Your Parents' Estate Plan Part 2: What You Need to Know (2010-02-22)

Your Parents' Estate Plan Part 2: What You Need to Know

(2010-02-22) by David John Marotta

A thoughtful estate plan can make your heirs' lives easier. But it is your parents' estate planning that will make your life easier.

Not every family has fostered the ability to speak openly in love. But if you have begun that process, here is an outline of what grown children need to know about their parents' affairs. In fact, adults of any age should update their estate plan every year.

Children may wish to ask their parents about their financial status but worry about being overly intrusive. Or they fear their elders may perceive their questions as motivated by self-interest. They may conclude mistakenly that their parents would prefer to keep their finances private.

However, whether it's our parents or ourselves, we are all certainly mortal, so planning for the future is always wise. Estate planning is just as critical when we are young as when we get older. And if you think estate planning information is hard for you to pull together, imagine how challenging it would be for someone else who may have to step in for you during a family crisis.

As a parent, if you are willing to share some of this information with your children--especially if one of them is also the executor of the estate--they'll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions.

Do you have enough saved for a comfortable retirement? We use a safe withdrawal rate by age to make sure clients will still have enough money toward the end of their retirement. Few parents manage to time spending their last dime the day they die, so adult children are justifiably concerned about their parents.

If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

Where are the important documents? The five documents your executor or your children should be able to retrieve quickly are a will, a living will, a power of attorney, a directory of basic information and the latest end-of-year financial statements.

The directory of information should list the assets of your estate along with account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

You may have structured your will to divide your estate equally among your children. But if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship.

Titling and beneficiary designations are legal estate planning actions. It's best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement account, real estate holding, life insurance, health savings accounts and so on.

Are there any special bequeaths? Any promises you want kept should be documented. Your good intentions won't matter if you aren't around to implement them. If you have promised money to a charity and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren's college education, document that. Without documentation, none of these promises can be kept if you aren't around to make the decisions.

Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages to avoid disinheriting children or grandchildren from the first marriage. The default is rarely a good option.

Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings.

Encourage your children's interest in your estate planning. Most of time, their intentions are honorable. They may simply want to understand your values and therefore your wishes.

from http://www.emarotta.com/article.php?ID=377

Your Parents' Estate Plan Part 1: Why You Need to Know (2010-02-15)

Your Parents' Estate Plan Part 1: Why You Need to Know

(2010-02-15) by David John Marotta

We spend a lot of time helping our clients make sure their estate plans are as comprehensive as possible. I've seen enough estates settled with critical components or provisions missing to be convinced that the effort spent on estate planning is well worth the time it takes to put them in place.

Your estate plan should be carefully crafted to address your specific needs and circumstances. The more tailored your plan, the less room there is for family disagreements. Unfortunately, you won't be around to see the benefits of your care and concern. Your heirs, unless they have seen inadequate estate plans, also may not appreciate the nightmares that can result from a failure to plan. The best estate plans preserve both your values and family harmony.

Your estate plan can make your heirs' lives easier. But it is your parents' estate planning that will make your life easier. You or your siblings will probably have to settle the estate and potentially have to go to court to resolve matters. Good intentions don't count if they aren't documented legally.

Today's generation of seniors are often much more comfortable talking about sexuality than they are talking about money. Finances have become the new family taboo. Any breach of this protocol is seen as distasteful. My own family, however, was refreshingly open about their finances.

As long as I can remember, my father has taken time at each family vacation to review the family's estate plan. And now every January he sends updated financial information. I knew as a very young child who I would live with if my parents were both killed in an accident. And I knew how they had prepared to pay for my college education if they were not around to take care of it themselves.

As an adult I know who will serve as executor and the details of my father's finances. It is a long list that includes account and policy numbers as well as contact addresses and phone numbers. It is signed "Love, Dad," which it is--a loving gift of both trust and peace of mind that parents can give to their children.

None of this fosters an expectation of what I might inherit someday. I hope my father enjoys every dime of his money, and I don't plan on inheriting a cent. Whatever our parents own is completely theirs, to do with as they see fit. They can leave the entire amount to their favorite charity or in trust to take care of their pet cats. But it is always better when parents deliberately choose how they want their money disbursed and act accordingly.

Not planning at all is obviously an option people can choose, but the consequence could be a complete failure of their vision of what they would want to happen. To repeat an essential point: All the promises and good intentions count for little without the paperwork to back them up. Planning, documenting and sharing that vision frankly increases its likelihood of reaching fulfillment as well as leaving a legacy that better reflects your values and the reasoning behind your actions.

Finally, estate planning goes both ways. Many parents want to ensure that their children will be cared for at least until they graduate from college. Now that the children are adults, they want to know their parents have enough to cover a comfortable retirement. When parents share the details of their estate planning with their children, it helps their offspring plan in case they feel the need to supplement their parents' standard of living. I've known children who assumed because of their parents' frugal lifestyle that they would probably be required to assist their elders. They did not realize their parents had a more than adequate retirement plan with money left over in case of an emergency.

Although I encourage these discussions, I know that not every family has developed the ability to speak openly in love. It is a progression that takes a certain spiritual maturity in both parties. If one of your children is also the executor of your estate, however, it is essential to start that process.

from http://www.emarotta.com/article.php?ID=376

The TANSTAAFL Principle (2010-02-01)

The TANSTAAFL Principle

(2010-02-01) by David John Marotta

"There ain't no such thing as a free lunch." As early as 1938, this phrase was touted as "economics in nine words." It should be part of a civics course required for high school graduation. And it should be the pledge of service for elected officials. Instead, we get utopian drivel that garners votes at the expense of economic prosperity.

The initiated shorten the phrase "There ain't no such thing as a free lunch" to the acronym TANSTAAFL, pronounced "Tan-staffle." It means that any claims that something is free neglect to take into account the unintended effects and consequences.

It all started in the early 20th century as a marketing ploy. Saloons would offer a free lunch to anyone who bought at least one drink. The lunch didn't cost anything, but the drinks were correspondingly more expensive. TANSTAAFL.

Saloon proprietors were betting that their patrons would continue drinking, not unlike drug dealers who give away the first hit of crack cocaine. They were also counting on their clientele coming back in the evening when the lunches weren't free and the drinking was more liberal.

Even if an immediate cost can't be found, there still is one. Sound economics dictate that the cost usually exceeds the direct cost of the lunch. If the lunch were really worth the price, someone would have already paid for it. Because no one did, there was something people would have done with the money that was worth more than the cost of the lunch.

Ironically, so-called free lunches can cause people to go hungry. Free lunches reduce the supply of quality lunches. They drive down the number of people willing to make lunches for a profit. Soon only those selling alcohol are providing lunches, and those lunches are meager. Ultimately, if you aren't an alcoholic, you have to go hungry.

Robert Heinlein made TANSTAAFL popular in his 1966 book "The Moon Is a Harsh Mistress" One of his characters remarks, "Anything free costs twice as much in the long run or turns out worthless." Heinlein's book is a science fiction story about the lunar colony's revolt for independence against the earth. To say that the book delights libertarians is simply to say it is based on sound principles of economics.

The very earliest reference in print to a free lunch comes from a character in a 1919 novel. He describes the frenzy of battle by saying, "The shells and shrapnel was flying round and over our heads thicker than hungry bums around a free lunch counter." Unfortunately, the hungry bums have all gone to Washington and now represent us in Congress.

For example, take the recent round of stimulus money being flung to the crowds. Our current state representative was criticized by his opponent in this last election for voting against amendments that would qualify Virginia for $125 million in stimulus funds. His challenger complained, "It was free money to help people who were losing their jobs."

Such statements are economically incorrect. In retaliation, we should enforce economically correct (EC) speech. If it isn't EC, it is therefore economically bigoted and should be seen as offensive as advocating indentured servitude. Where is the outrage against such non-EC speech?

Our current representative is one of the few politicians who recognizes TANSTAAFL and isn't afraid to take the long view. He opposed taking the supposedly free money and trusted that the voters would be EC enough to reelect him.

He reasoned that accepting the money would require permanent changes to Virginia's unemployment insurance system in exchange for temporary funding. He argued that these changes would remain long after the stimulus money ran out. And expanding unemployment benefits would erode Virginia's attractiveness to businesses.

The changes that Congress was pressuring Virginia to accept are the same liberal unemployment benefits in place in California. Those benefits mean that California has some of the highest payroll taxes in the country, making it hard for the state to compete and driving out businesses. Rather than relaxing the taxes in California, Congress decided to push the same burdens on every other state by bribing them with bailout money.

The idea was to tax everyone and then give the money only to those states willing to accept the same burdensome government that is bankrupting California. It certainly isn't a free lunch. In fact, it is like eating a buffet of parasites.

When people are unemployed, what they really want is a job. Liberal unemployment benefits make it harder for businesses to compete when people are getting paid with no obligation to work. Prolonged unemployment benefits directly compete with struggling businesses trying to hire people at a reasonable salary.

If California's unemployment benefits are supposed to be a model for the rest of the country, they are a prototype for a banquet of indigestion. In the latest unemployment statistics, the state's unemployment rate is 12.4%. Virginia's rate, in stark contrast, is 6.9%. The national average is 10.0%.

Reasoning through the long-term consequences shows that the money isn't "free money" at all. In fact, accepting the money may very well be selling Virginia's long-term competitiveness for a pot of tainted porridge.

All of this well-founded economic thinking was in danger of being lost in the simplistic sound bites offered by my state representative's more liberal challenger. Fortunately, it was not lost on the voters. The "free money" candidate lost 67% to 33%. But a third of the voters still need a lesson in EC.

The media is particularly susceptible to the free lunch ruse. Only the immediate consequences of a policy fit in a headline or a sound bite. Actually explaining the ill effects of unintended consequences evidently is for books and boring documentaries. News organizations provide entertainment rather than information.

People embrace the media as a career because they want to change the world. The idea that market forces can determine where goods and services should go more effectively than centralized planning or thoughtful evaluation ruins the media pundit's hopes of making the news instead of just reporting it. Informing the consumer, an always worthwhile endeavor, is too indirect for today's teleprompter readers.

My column covers public policy issues based on two basic principles. The first responsibility of all citizens is to take care of their own families. And the first responsibility of government is to do no harm through unintended consequences.

We suggest you save 5% of your take-home pay in a taxable account, in addition to saving 10% in a retirement account. After six years you should have your own six-month emergency fund to cover the possibility of unemployment. Unemployment benefits can help a family in financial trouble, but they do not alleviate the fact that you might need to take a lesser paying job.

We want to lighten the burden of families that are having a hard time but not at the expense of struggling businesses. Mandating benefits to be paid through higher business unemployment taxes is a losing proposition. It sound-bites like a free lunch but still gives you a wicked hangover in the morning. And even if the lunch were free, your pockets would still be empty from buying drinks. TANSTAAFL.

from http://www.emarotta.com/article.php?ID=374