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Estate Planning
Learning Center • financial tips • cash reserves • insurance • savings accounts • growth investments • taxes • retirement • estate planning  |
If everything you own at the time of your death exceeds $1,000,000, your estate may owe federal and state estate taxes.
All life insurance policies and annuities have a beneficiary who inherits that money or policy when you die. If you have an IRA or other retirement plan, it will also have a beneficiary who automatically gets that asset after your death.
If you do not have a written estate plan, your assets will be divided and distributed according to the laws of the state you live in. Your written estate plan can be either a Will or a Living Trust. A will requires that your heirs hire an attorney (this is mandatory) and go to court where the judge will see that your plans are followed exactly. This takes time, often one to two years, and the attorney is paid 2% to 10% out of the estate. It is very important that you discuss your estate plan with all of your heirs, both family and others, so they all know your plans and will be comfortable with them.
With a living trust, you appoint a Successor Trustee to manage your estate and distribute it after your death, or if you become incompetent. This successor trustee is legally responsible for managing and distributing your estate exactly as spelled out in your living trust. This is normally fast and simple and no probate court is involved.
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Here is an example of how Willie and Annie's life changed with retirement:
Willie just turned 65, and his 401-K has $138,000 in it. Annie's IRA has $125,000, and her Roth IRA has $27,000 in it. Altogether that comes to $290,000. They both feel good, and they decided to work one more year, until Annie is also 65. Then they'll both retire and both draw their full Social Security. If they make their regular contributions ($2,184 + $2,000 + $500 = $4,684) and their account grows 12%, they will have another $40,000 in their accounts upon retirement. That is the magic of compound interest, and they definitely want the extra money, which is a fortune to them.
When they retire next year, they hope to have about $330,000 in their three mutual fund accounts. If they transfer the accounts from growth funds to income funds and take out 6%, they will get about $19,800 a year. Plus they will both collect their full Social Security of about $700 and $600 a month respectively. This will give them a combined income of about $3,000 a month for as long as they live, and their children could inherit the full $330,000 from their mutual fund retirement accounts, plus their mother's house.
Willie and Annie are amazed that they could ever have that much money. They couldn't be happier and look forward to enjoying a long retirement with their children and grandchildren.
Peterson Money Books
Book: MONEY Changes Everything, by Erlend Peterson, CFP
Seven Simple Steps That Will Make Money Work For You!
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