Getting your financial and legal affairs in order seems like an OVERWHELMING task. But if you break it down into small steps, the process is actually simple and straightforward. Here are the steps:
DO AN ASSESSMENT
The first step is to determine if your financial and legal affairs are in order
MAKE AN INVENTORY OF YOUR ASSETS
Make a complete, up-to-date inventory of your assets -- including real estate, investments, bank accounts, insurance policies, annuities and retirement plans. The inventory should identify each asset, the current VALUE of each asset, and the NAME or names on the title. Also include information about WHERE each asset is held or stored. For assets that pass by beneficiary designation, (life insurance policies, annuities, retirement plans, pay-on-death accounts) list the primary and secondary beneficiaries.
CHECK THAT EVERYTHING IS UP-TO-DATE AND CORRECT
The inventory you prepared in step two has three functions. It provides a roadmap of your assets for your own use, it provides a roadmap of your assets for your family to use if you become disabled and at your death, and it will identify any assets that are TITLED incorrectly. For example, if your spouse owned the house before your marriage, was your name added to the deed? If the inventory reveals that any asset is titled incorrectly, take the necessary steps to correct the title.
KNOW WHO YOU ARE GIVING THINGS TO
Just as the inventory will point out if your assets are titled incorrectly, it will also point out if your BENEFICIARY designations are incomplete or out-of-date. For example, you may have neglected to name a secondary beneficiary for an individual retirement account, 401k plan or annuity. Or you may have forgotten to remove a former spouse as beneficiary of an individual retirement account or life insurance policy. Take corrective action as necessary.
NAME GUARDIANS FOR MINOR CHILDREN
If you have minor children, it's essential that you name a guardian to take care of them if both parents die. If you have not named a guardian in your will, the local PROBATE court will choose a guardian. Unfortunately the court may not choose the person that you would have chosen. By naming a guardian you inform the court and your family of your choice thereby eliminating guesswork and error.
SET UP POWERS OF ATTORNEY AND A LIVING WILL
In a FINANCIAL power of attorney you appoint a trusted person to manage your finances if you become physically or mentally unable to manage them yourself. A MEDICAL power of attorney appoints a trusted person to make medical decisions for you if you become mentally incapable of making them yourself. A LIVING WILL tells your family, your doctor and other medical personnel if you do or do not want to be kept alive by artificial means.
PLAN FOR THE CORRECT DISTRIBUTION OF ASSETS
Once again eliminate uncertainty and error by taking steps to TRANSFER your assets to the people you want to receive them at your death. At death, assets are transferred by one of four methods.
UNDERSTAND WHICH ASSETS PASS DIRECTLY
For assets that pass by beneficiary designation -- i.e. life insurance, annuities, individual retirement accounts, and some types of bank and investment accounts -- make certain you have named a primary and a secondary beneficiary. Assets that transfer by beneficiary designation pass directly to the beneficiary and avoid "probate". Assets that pass by JOINT OWNERSHIP with rights of survivorship also avoid probate. However, there are risks involved in adding other people's names to the titles of our assets. Consult an attorney about the risks and the benefits before using joint ownership to transfer your assets.
KNOW WHEN PROBATE IS INVOLVED
Assets that pass by WILL are transferred to the intended recipients through probate court. Most people believe that if they have a will they have avoided probate. But it's just the opposite; probate is required for assets passing by will. Probate is also required, in some circumstances, if you die without a will.
SET UP A LIVING TRUST
Assets that pass by a LIVING TRUST are transferred to the intended beneficiaries without probate. A trust also allows for great flexibility in the distribution of trust assets. For example, distributions to the beneficiaries can be made in installments over short or long periods of time. This is especially attractive for parents whose children are too young or too immature to manage money. A living trust provides several other important benefits. Married couples use trusts to reduce ESTATE TAXES. Spouses in a second marriage with children from a prior marriage use trusts to provide for the children of both spouses regardless of the sequence of deaths. Parents with children with SPECIAL NEEDS may be concerned with preserving the child's eligibility for state or federal benefits. A living trust with special language can preserve the child's eligibility for such benefits.
DO I NEED AN ATTORNEY?
You can carry out many of these steps without an attorney. In fact you will save time if you prepare the inventory, check beneficiary designations and check titles to assets BEFORE consulting an attorney. You should, however, retain an attorney who specializes in estate planning to prepare wills, trusts, powers of attorney and deeds. It is usually pennywise and pound foolish to prepare these documents yourself.
KEEP YOUR DOCUMENTS IN A SAFE PLACE
Once you have your financial and legal affairs in order, the next step is to store your important documents in a safe place, inform a trusted family member of that safe place, and make certain that a trusted person can ACCESS the documents at your disability or death.
PLAN FOR PERIODIC REVIEW
This step sounds easy and it is. In fact, it's so easy that it's often over-looked. REVISE the inventory of your assets as often as necessary to keep it current. Revise your trust or will and powers of attorney if there is a CHANGE in the family situation that requires a change in these documents.
As in most important undertakings the first step is always the most difficult. But once you get started everything will quickly fall into place. Your reward will be the PEACE of mind that comes from knowing that your financial and legal affairs are in order and up-to-date. Stop procrastinating and take that first step now!
Julie A. Calligaro is the author of Estate Planning For Married Couples, Estate Planning for Unmarried Couples, Estate Planning for Gay and Lesbian Couples, and Estate Planning for Singles -- all available directly through www.OnlineOrganizing.com.
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