There aren’t many absolutes in financial planning. There are, however, many—MANY—opinions.
Advisors, personal finance gurus, and online opine-ers regularly die on the hills of passive vs. active investing, ETFs vs. mutual funds vs. individual stocks, traditional vs. alternative investing, good debt vs. bad debt, term vs. permanent life insurance, traditional vs. Roth IRAs, the roles of disability income and long-term care insurance, various cash flow management methods and apps, Social Security claiming techniques, tax avoidance strategies, and don’t get me started on the role of annuities in investing and income creation…
But despite our desire to apply dualistic right-and-wrong thinking to all these financial planning elements (and more), there is still more art than science in almost every corner of the financial planning scope of work. There will always be more exceptions than rules because of one immutable law of financial planning:
Every person and household is unique—and requires a unique mix of strategies.
As financial advisors, we may use a cocktail of common means, but their combination is—or, at least, should be—as unique as the clients we serve. And that requires us to lay down even our most sacred of cows, because the ultimate financial plan is not the most beautiful hypothetical creation, made in our advisory image; it is the plan that our clients can stick with in reality, custom-crafted for them.
BUT!
But all that disclaimed, I am willing to go on record to say that there is one recommendation that is the most important for every single adult person: an up-to-date estate plan.
Why can I stand in such certainty on this point? Because, regardless of how low the probability is that you’ll need your estate plans today, there is a 100% chance you’ll need them at some point, and that point is unknown.
Furthermore, the damage done by a lack of planning in this arena is incalculable, unlike most of financial planning. For example, if you are the parent of a minor child and you die intestate—without a will—you will forever lose the opportunity to tell your state of domicile who you would direct to assume the duties of parenting your child.
Therefore, I can tell you without hesitation that if you are a parent of a minor child without a will today, there is no more important and urgent to-do in your life and work than to have a will written as soon as humanly possible.
Beyond that starkest of examples, who needs what and when?
If you’re an adult of any age, you likely need advance directives as your estate planning priority. This is a combination of a healthcare power of attorney and a “living will.” The former designates someone to make medical decisions on your behalf in case you are unable to do so, while the latter gives your chosen designee—your attorney in fact—your instructions on how you’d like life-saving and life-ending medical decisions to be made.
If you’re an adult of any age, you’d likely also benefit from having a durable financial power of attorney, which allows you to designate someone else to make financial decisions for you if you are unable or unavailable.
If you’re an employed adult with company benefits, you likely need to designate beneficiaries for those benefits. For example, most benefit packages have a modicum of company-paid life insurance. If you don’t name a beneficiary, no one will receive that benefit in the unlikely and unfortunate case that it is triggered.
If you’re an adult with any retirement-specific investments—like IRAs, 401ks, and annuities—or any privately-held life insurance—you likely need to designate beneficiaries for those accounts and policies.
If you’re an adult with any assets that don’t have beneficiary designations, you likely need a will. This document tells your state what to do with your assets when you’re gone; otherwise, the state decides. Even if your assets are small, dying without a will becomes a big problem for those left behind. If your assets are substantial, this big problem becomes a full-scale disaster, as your loved ones are left to argue with the state—and each other—over what happens with everything you owned.
As I mentioned above, likely the highest-stakes estate planning need is for adult parents of minor children. It is through the guardianship provisions in your will that you name those who will take on the responsibilities of raising your children. Through the designation of a trustee (and likely the creation of some kind of trust—a bucket to hold your assets with directions on how and when to distribute them and to whom) your money can be directed to care for your children.
If you’re a parent of adult children with assets, you may no longer need guardianship provisions (unless your adult child is disabled), but you’ll still need a will to direct the flow of your assets.
And if you’re an adult of significant means, in addition to your beneficiary designations, durable power of attorney, advance directives, and will, some form of trust or trusts may also benefit you or your loved ones.
Other nice-to-haves could complement your estate plans, but the documents listed above are virtually vital for those in the situations mentioned.
I must disclaim that I am not an estate planning attorney and nothing you’ve read above should be construed as legal advice. However, we, as financial advisors, and especially as Certified Financial Planner™ practitioners, are trained in estate planning and responsible to offer direction. This is because our charge is not simply to help you maximize your net worth, but also to work to optimize its utilization. The options for planning after your death are sorely limited, while they are only limited by the law and your imagination during life.
Sadly, despite this glaring responsibility that we have as financial advisors, a recent survey by Trust & Will found that half of the advisors surveyed don’t educate their clients on estate planning and a quarter of them don’t even have their own estate plans! I surmise this isn’t just another run-of-the-mill example of the cobbler not having appropriate footwear; I think many, if not most, of us avoid estate planning because we’re not keen on contemplating our demise.
BUT!
But I have found that our willingness to address the ultimate end—the one part of financial and life planning that is not unique, that we all share in common—can result in some incredibly life-giving conversations and an uncommon clarity that makes even the most challenging decisions surprisingly simple…including, if not especially, the most important financial planning recommendation, to complete (or update) your estate planning suite of documents.
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