Estate planning shouldn’t wait for your later years
You don’t need to be wealthy to have wealth. That thought came to mind recently when reading a report that Connecticut residents, on average, have the largest retirement accounts in the nation.
Residents here reportedly have an average of about $545,000 in retirement savings, according to a report published by Bloomberg, based on an analysis by Personal Capital. That’s just ahead of New Jersey’s $514,000 and New Hampshire’s $512,000.
Regardless of where you happen to be on the wealth spectrum, however, there is reason to plan for your financial future. And you definitely do not need to be on the high end of accumulated wealth to make estate planning part of your consideration, sooner rather than later. It will be time well spent.
Estate planning has a clear mission — to ensure that your assets and belongings are handled according to your wishes after you pass or become incapacitated. And it is not only for those on the brink of retirement to think about — in fact, there’s good reason to raise the topic well before reaching traditional retirement age.
Nearly two-thirds of Americans working with a financial adviser have never discussed estate planning with their adviser, according to Edward Jones research. And only one-third of millennials and Gen Xers have discussed estate planning with their financial adviser. The number nudges up to 38 percent of baby boomers.
Yet estate planning is a vital piece of financial planning. Having a plan in place can help your beneficiaries avoid probate court and the uncertainty it creates around everything you have worked to achieve. More often than not, probate can end up costing up to 10 percent of the entire estate — and can take months, or even years, to resolve.
If this is a subject you’ve not considered, you should know that an estate can include houses, cars, stocks, pensions, life insurance, artwork or similar valuable investments, and outstanding debt. All of these items — and more — become part of the equation.
There are some key definitions that merit understanding as you begin to consider navigating through estate planning. Most of us are generally familiar with a will — a legal document establishing how your assets should be divided upon your passing. Wills can also be used to designate who will care for your children upon your death.
Here are four other key definitions worth knowing:
A trust is a financial arrangement in which assets (or other property) are controlled by trustees for the benefit of a designated beneficiary and funded by a grantor. Trustees can be an individual or an entity. Terms are agreed upon by the grantor and trustee. In some instances, trusts are set up to benefit an individual without giving that person ownership. For example, a trust can be set up for a child, funded by the child’s parents, and overseen by a person you’ve designated.
The grantor of a trust is the person who sets it up, designat- es how it should operate, and funds it. In some cases the grantor may also be the trustee and/or beneficiary.
A beneficiary is an individual(s) or entity who ⏩ will receive assets upon the death of the owner. If the primary beneficiary is not living, assets would then go to the contingent, or secondary, beneficiary. There are two choices when designating beneficiaries: per capita or per stirpes. Per capita divides assets evenly among the surviving beneficiaries. Per stirpes divides the assets of what would have gone to a deceased beneficiary to the next generation of that beneficiary. So, if you have two children, for example — Andrea and Richard, you could choose “per stirpes” so that if Richard were to predecease you, his half of your money goes to his children rather than his sister Andrea.
Power of attorney gives authorization to an ⏩ individual you select to make decisions and act over your finances, property, and/or health care. (Power of attorney becomes void when that individual dies, if you revoke the authority, or upon divorce if your spouse was the agent.)
You’ll also want to understand revocable trusts and irrevocable trusts, as well as insurance options and various approaches to long term care insurance. It is estimated that 70 percent of people will need long term care at some point in their life.
Your wealth is worth preserving, to the extent possible, in the manner you prefer. Estate planning with a financial adviser can develop an all-encompassing blueprint that is customized to your specific preferences and priorities.
Importantly, it also helps ease the burden from your family of making difficult decisions during a challenging and often overwhelming time — whenever that time comes. Estate planning can provide peace of mind, then and now.
Estate planning has a clear mission — to ensure that your assets and belongings are handled according to your wishes.