February 24

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Fighting Over Your Money

FAMILY UPDATE

We had a Superbowl party while my parents were down visiting from Pittsburgh. My wife's parents were there too, so we had all four grandparents together! What fun!
I allowed each kid to get one item of junk food for the party. They chose Doritos, chicken wings, chocolate, and a Superbowl cake. This is in addition to the homemade cookies Grammy made. When all four grandparents are there the kids should be spoiled as much as possible.
Unfortunately, it wasn't the best beach weather. The red tide was so strong on Sunday that you could barely get out of your car without your eyes watering.
Below is Senay's lacrosse photo. The season has started!


J. Howard Marshall II was a billionaire. He passed away in 1995. If you don't remember him, you probably remember his wife at the time of his death, Playboy playmate Anna Nicole Smith.

When Marshall died, he left her out of his will completely. The majority of his inheritance was left to his son. Anna Nicole Smith sued, claiming that Marshall had promised her half the estate.

The case went to the US Supreme Court. Twice. It took twenty years to resolve the issue. Finally, a probate judge in Texas denied the request to sanction Marshall's estate. Anna Nicole Smith did not get $44 million. The will and testament were preserved.

Now, let's talk about YOUR will and a few other important financial documents.

Is this stuff fun to think about? No. Is it something you’ve been putting off for years? Probably. Do you know it is important? Yes.

When it comes to legal documents you need to prepare for retirement, there are four basic items.

Your Last Will and Testament.
Your Health Care Advance Directive
Your Durable Power of Attorney
Your Trust documents

Your Last Will and Testament

All of you know what this means. It basically tells everyone who gets your stuff. For example, you may wish that all of your assets are split between your three kids.

Now, whatever passes through the will has to go through a process called "probate." Probate seems to be a scary word to people, but the concept is very simple. Before the money can be passed on to the beneficiaries, creditors get a chance to collect any unpaid bills.

The executor handles this process. If you have gone through this process, you know that it’s not a lot of fun. You should be very proud of yourself for putting up with the hassle. For large estates, this process can last for a year or more. Smaller estates can expect about six months before the assets are distributed. Remember, IRAs, 401(k)s, life insurance, and annuities do not go through probate. They go instantly to the heirs.

Homes, farms, and other real estate properties are notoriously a mess to leave to heirs. Probate is complicated. Kids fight. You need to have specific instructions as to what you want to be done with the house.

Your will may also include instructions on gifts to charities, scholarships or trusts you would like to fund and even your funeral wishes.

Health Care Advance Directive

Here’s something that is super fun to think about. Who gets to make medical decisions for you if you are unable to do so for yourself? This document better allows your loved ones to advocate on your behalf. It gives them access to all your medical records and allows them to authorize medical procedures.

And of course, this document outlines if and when it is time to pull the plug. (Like I said, not a really fun document.) If you remember the controversial case of Terri Schiavo, you know how important this document can be.

Schiavo sustained a cardiac arrest in 1990, leaving her in a permanent vegetative state. Her husband and her parents battled in court, and much of the nation battled along with them, until 2005. I don't care which side of the debate you fall on; the fact that it had to happen is heartbreaking. A Health Care Advance Directive can make an incredibly difficult moment just a little bit easier for your family.

Durable Power of Attorney

A durable power of attorney simply shows who can handle your financial affairs if you are unable to do it for yourself. Often a spouse is put into this position. You would be surprised at how many things a spouse cannot access without a power of attorney in place. Does Mom need money sent from her IRA to her checking account for important expenses if she is incapable? Without this document, you cannot make that transfer.

A common example is selling a parent's primary residence upon entering an assisted living facility. You need to have the ability to act as their representative.

This doesn’t only apply to elderly parents. It can also apply to a spouse with a sudden injury where he/she is unable to communicate their wishes.

Trusts

I’m sure you’ve heard the term "Trust Fund Baby." What does that actually mean? Trust documents give you control of your money from beyond the grave. Instead of dumping a pile of money into your kids' (or grandkids') laps all at once, a trust gives you control over how and when they receive the money.

Examples:

"Upon my death, my son gets 25 percent of the money when he turns 25, 25 percent when he turns 30, and the rest when he turns 35."

"Upon my death, my children may receive 5 percent of my trust value per year." (This is a common strategy for charitable trusts. If the money is invested, the portfolio should make an average of 5 percent, so that the trust fund will last forever).

Not only do trusts allow you to control your assets beyond the grave, but they can also protect your money from getting into the hands of people you don’t like.

"Upon my death, these trust funds may be paid out to my daughter and her children. In the event of a divorce, my son-in-law has no rights to this money in the trust."

Why is this important? If you dump a lot of money into your child’s lap when you die, and your child then gets divorced, their ex could go after half of the assets, including the inheritance. If the money stays in the trust they have no claim against those assets.

What if one child gives all the care to elderly parents? Should they get more of the inheritance? These documents would spell this out and hopefully stop any fighting between the kids.

What if your kids face a lawsuit? Trusts can help protect those assets.
What happens if your child dies, and their spouse gets all the money? Are you ok with that? Would you prefer it go to your grandchild? Or a charity?

I hope this at least gets you thinking about your own death. I’m just kidding. Don’t think about that.

It is so easy to ignore these issues. Just do it! Get it out of the way. Do you know who didn’t have any of these documents upon his death? Michael Jackson.

Can you imagine the mess? Can you imagine people coming out of the woodwork trying to get their "share" of the loot? He died ten years ago and court battles still rage.

Be Blessed,

Dave

P.S.- I am doing Social Security webinars each Saturday at 10:00 AM. If you like to register, please go to www.SocialSecurityRSVP.com.

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