Attacks Prompt Increase in Estate Planning

By Sandra Block, USA TODAY

www.usatoday.com

The terrorist attacks in New York and Washington have changed the way many of us conduct our lives. We're hugging our loved ones a little tighter, driving less aggressively and spending a lot more time in church.

We're also spending more time thinking about our mortality, and what would happen to our families if disaster strikes. "I must have had a dozen people come up to me since (Sept. 11) and say they need to get their finances in order," says John Huggard, an estate-planning attorney and finance professor in Raleigh, N.C. "People who had rough drafts of wills out there for months are now setting up appointments" to finish the task, he says.

Estate planning is one of the most compassionate things you can do for your family. If you die unexpectedly, it can protect them from financial ruin. It can reduce discord among relatives about who will inherit your assets. And it can ensure your children are raised by people you trust.

Estate planning doesn't have to be complicated or expensive. Some steps, such as updating the beneficiaries on your retirement plans, cost nothing. Others are as simple as making sure your survivors can locate your bank and brokerage accounts. Some important elements of estate planning:

A will. Even if you're childless, a will is a good idea.

If you die without a will — known as dying intestate — your property will be divided among your survivors based on the laws of your state. If you're single, your parents will probably inherit your assets. If they're no longer alive, your assets will be divided among your siblings. Your struggling sister who is raising five children by herself will inherit the same amount as your wealthy single brother.

If you're married and die intestate, your spouse will inherit your entire estate. That includes non-financial items, such as family heirlooms. And if you and your spouse die at the same time — which tragically happened to some couples who were flying together on Sept. 11 — your assets will be divided equally among your next of kin, with no consideration of financial need. With a will, you can have a say in how your financial and non-financial assets are distributed.

The basic legal requirements for a will aren't complicated. Most states require that the document be typewritten and signed in the presence of at least two witnesses who aren't beneficiaries. The will should include the name of an executor who will be responsible for distributing your assets.

Most financial planners recommend consulting with an attorney if you have children. An attorney can help choose a personal guardian for your children, along with someone to manage your money on their behalf. An attorney can also help adjust the beneficiary designations in your retirement plans and insurance policies so they conform with your will, says Stephen McDaniel, an estate attorney in Memphis. You should also work with an attorney if your estate is complicated, or if you have contentious relatives who might challenge your will.

If you're childless and your estate is small, you may be able to get by with a do-it-yourself will. Several software packages, such as Quicken Lawyer, will walk you through the process.

Life insurance. Determining whether you need life insurance is easy. If you have children, a spouse or others dependent on your income, you need life insurance. The hard part is figuring out what kind of insurance you need. Some things to consider:

Term vs. permanent. Term life insurance provides a specific amount of money to your heirs if you die while the policy is in existence. Once the term ends, the policy expires. For example, if you have young children, you might want to buy a term policy that expires when they reach adulthood. Permanent life insurance, or whole life, combines the death benefit with an investment account. It costs more but doesn't expire as long as you pay the premiums. If you're young and simply looking to protect your family, term is a better deal, says Robert Hunter, director of insurance for the Consumer Federation of America. Because premiums are relatively low, you can buy a lot of protection for your family without spending a lot of money.

How much you need. Some financial planners say your policy should provide anywhere from five to 10 times your annual income, but each individual's situation is different. The policy should cover both short-term needs, such as outstanding debts and emergency expenses, and long-term expenses, such as college tuition for your children. You should also consider whether your survivors would have other sources of income, such as Social Security. CFA's Hunter suggests calling one of the no-load insurance companies, such as USAA (800-531-8000), Ameritas (800-552-3553) or SBLI (800-438-7254) for help in coming up with an estimate. These companies don't earn commissions based on the size of your policy, so they'll give you an unbiased estimate, he says. Keep in mind that calculating your insurance needs isn't a one-time job. You'll need to revisit your policy every time there's a life-changing event, such as the birth of a child.

 

How much you already have. Many companies include group life insurance as an employee benefit. Typically, these policies cover your salary for a year or two, so you'll probably still want a separate policy. But insurance through your job could reduce the amount you need to buy on your own.

There's a lot of competition in the insurance business, and a variety of Internet sites will provide estimated prices for policies. The Consumer Federation of America recently rated Internet sites and gave its highest rating to www.Term4Sale.com. The site includes a comprehensive list of insurers, including no-load companies that will sell you a policy directly, the CFA says.

Check your beneficiaries. If you do nothing else this week with respect to your estate, check the beneficiaries on your insurance policies, retirement plans and other accounts. Too often, people forget to update their beneficiaries after a divorce or other major life event.

McDaniel, a veteran estate planning attorney, recalls one instance in which a husband and wife separated, and the husband arranged to have his mother named as beneficiary on his life insurance policy. The couple reconciled, but he never changed the designation. Some years later, the husband died, and his mother, who never liked the wife, got the proceeds.

"Any life insurance agent who has been in the business for years has seen this happen," McDaniel says.

Organize your records. An unexpected death is a traumatic event. Don't make it worse for your family by forcing them to hunt down your brokerage, retirement and bank accounts.

Huggard recommends recording the location of all your accounts in a notebook or computer disc. The list should include names of any professionals you work with, such as your accountant, insurance agent, financial planner and attorney.

The list should also tell your survivors where to find important documents, such as your mortgage and title to your car. Huggard says he's dealt with many widowed spouses who come into his office with a will but no clue where other financial papers are located.

"Sometimes it takes months, and in some cases more than a year, to locate a $400,000 brokerage account the husband had down in San Diego," he says.

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