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When it’s summertime and the livin’ is easy, many look forward to working through reading lists, vacation to-dos and being more active. It’s also a good time to go through your financial wellness checklist to make sure you and the people you care about are financially protected.
“Over time, many details in your financial plan can become obsolete, forgotten, or ignored,” said Richard Cairns, senior vice president for PNC Wealth Management. “Keeping financially fit begins with ensuring you have all the appropriate, up-to-date documents that reflect your present situation and wishes.”
Review this basic checklist to see what you should be looking at and planning for.
Start with an inventory of what you have. Four fundamental building blocks should be included in most financial plans:
Once documents are in place, they should be updated to reflect your family’s current situation.
“Life events cause families to change and evolve. Those changes may not be accurately reflected in documents that were written decades ago,” said Cairns. “Also, be sure to keep in mind any family member that may be impacted by your wealth plan such as yourself, children, grandchildren, parents and grandparents, among others.”
Some common events that impact a wealth plan include the following:
Beneficiary designations should be checked for accuracy and to make sure they reflect your intentions. How assets are passed at death is often misunderstood and could result in common mistakes.
For example, many young people name their mother as the beneficiary of their company retirement plan; however, they forget to update it after they marry, have children or after their mother has passed. Some married couples often name their spouse as a beneficiary of a life insurance policy but forget to change the beneficiary designation after divorce or remarriage.
Your will does not govern how all of your resources are distributed – it only distributes personally-owned assets that do not have a beneficiary designation. See the sidebar for an example.
Common resources with named beneficiaries include retirement plans, life insurance and other resources under contract.
Many people create complex asset distribution plans over the long-term through personal and financial decisions.
As a result, it is vital to map out the provisions of your will and any trust(s) and compare them with those beneficiary designations. Be sure you understand the most important terms, including who gets what and when they get it.
If you believe you need to create a document, if you have a change in family status or a beneficiary designation amendment, or if you simply do not understand your will or trust, always seek help from your financial, tax or legal advisor.
“Confirming the accuracy of your financial documents is one of the most important things you can do to make sure your family is provided for as you wish,” said Cairns. “It is also important to understand the purpose of each document. Your advisors can help you to gain the knowledge you need.”
So, why not add a financial wellness checkup to your summer to-do list?
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The Assets: Margaret owns a car, and the title is in her name only. She also owns a house jointly with second husband Peter who has right of survivorship. Additionally, she has an IRA Rollover account.
The Objective: Because Peter has sufficient resources of his own, Margaret wants all of her assets to go to her children when she passes. Her will says, in effect, “I leave everything to my children in equal shares.”
The Outcome: When Margaret dies, survived by Peter, her children each get an equal share of her car and nothing else. The house is not subject to the terms of her will. By law it passes to Peter as the joint owner with survivorship rights. The IRA does not pass under the terms of her will either because she designated Peter as the primary beneficiary a long time ago. Her children were named only as contingent beneficiaries should Peter not survive her.
The Lesson: Revisit your financial documents regularly, and seek help from financial and tax professionals to ensure they reflect your wishes.
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