Since the holidays are when most of us spend more time with family than at any other time of the year, it is appropriate to consider what our financial plans say about our relationships with our families.
After all, apart from what we plan to spend on ourselves, what we do with the rest speaks to our priorities and is part of the legacy we hope to transfer to loved ones and eventually leave behind. Here are some of my thoughts.
Have a Plan
This is as basic as it gets, but there is plenty of evidence that many Americans fail to develop a plan. One reason often cited is guilt for delaying the planning process. Consider this analogy: If you want shade, the best time to plant a tree was 20 years ago. The second best time is today. The same logic works with financial planning. You can beat yourself up for procrastinating (how’s that working out for you?), or you can do something about it now.
A survey done this year by Northwestern Mutual Life revealed these tendencies about financial planning:
- Only 40 percent of Americans have set goals for their financial future and less than 20 percent have a written financial plan
- 69 percent of American adults are taking a “self-directed” approach to their financial futures
- 30% of U.S. adults say they are “not at all financially prepared” to live to the relatively young age of 75. More than a third do not have any sense of how much income they may need in retirement
Most PRiME readers are Baby Boomers, a group notorious for their independence and “going it alone.” While this is a trait to be admired, it also may be wise to seek counsel for areas in which you lack expertise, lack time or in which emotions can overcome sound judgement.
Risk Assessment & Risk Management
In my practice, these two factors are considered before we do investment planning and selection of appropriate investment products. My philosophy on this is simple, “Life happens to all of us.” I have developed a list of the 22 most common risks that I encounter regularly and that can wreak havoc on a family’s finances. They include various forms of insurance, Social Security benefits, pensions and other issues. For the complete list, go here. It is important to understand what could derail your best laid plans and the list may be helpful. After determining your risks, the issue is either assuming the risk and hope one of them doesn’t happen, or take steps to transfer the risk and thereby protect your assets.
Provide Access to Your Plan
Let’s say you have your plan in place and you are happy with it. Should something happen to you (death or incapacity), does someone have access to the plan and can it be executed accurately and simply?
In either case (death or incapacity), your loved ones will be in crisis mode. This is not the best time for them to think logically or struggle with finding the documents and accounts they will need to fulfill your wishes.
Find a way to make this information available at the time it is necessary, and have the conversations with your loved ones in advance so they know what to do. These conversations can be difficult, but your loved ones will thank you for it later.
In addition to paper documents, be sure to provide access to usernames and passwords for online access.
Get Your Documents in Order
The issues of financial planning and estate planning can be complex and this article can only scratch the surface. In addition to the financial plan, most estate planning attorneys will recommend these four documents at a minimum:
- A HIPPA Authorization, which allows medical practitioners to release medical information on you in the event of incapacity
- Medical Power of Attorney, which names the person(s) you want to make health care decisions for you in the event of incapacity
- Durable Power of Attorney, which gives someone authority to act in your behalf on legal matters should you be incapacitated.
- A will.
Who’s In Charge?
At a minimum, a will needs to designate someone (called an executor) to actually make sure what you asked for is carried out. This can be a difficult conversation to have if you want to choose a family member. There might be legitimate reasons that an obvious choice is not really the best one for the job. Also, depending on the complexity of your estate, the job can be complex and last for years. This is where a third party estate planner and/or attorney might be appropriate to guide you in the selection.
Protecting Beneficiaries from Themselves
You need to deal with realities, and sometimes a painful reality is that one or more of your beneficiaries might have trouble handling money. There are ways to provide incentives for certain behavior. For example, a trust could be establish providing a monthly financial gift of a designated amount upon graduation from a four-year accredited university. Trusts also can be established to dole out funds gradually, rather than all at once.
You might have a beneficiary who will need care beyond normal expectations. An estate attorney in consultation with a financial planner can find a legal vehicle to assure that perpetual care is provided.
Enjoy your precious family time, which you can never regain. It is not my intent to drag it down with what some might consider morbid, drab and mundane conversations. Rather, consider these action items as a means to building family and helping to ensure its continuity. Merry Christmas and Happy Holidays.
Securities offered through LPL Financial, Member FINRA/SIPC. Financial Planning offered through Lifestyle Planning Solutions, a registered investment advisor. Investment advice offered through Stratos Wealth Partners, a registered investment advisor. Botsford Financial Group, Lifestyle Planning Solutions and Stratos Wealth Partners are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
For a list of states in which I am registered to do business, please visit www.botsfordfinancial.com.
This information is not intended to be a substitute for individualized legal advice. Botsford Financial Group and LPL do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.