Financial Fitness Challenge
Your Fitness Challenge
Imagine that your recently deceased mom promised you her life savings, but she never updated her will, so the inheritance went to her ex, whom she never divorced. Or consider the hardworking mama facing an unexpected illness who suddenly realizes she hasn't designated a guardian for her young son, and there are no plans for how her finances should be used to support him if she is unable. These end-of-life scenarios are the sort that can send anyone into an emotional tailspin. But you can head off the drama by learning to manage your hard-earned money like a millionaire. About 95 percent of Americans have a net worth of between $1 million and $10 million, according to the book The Millionaire Next Door by Thomas J. Stanley and William Danko (Taylor Trade Publishing). Aside from placing their money into multiple buckets and growing their money slowly and strategically, the wealthy protect their assets. We're going to teach you to do the same. Over the next few pages we're going to help you protect your assets by having the proper paperwork in place -- way before you need it.
October: Your Health Care Needs
THIS MONTH WE ARE GOING TO:
1. CREATE A HEALTH CARE POWER OF ATTORNEY
2. DRAFT A LIVING WILL & HEALTH CARE PROXY
3. EXECUTE THE PROPER PAPERWORK
CREATE A HEALTH CARE POWER OF ATTORNEY
If something were to happen to you today that left you unable to make medical decisions for yourself, they'd have to be made for you. Setting up a health care power of attorney (aka a health care proxy) gives an individual the power to make any medical decisions you'd make on your behalf.
Choose wisely, then follow these steps:
OVER THE NEXT TWO WEEKS:
DECIDE who in your inner circle you could trust to interact positively with your doctors and ask informed questions. Our experts say that it's a very personal decision. Ask if he or she is willing and able to do it and whether it would be too burdensome.
SET UP a time to talk to this person and discuss your feelings about topics like home health care, nursing homes and organ donation. The more information you provide, the more informed the decisions.
OBTAIN and complete your health care power of attorney form from your state's official site. Failure to do so can make the designation invalid. You may need witnesses or notaries as well to make this legal.
DRAFT A LIVING WILL & HEALTH CARE PROXY
While a health care proxy gives your loved ones the authority to make medical decisions for you, living wills are often combined with a health care power of attorney to create what's known as advanced medical directives. This allows your agent to follow your wishes to the letter, explains Anta Cissé-Green, senior attorney at Akin Gump Strauss Hauer & Feld, LLP, in New York City.
Appoint someone you can trust wholeheartedly because he or she will be making decisions about your care if you are unable.
Have the hard conversations with the person you select about the type of medical treatments you prefer.
Choose someone who will be able to make decisions according to your wishes, despite the emotional toll it will take.
HEALTH CARE POWER OF ATTORNEY
Put the guidance in writing to inform everyone, especially the health care provider, how you want to be treated if you are otherwise incapable of communicating.
Define whether you have any restrictions or wishes, such as receiving CPR and being placed on a ventilator.
Indicate how conservative you want to be in terms of utilizing traditional or alternative forms of medicine and technology.
EXECUTE THE APPROPRIATE DOCUMENTS
Once all the forms have been witnessed and notarized, provide copies to your health care professionals, the person you designate to make decisions and close family members. Set a timeline to get these tasks completed. Think about what you have accomplished over the last month and how much pain and suffering you have alleviated and money you have saved for your family. Then go out and give yourself a reward!
November: Your Power of Attorney
THIS MONTH WE ARE GOING TO:
1. IDENTIFY A POWER OF ATTORNEY
2. EXECUTE THE POWER OF ATTORNEY
3. REVIEW YOUR ASSETS
A power of attorney is a document that gives a person the authority to carry out your financial and business affairs. Known as your attorney-in-fact, he or she has the authority to make binding legal and financial decisions on your behalf. "The person should be honest and financially secure," says Lori Anne Douglass, trusts and estates partner at Moses and Singer, LLP, in New York City. "Even honest people have financial problems, and when they have access to money they can be tempted. I've seen too many clients assign power of attorney to relatives who are well-meaning but unreliable." The power of attorney document becomes invalid upon your death, so make sure your will gives specific instructions.
RESPONSIBILITIES FOR YOUR ATTORNEY-IN-FACT
Pay everyday expenses
File and pay your taxes
Invest your retirement funds
Hire an attorney to represent you in court
Sell your property, such as a car and home
Sign contracts or legal documents
Enlist a professional, such as a lawyer or an accountant, for this important task.
Contact the National Bar Association (nationalbar.org) for assistance with setting up this agreement.
EXECUTE YOUR POWER OF ATTORNEY
For general estate planning purposes, there are two types of powers of attorney to consider:
A DURABLE POWER OF ATTORNEY
This document is effective immediately and remains in effect even if you become incapacitated due to Alzheimer's disease, for example.
A SPRINGING POWER OF ATTORNEY
"A springing power of attorney 'springs' to life upon your incapacitation," says Douglass. Your agent may have to prove that you are incapacitated, which may cause delays and interfere with the management of your affairs.
OVER THE NEXT TWO WEEKS
Go to your state government's Web site and download the forms. Contact a certified financial planner (cfp.org) if you have questions or need advice about which type of power of attorney you need. Finally, set a deadline to finish this important agreement. You may need to identify notaries or witnesses, depending on state requirements.
REVIEW YOUR ASSETS
Last March we calculated your net worth, which is your assets (what you own) minus your liabilities (what you owe). Since then, things may have changed. You may have opened new investment or retirement accounts or, we hope, those assets have grown. This is an ideal time to add up the income from those accounts because you will need this information when creating a will.
OVER THE NEXT WEEK
Gather your most recent financial account statements and insurance policies. Know the value of any businesses and identify any heirlooms. Next record the data in an estate planning worksheet from sites like schwab.com.
December: Your Will and Trust
THIS MONTH WE ARE GOING TO:
1. REVIEW BENEFICIARIES
2. WRITE A WILL
3. CONSIDER A TRUST
Now it's time to create the documents to manage your estate.
Consider this: If you don't take control of this part of your life, state law will determine how your assets are distributed and a court will determine who will raise your children. Before you can set up a will or put a trust agreement in place, think about the retirement accounts you have already and the appointed beneficiaries. Is it still the same person(s) you would like to receive your wealth? Remember, beneficiary designations (known as legatees) will override a will. As you make these designations, consider who you want to add or remove from life insurance policies, pension plans and 401(k) accounts. This exercise will make it easier as you consider your wishes in the next two sections.
WRITE A WILL
A will allows you to name who you want to handle your estate when you die and lets you direct how your property will be managed and distributed. Your will also allows you to name a guardian for minor children or other dependents. "If you die without a will, it's called intestacy, then your estate is administered in accordance with your state laws on descent and distribution," says Douglass. "That means your estate passes in equal shares to whomever are your closest heirs. For example, if you are married with children, the assets are split 50/50 between the children and the spouse, in most states." When you die without a will, it costs more and takes longer and it's inefficient. So, ladies, make sure you have one.
A FEW THINGS TO REMEMBER
YOUR WILL must be signed in front of one or two witnesses, depending on state law. The witnesses should not be one of your beneficiaries, which could make the will invalid.
MAKE SURE the executor of your will is someone you trust. You may also decide to name an attorney or other professional to serve in this role if your affairs are complicated.
BE SURE to state in the will that your executor has power to pay your bills. Also be specific about your assets because you don't want your loved ones fighting over your estate.
PLANNERS ADVISE spouses not to have joint wills since you two will likely die at different times. It's also easier to deal with ex-spouses or children from a prior marriage in your own will.
OVER THE NEXT WEEK
Identify whom you would like to serve as your witness and executor. Then consult with an attorney, because if it's not signed, notarized and witnessed the right way, it could be deemed invalid, advises attorney Cissé-Green.
CONSIDER A TRUST
"The main objective of a trust agreement is to hold property for the benefit of someone else and dictate how that property will be used, whether for your children's benefit, for their education or even for charitable donations. This arrangement is blessed by state and federal law," says Douglass. Once the trust is created, it remains in force, unless your change it, until your death.
IS A TRUST RIGHT FOR YOU?
If your main goal is to control how your kids use your assets after you pass, you can stipulate in your will that a testamentary trust be created upon your death. There are different types of trust for different reasons, so consult with a trusts and estates attorney at the American Bar Association (americanbar.org).