When we’re young, we assume that we’ll live forever. We’re invincible. By the time we reach our 40s and 50s, however, most people have a pretty good handle on their mortality. Sure, we expect that we’ll continue to live for a long time. It’s just that by now, we know we won’t live forever.
And, we understand by this stage of the game that life is tenuous. We’ve probably all known somebody about the same age who was killed in an accident, or died from cancer or another disease. Maybe you’ve even had a friend or relative of the same age who died suddenly of a heart attack or a stroke. It’s by no means common—but it happens.
Because not one of us can ever be sure that we’re going to wake up tomorrow morning to see the sun rise again, it’s extremely important to plan for a future without you in it. Everyone at this age should have a will. If you haven’t already made provisions for minor children, you’ll need to do that. If you have a business, you need to plan how you’re going to protect it if you’re no longer around.
This kind of planning is extremely important, and yet many, many people don’t bother to execute it. If you’ve been reluctant to deal with it until now, it’s extremely important that you read this chapter. Nobody likes to think about dying, but, eventually, we all will. And we have a responsibility to protect those we’ll leave behind by making sure they’re cared for.
Don’t Go There
Beware of generic wills that you can buy in office supply stores or stationary stores. Not all states accept generic documents, and these forms aren’t customized, so they may not be exactly what you need.
Everyone who is of legal age and has any assets at all should have a will. If you don’t, and you die, the court will determine how your property gets distributed. It also will appoint somebody to take charge of closing out your estate. The person or firm appointed can charge up to 5 percent of the value of the estate, which won’t come as a nice surprise to your survivors.
Most lawyers will draft a basic will for about $300, and it’s an investment you simply can’t afford to be without.
A will does not have to be long or complicated, or filled with language that nobody can understand. It does, however, need to include certain information. Basically, a will contains a description of a person’s assets, property, and belongings. And it describes how those things are to be divided after the person’s death.
A will also can contain specific instructions assigning certain items to individuals, and should name an executor to handle the estate. The executor is the person who administers the estate of the person who has died.
Many people include a letter of instruction along with their will to address more personal and specific issues. Some of those issues could include the following:
A letter of instruction should not be kept with the actual will, but in a spot that is easily accessible in the event of your death. And make sure that your spouse or another trusted person knows that it’s there. You can leave the most specific instructions possible for your funeral or burial, but if nobody finds them until three days after you’ve been buried, they’re of no use.
Most married people name their spouse as the executor, unless there’s a specific reason not to. When choosing an executor, keep in mind that it can be a time-consuming, tedious job. Don’t appoint someone who will be overly burdened by the work involved.
An executor normally is responsible for seeing that the wishes of the deceased person are carried out, and for paying any owed taxes or outstanding bills. Other duties of an executor may include closing bank accounts, arranging for appraisals of assets, filing insurance claims, inventorying assets, notifying creditors, setting up checking accounts to use to pay bills, informing beneficiaries and distributing bequests, and filing final income tax returns.
When including an executor in your will, keep in mind all that is involved, and be considerate. Make sure the person you choose has both the time and ability for the job.
Requirements vary from state to state regarding the validity of wills. Your lawyer will direct you in making sure that yours is valid.
A valid will must be dated, and signed by the person making the will, and at least one (usually two) witnesses. Generally, a will is a fairly straightforward document. Just make sure that you meet the basic requirements for validity to assure fewer problems for your heirs.
It’s extremely important that your will is accessible in the event that it becomes necessary. While the original should be safely stashed away, it’s a good idea to leave a copy of your will somewhere in your home, and for your spouse or another family member to know where it is.
The person who will be executor of your will also should have a list of your assets, and know where to find important papers regarding insurance and other legal and financial matters.
It’s highly recommended that you update lists of your assets and liabilities each year. Having these on hand can make matters a lot easier for your executor if you were to die.
Many people keep their will, along with other valuables, in a safe-deposit box in their bank or credit union. Safe-deposit boxes are used to store personal property that is important or expensive, and difficult or impossible to replace. Many people use the boxes to store insurance policies, stock certificates, jewelry, birth certificates, property records, business contracts, adoption papers, inventories of household valuables, and so forth.
A convenient time to update lists of assets and liabilities is when you’re gathering your income tax paperwork in late January or early February.
You have access to your safe deposit box during bank hours. Generally, two keys—one which you keep, and one that is kept at the bank—are needed to open the box. If you have your will in your safe-deposit box, make sure that a copy is available in a more accessible location, as well. And make sure that more than one family member knows the location of your safe-deposit box and where you keep your key. Many people make the mistake of sharing that information only with a spouse, never considering what would happen if both of you are killed in an accident.
If the only copy of your will is in your locked safe-deposit box, and you die on Saturday, for instance, your will would be inaccessible until the bank reopened Monday morning. And some states require that safe-deposit boxes be sealed at the time of death, although a survivor normally would be able to retrieve the will before that happened.
When you write and sign your will, your lawyer may suggest or request that the original copy be stored in their office vault. The charge is free, and a great service, if friends or family know that the will is held there. Also, the attorney who prepared your will does not need to be the same lawyer who works with your executor to settle your estate. The attorney who prepares your will is your lawyer. Your executor may prefer to work with someone else.
Regardless of where you choose to keep your will, it should be in a place that’s known and accessible to others.
Naming a guardian for a minor child or children is frequently the most difficult decision a person or couple must make. And yet, it’s necessary, and one of the best ways to assure that your kids will be well cared for by someone you trust in the event that you, or you and your spouse, should die before they’re adults.
Not naming a guardian for your children can be a disaster. There have been nightmare cases of families fighting over children, either because more than one relative wishes to raise them, or even worse, because no one wants to raise them. Children who lose their parents certainly need to be placed into a loving and stable environment, and to be financially provided for.
While the natural inclination of most people is to name a family member as guardian for your children, that’s not always the smartest or best alternative. If your only brother is a bachelor who lives in Aspen so that he can spend every weekend on the ski slopes, you’ve got to wonder if he’s going to be willing or equipped to handle kids.
If your parents are on the younger side and willing, they may be candidates, but think twice about setting your child up to lose another person she loves by placing her with elderly grandparents. They may be loving and willing, but older people sometimes lack the energy or patience necessary to raising children. Grandparents may be designated to assist the appointed guardians.
Religion is sometimes the primary basis on which a person or couple will appoint a particular person as guardian. Home environment is another. Will your children feel loved with their appointed guardians? Who do you know that will raise your children in a manner comparable to how you are raising them?
Remember that the guardian you name will raise your children. He or she, or they, if you appoint a couple, will work with the trustee of your estate to make sure your children have enough money to cover the major expenses they’ll encounter, such as college tuition. Money from your estate generally will be used for support of your children, and this should be stipulated in your will.
Don’t Go There
Don’t even think of appointing a guardian without carefully discussing the matter with the designee. You’ve got to be absolutely sure the person you choose is willing and able to assume the responsibilities.
You must discuss the guardianship relationship with the people you would like to have serve in that capacity. They may not feel that they’re physically able, or may have other concerns that would prohibit them from taking the job.
Some guidelines for choosing a guardian are listed as follows:
Appointing a guardian for your children is extremely emotional, and can be quite traumatic. No one likes to think about not being around to see their children reach adulthood. For their sake, however, appointing a guardian is not an option—it’s a necessity.
You’ve worked for years to start and grow a business. There were long, long days, many moments of doubt, and some pretty spotty paychecks at the beginning. Now, however, your business is doing just great, and you and your family are reaping the rewards of all your hard work.
In order to protect your family and your business, you’ve got to plan for the serious contingencies of death and disability.
You read about disability insurance in Chapter 2, “Figuring Out Where You Are in Life,” so we won’t spend much time on it now. Just remember that, in the event that you become disabled, disability insurance will help to replace the salary you’re not getting.
Remember that most disability insurance policies don’t cover the full amount of your salary, but kick in about 60 percent. Your emergency fund can be used to supplement the insurance payments.
If you’re the primary or sole wage earner in your household, whether you’re self-employed or work for someone else, you absolutely need to have disability insurance in order to assure that your family will have the money it needs.
If you decide that, in the event of your death, you want your business to be sold and the proceeds passed along to your family, it’s important to take steps now to assure that will happen.
A person’s business often is his or her greatest asset, but usually the least liquid. If you want your business to be sold, make it easier for your executor by stating realistically what the business is worth.
Keep an annual valuation of the business, and let your executor know where it is. Make sure you update the valuation yearly, and that it’s a realistic estimate of what your business is worth. Knowing what the business or property is worth will make it easier for your executor to get it on the market and sold.
You also might keep a list of potential buyers for your business along with the valuation. If a competitor has ever talked about the possibility of a merger with your company, or anyone has ever expressed interest in buying it, make sure your executor knows that in order to hasten the selling process.
If you have a partner in your business, he or she should be the obvious choice for buying your share of the enterprise if you die. Indeed, your partner is the first person your executor should meet with about selling your share of the business. And, there are some steps that you and your partner can take now to assure that he’ll be able to buy your share in the event of your death.
Ask your accountant or lawyer about the possibility of you and your partner getting a buy-sell agreement. This agreement usually occurs between partners, or closely held corporate shareholders.
The buy-sell agreement sets a price for the business, based on periodic valuations. The agreement also can require the sale of a partner’s share of the business to the other partner for a specific price within a specified time. It can state, for instance, that if you die, your partner will pay $400,000 for your share of the business within six months of the time of your death.
Or the agreement may not require your partner to buy your share of the business, but might offer him the first right of refusal. That means that your partner is given the opportunity to buy your share. If he doesn’t want to buy, or isn’t able to financially, other arrangements must be made.
An agreement that grants first right of refusal is a good idea, and very important to your partner if there’s a possibility that someone from outside might quickly want to buy your share of the business from your executor.
Adding It Up
A buy-sell agreement that provides first right of refusal to your business partner simply gives him or her the first chance at buying your share of the business in the event of your death. It’s a good way to protect your partner, your business, and your family.
If you and your partner agree that you want the other to own the business in the event that one of you dies, but you’re not sure that he’d have the funds to purchase your half, there’s a solution.
Business partners can buy life insurance that names the other as the beneficiary. When one partner dies, the other gets the proceeds from the policy, which can be used to buy the deceased partner’s share of the business. That way, your partner gets to keep the business, and your family gets the money from your portion of it.
If you own a business and haven’t planned for what will happen to it if you die, make an appointment with your lawyer or accountant today. Protecting your business and protecting your family go hand in hand, and you want to make sure that you do both.
If you’ve got good life and disability insurance policies (see Chapter 2 if you need a refresher on either of those), you may want to give a thought to long-term-care insurance.
Relatively new, long-term-care insurance has sparked debate about whether or not it’s necessary or a good idea for most people. While critics say it’s too expensive, and that many people who buy it will get no benefit from it, proponents say that everyone should have it to avoid becoming a burden to their families.
Insurance companies will tell you that one out of two people will eventually be in a nursing home. That statistic is misleading, however, because it includes those who may spend a week or two in a nursing home to get rehab after a fall or stroke. It’s estimated that only four percent of elderly people actually live in nursing homes full-time.
Long-term-care insurance sometimes is called nursing home insurance, and it does provides coverage in the event that you’d need to be in a home. A comprehensive long-term-care policy, however, also should provide for services such as assisted living in a residential setting other than your own home, help with daily activities in your own home, and community programs such as adult day care.
It seems strange to think about long-term-care insurance when you’re only in your 40s or 50s and still very healthy. Some people, however, say that this is exactly the time that you should not only think about this insurance, but go ahead and buy it. A policy will be easier to get, and less expensive, if you buy it when you’re relatively young and healthy.
The United Seniors Health Cooperative in Washington, D.C., estimates that a 55-year- old will pay between $300 and $1,500 a year for long-term-care insurance, depending on coverage. A 75-year-old just buying long-term-care insurance can expect to pay between $1,000 and $6,000 a year.
Nursing homes are very expensive, there’s no question about it. It can cost $4,000 a month or more to live in one, which would put a serious dent in the pocketbooks of most of us.
Whether or not you decide to buy long-term-care insurance should be a part of your overall financial planning. If you’re considering it, think about these guidelines from the American Association of Retired Persons (AARP):
If your family has a history of chronic illness, such as diabetes, cardiovascular disease, or Alzheimer’s, it makes more sense to consider long-term-care insurance than if all your relative have lived to be 90 in excellent health.
There are many types of long-term-care policies, so be sure to shop around. The AARP offers a great deal of information on its Web site. You can go to access information about long-term-care insurance at www.aarp.org/confacts/health/privltc.html.
Living wills are documents that state your wishes should you become profoundly ill, irreversibly incompetent, or need life support or heroic measures to keep you alive. A living will spells out to your doctor, the hospital, your family, and all others concerned what medical measures should, or should not be taken.
Living wills and medical powers of attorney are known by different names in some states. A living will also may be known as a directive to physicians, health care declaration, declaration with respect to life-sustaining treatment, or medical directive. If you wish to draft a living will, be sure you use a form that’s valid in your state.
It is intended to be used when the person can no longer communicate or make decisions on her own, and is designed to be a guide for family members and medical personnel. A living will goes into effect when a doctor has determined that death is fairly certain, or when it’s been determined that a person is permanently unconscious.
Think about this. Let’s say you do not have a living will. One day you’re in a major car accident, and requiring life support to keep you alive. Your family—probably your spouse—will be called upon to make the agonizing decision of whether or not to continue life support.
You should have a living will in order to assure that your wishes are carried out, and to make what would be an awful situation easier for your family.
A living will must be signed in front of at least one witness, and the definition of an acceptable witness varies from state to state. Generally, a witness should be someone other than a health care provider or a family member, or anyone else who may have a financial interest in the patient’s estate. Some states also require that a living will be notarized.
Many living wills include a section that releases doctors from legal liability for withholding measures that may possibly prolong life. This is to prevent family members from coming back and suing a doctor for not doing everything in his power to save your life.
Most of us in our 40s and 50s don’t think about executing a power of attorney, but we all should. A power of attorney is simply a document that authorizes another person to act legally on your behalf, in the event that you’re unable to take care of your own affairs and make your own decisions.
There also is a document called a medical power of attorney, which appoints someone else to make decisions concerning your medical care, other than those things that are covered in your living will.
The person who you name in a power of attorney to act legally in your behalf is called the agent, or attorney-in-fact. The second name can be a bit misleading. The agent does not have to be a lawyer. Any trusted person—your spouse, a child, other relative, or a close friend—can be your agent.
Adding It Up
A power of attorney authorizes another person to act legally on your behalf. A medical power of attorney appoints another person to make decisions concerning your medical care.
An agent would handle chores such as writing checks and investing savings in the event you were not capable of doing so yourself. He or she also could buy and sell property, and enter into contracts on your behalf. If you sign a power of attorney, it only becomes applicable if you’re no longer able to handle matters yourself.
As with a living will, a power of attorney is a safeguard for you and your family. There are different types of power of attorney, so be sure you do your homework, or consult a lawyer before drafting one.
Preparing for future contingencies isn’t always pleasant. It forces us to confront our mortality, and to think about end-of-life issues. Hopefully, we’ll all live healthfully into our 80s and 90s. Realistically, however, some of us will not. Preparing for the possibility of disability or early death is a gift you can give to those who love you.