Four New Year’s Planning Resolutions

The new year is always a time to take stock of the previous year and to make positive changes for the months ahead. Here are several resolutions that your clients should keep, in 2014 and beyond.
1. Review and Update Retirement Plan and Life Insurance Beneficiary Designations
Many retirement accounts, like 401(k)s and IRAs, allow you to choose who will receive the account when you are gone, and life insurance policies obviously have beneficiaries you name in advance. In many cases, retirement assets and life insurance will make up the majority of the inheritance that is left for your family. It would be a shame if these important assets were squandered because you failed to name the proper beneficiaries.
One of the biggest problems with these beneficiary designations is that they are not always set up to allow the beneficiaries the tax benefit of stretch distributions, particularly if the beneficiary is a trust. A trust can absolutely qualify as a “designated beneficiary,” allowing the beneficiary to stretch distributions, but the trust must be drafted properly to qualify, and the beneficiary designation must be written correctly in order to qualify.
If your family has beneficiaries with special needs, another problem with the beneficiary designations is that they are not always very specific. For instance, a beneficiary designation may say that the primary beneficiary is your “spouse” and the contingent beneficiary is your “children.” If one of those children has special needs, then according to the beneficiary designation that child is entitled to receive his share of the account or insurance policy outright. If the child receives government benefits, or if he is simply not very good with money, then the receipt of a large inheritance could be disastrous.
This new year, make a resolution to review your retirement plan and insurance policy beneficiary designations. There are many ways to have your children inherit the funds without having to give them the money directly. For example, the life insurance policy could fund a trust for the beneficiary (or even a special needs trust if appropriate). An IRA could be left to a Retirement Trust designed specifically to be a “designated beneficiary” for that asset, which grants the benefits of wrapping a trust around that asset along with the ability to get the tax benefits of stretch distributions.
2. (Finally!) Create Your Estate Plan
We all know we need a plan, but research tells us that 65 to 70% of people don’t even have a Will. Even worse, if you’ve “done a will” with a DIY program, the result can sometimes be worse than not doing anything at all. Those “online document” services can provide a (false) sense of security that the plan is done and everything is taken care of, because it is very difficult to tell when the documents they provide are deficient. Some of the biggest, most expensive, most time-consuming estate messes that happen after someone has passed away involve those DIY documents. The effect on a family that is dealing with a mess like that can be devastating.
3. Special Needs Families Need Special Steps
Learn More About Your Family Member’s Government Benefits
Government benefit programs for people with special needs can be one confusing jumble of acronyms. Most families are lucky to know the difference between SSI and SSDI, let alone how those programs work in detail. Yet in many cases, family members are the people responsible for managing money for a loved one, and the decisions that they make when it comes to spending that money can have life-altering ramifications for the person with special needs.
Since most people will review their finances with their financial advisor at the beginning of the new year, this is the perfect time to resolve to really understand some of those tricky government benefits that your loved one may receive. Take the time to talk with your special needs planner, join a support group with other relatives of people with special needs, and read a book from a reliable source about government benefits. The information that you gain in the new year could improve the life of your family member for years to come.
Create Your Special Needs Trust
Special needs trusts serve a variety of purposes, and depending on your family member’s individual set of circumstances, it may be wise to create at least one trust to protect their assets and to ensure that they will have funds available when they need them in the future. In some cases, you may be the only person who can easily set up the proper type of special needs trust for your family member, and the failure to do so when you have the chance could lead to a much more costly court procedure down the road.
While the upfront cost of setting up a special needs trust may seem prohibitive now, the future benefits far outweigh the small cost. If you have been thinking about creating a special needs trust for a family member, take the time to do so at the beginning of this new year — the trust will last a lifetime and could very well be the most important investment that you ever make.
4. Review Your Existing Plan
If you have already created an estate plan – Congratulations! You have taken steps to protect your future and the future of your family. Consider, however, whether you should have your plan reviewed and/or updated.
Many folks think about their estate planning at only a few times in their life. One time is when a young couple has a new baby. There is often a desire to make sure the baby is taken care of with guardianship should something happen to them as parents. After the plan is signed, however, they take the documents, toss them in a drawer, and don’t think about them again. The problem with never re-visiting your plan is that as your family grows and changes, what you need in your plan grows and changes as well. The plan you need for your son at 5 is different from what you need for your son at 15 and your son at 25.
Another time people will think about their plan is when they are reaching the age where they are thinking about retirement sometime in the next several years. Often, they have a will they created 35 years ago that they tossed in a drawer and haven’t thought about since. They also often have done well and have a large enough estate that they have to think about at least state Estate Taxes, if not federal taxes. The difficulty of waiting, however, is that the longer someone waits to plan, the fewer the tools the planner can use in their situation. Many excellent planning strategies require time to work well, and waiting too long to consider what changes may be appropriate can rule out some techniques.
Finally, a death in the family will often spur someone to revisit their own planning. Unfortunately, this is often because the deceased family member’s planning was in disarray, and the administration of the estate did not go well. Keeping your estate plan updated and in good shape is very important to help ensure that the administration process is as smooth as possible.
All of these Estate Planning Resolutions can help make 2014 a year filled with Peace of Mind!