When it comes to looking after their money, a remarkable number of people ignore the single most important factor: what will happen to your wealth when you pass away? For young couples, this is an almost taboo subject. Who thinks of mortality in the bloom of life?
In conversations with clients and with colleagues, it appears that an astonishing number of people do not have any form of estate planning and, many of those that do, usually think that they are covered because they have a will on file somewhere, put together some years back.
In the UK, for example, two-thirds of the adult population do not have a will, and the numbers are roughly the same in the USA. Dying without a will means all your assets will be handled by a court, according to the law of the land. In other words, the state will end up looking after your estate.
If you are a young couple with a new family, you really don’t want that. You need to plan to remain in control even after you’re gone. As someone once said: always plan for the worst and hope for the best. If you do have a will tucked away somewhere, dust it off, seek out an experienced financial planner, and start revising it.
If you are one of those two-thirds that has yet to draw up a will, then you have some planning to do.
First, you need to think about your children and partner. Every estate plan, regardless of size or complexity, serves one purpose: who should receive what and when? Ask yourself the hard question: if you and your partner were to both pass on, who would look after your children? Naming a guardian may be tough but it’s a lot better than defaulting to an impersonal court of law.
Second, consider who will manage your accumulated assets — every thing you own, from furniture to property, investments, education funds, pension plans, and life insurance policies need to be taken into account.
Your life insurance and pension plan, for example, are particularly vulnerable areas. Most people think that because they have a life insurance policy, their beneficiaries are covered. But not all life insurance policies are the same and understanding how to select one that suits your situation best is complex. Reviewing your beneficiary designations and regularly updating your policies should form part of your overall estate planning.
Third, seek the advice and services of a reputable financial planner. Ask around and make sure you select a company or individual that understands your requirements. Don’t resort to an off-the-shelf plan you downloaded from the Internet. Using web-based DIY solutions to draft your own documents indicates you think your will is simply a legal document. See it as a part of your financial planning.
There are a number of questions and factors you need to take into account when consulting a financial planner. For example, should you set up a trust?
The arguments for establishing a trust may seem obvious: it avoids the cost and time of having to be part of probate (the legal process for transferring your assets). But, there are other factors involved in setting up a trust, apart from being seen as an instrument for protecting assets from, for example, creditors and spendthrift offspring lacking money-management skills.
It is also important to think about what would happen if you became ill or injured and couldn’t make decisions for yourself. A recent survey found that more than 40% of UK expats believe that if they became incapacitated or mentally disabled their spouse could act on their behalf without having established a power of attorney. This is not the case.
Ensure that your estate planning includes a clear health care directive that will enable your partner, family member, or appointed guardian to make medical and financial decisions on your behalf.
In addition, 50% of UK expats assume that their will or designated power of attorney is valid in the country where they have chosen to live. It is crucial that you prepare a power of attorney in the country where your assets are held (e.g. the UK) and one for the country you are living in. Remember, each of these documents needs to acknowledge the other so as to not supersede each other.
Nobody wants to wake up in the morning and think about what would happen if they were to die today. But, unfortunately you do need to do so at some stage. And there’s no time like today, so start the process. Remember, the musician Prince had assets worth hundreds of millions of dollars but left no will. The court appointed a bank to manage his assets. Don’t let that happen to yours.
CEO: Carrick Wealth