An important part of financial planning is preparing for the unexpected. Have you thought about what will happen if you can’t make financial or medical decisions for yourself? Have you decided what will happen to your property when you die? An annual visit to your doctor is an essential part of keeping track of your physical health. Mark Rheaume, senior wealth strategist at PNC Wealth Management says it’s just as important to keep tabs on your financial health.
“As many people age, they spend a significant amount of time before doctors — focusing on their wellness and what they are ingesting,” he says. “But we often find in the financial world, there’s not a significant amount of planning done. This not only relates to their financial matters but also their estate plan and the legacy they are going to leave.”
Rheaume highlights the three key steps when planning for death or illness:
Rheaume says solid lifetime planning involves obtaining two critical documents: a durable power of attorney and a durable power of attorney for healthcare. A durable power of attorney gives someone the power to handle financial matters for you in the event you are incapacitated. A durable power of attorney for healthcare will make sure your wishes are granted in the event you cannot make medical decisions. “They are both lifetime instruments that are really critical for people to understand so they have control of their decisions, of their life and they don’t place themselves into the hands of an institution that may not know their intentions,” he says.
Rheaume says a will and trust are also essential documents. He says many intelligent people do not understand the terms of their will and trust, how they both work together or even how tax laws affect them. Generally, both documents allow you to choose how your assets are distributed to beneficiaries.
“There are often surprises contained in wills and trusts,” he says. “We have people trying to do wills themselves online and it can bring about unintended consequences. Oftentimes people don’t understand the practical impact of decisions within their will and trust.”
Evaluate your family circumstances
Rheaume says family circumstances are one of the most dynamic aspects of financial wellness. Who have you chosen to handle financial/healthcare matters for you? What are the implications of those decisions? Whether it’s your children, siblings or friends, he says it’s important to have a serious discussion with all parties involved.
“Who am I choosing to be a major stakeholder in my decisions going forward?” Rheaume says. “What are the implications of those decisions? Being appointed an executor is really not an honor because it involves significant legal, financial and emotional issues. How do they handle emotional issues? Are they empathic? Do they understand the impact not only of passing but also incapacity? What about collaboration among the beneficiaries?”
In order to have a successful estate plan, he says it’s important to take into account changes in family circumstances; as well as wealth and tax laws.
“How does it all work together?” Rheaume asks. “What is the intersection and how those decisions impact those that we leave behind?”
Update your beneficiaries
Whether it’s life insurance or an IRA, Rheaume says many assets are passed onto others by designated beneficiaries. From paid on death accounts, transfer on death accounts, deeds, and joint tenancy; he says it’s important to understand the various ways property can be transferred because it can often bring about unintended consequences. Have you named someone as your beneficiary who is subject to claims of creditors? He notes that cases like this often do not end well, as those assets could be subject to claims of creditors.
Rheaume recommends working with a financial planner and a legal professional who both understand all of the complications of estate planning.
“What is our legacy?” he asks. “How thoughtful have we been with respect to what we have accumulated and what we have left behind? People spend so much time building their estates and really managing their expenses, but ultimately not dealing with the end game.”