What I Learned the Hard Way About Estate Planning, and What You Can Do Differently.

The fall of my final year of law school, before I knew for sure what my future career specialties would be, my father passed away. He had been sick for a long time, and my parents spent much of their life savings for his care. My parents had kept me and my little sister away from the financial realities of their situation until it was too late. My parents weren’t financially prepared for what came their way.

Through this post, I want to share three big items that my family personally learned by our experiences after losing dad. My hope with this post is to point you in the right direction as to what really matters in estate planning. The three main topics I want to discuss are, as follows: (1) do you have adequate life insurance for your current (and expected future) life situation; (2) have you adequately planned for your death through traditional estate planning documents; and (3) have you adequately protected your heirs through your estate plan? I will discuss each item in turn.

First, here are some considerations you should make when evaluating the adequacy of your life insurance. Remember, the primary purpose of life insurance is to replace your paycheck for the benefit of your family in the event of your death. The amount of insurance you should carry depends on your current salary and your overall family’s expected costs (i.e., minor or college-bound children, outstanding mortgage or other marital debt). Over time, as your wealth increases and debt decreases, your need for the higher levels of insurance also decreases. The older you get, traditionally speaking, the secondary purposes for insurance come into play, namely, providing for end-of-life expenses, such as traditional burial and/or cremation and funeral costs. These smaller policies, including in Wisconsin, may be used to specifically fund a pre-planned funeral. The cost for these policies are nominal in comparison to the higher benefit life policies traditionally taken out earlier in ones financial lifespan.

It's important that to consider the overall financial needs of your family when considering what kind of life insurance you should have.

Another important lesson my family learned is that you must make sure that your estate planning documents, including wills and powers of attorney, adequately cover your needs. A will is a legal document that dictates how an estate is to be distributed. In addition to wills (and trusts), coordination with your financial planners and bankers is important to ensure proper Transfer on Death instructions or beneficiary designations for all your financial assets have been provided. As your life changes, so should your beneficiary designations (or, at the very least, they should be reviewed with as much frequency).

Traditional wills aren’t the only documents that you should consider. A Trust, for instance, gives you as the Settlor (also known as the creator or grantor of the trust), say in the administration of your assets beyond your death. There are many reasons why people decide to establish trusts, including reducing their taxable estates, avoiding probate, or even protecting the Medicaid and other governmental benefits of their beneficiaries. Another tool in a trust’s toolbox is something that many planners don’t talk about often enough: the ability for a Settlor to put conditions on an inheritance.

Here's an example: Imagine yourself with an adult child that makes rash, or even poor, financial decisions. You’re worried he or she will spend their inheritance too quickly and for reasons that you would consider improper. Maybe there’s addiction or creditor issues to consider for some of your beneficiaries. In those cases, giving money (and other assets) outright to your beneficiaries may even cause harm to your beneficiaries. A properly drafted trust will allow contingencies to be placed on the distribution of inheritances in those circumstances. Such contingencies could even be used to encourage good behavior, like attaining a college degree, advancing in their career, or buying a home.

I have seen firsthand the pain, stress, and suffering the lack of planning can exact on a family. Think to yourself – if something were to happen to me today, how would I want my money to improve the lives of those I love? How could I make their lives easier amid what is already a painful transition?

If you’re ready to consider these questions, call our office today. We are ready and able to assist you!