Think of your loved ones: Get your affairs in order

Survivors will appreciate your attention to will, powers of attorney, IRAs

Dollars & Sense

April 06, 2003|By KNIGHT RIDDER/TRIBUNE

You never expect that it's going to happen to you. But as the West Warwick, R.I., nightclub fire shows, everybody's vulnerable.

If you were to suffer serious injury or die suddenly, what would your loved ones do?

Fortunately, there are steps you can take now that would not only provide for your loved ones, but also give you peace of mind, says Jordan E. Goodman, author of Everyone's Money Book on Financial Planning.

So don't delay. Instead, use the nightclub fire, the Sept. 11 terrorist attacks and other such misfortunes as a kind of wake-up call, to spur you into action, Goodman advises.

One place to start is with legal matters.

The will. If you don't plan ahead as to how your assets will be distributed and your personal matters handled upon your death, the state will do it for you.

The problem is that the provisions of state law may not coincide with your wishes, said Michael A. St. Pierre, president of the Rhode Island Bar Association.

Through a will "you get to dictate ... exactly what you want to have happen," St. Pierre said.

For example, a will lets you decide, in advance, who'll receive your money, personal belongings and other assets - such as jewelry, antiques, family heirlooms, cars and other property.

If you have children, you can name in your will who will become their guardian, Goodman said. Otherwise, it's up to the courts. A family member could apply for guardianship, but this could be contested, resulting in a potentially costly and lengthy legal battle, St. Pierre said.

If you have young children, and they stand to inherit a substantial amount, you can use your will to name someone who'll manage the money responsibly for them.

If you're part of a family-run business, you might use your will to decide who'll get the business - or your share of it - upon your death.

Getting a will can cost from perhaps $150 to $500 or more, depending on where you live, the complexity, the law firm you choose, how many additional documents you require and other factors.

Your lawyer will probably keep a copy of the finished document, but you should, too, and you should store it in a safe place that's also known to the person who'll serve as executor of your estate.

Be sure to read it over from time to time, perhaps annually, to make sure it's current. Remember that circumstances change over time.

Health care. While attending to your will, also consider getting a durable power of attorney for health care.

Although the exact title of such a document may vary from state to state, the main point of it is to let you make your own medical decisions, St. Pierre said.

You can also name in the document someone who can communicate your health-care wishes to your doctors should you be unable to, he said.

Power of attorney. It's also a good idea to have a durable power of attorney drawn up. In this document, you name someone who can make financial decisions for you should you lose the ability to make them yourself.

The person you name - a trusted family member or friend, for example - might then be empowered to pay your bills while you're hospitalized, for instance.

IRAs, 401(k)s. Individual retirement accounts (IRAs), as well as retirement-savings plans such as 401(k) and 403(b) plans, can pass to beneficiaries no matter what your will says (and even if you have no will). They can also pass directly, and quickly, upon your death; there's typically no need for a court to intervene.

But to make sure these things work the way they should, you must name at least one beneficiary for each such account, said Marvin R. Rotenberg, national director of retirement services for Fleet Bank's Private Clients Group.

Otherwise, there could be all sorts of problems. For instance, there's a chance that the financial institution will have its own "default" provision in place, automatically establishing your spouse or your children as beneficiaries - even if you had someone else in mind. More likely, the account will pass to your estate and be parceled out according to your will, or according to state law if you have no will, Rotenberg said.

You should also name a "contingent" beneficiary - someone who can receive the account in case the primary beneficiary dies before you do.

You also must make sure the beneficiary is listed on the official paperwork that's on file with the financial institution that oversees your account (such as a bank, credit union, brokerage or mutual fund company). Keep a copy of the form for your own records, too, Rotenberg said.

While you're at it, make sure you've named beneficiaries for your life insurance policies, and check periodically to make sure they reflect your current wishes.

There are other things you may need to attend to, some of which may require professional advice.

If you have enough assets, for example, you may want to have a formal estate plan drawn up, one that will minimize federal and state estate taxes (and inheritance taxes, depending on where you live).

If the bulk or your wealth is tied up in a business or in a retirement account, you might consider buying specialized life insurance to provide needed liquidity so that your heirs or other beneficiaries won't have to sell the asset hurriedly to meet taxes or other final expenses.

Depending on your circumstances, you might also want to create one or more trusts, which can help you avoid the potential expense, delay and publicity that can be associated with the probate process.

With a trust, you can arrange to furnish long-term care for a disabled child, or make sure that children from a previous marriage are provided for.

The point is to get your affairs in order now, before disaster strikes. And remember that wills and other such documents aren't only for the wealthy. No matter what your circumstances, you need to plan ahead.

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