Shifting Gears

By Scott Spiker

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Protecting Your Assets

Seven steps for safeguarding your financial resources today and in the years to come

By Murtaza A. Sardharwala, Esq.

As your personal and business assets grow, so does the importance of protecting them.  If you are like most people, wills, durable powers of attorney, healthcare directives, and trusts are topics you avoid.  Yet, timely planning in these areas is necessary to protect the assets you have worked so hard to build. Here are seven steps to help protect your assets now and to ensure your loved ones can continue to benefit from them when you’re gone:

» Step 1. Take inventory and make a list of your assets and liabilities.
You can’t protect something that you don’t know exists. Examples of the types of documents you’ll want to gather and organize are:  investment statements, insurance policies, bank account information, property deeds and titles, debt records, etc.  Taking inventory will help to determine your estate planning needs (step 2) and the type of professional assistance that you will require (step 3).

» Step 2.  Make sure you have an estate plan that you are comfortable with.
An estate plan is a plan to help manage and preserve your assets while you are alive and to direct their distribution after you’re gone.  Everyone has an estate plan (surprise!).  The difference is that some people have taken steps to take control over their plan, while others have elected to allow their states legislatures to decide how their assets will be divided and a judge to determine who will take custody of their minor children.  How comfortable are you with being part of the latter group?  If you aren’t, take control now. 

Most estate plans consist of a will, a durable power of attorney and a healthcare directive.  A will is a document that expresses how you would like your estate divided among your heirs or others in the event of your death.  It also allows you to appoint an executor (the person responsible for ensuring that your wishes are carried out), guardians for minor children and guardians for the estates of minor children.

A durable power of attorney enables a person you name to take any legal action that you can do yourself.  It stays in effect (or takes effect) if you become incapacitated because of physical injury or mental illness.  A simple definition of “incapacity” is the lack of ability to manage and administer one’s property and affairs.  At a minimum, the durable power of attorney should allow your agent to: (1) pay your bills and ensure that your finances remain in order, and (2) determine the type of medical care you will receive when you can’t speak for yourself. 

Consider this: If you were incapacitated and did not have a durable power of attorney, your financial advisor could not take any direction from you (or anyone else). He or she would have to wait for a court to appoint a guardian and then take direction only from that guardian.  On the other hand, if you had a durable power of attorney, your appointed agent could immediately being working with your financial advisor to look after your finances. 

Importantly, creation of a durable power of attorney is a simple task for your attorney to perform and relatively inexpensive.  In contrast, without a durable power of attorney, the cost of establishing a guardianship is much greater, requiring court intervention and a hearing before a judge.

The last piece of a basic estate plan is a healthcare directive.  While a durable power of attorney is used to appoint an agent to make decisions on your behalf, a healthcare directive specifies actions which should be taken for your health in the event that you are no longer able to make decisions due to illness or incapacity.  For example, a healthcare directive can state your wishes as to whether extraordinary measures should be taken to keep you alive where your condition would otherwise be terminal. 

If your situation is complex, your estate plan may require more than just the basics discussed above.  Other common components of an estate plan include use of beneficiary designations on retirement accounts and insurance policies, joint ownership agreements with rights of survivorship, and trusts.  These estate planning options can help you transfer your wealth more easily, lower taxes or exercise more control over what happens to the assets you leave behind.  If you own a business, you should also consider a shareholder agreement or buy-sell agreement as part of your estate plan.  These documents can provide a quick and indisputable way of valuing shares and determining how the shares should be disposed of – simplifying matters for your heirs and avoiding potential conflicts between business partners. 

» Step 3. Engage professionals you trust. 
You made a wise choice by choosing First Command to assist you with your financial planning needs.  You should also be willing to seek the assistance of other professionals when you need it.  For example, you will likely need an attorney or an accountant (and maybe both) to assist you with estate planning.  Estate planning can be very complex and First Command recommends that you seek the assistance of an experienced estate planning professional to make certain that all applicable legal, tax and other issues have been taken into account. 

Remember to research any professional before hiring to ensure the professional has the necessary experience, training and commitment to assist you.  If the professional represents that he has a designation (or other credential), you should understand what this designation means.  The criteria used by organizations that grant designations vary greatly.  Some designations require formal certification, with procedures that include completion of a detailed and rigorous curriculum, examinations and mandatory continuing professional education.  However, other designations can be obtained simply by paying membership dues.  Do not be misled by professional designations that imply an expertise where such expertise does not exist.

To maximize efficiency and benefit to you, you should consider allowing the professionals you employ to work as a team.  For example, in the estate planning context, your attorney may draft the documents and provide advice regarding the applicable federal and state laws governing estates, your accountant can assist with the number crunching and tax issues and your First Command financial advisor can assist with any financial planning questions. 

» Step 4. Draft a letter of instruction summarizing all your records and their whereabouts, and provide this letter to your attorney, a family member or a close friend.
A letter of instruction is a great way to share what you know with those who (often suddenly and without warning) must step into your shoes and carry out your needs.  Its purpose is to provide information and clarify items that may not otherwise be discussed in your estate plan.  If you have a business, the letter of instruction may contain the contact information for key employees and business associates who can assist to keep your business operating in the event of an emergency.  The value of an ongoing business is much greater than a closed one!

» Step 5. Discuss your wishes with the individuals who will be responsible for taking necessary actions on your behalf. 
No one likes surprises, and if for some reason the person you have selected for a particular role cannot accept that responsibility, you will know and can designate someone else.  Also, by being clear about your intentions, you can help dispel potential future conflicts between your loved ones.

» Step 6. Educate yourself. 
You have worked hard your entire life to accumulate your assets – don’t make a wrong move now.  To protect those assets, educate yourself so that you can make smart decisions.  Don’t let anyone pressure you into making a choice that you are not fully educated about or comfortable with.  

» Step 7.  Do periodic reviews of all of your prior selections.
Remember, change is the only constant.  Changes in your personal situation (i.e., marriage, new child, inheritance, etc.) or legislation may require you to re-evaluate your options.  In addition, your wishes may have changed, the advantages you sought may have eroded or vanished or new opportunities may now exist that could offer a better value.  Periodic reviews and updates are essential to ensure that your choices continue to your objectives.

Murtaza A. Sardharwala is associate legal counsel for First Command Financial Planning, Inc. (Member SIPC) This document is provided to you for information purposes only and should not be considered legal or tax advice.  Should you desire legal or tax advice, you should seek the assistance of a qualified attorney or trained tax advisor, who is best suited to provide guidance and answer your questions on these matters.