You may hear a lot of retirement advice regarding wills and trusts. These words sound like things that only the wealthy need consider but there's lot more to state planning that's important for all. Estate planning is an essential part of retirement planning although many people aren't aware of all that it encompasses. It is not good retirement advice to put it off until it's often too late. The earlier estate planning is done, the better. Let's take a look at what estate planning addresses and why it's important to begin it now, even if you just turned 30!
Estate planning addresses these key questions:
- Do you want input into how you'd like to be taken care of when you become incapacitated?
- Do you want to be sure that your assets go to the people you choose when you die?
- Would you like to eliminate or minimize needless loss of some or all of your assets when you need long term care?
- Would you like to minimize excessive taxes on what you want to give your beneficiaries?
- Do you want to prevent public exposure, costs and delays of probate?
Our retirement advice is to answer "yes" to all of the above questions. Making arrangements to satisfy each question is what estate planning is all about.
But what's especially important is making arrangements to address these questions ASAP because of these 4 circumstances:
- You never know when you'll die
- You never know when you'll become mentally incapacitated
- You never know when you may need long term care
- Arranging satisfactory solutions to some of these questions requires 3 to 5 years lead time - at least - before these circumstances occur!
Consequences of not addressing these questions are:
You're treated in a manner you would never wish to be. Remember the Terry Schiavo case in the news? Our most sound retirement advice is to have a documented plan, called a "health care power of attorney" and a "medical will" so that your health care decision does not bounce endlessly among family members
Your assets go to someone not of your choice:
With no will or trust, your assets will be distributed according to state rules - not your wishes.
Without a trust, you must trust your current spouse to give assets to your previous children. This is very poor planning and can be easily solved in a couple hours. Please take this retirement advice not to become one of the horror stories of how an estate becomes a 10-year court battle.
Long term care:
Without long term care insurance or a lot of wealth, paying direct long term care costs can wipe out a small estate easily. You can figure $80,000 annually for care in a nursing home, maybe more in your own home. If you address this at say age 55, you may be able to buy protection for $100 monthly to take care of the above possibility. Would it be good retirement advice to do that? You bet.
Gift and estate taxes:
If you're estate is worth some millions of dollars, estate and gift taxes above an uncertain exclusion level in years beyond 2012. It's easy not to leave this an open issue and to eliminate your estate from all estate taxes with proper planning.
Public exposure on who's getting your assets can trigger legal claims and hard feelings between potential beneficiaries and other relatives. Is that smart? No - so take our advice to have a living trust prepared (or do it yourself with inexpensive software from Nolo Press).
The table shows you tools to address each estate planning question posed above.
|Estate Planning Retirement Advice|
|Estate planning questions||Tools to address it|
|How should you be taken care of?||
|Assure your assets go to beneficiary of your choice?||
|Lose your assets to long term care costs?||
|Lose your assets to excessive estate and gift taxes?||