Making up a little more than one-fifth of the population, baby boomers have a significant amount of wealth they need to plan for. In 2019, the youngest boomers will be turning 55 and their wealth is predicted to continue to grow over the coming decades. At present, boomers are among the first-generation facing retirement without the safety net of a reliable pension plan.
As baby boomers get older and accrue more wealth, their primary goals evolve from accumulation to preservation of current assets. Although many individuals do not consider themselves “wealthy,” wealth is measured by the things we may take for granted. For example, owning a home, a vacation home, a car, a life insurance policy, pension plans, retirement plans, savings accounts, or brokerage accounts, all constitute “wealth” that needs to be protected with pro-active estate planning. Estate planning not only covers what happens to your possessions, but it will also shape your end-of-life care and who is going to make decisions on your behalf.
Baby boomers helped create a generation of status and have been raised with a certain lifestyle. Consequently, they need to ensure their family can maintain their current lifestyle once they have passed away. Currently, many boomers are dealing with the passing of their parents and learning lessons about the importance of having an estate plan, but even with this experience, nearly half of boomers have yet to consider estate planning for themselves. According to studies, approximately 42% of baby boomers do not have an estate plan in place. Additionally, many baby boomers are snowbirds who are also residents of other countries or states where they own assets. In these cases, the need for estate planning is even more crucial, otherwise the decedent’s family will need to go through the probate court process in numerous states. The probate court process is not only long and tedious but can cost upwards of three percent of the value of the entire estate, not to mention court costs and filing fees.
How to Start your Estate Planning
It may be difficult to speak with your family about death and the end-of-life decisions that need to me made, but without this conversation, an unexpected death can throw your family into financial chaos.
The first agenda item is to have an informal conversation with all family members present. It is best to communicate your wishes while you are in good physical and mental health to avoid any confusion, misinterpretation, or undue influence coming from the closest caregivers.
Second, get an idea of what you want to leave to each family member (beneficiaries). This includes concrete dollar amounts as well as your home, other real estate, vehicles, watercrafts, antiques and any sentimental possessions. Keep in mind that you if you have any beneficiaries who are irresponsible with money, or who are receiving government benefits, you will want to give them their inheritance through a Trust rather than a Will. A Trust can dictate special terms such as age, amounts, as well as preserve any precious government benefits they may be receiving.
The last agenda item involves meeting with a licensed attorney to give the best recommendations on how to achieve your goals. The attorney’s proposal will involve a variety of estate planning techniques which often consist of the below:
- Living Trust (also known as a Revocable Trust)
Living Trusts are used in place of a Last Will and Testament. After the Trust is created, assets are then transferred into the Trust. Trusts are used to by-pass probate. This means that upon your death, all assets in the Trust pass to your beneficiaries through the Trust, and not through any court process. Upon inheriting any monies or assets through a Trust, the beneficiary enjoys financial protection from future creditors, divorces, and bankruptcy. These types of Trusts are fully revocable: the creator can change any terms or completely revoke (cancel) the Trust. Trusts are private documents that, unlike Wills, do not become a part of the public record.
- Last Will and Testament
A Last Will and Testament (“Will”) although losing in popularity to a Living Trust, can still provide crucial financial organization. Wills are used to designate the beneficiaries who should receive your assets upon your death. Wills allow you to appoint someone to become “Personal Representative” of your estate. This person will be responsible for carrying out your last wishes according to what you wrote in the Will. If you have minor children (those under 18 years of age in Florida), you can appoint a Guardian who will care for them in case of your death. This reduces lawsuits that arise over custody in cases of sudden or unexpected death.
- Durable Power of Attorney
A crucial legal document that functions while you are alive and allows you to select a person (the “agent”) to “step into your shoes” in case of your sudden mental or physical incapacity. The agent will be able to make legal and financial decisions and conduct transactions on your behalf. The Power of Attorney document ends when a person passes away. At which point, the Trust or Will should kick in to dictate the terms of how to distribute your estate. Note that if you created this document prior to October of 2011, it is time to update it as the laws in Florida have changed.
- Health Care Surrogate & Living Will
Also known as a Health Care Proxy, allows you to name someone (the “agent”) that will make health care decisions for you in case you can no longer make them yourself. Such decisions include consenting to certain medical procedures, seeking a second opinion, obtaining medical records, or transferring you to a different medical facility.
Baby boomers have shaped this generation. Now they need to shape the financial future of their loved ones by proactive estate planning. Transitioning money from one generation to the next doesn’t have to be difficult.
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