By Steve Worrall, Atlanta, Georgia estate planning attorney
As an Atlanta and Marietta estate planning attorney, I know Generation Y has a lot to think about…starting their careers, buying their first home, starting a family. All of these things are beginnings, so it’s a rare day when someone in this generation wants to think about The End. But there are 4 reasons that they might need to…
A lot of people think that youth is an excuse for putting off doing a will or trust. But estate planning is not just about planning for your death. It is also prepares you in the event you experience an incapacitating injury and are unable to make your own financial or medical decisions. While the odds are certainly in your favor that you will not need an estate plan, you should still consider these four scenarios…
1. You need a plan in the event that you become disabled or incapacitated.
Unfortunately tragedies happen every day. And you are not immune to them because you are young. If something happens to you and you are no longer able to make decisions regarding your own financial, legal, and medical affairs you’ll need to make sure that there are basic documents in place such as a medical directive, power of attorney and HIPAA authorization so someone can.
2. You need to pass your assets.
You might be asking, “What assets?” Even if you do not yet own your own home, you need to consider IRAs, retirement accounts and life insurance accounts offered through your employer. You need to make sure that beneficiaries are named in the right way to make sure that the people you want to leave them to get maximum benefit.
3. You need to name guardians for your kids.
If you have children, you simply must name guardians. You should be the one who decides who will raise them if you are no longer around. You do not want this decision left to squabbling relatives or to a court system who doesn’t know you or your child.
4. You need to plan for your pets.
If you have a pet, chances are they are a big part of your life. They are totally devoted to you and also totally dependent on you. Have you stopped to think what might happen to them if something were to happen to you? If you want to make sure your companion is cared for if the unexpected happens, you could choose to put together a plan for their continued care. The plan may include directions about feeding, medical care and other needs along with funds necessary to provide for your pet’s support and to compensate the caretaker.
The scenarios above are just a few to consider when deciding if you need a will or trust. If you are in the Atlanta area, I encourage you to talk with an Atlanta and Marietta wills and trusts lawyer. Only then will you have the peace of mind of knowing that you are fully protected.
I get massively ticked off when I meet with prospects for a Family Wealth Planning Session and see on their Family Wealth Inventory and Assessment they’ve been sold life insurance they don’t need.
Life insurance is critically important for families, no doubt.
But, it’s important you get the right type of life insurance for your family; otherwise, you are pouring your hard earned money into the pockets of your life insurance agent.
That makes me angry as a hornet!
Here’s the real deal, objective, hardcore information you need before you make a life insurance buying decision for your family.
There are two main types of life insurance: term insurance and permanent insurance.
Within the permanent insurance category, they are many subsets, including Variable, Universal, Whole Life, and a few others that are a combination of those I just listed. You can find the definitions of each of these here, if you really care.
Truly though, most of you shouldn’t really care. Because very few of you reading this need permanent insurance.
You almost certainly need term insurance and if you don’t have it, you should get it now. The younger the better because it gets more expensive as you age. I got a $1,000,000 policy at the age of 28 that cost me about $440/year. That same policy just three years later would have cost me double that.
Term insurance provides death benefit in a “face amount” (I have a total $1,500,000 of death benefit on my life for my kids) so long as you pay your premiums each year.
The premium payments will stay level for the term of the insurance, which could be 10, 20 or 30 years, depending on your contract. After that, if you wanted to continue the insurance, it would likely be cost-prohibitive for you to do so (unless you get a type of term insurance called convertible-term, which is generally more expensive, but allows you to convert it to permanent policy during the term agreement). With a term policy, there is no cash value build up – so, if you pay $1000 in a year and you don’t die in that year, that’s it, the $1,000 is gone.
Permanent insurance, in contrast, is a lot more expensive. For example, that same million dollar policy that costs me $440/year could cost $440/month if it was for a permanent policy.
The extra premium goes into an investment account that builds up cash value, which sounds really nice, BUT has some real downsides, including you have no control over this investment account and huge amounts of it are eaten up by commissions to your insurance agent in the first year, so you are starting your investment in the hole big time and have a lot of ground to make up before it will even come close to comparing to taking that money and putting it in a traditional investment account.
Commissions are worth it if you NEED permanent insurance, but are a waste of your hard-earned cash, if you don’t. There is only one condition under which permanent insurance makes sense for your family – if you absolutely MUST have insurance at the time of your death.
There are only 2 situations in which you absolutely MUST have life insurance at the time of your death. They are:
1. Your family will need the insurance to pay estate taxes at your death. You are only at risk of estate taxes (today) if you have more than $2,000,000 in assets. If you have less, don’t worry about it yet.
2. Someone will be dependent on you at the time of your death and you may not have enough in retirement accounts, savings or other assets to provide for that person at the time of your death.
Let’s talk a little bit more about the 2nd situation and look at some examples because if you have a potential estate tax issue, you probably know it. But, you may be uncertain as to whether you need permanent insurance to provide for dependents.
If you are married and both partners are breadwinners and you have healthy, minor children – you don’t need permanent insurance. Term insurance that lasts for 10, 20 or even 30 years (depending on the age of your minor children and your desire to provide for them into their 20s) is sufficient. If you or your partner died after the expiration of your term, you kids could provide for themselves and your partner could continue working.
If you are married and both partners are breadwinners and you have a special needs child – you might need permanent insurance, but you might not. If you have a special needs child who will need financial care forever and you will not have enough money put away in a Special Needs Trust through your own savings or gifts from other family members to provide for that care, you may want to consider a permanent insurance policy to fund that Trust for your child.
If you are married and one of you is a stay at home spouse and is not likely to ever enter the workforce – you may want to consider permanent insurance to provide for the lifetime financial needs of the non-employed spouse, if you won’t have enough in savings or retirement to provide for the lifetime needs of the non-earning spouse if the earner spouse dies prematurely, but after the term insurance would expire.
To make this one a little more concrete, let’s look at an all too common example in which breadwinner husband dies in his late 50s or early 60s after his term insurance has expired but before he’s got enough in savings or retirement to support stay at home wife who has been out of the workforce raising their kids for the past 30 years and is now left with not enough resources to support her for the next 30 years and no real prospects for supporting herself financially.
Personally, I’d rather see this scenario avoided by ensuring that each spouse in a marriage always has the capacity to earn a living by working together to build a business that would support either spouse with passive income later in life, but if that’s not realistic for your family, permanent insurance may be a necessary solution.
Term insurance unless you know you are going to need insurance when you die to pay estate taxes (in which case the insurance should be owned in an Irrevocable Life Insurance Trust) or some type of permanent insurance if you want to guarantee to have some coverage in place for a non wage-earner spouse or special needs child no matter what age you are when you die.
SOURCE: Family Wealth Matters by Alexis Martin Neely
Quite frequently when I’m working with clients, I am asked the question – how much life insurance do I need?
Like any good lawyer, my answer is “it depends.” There’s no set answer.
Personally, I have $1,500,000 on my life. And, by the way, it’s not payable to my kids or my ex if something happens to me. My life insurance is payable to a trust for the benefit of my kids that they wouldn’t get control over until they are mature. But, the money never comes out of the Trust. It stays in protected from potential lawsuits and divorces they may later be involved in. You should do this too.
Ok, so what does the “how much” decision depend on?
Well, it depends on how much you’d want your loved ones to have after you are gone and what their needs would be.
You can use the nifty calculator here, which will help you calculate how much your loved ones would need after you are gone.
I hear a lot of people say they want enough insurance to pay off their home if their spouse died, but that’s not necessarily the best use of insurance money. You absolutely do want to make sure there would be enough money coming in to support the mortgage payments, property taxes, and maintenance of the house, but paying off the house isn’t always the best idea.
A house payment has tax advantages and a paid off house is a lot of money just sitting there not earning any return on your investment. In a low interest rate environment, it’s better to have the mortgage and invest the money in income producing assets.
I strongly recommend that you don’t make any of these sorts of decisions without the guidance of a trusted family advisor. And, I personally believe that the best advisor for your family is a Personal Family Lawyer who is totally on your side and will help you to make the best decisions throughout life and then be there for your family when you can’t be.
SOURCE: Family Wealth Matters by Alexis Martin Neely
September is Life Insurance Awareness Month. I will be posting several articles on this subject and the importance of having enough insurance and the right kind of insurance. The following article is about determining how much life insurance you need and there is a link to a calculator at the end of this article.
The question isn’t really how much life insurance you need, it’s how much money your family will need after you’re gone. Ask yourself:
- How much money will my family need after my death to meet immediate expenses, such as funeral expenses and debts?
- How much money will my family need to maintain their standard of living over the long run?
Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes, and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations such as everyday living expenses, money for college or your spouse’s retirement, and so much more.
But how do you know if you need $100,000, $500,000, $1 million or more? The most common way to determine your life insurance needs is by conducting what’s called a Capital Needs Analysis.
Here’s how it works. Start by evaluating your family’s needs. Gather all of your personal financial information and estimate what each of your family members would need to meet current and future financial obligations. Then tally up all of the resources that your surviving family members could draw upon to support themselves. The difference between their needs and the resources in place to meet those needs is your need for additional life insurance (see below).
Current and future financial obligations
Existing resources including survivors’ earnings, savings, and investments and life insurance that you already own
This may look simple enough, but calculating one’s life insurance needs can actually get pretty complicated. To make it easy for you to get a general sense of your needs, check out our life insurance needs calculator. It’ll walk you through the process and provide you with an estimate of your insurance needs in a matter of minutes.
SOURCE: New York Life
Life and health insurance issues are important considerations in divorce proceedings from several aspects:
1. Who will fund the support order or alimony if the provider should die?
2. How will this be tracked and enforced?
3. If both spouses and children were covered under a single group health plan, how will the separating spouses and children be covered after the divorce?
4. For the spouse with custody, what additional needs are there for life and/or health insurance?
Ask your attorney whether the divorce settlement can include a provision for life insurance on the provider, to protect the support order or alimony. Also, ask whether ownership of the policy can be in the name of the spouse receiving support.
The recommended approach is to acquire a life insurance policy with a face amount sized to provide the regular support payments, when deposited in an appropriate investment account.
Regarding health insurance, divorce is a qualifying event for benefits under COBRA, so named after the act of Congress that created it. Also, ask your attorney whether the divorce settlement can include a provision for health insurance, especially if either spouse can provide it at a reasonable cost through group coverage.
Finally, you may need to purchase additional health or life insurance coverage to protect yourself and your children.