In the past few weeks, I’ve used the apple pie-making process as a framework to explore a recipe for financial success. This time, I’m focusing on the fifth of six ingredients: Prepare your legal documents.
Yes, I’m talking about getting your affairs in order. In apple-pie vernacular, this would be the equivalent of making sure everybody understands who gets what so there’s no fighting over the leftovers.
Of course, estate planning is about more than simply dealing with leftovers. You may also have to name a guardian for minor children and construct a framework for decision-making in case you’re incapacitated someday. With this in mind, let’s examine three key benefits of this key ingredient.
Your Wishes Clearly StatedEveryone should have a will, but that’s not enough. You also need to ensure your beneficiary arrangements are correct on insurance, annuities, individual retirement accounts and retirement plans such as a 401(k) or the TSP. A will lays out your wishes with respect to who gets what, but it’s important to remember that beneficiary designations supersede your will. I’ve personally seen Servicemembers Group Life Insurance benefits go to an unintended beneficiary because the forms weren’t up to date. And I once worked with a mother who had a will that divided everything evenly between her four kids, but all her accounts and insurance were set up via beneficiary to go directly to her oldest daughter (ouch).
You Name A Caretaker For The KidsAnother important reason to have a will is to name the guardian for your minor children. If you don’t provide this direction, the state in which you live will make the decision for you. And the court’s choice might not be who you would pick. Beyond that, you might want to set up some guidelines for the age your kids must be before they can access their inheritance if something happens to both you and your spouse. Unless you set up a trust with specific distribution timelines, your kids will receive everything all at once. Why would they go to college when they can hunker behind the wheel of a new exotic sports car and see the country? Not my kids! They’ll receive whatever they need for health or education. But, as for the rest of the money, they’ll get a third at age 25, a third at 30, and the balance at 35.
You Identify Your Decision-Making TeamEstate planning isn’t just about what happens after your death. It also involves establishing powers of attorney to name the person (and don’t forget a backup or two) you would like to make decisions for you if you’re not able. There’s a separate one for medical and financial decisions. Here again, you know the players better than anyone, make sure your decision-making team is lined up according to your wishes.
Some of this stuff is as easy as visiting a website or sending in a form to your employer, bank, or investment company. But easier (and cheaper) isn’t always the best approach when it comes to estate planning. It often makes sense with wills and powers of attorney to get the help of a legal expert. Thankfully, it’s the type of work that legal assistance offices at military installations can help you with.
When you look at the important results that depend upon your efforts, you can clearly see that spending time now to ensure your wishes are fulfilled later just makes sense. After all, you wouldn’t put your piece of apple pie on the counter for later and just hope no one else decided to eat it, would you?
Posts in this series include:
Introduction: A Recipe For Financial Success
Part Two: A Tried and True Money Golden Rule
Part Three: Building A Base: Emergency Funds
Part Four: Save Now For Retirement
Part Five: No Fighting for Leftovers (this post)
Part Six: Tying It All Together