s about a very important topic that is not urgent until it is urgent.
I’m going to tell you about the three kinds of possibilities (and there are only three) when it comes to estate planning.
But first I’m going to share a story about my visit to a client’s home with a very good lawyer, whom I will call John, who I hoped would be able to help the client make good wealth-transfer decisions.
The client, whom I’ll call Curt, lived modestly and had invested conservatively and had a large net worth. However, in spite of taking care of his family and his money, he had done little in the way of wealth-distribution planning. To make it worse, he had some health issues and some family circumstances that needed to be addressed.
When we sat down at Curt’s house, he rambled on about this and that and kept saying, “If something happens to me.”
Finally John said, “Curt, I hear you saying, ‘If something happens to me,’ but you need to understand this. You are 83 years old, you’ve been nursing several ailments, and I believe that every time you start to say ‘If something happens to me’ that you need to say, ‘When I die’!”
Befuddled, Curt looked up and said… “You know, you’re right.”
It’s a good lesson for all of us to make it a habit to plan for our passing every day, with the intent to live past 100, happy and healthy.
Now that you’re ready to think about “when I die,” here are possible scenarios.
The first group of people is the largest by far. They own limited, if any, wealth to transfer to anyone at death. Do they need to plan for death?
When someone dies, even if there are limited resources, details almost always need to be addressed. Final expenses need to be paid (for end-of-life care, funerals, etc.), insurance might need to be collected, utilities disconnected, house and or car sold or transferred. You get the drift.
Consider this: You’re a young person or a beginning accumulator… Do you need a will? Do you have children in your care?
You should designate who will have custody of those children if you (or you and your spouse) die.
Make a list of what you own and owe, including the names on the assets or accounts. Then write down everything that’s important to you and go see a lawyer to arrange your accounts with correct titling (maybe joint accounts will accomplish some of your goals). You’ll probably also need to draft a will and other end-of-life documents (such as a power of attorney for health-care decisions).
The second list of people is much smaller; these people are the bulk of my firm’s clients. They probably have enough money to live out their life comfortably. Throughout their lives they can make donations to their favorite charities or their church by writing checks. They probably transfer some cash or other assets to heirs, to help out and to see how the money will get used when they are gone.
Their legal planning is more involved than the first group and might involve more thinking and additional documents, like trust agreements. Also, since their assets might grow and family situations change, these people need to review and revise all their estate documents with some regularity or at least when their financial or family circumstances have changed.
They should consult with a professional, experienced in the area of planned giving, and contemplate charitable intent both during their lifetime and at end-of-life.
The last of the groups is the top of the so-called “1%.” They have significant assets, far more than they will need to live the rest of their lives.
Like the other groups, they need legal advice and counsel but might also need to work with a financial professional to determine the amount “X,” which is the money and resources that they need to live the rest of their life or lives. They then can consider the amount greater than “X” to use for lifetime gifts to family and other heirs and to make meaningful lifetime contributions to charities that can have substantial impact during their lifetime.
Significant planning opportunities can arise that involve tax-wise transfers during lifetime and at end-of-life.
Most important, these fortunate people should review their wealth-transfer plans on an ongoing basis or at least annually as their substantial assets can grow and create additional planning and gifting opportunities.
Actions you can take:
- Make a list of your asset and liabilities (what you own and amounts you owe)
- Consider which of these groups describes your situation
- Seek valuable advice from your attorney and/or financial professional
Further information on the basics of estate planning can be found in my book The Eight Points of Financial Confidence.