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Foundational
Fundamentals
Is your financial and legal house in order? Does it have a solid
foundation based on sound planning principles? Remember the old shop-worn,
but true saying: Most people do not plan to fail…they simply fail to
make plans. In this article we will survey some of the financial and legal
fundamentals that make up a comprehensive Financial & Legal Plan.
Think about how your own planning measures up as you read along.
Financial Planning
Do you know what you own, what you owe,
from where your cash flow comes, to where your cash flow goes and how much
you contribute to the IRS? This is the first step in getting your
financial house in order. The answers to these key financial questions
will help you establish your net worth statement, set a household budget
and look for additional income tax deductions and credits.
When it comes to your investments, first set your
goals and determine how much money it will take to reach them. Then,
determine your risk tolerance and select a diversified portfolio (cash,
stocks, bonds, mutual funds, real estate, etc.) within your tolerance that
will most likely provide the after-tax return necessary to reach your
goals. Once your portfolio is in place, be sure to monitor the performance
of your investments and make changes to the asset mix as needed.
Every good offense needs a good defense. In
financial planning, a good offense means building wealth by investing
wisely. A good defense, on the other hand, means paying premiums you can
afford for insurance that will protect you (and your loved ones) against
potentially catastrophic risks you cannot afford. Do you have adequate
disability insurance should an injury or illness stop your cash flow? Is
your life insurance coverage sufficient to clean up debts, taxes and
expenses upon your death, as well as provide financial security for your
loved ones? Do you have appropriate long-term care insurance so your
hard-earned nest egg will not be lost to nursing homes expenses in your
retirement years?
Legal Planning
What legal plans have you made in the
event of your incapacity or death? Whom have you appointed to see that
your financial and legal affairs are managed according to your wishes?
Have you minimized your exposure to federal estate taxes? Would your
financial legacy be protected for and from your loved ones? Have you
remembered your favorite charities in death as in life? The answers to
these key legal questions will help secure your financial plan.
Incapacity planning is necessary, whatever
your net worth. The law requires everyone over the age of 18 years to make
their own personal, health care and financial decisions. If you become
incapacitated, would you rather your decisions be made by someone you have
appointed through appropriate legal documents or by someone appointed for
you by a court? The choice is yours, but legal planning in advance usually
means less expense, more convenience and greater privacy.
Similarly, upon your death, you can make matters
easier for your loved ones through appropriate legal documents. For
example, you may want to arrange for your assets to avoid the court system
en route to your loved ones. You may even wish to appoint individual
and/or corporate fiduciaries of your own selection to administer your
final affairs without posting a bond and serving under court supervision.
Again, the benefits of legal planning in advance usually outweigh the
alternative by default.
Most people are aware that the highest marginal
income tax rate is 38.6%, but are unaware that the highest marginal
federal estate tax rate is 50%. Not surprisingly, these same people spend
considerable time and money to save every last penny from income taxes
while they are alive…only to lose dollars to federal estate taxes when
they die. Through appropriate legal planning, hundreds of thousands of
hard-earned dollars can be saved for loved ones and charities instead of
lost to the IRS.
Fact: A lifetime of work can disappear in a
season of squandering. No one appreciates the true value of a dollar like
the person who earned and paid taxes on it. Unless you make appropriate
legal plans, the financial legacy you leave to your loved ones may even be
lost to their divorces, lawsuits and bankruptcies.
Conclusion
Only you can ensure that your financial and legal
house is in order. Be sure to seek qualified legal counsel for assistance.
Copyright © 2005 Integrity Marketing
Solutions. All rights reserved. Some artwork provided under license
agreement. This publication does not constitute legal, accounting or other
professional advice. Although it is intended to be accurate, neither the
publisher nor any other party assumes liability for loss or damage due to
reliance on this material.
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