MONEY Estate Planning

How Writing a Will Is Like Backing Up Your Hard Drive

computer hooked up to external hard drives
Peter Cade—Getty Images

In life as in computing, a little planning now prevents a lot of pain down the road.

Goodbyes are never easy, particularly if the relationship was a cherished one. Such was the case for me and my beloved hard drive. Its capacity for capturing great conversations, thoughts, and images felt irreplaceable. My heart sank as the computer technician conducted its last rites.

But thanks to technological advances, a mirror image of my hard drive’s legacy resided only a download away. The online backup reduced my anxiety and helped me resume my daily activities. Preparing for the inevitable allowed me and my hard drive to appreciate our time together and live life with no residual regrets.

How would life be different if we applied such a healthy, forward-looking mindset to our human relationships through estate planning? After all, as with hard drives, our limited shelf life requires that we make the most of each day while also planning for a peaceful transition. Having loved ones struggle with managing unorganized financial affairs with no assistance only prolongs grief and blemishes fond memories.

Unfortunately, a lack of an estate plan is common for many households. According to a 2012 survey by Rocket Lawyer, 41% of Baby Boomers and 71% of people age 34 and younger don’t have wills. Giving legal direction regarding your finances, property, and children upon your death takes the guessing game out such important matters. Who knows your desires better than you? Otherwise, you leave the courts to untangle your affairs at the expense of your loved ones.

Preparing a will requires that you name individuals who are responsible for settling your estate (executors), taking care of your minor children (guardians) and managing the trusts you establish for the benefit of others (trustees). Having an up-to-date list of your financial assets and liabilities, including digital accounts and passwords, helps smooth the settlement of your estate. (Some people prefer a living trust to direct their estate rather than a will, in order to avoid probate — a legal process that validates the will.)

Other important estate planning documents include a durable power of attorney, durable power of attorney for health care, and a living will.

Durable powers of attorneys (POAs) give another person the authority to manage your financial, personal or health care affairs on your behalf in the event of mental incapacity (brought on by such conditions as dementia or a terminal illness). Health care POAs should also include Health Insurance Portability and Accountability Act (HIPAA) provisions governing an individual’s privacy and access to medical records. A living will gives special consideration to your preference regarding medical treatments that may prolong your life.

Some financial assets and property transfer outside of the will. Financial assets such as life insurance and retirement assets transfer by beneficiary designation. Bank accounts and some investment accounts can transfer by establishing these accounts as a payable on death (POD). How property is titled determines whether the property is considered a probate asset or a non-probate asset. It is important to review these documents regularly to keep up with life changes such as marriage, children, and divorce, and to ensure that assets transfer according to your wishes.

Related:
10 Steps to Painless Estate Planning
Why You Need an Insurance Inventory

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Lazetta Rainey Braxton is a certified financial planner and CEO of Financial Fountains. She assists individuals, families, and institutions with achieving financial well-being and contributing to the common good through financial planning and investment management services. She serves as president of the Association of African American Financial Advisors. Braxton holds an MBA in finance and entrepreneurship from Wake Forest University and a BS in finance and international business from the University of Virginia.

MONEY Financial Planning

The Tough Talk Worth Having With Your Parents This Weekend

Conversation with grandparent
Silvia Jansen—Getty Images

Midyear is a great time for adult children to have a discussion with their parents about finances.

Do you find yourself in the Sandwich Generation, squeezed by dependent children on one side and caring for your parents, financially and otherwise, on the other? Now, at the middle of the calendar year, is a good time to have some difficult conversations with your parents.

One reason why a midyear conversation is ideal comes from author Stephen Covey. In his book The 7 Habits of Highly Effective People, Covey likens people’s banking activity to their personal relationships. Making deposits of goodwill will offset withdrawals — tough conversations, for example — and keep the relationship net positive. Many families have yet to recover from overdrawn relationships!

As a midyear mark, the beginning of July falls on the heels of Mother’s Day and Father’s Day — occasions for significant (and often expected) deposits into parents’ lives. The beginning of summer keeps the positive momentum by ushering in a mindset of fun and relaxation.

Among financial planners, the middle of the year is also a traditional time to review clients’ finances. Planners discuss with clients their net worth, asset allocation, and estimated taxes, among other financial areas, to ensure progress toward the client’s goals.

These factors make July an ideal time for people in the Sandwich Generation to talk about finances with their parents. This sensitive conversation requires effort and sound strategies. You can make the conversation relevant, for example, by linking it to a triggering event experienced by the parent, such as a pronounced illness or unexpected job loss close to retirement.

In a midyear review, financial planners can give their clients some guidance with how to conduct this conversation. Some of the questions that financial planners ask of clients in the financial planning process are relevant for clients to ask of their parents: How do you envision your life ten years from now? What fears do you have in reaching the quality of life you envision?

Working with a financial planner also exposes people to tools and techniques for understanding their parents’ financial situation. To build the foundation for gauging your parents’ financial needs, you can request from them, or create with them, the same materials that planners assemble with their clients: A net worth statement, for example, a spending plan, long-term care insurance coverage, and estate planning documents.

The client’s family values and the financial impact of any parental financial dependency are key areas of focus for planners and Sandwich Generation clients. For example, the aging parent of a client may envision being cared for at home instead of a nursing home. Honoring the parent’s desire becomes a family value of shared responsibility of time and money, particularly if there are gaps in long-term care insurance coverage. A client has to figure out how much of the gap he or she can handle, along with whether any other family members will help meet this goal.

Having the mid-year talk also plants the seeds for follow-up conversations during Thanksgiving, Christmas, or other year-end holidays. Starting the conversation early takes the edge off the discussion and channels the energy toward building and protecting family legacies during a time of celebration and reflection.

The Sandwich Generation literally cannot afford to delay these conversations. This group suffered proportionally worse than other generations during the most recent economic crisis. The financial pressures from high student debt, coupled with a decade of low returns and negative home equity, continue to squeeze the financial wind out of these households. Caring for parents and children adds further financial strains to household budgets with little or no capacity for additional expenses.

Sandwich Generation, let the talks begin!

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Lazetta Rainey Braxton is a certified financial planner and CEO of Financial Fountains. She assists individuals, families, and institutions with achieving financial well-being and contributing to the common good through financial planning and investment management services. She serves as president of the Association of African American Financial Advisors. Braxton holds an MBA in finance and entrepreneurship from the Wake Forest University Babcock Graduate School of Management and a BS in finance and international business from the University of Virginia.

MONEY Financial Planning

A Money Lesson from My 8-Year-Old Daughter

Girl removing nail polish
Inti St Clair—Getty Images

A financial planner reflects on what her daughter has already learned about money — and what her clients need to learn.

I’m a financial planner. I’m also the mother of an eight-year-old girl. My work and my family are two different parts of my life, but they have something in common: Whether I’m with my clients or my daughter, I’m always conscious of financial lessons that I want to teach — and I’m always wondering whether those lessons will sink in.

That’s why I want to share a moment I had with my daughter in April. As a treat, we visited New York City over her school’s spring break. We were in Times Square, inside one of her favorite stores in the world, Toys ‘R’ Us, and she was trying to decide how to spend some of her money.

She spent some time watching a demonstration of a fingernail design set — one she could use to paint and draw on her nails. The more she watched, the more I was sure that my young fashion diva would be enticed into buying the design kit. Finally, she asked the price. It was more than $20.

“I am not spending my money on that!” my daughter cried.

Her declaration was music to my ears. It wasn’t because I didn’t want her to spend any money; it was because she had demonstrated that she was thinking about how she wanted to spend her money — and how she didn’t want to.

So maybe some of her money lessons had sunk in. On our daughter’s eighth birthday, my husband and I had opened a checking account for her as the culminating event of the celebration. She was thrilled by the idea of knowing how much money belonged to her. Since she was an exceptional purse-carrying math student, the timing was right to put her skills to work.

My husband and I set the money rules. As she received gifts, we decided what amount should be shared (as charity), saved (for college), and spent (consumption). Over the following months, she consulted us on each of her purchases, gathering data before buying.

It didn’t take long for her to realize that the money left her account more rapidly than it was added to her balance. This dilemma created two necessities: (1) careful consideration of what and when to buy (so long, instant gratification!); and (2) creative thinking about replacing and growing her funds.

Many adults struggle with the same money lessons that our daughter is facing. Turning income into wealth while enjoying life is a balancing act with many twists and turns along the way. Keeping your balance requires a clear vision of goals and values, the diligent use of resources, and an acceptance of the relationship between time and money.

As a financial planner, I see a few key indicators of how well adults have applied these money lessons to their lives:

  • Is their lifestyle sustainable? A client’s spending plan and personal balance sheet offer insights into the client’s use of income to build wealth. I have new clients do a “money rhythm” exercise: They fill out a calendar showing when income arrives each month, and how much they receive; they also note the timing and amount of their regularly recurring expenses, such as the rent or their mortgage payment. This gives me a quick picture of their situation, and helps me see whether any cash-flow problems stem more from their core expenses or from discretionary spending.
  • Are they maximizing financial strategies? Securing appropriate insurance and engaging appropriate tax, estate, investment, and retirement strategies will help to protect and grow a client’s hard-earned income and accumulated wealth. For me, the sign that new clients are on the right track is that they’re aware of benefits offered to them in the workplace and are taking advantage of them. People who have come from a background where they are exposed to such issues have often gone beyond that. Other people just have their head in the sand.
  • How do they balance time and money? The earlier that clients start saving, the more lifestyle and career options that are available to them. For me, the key indicator of whether people understand this is emergency savings. A young adult may have a lot of student debt, but if he or she has $5,000 in the bank — maybe a month or two of funds — it’s a sign that he or she knows the importance of having a floor of safety.

I wonder if my third grader knows just how valuable it is to have learned what she already knows about money. I do.

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Lazetta Rainey Braxton is a certified financial planner and CEO of Financial Fountains. She assists individuals, families, and institutions with achieving financial well-being and contributing to the common good through financial planning and investment management services. She serves as president of the Association of African American Financial Advisors. Braxton holds an MBA in finance and entrepreneurship from the Wake Forest University Babcock Graduate School of Management and a BS in finance and international business from the University of Virginia.

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