Investors constantly scan the horizon looking for a stock market correction. While investors sit on their front porch anticipating a stock market correction they leave their back door wide open. Stock market crashes can be painful but a poor estate plan can cause permanent damage to your wealth.
Individuals spend most of their free financial time focusing on their stocks, bonds and funds without paying much attention to the state of their estate. It’s not easy to ponder your mortality but it’s necessary if you want to protect your hard-earned dollars for your family.
Here are a few areas that can cause heart ache to your estate plan.
- No will or trust. If you die without a will or trust, it’s possible to lose 40% of your estate to the federal government in the form of an estate tax. In addition to your tax loss, your remaining estate may end up in the wrong hands. A client of mine inherited $4 million from his rich uncle who died without proper estate documents and, thus, my client had to write a $2 million check to the IRS for estate taxes.
- No life insurance. Individuals who own little or no life insurance run the risk of losing their assets to creditors in the untimely event of a death. I’ve talked to several people who do not insure the stay at home spouse. The breadwinner assumes, incorrectly, they’ll be able to take care of the home financially if the non-breadwinner spouse passes away. How much life insurance is enough? At a minimum, you should own enough life insurance to pay off all your debts, provide for your spouse’s life time income, and fund your children’s college education.
- No long-term care insurance. Long term care insurance is becoming a must have item. The average monthly cost for LTC insurance is about $5,000. The average stay in a LTC facility is about four years. If you and your spouse enter a LTC facility at the same time, it’s possible you may spend $480,000 or more. If you have the investments to self-insure, then LTC insurance might not be needed. However, if you use your assets to pay for LTC, your family will be left without those resources.
- No beneficiary. It takes about two minutes to update your beneficiary information on your retirement accounts and insurance policies. A beneficiary designation overrides all your estate documents including your family will and trust. This might not be an issue if you’re happily married and don’t have any children. However, if you are divorced and you forget to update your beneficiary information, then your assets may end up in the hands of your ex-spouse!
- No Umbrella Policy. An umbrella policy is cost effective way to protect your property. The cost of adding a few extra million of insurance coverage to your property and casualty policy is minimal. A house with a pool or horses or some other attraction should have an umbrella policy.
A solid financial and estate foundation will help protect your assets while you’re living and long after you’re gone. I would recommend spending some time updating your insurance and estate planning documents. After all, an ounce of provision is worth a pound of cure.
I have seen something else under the sun: The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all. ~ Ecclesiastes 9:11.
Bill Parrott is the President and CEO of Parrott Wealth Management. For more information on financial planning and investment management, please visit www.parrottwealth.com. Thank you.
March 21, 2017