The Biggest Mistakes in Estate Planning

The Biggest Mistakes in Financial Planning Series

by Harvey Jacobson, CHFC, MBA, CLU

Harvey JacobsonMany people believe that estate planning is only for high net worth families. This is a common misconception and potentially dangerous for any family. There are many estate issues which are relevant to family and loved ones in the event of the death of the primary family wage-earner.

At a minimum, each spouse should have a will that names the guardian and a substitute for their children in case of a common disaster where both spouses die. This can be done very inexpensively on the internet. Without a will, you die intestate, — with no valid will — and a judge determines who cares for your children. Additionally, all assets that you have accumulated would go outright to children at age 18.

Apart from wills for each spouse, the major income earners, should have a substantial amount of term life insurance. In my opinion, if a family requires $50,000 to spend each year, then a minimum of $1,000,000 of 20 year term should be purchased. This should allow a family to spend this amount without drawing down the principal. You may find that it is less expensive than you think. Don’t consider how much you can afford with respect to premium. Think of the amount needed by your family if you were no longer able to provide for them, and then buy that amount of 20 year term life insurance.

An advanced medical directive should also be considered to give each spouse a power of attorney to make medical decisions in the event that a spouse is incapacitated and cannot make medical decisions for themselves.

Families, with net assets exceeding $100,000, should consider having a Revocable Living Trust, in addition to everything mentioned above. This document will assist the family in avoiding probate in the event of a death as well as avoid expenses and delays which are common in any probate proceeding. I suggest using an experienced estate attorney to assist you with the drafting and execution of the trust and other estate documents.

There are currently no federal estate taxes for estates of any size. Few people believe that it will remain as such and Congress could pass legislation retroactive to January 1.

For those with estates greater than $5 million it is a good idea to review your estate plan this year and have a strategy worked out between your estate attorney, CPA, and financial advisor. Above all, it is vital to have your legal advisor, tax advisor and financial planner working as a team, rather than as three independent advisors.

Harvey Jacobson is President and CEO of California Financial Partners, Inc. www.calfp.com

This article published originally Jan 31, 2010, Los Angeles Daily News.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult your financial professional. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please keep in mind Insurance companies alone determine insurability, and some people, for their own health or lifestyle reasons, are deemed uninsurable.

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