Are your beneficiaries up-to-date?

How long ago did you fill out forms that required a beneficiary? Was it six years ago when you were sitting in the HR department at your job. Or, 2 weeks ago when you signed up for the 401(k). Or, whenever you opened an IRA. Or, after Michael Jackson died and you put together a will? Whatever, I’m not really expecting an answer of a date and these scenarios might not be relevant to you, but at one time we all have to fill out something that says who will receive benefits in case we aren’t around.

Usually once you fill out the forms you set them out of your mind. But you can’t just let these things lie. Relationships change and people come and go. If you’re favored son has become your despised nemesis do you want his name to remain on your list of beneficiaries? And when you make up, do you want him to still be cutoff?

So, you know where I’m going with this don’t you? Yep, it’s another thing to add to your to do list. Periodically you need to have a looksee at who’s who on your important documents, especially after life changing events. If you don’t, well somebody will suffer the consequences.

Accounts with beneficiary designations - such as IRAs, 401(k)s, insurance policies and annuities - aren't governed by your will. They will separately list beneficiaries and you don’t have to put the same people on each. However, there are advantages to naming a spouse over a child on IRAs and 401(k)s. Your partner can roll over such accounts into his or her name, thus postponing distributions and taxes until age 70½. If you name your child, they must start taking distributions - and paying tax on them - the year after your death.

Don’t leave beneficiary lines blank. This will cause your assets to go to probate. Also, avoid listing your estate as beneficiary. By law, heirs then must empty the account within five years, which could cost them investment gains and bump them to a higher tax bracket.

Do name a second beneficiary. Otherwise, if your primary beneficiary dies before you, the account goes to probate.

Don’t name children under 18 as primary beneficiaries. This, too, can lead to probate. You can avoid probate by setting up a trust in the child's name.

It’s really no big deal to change beneficiaries at any time. To name a new beneficiary, all you'll need is the person's birth date and, sometimes, Social Security number.

Who Gets the Debt? (or Financial Lesson #2 from the King of Pop)

Everybody knows that Michael Jackson leaves a legacy of debt, which has left some people wondering why there is so much hoopla about who is entitled to his estate. Actually, it's not about debt at all. MJ was responsible for creating the debt and even in death it's still his.

Debt cannot be passed on to heirs--only assets are passed on. However, assets can be depleted to pay off debt. Whatever is left over is distributed to heirs, even spouses.

But let me tell you about my personal experience. My parents divorced when I was a teen and my father remarried. He'd always been meticulously financially responsible. He built his own business, owned his house outright and had several rental properties. Then at a early age he suffered from Alzheimer's disease. His new wife new nothing about money, but was too proud to let anyone know. The business quickly failed. She couldn't manage the properties. So they were stuck. She let the health insurance laps because she couldn't afford it and so my father's health rapidly deteriorated. All the properties including the business began to fall apart. One-by-one she sold the rentals, but not the business. She took a reverse mortgage on their home. She stopped paying for oil (east coast heating). Eventually my father died. After the funeral his wife disappeared. She walked away from the house and everything.

For years while this was going on I never heard from my father or his wife. I had been living in Colorado for many years and they were in Pennsylvania. They never answered the phone, didn't return messages or letters. I assumed that his wife wanted me out of their lives. I did learn about his death and attended his funeral.

So none of my father's bills were paid--not even the funeral. Nothing was left to me or my siblings in the will, because my dad's wife wanted it that way. But creditors still contacted me. The funeral home gently wondered if I could pay the bill or at least part of it. Nursing homes that occasionally cared for my father also asked. And now, three years later I'm getting calls from a lawyer regarding my dad's house. Most of the queries are small. No government agencies, would ever think to contact me.

I am not obligated for any of my father's debts, but that doesn't mean his creditors can't ask, ever so gently. That's okay since I know to say, "No Way."

The King of Pop's Financial Lesson #1

You can't escape the blow-by-blow reports surrounding Michael Jackson's death. Probably the saddest portion of which is the custody battle for his children that is only beginning to heat up. Let's set aside opinions and look at what we can learn from all of this.

Okay, Michael Jackson is not known for his fiscal sensibility, but I can't help by wonder quite loudly, "where is the will?" Apparently there isn't one, or we wouldn't be hearing about court decisions regarding his children. Like most people who haven't reached an age where they are thinking about death Jackson probably never expected he would jeopardize his children's future. But here's the reality; if you have kids, you need a will.

Many people assume that upon their death guardianship automatically turns to grandparents or siblings. This isn’t necessarily true, and you shouldn’t leave these decisions up to the court. Instead, thoughtfully consider who would provide the best care and most loving home.

Your parents may have done a fine job raising you, but consider their health and energy level. Perhaps your siblings or even a close friend may be a better choice. If you have multiple children, decide if this is practical for one guardian to handle. Or, if your children are not close in age, could they be split between different guardians? Would the guardians work together to keep the children close?

Talk with prospective guardians before making a final decision. Be sure that they are willing to take on the responsibility of raising your children. As your children grow their needs may change. Review your guardianship choice every year to ensure that the plan is still acceptable.

Financial Provisions

Naming a guardian does not automatically give that person access to money to help meet your child's expenses. And, it’s not unusual for a person to be a loving and caring guardian, but not be so careful with money. Therefore people sometimes choose one person as guardian and another as conservator, to manage finances.

Don’t assume that any assets will automatically be passed to your children. Make plans for the distribution of your assets through either a will or trust. The basic difference between a trust and will is in the details. A will states how you would like your assets distributed and can also list who will serve as guardian for your children. A trust can ensure that distribution of assets and your wishes regarding your child’s upbringing such as education or religion are carried out.

Peace of Mind

Chances are good that you’ll be around to see your children grow into adults. But, a thorough estate plan ensures that no matter what happens, you’ve taken care of their needs.

What if Disaster Strikes?

It’s been unusual weather so far this summer in Colorado. During the ten years that I’ve lived in my little town for ten years and we’ve never had any natural disaster even tease us. However our town board decided this past winter to invest in emergency sirens. Sure enough we’ve had a real need to use them already. There wasn’t much controversy over the emergency system purchase, except I wonder what took so long?

What about you, are you prepared for an emergency? Of course you should have an emergency fund; I’m not really talking about that today. But, what about an emergency plan? If something happened to you or your home, what would happen to your finances?

You probably heard about the woman who went searching the dumpsters to reclaim her mother’s emergency system. The mother’s backup plan in case of financial emergency was a mattress. The problem was the mother never told anyone, so it was mistakenly thrown away.

Okay, so you might have a will, maybe even a living will, but how many people know where it is and how to access it?

What about other important documents such as birth certificates, banking information, etc? Again, where are they and who knows about them?

When thinking about your personal disaster plan think like a business. Smart businesses know that redundancy is essential to successful disaster planning. For yourself consider having a master document or book that lists everything and is stored in your home, plus a duplicate stored in a separate secure location, such as a safe deposit box.

Your master document should:

1. Tell a reader where to find your important document,


2. Include account information such as numbers and passwords, and


3. List all important contacts such as lawyers, accountants, etc.

The duplicate of your master document should, ideally, be stored separately from other items. Keeping it stored in your safe deposit box along with your financial documents isn’t a good idea since it won’t help someone who doesn’t know that you have a safe deposit box. You’ll want to keep the copy either filed with a lawyer or someone else that you trust.

No one ever likes to talk about death and disaster, but you never know when something might hit. If you have an emergency plan, even if you never have to use it, it will give you great peace of mind. In addition, having this system in place will help you organize all those tedious bits of information.

Two last tips:

1. Make it a habit to update all copies of the master document annually. You are sure to add or subtract documents, or change account numbers and passwords.


2. If your document is digital be sure to upgrade technology as the years pass.
   

A short list of items for your master document (just list where they are located):

birth certificates
adoption papers
custody agreements
divorce agreements
military papers
lease documentation
passports
real estate deeds
pre-nupital agreements
marriage licenses
wills
trusts
living wills
contracts
powers of attorney documents
other contracts
insurance policies

Does your small business have a legacy plan?

I've been in mourning for most of the past week since Paul Newman passed. No I didn't know him personally, but I met him when I was in college. I had a wonderful summer job back then. I worked for an awesome elderly woman, Judy Streete, who owned Apple Pie Farm in southeastern Pennsylvania. I weeded the herb fields on Mrs. Streete's 14 acre farm. That's where I met Mr. Newman. He purchased herbs from the farm for Newman's Own. Since he was hands-on owner of his company he liked to visit the places where his ingredients came from.

I remember being way out on the field the day he came. I could see Judy's bent frame leading a tall man and woman (Joanne Woodward was with him) out to the harvesting house. I swear I could see his shining blue eyes from my weeding spot. Anyway, he asked Judy to call the field workers in to the harvesting house, so I did get to meet the Newmans.

What I took away from that meeting was more than just the wow of shaking hands with a famous actor and being dazzled by those blue eyes. Paul Newman was a man of integrity who sought to do good in the world.

Paul and Judy were very much alike. Both were involved in every detail of their work and both did all that they could to ensure quality. They both built strong/healthy businesses. Because a plan wasn't publicly announced CNNMoney.com ran an article wondering what would happen to Newman's Own now that the highly-involved owner was gone. I can't claim to know, but since Mr. Newman had been sick for several months and was in his eighties I'd guess that his family and business partners had a plan in place.

That's where Judy and Paul may have differed. Again, I'm speculating. But Judy Streete was in her 90's when I worked for her. As far as I can tell none of her family or employees took over her business. I've tried to Google her name and the farm and have come up with nothing. It's sad to see a business built from scratch--literally, Judy started her business by selling homemade apple pies--fall away after the creator passes on.

The Small Business Administration estimates that one-third of family-owned businesses will survive the transition from the first to the second generation. If you manage to clear that hurdle, higher ones lie ahead. The Family Firm Institute says only 12% of family-owned businesses stay viable into the third generation, and only 3% are alive at the fourth-generation level and beyond.

It's important to your business to have a legacy plan not just for the sake of passing on the family business. If something should suddenly happen to you how would that effect your business and your family?

Some things to consider:

Don't expect that your children will take it on

For any number of reasons it's common that children of business owners want nothing to do with the family shop. Have someone outside of the family who you trust get to know the business well.

The dinner table is no place for a board meeting
Keep family and business separate. Mixing the two will turn your life into all work and no play and bore your family away from the business.

Make them earn it
Your family will appreciate the business more if it's not just handed to them. Don't hire family members until they've gained experience in someone else's business. They'll come back with new skills and perspectives and get used to being paid what they are worth.

Choose a successor early

Decide who will take over the business by selecting the person who is most interested and passionate about the job. Don't assume your spouse or oldest child will want it. Make your plan known to all the key players: family members and top employees. This will cut down on speculation and bickering.

Deal with hit head-on

The most important thing about a legacy plan is to have one. Maybe it's in your head or you're "just sure" that the kids will work together and take it over. Don't leave it to chance. You may even think of making a legal statement in your will with instructions of what should happen with your business. Don't leave it up to anyone else to decide.