Keep It Simple
Planning Your Final Vacation
By Gary Molatore
How much time did you spend planning your last vacation? Choosing a date, looking at maps and brochures, visiting a travel agent, going to the bank for money to pay for the trip, buying your tickets, packing your bags, lightening your load if your suitcases are too heavy, getting on the airplane, train or bus, sending letters home … what if you knew you weren't coming back home? What would the letters say if you knew you'd be gone forever? Who should your kids call for financial guidance? Who will take care of them if they are babies or minors? Where are all your bank accounts, stock certificates, safe deposit boxes? Who can access your bank accounts? How much money is available to pay the bills? Who makes the decisions? Who gets your house, the car, your jewelry, your investments, the family business or farm? When do they get these things? Who will manage your assets? Are you beginning to get the idea? Everyone takes that final vacation. Few people plan for it properly!
Your Last Will and Testament, or your living trust, are your travel documents. They're like the itinerary you get from your travel agent that specifies when you are leaving, the costs of the trip, where you are going and when you'll be coming back. Have you ever gone to a travel agent and found out later that you didn't get the lowest fare or the most convenient travel schedule? Similarly, many financial professionals don't do a complete job planning your estate. Your will and trust are the beginning of your estate plan, not the end of it. Your will needs to be coordinated with the ownership of your assets. Your estate might be too large or illiquid with lots of assets, but no cash to pay your final bills. By planning ahead you can avoid the many pitfalls of transferring an improperly planned estate to your heirs.
You might have to "lighten the load" of your estate by transferring assets to a trust or to your spouse or kids or favorite charity. Did you know you can give assets away, while you're living, and still get an income from the asset … sometimes tax-free? Visualize giving away the cow, but still getting the milk. Someone else owns, and takes care of the cow, but you still get the milk. This same concept applies to an apartment house. Give it away, let someone else unplug the toilets, and you still get your monthly income, with none of the associated headaches or costs of owning the apartment complex. Compared to selling an asset, giving it away can avoid the capital gains taxes, leaving a larger amount to provide an income for you.
And what about the potential repeal of the estate tax? Many people have put their estate planning on hold until the government finalizes the estate tax bill. Even if the government repeals the estate tax, it is not repealing the need for estate planning!
You have 5 rights and you should take advantage of all of them in your estate plan. Your 5 rights are as follows: Getting the RIGHT assets to the RIGHT people, at the RIGHT time, with the RIGHT costs and the RIGHT management. For example you might not want to give a minor your life insurance death benefit, because upon reaching maturity, the minor has full access to the money.
I had a client years ago whose husband had died and left a $200,000 life insurance death benefit to their 16 year old son. As soon as the son turned 18, his mother had to transfer the full $200,000, plus interest, to him. A year and a half and 4 cars later, he was on drugs and completely broke. The astounding rest-of-the-story is his father was an attorney who died without a will and no estate planning! Had the life insurance death benefit been paid to a trust for the benefit of the son, the trustee, his mother, could have managed the money and the son could have gone to college, bought a home or a business and would most likely still have some of the money.
Then there was the father who left his business equally to his son who was helping him run the business, and to his daughter who lived in another state. At the father's death, the son and daughter were equal owners of the business, and the daughter wanted her share in cash. The son had the choice of selling the business or taking out a bank loan or making payments to his sister. The solution would have been for the father to invest in a life insurance policy payable to his daughter, so she would get cash and the son would get the business with no strings attached.
In some cases, if there is no will, the estate is automatically split up between the spouse and the kids. I had that happen years ago to one of my clients, yep, another attorney that died without a will. The wife was more than a little surprised when she got only half of what she was expecting.
I could go on and on. Estate planning is my passion! It should be your priority, because someday you won't come home!