Welcome back to Part Six of our “Back to Basics” series .. we hope you’ve enjoyed the First Five which started with all about “The Emergency Fund” in Part 1 … Part 2 being “Protection Planning” and Part 3 discussing All about Debt Planning or “The Good the Bad and the Ugly of Debt”, Part 4 Retirement Planning … Part Five, Back to Basics Education Planning and now “Estate Planning!”
As a reminder this is a high level Financial Planning Education like overview, starting with the basics of and we will continue into advanced topics in order of Planning Importance.
So who needs Estate Planning?
In a word, everyone should have an Estate Plan and Estate Documents.
As your family complexity increases, the need for Estate Planning documents rises. Young families just starting out with no dependents that may be moving to another state in the very near future can have a brief hall pass as each state has its own unique rules, but the clock is ticking.
Couples with a dependent, you need an Estate plan!
Even with simple family situations, as we get older, statistically we get closer to utilizing these documents, thereby increasing our need.
Any further complexities, as an example multiple assets, multiple dependents, some type of unique family situation, you absolutely must have a good Estate Plan and Estate Planning documents.
Why do we need estate plan documents?
Without them you are leaving your wishes recklessly in the hands of the public domain via the court system for a prolonged timeframe and an unfamiliar person, (a judge), to try and guesstimate what your wishes would have been, using the general rules of the state you reside! Not good.
OK enough lecturing on who needs them and why, let’s take the complexity out of Estate Planning and make it very easy for you to prepare and complete the documents.
Rather than go into the complexities of all of the documents, keeping with our “Back to Basics” theme, we are going to go into what you need to think about to easily complete all of your Estate Documents. Don’t worry about the fancy legal and financial terms, if you can answer the following few questions, your Estate Documents can be easily completed …
So here we go!
If something happens to one of the couple, the general rule is the other is the primary default, hence the following terminology for decisions.
If something happens to both you and your spouse at the same time, Who will be in charge of administrating your estate and who is the backup person? This is called your executor.
If something happens to both you and your spouse, who will take care of your minor children? This is called guardian.
Assuming you and your spouse once again are gone, who will take care of the financial stuff for your minor children? This is called your Trustee and you’ll need at least one back up.
At what age do you want you’re now grown children, once again assuming you and your spouse are gone, to distribute financial assets? This is the terminal clauses of your trust, a very common age is 1/3 at age 25, 30 and 35 but parameters can vary widely. Trusts cannot be perpetual and therefore must eventually end.
Lastly, a very unlikely scenario, but one that should be answered, if everyone in your immediate family… you, your spouse, and minor children should perish, think of where you would like your assets to be distributed i.e. beneficiaries.
Other Documents
There are a few simple peripheral documents such as Power of Attorney (POA) and healthcare power of attorney that will need decisions, but we find if you have answered the above questions you likely already have a person that fits each of these roles.
One planning tip: Try and match the personality of your person to the role, i.e. the caring family person may be best fit for guardian, a good financial person trustee, a close relative with a very pragmatic attitude and calm and nature, your executor… as this is the most emotional role and comes first.
That’s it, each of those answers fit into a fancy legal term and your legal professional will know exactly how to formulate the appropriate language for your specific state. With the aforementioned answers your Estate Planning documents can be easily created.
Over the years we found many people fearful of the complexity of the documents, when in reality the majority of the problems are simply answering the questions above.
You are now armed with how to easily complete your Estate Documents, why you need them, how to be ready and how to easily complete!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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June 2016 Video, Planning Tip-Economic and Capital Market Monthly Review, By John Kvale
Here is our June 2016, Extended view – Economic and Capital Market Review, with a great financial planning tip, and of course our Video for your viewing and listening pleasure.
Hope you enjoy!
June 2016 Video
Financial Planning Tip –
Estate Planning Docs In One Box
After discovering we DID NOT have a comprehensive high level Estate Planning article, a two-part series was happily created – for the record more articles similar to this are expected due to their popularity and handy reference ability:
ESTATE PLANNING DOCS
Will – Document that directs non-beneficiary directed assets (Ex ..house, property, cash and regular investment assets) and may create trusts for minors, names a Custodian, Executor and may also create trusts and Trustees for estate tax minimization and other uses (see final statement in article below on Trusts.)
Power of Attorney– Financial document that appoints someone other than you to make most financial decisions in your absence. .
Healthcare Power of Attorney – Document that appoints someone to make important healthcare decisions if you are unable.
HIPPA – Allows your appointed person to receive medical information on your behalf.
Living Will- Cease and Decease – DNR – These titles are one in the same and are frequently confusing. This document allows medical professionals to NOT mandate all possible care, should you become deceased mentally, but not in body function.
Estate Planning Docs Part Two – Trusts
TRUSTS – ALL TYPE REVIEW
Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request.
Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death.
Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust.
QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse.
Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will.
GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren.
ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate.
Here is a link to the original detailed post.
Economic Update
Brexit changes our view on rates
With the British vote to exit the European Union, the Federal Open Market Committee (FOMC) lead by chair Janet Yellen will be hard pressed to raise rates. The only reason we can see higher rates sooner rather than later now would be some (multiple reports needed) major inflationary factors that feed through to the economic reports- While big advocates of higher rates and our research shows rates have been raised during an election year, it’s likely off the table for the remainder of the year.
Brexit changes US Presidential Election
Brexit may also change the US Presidential election as the polls of the British were so far from accurate, we expect many to have less confidence in our current US Presidential polls.
Capital Markets Update
New all time high?
With the afore-mentioned rate increase off the table and possible international perceived disruption due to Brexit – US capital markets may be the recipient of fresh capital from global corners of the world.
New highs (S&P 500) would not surprise us at this time and the odds are now better than not from our perch. Minor expansion in Bunny like fashion (explanation to come upon occurrence) looks possible, of course twists and turns have been the norm lately.
Earnings are the ultimate driver of equity prices, and US capital markets are currently frothy if not overpriced. We think they can get more overpriced due to the above concerns.
Long term average is 15!
Have a Great Day!
See you again at the end of July !
John A. Kvale
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com
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Posted in Earnings, Economy, Estate Planning, Forecast, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments, Monthly Review, Video
Tagged Brexit, Estate Planning, FOMC, Interest Rates, Janet Yellen, Will