When life happens, are you prepared? Do you just react to life events or do you have a plan in place? By being proactive, you can soften the adverse effects of unexpected events. Last week, we had an unanticipated event with our office computer network. A recent minor computer upgrade unintentionally damaged our server motherboard, which then had to be replaced. The server motherboard replacement unintentionally took out all six of our redundant hard drives containing our computer data files. Neither the upgrade nor the motherboard replacement should have affected anything else. But, no worry.
Although we haven’t had any problems with our server previously, we do daily in-house backups and real-time secure cloud backups. The computers were down for only a little more than a day while we rebuilt the data drive array and restored all of our computer data files. This type of business computer data loss could have been catastrophic, and have put some businesses out of business. However, because we planned ahead, it was only a minor inconvenience for us.
What is your plan for unexpected and unanticipated life events? You may think of estate planning as death planning, but it is much more than that. Estate planning includes lifetime planning. If you are like most of our clients, you want to control your property while you are alive and well. One unexpected event to plan for while you’re alive and well is a loss of a job.
There are a number of things you can do to soften the blow of a job loss. One thing to do is spend less than you make. This accomplishes two objectives. Number one, it allows you to set aside some savings. And two, if you do have a job loss, there will be less expenses to cover.
Don’t buy the biggest house that you possibly can afford or for which you qualify. Buy a less expensive home which you can more easily afford. Then your situation won’t be as much of a strain in the event of a job loss. Set aside some savings to cover your expenses in the event of a job loss. Experts recommend that your emergency fund savings cover six to twelve months of your household expenses.
If you are a married couple with two incomes, try setting up your household to run on one income and save the other. The blow of losing one income would not cause the loss of your home to foreclosure or otherwise. For example, in my pre-lawyer career, I was working full-time during the day and going to law school part-time at night. When I lost my job, I decided finish law school full-time, which would only take a year. While finishing school, I only worked part-time while my wife Emily continued to work full-time.
During the year I was finishing law school, our household income decreased by about half. We had to tighten our belts and make some major lifestyle changes. Instead of going out to restaurants or the movies, or watching cable TV, we dined at home and watched broadcast TV. We were able to pay for all my law school expenses as the bills came due and did not need to take out any student loans. In that one year period, we actually increased our savings more than we had in the previous five years combined when we had two full-time incomes.
When you are mentally disabled, you likely want to provide for you and your loved ones. If you are still working, disability insurance is a lifetime planning tool to protect your income in event of your disability. There are a variety of disability insurance programs available either as group or individual plans. Group plans are generally cheaper than individual plans, but they also usually have lesser benefits and/or longer waiting periods. Although you may have a group disability plan at work, you may also want to investigate an individual disability income plan. Not only do individual plans typically offer more or better benefits than group plans, they follow you wherever you are employed.
Both Emily and I have maintained individual disability income policies for nearly 30 years, paying our premiums every month. Although we’ve had a few health scares in which we thought we might have to use the policies, we never needed them. I don’t regret the payments though, because if something were to have happened or might happen in the future, we have protected our family financially.
Another type of insurance to protect you and your loved ones in the event of your disability is long-term care insurance. Typically, the earlier in your life you get the insurance, the lower your premiums will be. If you start your long-term care policy in your 40’s or 50’s, your premiums will usually be much lower than if you started your policy in your 60’s or 70’s. If you wait too long, the premiums may not be affordable.
You may believe you do not need long-term care insurance because you think that Medicaid will always be there in its present form to cover your nursing home and other assistance expenses. However, with the exception of certain limited waiver and pilot home programs, Medicaid will only cover long-term care expenses in certain qualifying nursing homes, of which there are only five in St. Clair County. Most long-term care insurance policies are much more flexible than Medicaid and will pay for long-term care expenses wherever you live, whether you are in your home, or not. And with all the governmental budget shortfalls at both the state and federal levels, the Medicaid program has a big target painted on it for the budget cutting process.
And the proper estate plan in place will also protect you and your loved ones in the event of your mental disability. In most instances, a properly drafted financial power of attorney and/or a fully-funded trust will generally avoid the necessity of a court appointed conservator to handle your finances and property during your mental disability. Similarly, a properly drafted health care power of attorney will usually avoid the necessity of a court appointed guardian to make personal and medical decisions for you in the event of your mental disability.
Once you have planned for you and your loved ones during your lifetime, then you can take care of your stuff after you are gone. With proper planning, when you are gone, you can give what you have, to whom you want when you want the way you want, all at the lowest overall cost to you and those you love. Planning for your untimely death may include an investigation of your life insurance needs.
If you were to die tomorrow, would your family need your income replaced for living expenses, to pay off the mortgage and other debts, to provide for loved ones’ education or to pay for your funeral? Life insurance can provide a safety net for your loved ones when you are not around to provide an income. Sometimes, I have seen life insurance used to create an estate to pass on to loved ones.
My wife Emily and I took out life insurance policies when our kids were younger and we had purchased our home. Now 30 years later, the kids are out of college supporting themselves, our mortgage is paid off and we have some savings. We no longer need the life insurance, but since we are in our late 50’s, we are concerned about possible long-term care expenses. Late last year, we did a tax-free exchange of the old life insurance policies for new fixed-premium life insurance policies which allow us to access the policy death benefits early during our lifetime for long-term care expenses at home or wherever we are living.
With trusts, you can also put in lots of options to take effect after your death. Most of our trust clients provide lifetime trusts for spouses and other beneficiaries, which offer a multitude of protections and benefits. Although the trust assets are available for the beneficiaries’ needs, no one else can touch them. With trusts, you can provide privacy, probate avoidance, creditor protection, governmental benefit preservation, education funding, protections for the family real estate, business and pets, and protections for beneficiaries who are minors, young adults, mentally disabled, lazy, financially challenged, addicted, divorcing or re-marrying.
So now, when you are thinking about estate planning, don’t just think about death planning, also think about lifetime planning.
By Matthew M. Wallace, CPA, JD
Published edited May 13, 2018 in The Times Herald newspaper Port Huron, Michigan as: Hope for the best; plan for the worst