Month: November 2016

Life Insurance for a Professional Racecar Driver? You Bet!

Since she was in her early 20s, Danica Patrick has driven a racecar—speeding 200 miles per hour around an oval track bordered by concrete walls. It’s dangerous.

Patrick said, “So no matter what your skillset is, those things just happen. Absolutely it is a risk.” 11-15-16

Forbes’ article, “Danica Patrick: You May Not Drive a Racecar, But You Still Need Life Insurance,” says that it’s a risk that she’s chosen to manage in part with life insurance. She’s owned life insurance since she started racing, and she now advocates on behalf of Life Happens, a nonprofit founded to help consumers make smart insurance decisions.

It’s a rite of passage to buy life insurance before your first race. However, Patrick has more personal reasons. Her parents were in favor, as each lost their fathers during childhood and witnessed the financial stress placed on their families. They managed the risk with life insurance and saving six months’ worth of expenses for an emergency.

As far as Patrick is concerned “she didn’t want to leave people with bills they can’t pay, and not only dealing with the sadness of a loss, but trying to figure out how you’re going to manage the rest of…life.”

Life insurance allows us to deal with personal loss without compounding it with financial stress. The suggested policy for most families is a term life insurance policy with a death benefit that is approximately 15 times their annual income.

With term life insurance, many life insurance needs will expire, assuming that a family is on track to reach financial independence around retirement age. The specific term of your policy should last at least through the children’s college years—and at most through the age at which you can reasonably expect to be financially independent.

If you want to create an estate, fund charitable bequests, replace an estate lost to taxes or build cash value, you will need some type of permanent life insurance—whole life, universal life, or variable life. Note that permanent life insurance creates additional financial complexity and can be expensive.

If you have a spouse or minor children, you have loved ones relying on you financially. Term life insurance can be pretty inexpensive. And even if you’re not a racecar driver, you face one of life’s most common risks—riding in or driving a motor vehicle.

As Patrick remarked, “It’s probably pretty uncommon to come across someone that hasn’t been in some kind of a car accident. Now, there are surely varying degrees, but you’re not wearing a six-point harness with a helmet on and an ambulance sitting nearby. So, it’s a risk no matter what you do if you’re driving anything.”

Reference: Forbes (Sept. 23, 2016) “Danica Patrick: You May Not Drive a Racecar, But You Still Need Life Insurance”

Complete a Complete Estate Plan

When it comes to planning, the focus is typically on making you better prepared for the future. That means limiting taxes, creating wiser investment strategies, knowing when it’s best to claim Social Security and developing sustainable retirement income plans. All of these help you on the path to your financial future and your long-term goals. But The Brainerd (MN) Dispatch reports in “3 common estate planning questions, answered,” that there is, however, one exception. That’s estate planning. While much of financial planning primarily benefits you, your estate planning primarily benefits your family and loved ones. 11-14-16

The basic component of your estate plan is your will but there may be other parts you need. Depending on your estate, you may want to consider a trust, in addition to healthcare directives, powers of attorneys and guardian designations. You should also remember that your will isn't necessarily the only instruction when it comes to distributing your assets. The beneficiary designations on your retirement and brokerage accounts, and the life insurance policies you own will take precedence over what you say in your will. Review beneficiary designations regularly to be sure the money in your accounts or the death benefit on a life insurance policy goes to the right person.

A trust can be complicated, so talk with an estate planning attorney to see if it makes sense and whether you'll actually benefit from using a trust. If most of your assets are covered by beneficiary designations or owned in joint tenancy, those assets are already exempt from probate, so they won’t necessarily benefit from a trust strategy.

The executor or the personal representative is the person who will be responsible for carrying out the instructions in your will, settling your debts and paying taxes on your estate. As far as selecting an executor, it should be someone with the capacity to carry out the needed tasks of the position. It also needs to be someone who is willing to serve and is familiar with your situation such as a family member or a close family friend.

If you don't spend every last dollar you have to your name on the day you die, you'll need to have an estate plan. Speak with an experienced estate planning attorney to develop one.

Reference: The Brainerd (MN) Dispatch (Sept. 23, 2016) “3 common estate planning questions, answered”

A Few Words of Advice for Getting Married in Your Golden Years

If you're in your senior years, you may want to think twice before tying the knot. The love bug can bite at any age, and that can include pain in your wallet. This advice comes from The Hartford (CT) Courant in its recent article “Fit to Be Tied? Think Twice About Marriage in Your Golden Years.”

A late marriage can mess up your previous plans for your estate, personal finances, as well as any advance directives for your end-of-life health care. It can also impact decisions you've made and will make, in addition to those of your spouse and heirs. 11-11-16

No one is saying that older folks shouldn’t marry. They just need to be aware of the impact it may have on their plans. Elder law attorneys advise that those thinking about marriage later in life, at the time when personal wealth is typically the highest, understand the laws on the property rights of both spouses.

Property owned jointly or exclusively by either spouse is deemed to be marital property when it comes to divorce settlement or settling an estate in many states. If you understand the applicable property rights before the marriage, it’ll let you modify your wills, powers of attorney, health care proxies and designated beneficiaries to avoid legal conflicts in the future. Those who marry later in life must face several estate planning issues younger couples don’t. For example, there may be an accumulation of considerable assets or both may have children from earlier relationships.

Marriage is a legal contract between two people that can only be ended by death, annulment or divorce. The laws concerning marriage typically aim to protect the rights and interests of both spouses. One spouse can’t entirely “disinherit" their surviving spouse, regardless of what he or she writes in a will. Under the law of some states, a surviving spouse is entitled to the income generated from a third of their late spouse’s estate for the rest of their life after all its liabilities are settled.

A good idea to eliminate possible hard feelings is a professionally drafted prenuptial agreement. This document details the legal course to be followed in the event of divorce and decreases the possibility of major disagreements.

Reference: The Hartford (CT) Courant (Sept. 24, 2016) “Fit to Be Tied? Think Twice About Marriage in Your Golden Years”

How Not to Do It: Spending the Inheritance on Royal Souvenirs and Strippers

For the Scripps family, who were heirs to a media fortune, they simply spent their millions. According to an article on CNBC.com, “The Greed Report: Not a billionaire? You still need an estate plan,” they took luxury cruises around the world and family outings to strip clubs. 11-10-16

Melissa Scripps bought Queen Elizabeth II's coronation chair and Queen Victoria's nightgown. Like his mom, son Michael liked to buy war memorabilia and guns. Oh, and he married a stripper.

When the well ran dry, the family started to fight. Mother and son turned on each other, one family member went to prison and tarnished a name once associated with entrepreneurship and philanthropy. This tragedy provides some lessons for the rest of us.

Everybody needs estate planning in some form or another—it doesn't need to be complex in many situations but everyone needs a plan, even those with social problems, financial problems and marital problems.

A good estate plan will consider all of those problems and keep your assets in the family and away from the government and taxes.

Estate planning doesn’t have to be complex or expensive. Estate planning is sometimes 95% social work and 5% legal, some attorneys say. The legal part they know—it's the social part that takes time. The Scripps family probably should have spent more time on the social part as well: Melissa Scripps' attorney said that at the time she inherited the family fortune, she had never held a real job and only had a high school education.

Maybe some more estate planning might have prevented the Scripps’ century-old legacy from turning into a gigantic family feud.

Reference:  CNBC.com (Sept. 22, 2016) “The Greed Report: Not a billionaire? You still need an estate plan”