Whether it’s backpacking, canoeing or first aid, a good Scout approaches all tasks with the same motto: “Be prepared.” Scout or not, the motto is sound advice for most of life’s occurrences, and should certainly be considered in the financial planning for the inevitable transition from this life to the next.
Karl WeisenbeckIn doing so, it makes sense for us to clearly define our wishes for a final celebration of our lives. Have we truly prepared appropriately, leaving those we love with as few “business decisions” as possible? Have we defined the services and tangible items that will be required according to our wishes? If so, what will they cost and how will those costs be covered?
All good questions, and as one begins to consider them (as well as their answers) there are a number of common “first reactions”:
“Hey, I won’t be around, what difference does it make?”
OK, while one clearly won’t be around (at least in the physical sense), make no mistake, it makes a difference. In considering the implications of this statement, one is truly leaving it to their loved ones to make decisions and spend money at an emotionally challenging time. There most certainly will be a “difference” to them, as they are forced to navigate through the emotional and financial process associated with the absence of clear pro-active definition. If this is truly one’s philosophy, it is best held as a fully informed decision and not simply as an end-result of the lack of full consideration and procrastination.
“From a financial standpoint, I’ve got it covered. I’ve got life insurance.”
Quite frankly, this may or may not be true (from several perspectives), and it also depends upon the type of life insurance one has. As a quick review of “insurance 101,” let’s look at the two most common types of life insurance: “term” and “permanent” (or “whole”) life insurance. These products can most clearly be analogized through comparison with the purchase or rental of your home.
“Term” insurance is “rented.” It inexpensively provides financial protection for a defined period of time when stability is perhaps most critical, like when your children are growing up. After the “rental” term is complete, financial protection ends. Based upon age and health changes since the date of original purchase, one may or may not be able to obtain additional insurance.
“Whole” or “permanent” insurance is “owned,” and as long as premiums are paid, it provides financial protection for one’s “whole” entire life. It actually grows in cash value (as in the equity of your home), and as such, is considered an asset in an individual’s estate. That’s the key.
As an asset, the cash value and death benefit of insurance are subject to claims by creditors who had rendered services prior to death, such as hospitals and nursing homes. Quite frankly, that’s only fair; if a service was provided, pay is earned and deserved. But that said, the funds that one had previously intended for final expenses may or may not now be available to be utilized for that purpose.
“Is there any way that I can protect a portion of my assets so that I can assure that they will be available for final expenses based upon my wishes and those of my family?”
Actually there is. The re-direction of an appropriate portion of your assets into an irrevocable, assignable trust fully protects it from claims by prior creditors and provides both control and flexibility with regard to the execution of your wishes.
“What is a ‘trust’ anyway?”
A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. Different types of trusts may be created to accomplish specific goals. For our purpose, the trust serves as an “insurance policy” for your defined final expenses, guaranteeing that those funds will be fully protected and available to be used according to your wishes and those of your family.
The process of “being prepared” initially involves education – the acquisition of specific knowledge that allows one to make informed decisions. The certainty of our faith assures us of our destination when it is time for us to leave. Before we do so, we may wish to consider those left behind and the preparation that may ease their emotional and financial effort, so that their focus can be on our love, our legacy, and the impact that we made on their lives.
Weisenbeck, MBA, of Taylors, provides final expense counseling and funding through Future Planning Services, LLC. He may be reached at 585-489-9280 or at karlfps@verizon.net.