Different Times, Different Planning

Planning (financial, estate, insurance, and other) steps must be tailored to fit different phases of ones life. Although we each wind through life milestones in our own unique order, identifying how planning typically changes over time will help you identify steps you might want to take now, or reconsider in the future. Too often, people assume "estate planning" is only for the 60-and-over set. There is no age barrier to planning, and it is about much more than just wills. Here are a few practical ideas for those under 60:

20s - Too young to plan, so you do nothing? Big mistake!

Terri Schiavo was in her early 20's when tragedy struck. Being that she was so young, no one imagined such a disaster would occur. At such a young age, you may not have much by way of finances, or legal complications, but you should at least sign a living will and health care proxy (whereby the living will memorializes your wishes concerning your health care in the event that you are unable to speak them yourself, and a health care proxy designates an agent to carry out your wishes stated in the living will). As we have said before: it's always better to be safe than sorry.

Whether you're back-packing through Indonesia, or just off to college, someone back home should have the authority to take care of tax, legal and financial matters for you. Regardless of how many pennies are in your checking account, you also want to sign a durable power of attorney naming a parent or someone else to act if you are unable to do so.

Key Tips:

Here's a list of ideas to implement.

Communicate key passwords, account information and other private data to a trusted person in the event of an emergency.

Get liability and property insurance. Don't ignore insurance, as too many young people do, because your belongings are not valuable. If you own a car, or rent an apartment, you face liability risks. You also need the coverage to protect whatever belongings you have. It's also good to get in the habit of insuring your valuable items.

Living Together Agreement: Living with someone - it may seem like nirvana, but if it doesn't work out it could be a mess. Who keeps the car? Who has the liability for that 5 year lease you signed? Prepare a living together agreement that addresses key issues you might face if the relationship falters.

Start saving today! Invest the maximum amount in your IRA every year from when you first start working, and those simple contributions, invested and compounded, will be worth a tremendous amounts in the future. Save now. Again, even if it is a little, get into the habit.

30's - Life is simple, focused on career and other issues, but don't forget finances.

At this stage of your life, you are probably career-oriented, and are planning/starting a family. Your financial matters are also becoming more serious and time consuming.

Personal Excess Liability Insurance: Get a personal excess liability insurance policy to cover your auto, home/apartment and other risks. You're probably starting to save and build up your assets, and you need to protect them with more than just the basic coverage.

Disability Insurance: Buy disability insurance if you don't have it. If the cost is a burden, lengthen the waiting period, but don't go without coverage. The risk of a long term disability is substantial as you start to enter prime earning periods. Also, at a time in your life when savings are limited, you probably cannot afford to live without your expected income.

Will and Testament: At this point, if you haven't signed a will, hire a lawyer and have a will prepared that addresses your current, and near term anticipated changes.

Family: Take steps to protect your children: Trusts, college savings, and emergency medical forms are a good start. Formally name persons to whom you would entrust the care of your children in the event that you are unable to do so yourself. It is important to discuss this with the person you designate. Make sure they know that you are designating them. No one should be surprised with that sort of information, especially in an emergency.

You will likely need life insurance to protect a spouse and/or children. Be sure you have enough coverage to really provide the protection they need. It is probably worth it to spend the extra few dollars to ensure that your family will really be provided for in the case of your death. Remember, if you want the principal to remain intact (e.g., pay "income" to your spouse, and on his/her death leave the principal to the kids) your surviving spouse or partner can only withdraw about 4% a year if the remainder beneficiaries (e.g., your children) are to inherit an inflation adjusted principal value. Do you really have enough coverage? To avoid state estate tax, possibly federal estate tax, risks of your surviving spouse's new partner, etc. be sure your life insurance is owned by a trust.

Your assets may be modest, but you're likely to want to protect them from lawsuits and claims (perhaps at this stage you own a couple of cars, have a house and a business, all of which create exposure). You might be able to own your house jointly with your spouse, and thereby have some protection from either of your creditors. Consider funding an IRA, even if non-deductible, since the assets in the IRA are protected from lawsuits. You don't want to lose the assets that you have accumulated.

Business: Review the structure of your professional practice or business and be certain that the structure provides protection from your personal assets. Also, make sure that you have systems in place so that formalities are adhered to. In the event of a claim against your practice, you don't want to lose your personal assets. Do not let growth detract you from vital administrative matters.

Plan Ahead: Do not neglect your retirement planning. Even if you are strapped putting money away for kids' college and paying the mortgage on your new McMansion, salt something, even a small amount, away.

40's - You realize the Cleaver Family was only a TV show: You're on your second marriage, your adult son just moved into your basement, and you're dealing with aging parents.

You are probably in the middle of your prime earning years. Your expenses are adding up, but you seem to have things under control.

Parents: Be sure your parents have signed, at least, living wills and health care proxies, so that you, or your siblings, will be able to help them when necessary in ways that they want to be helped.

It's a touchy subject, but make sure your parents are managing their finances. If they get taken for a ride by one of the many hucksters out there, you may end up supplementing their resources (instead of your retirement). When approaching the subject, don't speak to them forcefully, or act as if you know better than they do. Instead, ask them about their finances, just to make sure they are on top of things. Also, truly explain some ideas that you have for them. Often times, elderly people will say no to certain options, simply because they don't fully understand all of the concepts.

Re-evaluate: So now that you have been through at least one divorce, or you have at least become more realistic about the odds for your kids having a divorce, call your attorney back and re-write your will to bequeath assets in lifetime trusts rather than outright once your child reaches some specified age. With age comes experience, and you know that at different times, your heirs may need more cash available than during others.

Re-evaluate your investment allocations as part of an overall financial review. A mile-high overview and reality check is important at every life phase. If you are surprised to find that you will not be able to retire at the age you thought, or the age your parents did, you may want to shift towards a more aggressive investment posture if your time horizon is in fact longer, and you want to meet your benchmarks.

Secure a home equity line to provide emergency cash. By this stage of your life, you've likely built enough equity that this can be a great resource in an emergency (no, not to pay for that trip to Tahiti!). This might enable you to put otherwise idle cash balances to better use (i. e. , more fully invested for retirement as mentioned above).

50's - You realize that you really do want to retire one day; Estate planning is real, and long term care insurance is a major cocktail conversation topic. You have accumulated assets and want to protect them. Your kids have moved out of the house, and may even have children of your own. You and your wife are beginning to enjoy the quiet life, and the thoughts of retirement keep popping into your heads.

Long Term Care Insurance: Yes, its time to start thinking about long term care insurance. Evaluate the options and what really makes sense before committing. Take your time to get through the puffery to see what the real facts are. Nursing homes are extremely expensive, and you do not want to burden your children with such an expense.

Revocable Living Trust: Now that you have a comprehensive will and estate plan in place (yes, you need a "plan" even if they repeal the estate tax), consider the benefits of a revocable living trust. This can be a tremendous technique to manage and control your assets if you become disabled or subject to a long term illness (the probate avoidance issues are often over rated).

Odds and Ends: Review all your insurance coverage and needs. If you're in prime earnings years, be sure life and disability coverage is adequate. If you've accumulated substantial savings, perhaps disability insurance may no longer be as necessary.

If you have a professional practice or a closely held business, create a viable succession plan (bringing in an associate, a buy sell, merging with a bigger company, etc. ). For example, while you might have simply relied on insurance when you were younger in your career, that insurance becomes more costly, and your practice or business may have grown to the point where a more sophisticated plan is appropriate. You do not want the business that you have worked towards your entire career to crumble when you retire.

You will face your own unique timetable and planning needs, but they will change over time and will need to be re-evaluated and updated.