A Lesson from Michael Jackson--Safeguard Your Wishes in Estate Planning

You may not think you have a lot in common with Michael Jackson. But like the late icon, chaos could follow in the wake of your death if you're not careful about your estate plan. Consider this: Jackson's mother was named the guardian of his children, but apparently she expected also to be the executor of his estate. While it is usual for the writer of a will to want an experienced financial adviser to handle the money and a nurturing family member to raise the children, conflicts can rise out of unfulfilled expectations.

An additional potential conflict could have arisen if the mother of Jackson’s three children opted to demand custody. Unless clearly unfit, being a mother will normally trump being a grandmother.

Although most people don't have estates the size of Jackson's, nor the complications that come with it, there are universal lessons to be learned. They apply to small and large estates and everything in between.

Review Your Estate Plan Annually

Financial planners suggest establishing a comprehensive estate plan that includes your will and reviewing it annually. You might have a will in place, but when was it last updated? In Jackson's case, his last will and testament was reportedly signed in 2002. And, given the size and complexity of his estate, his family situation and changes in tax law, his probably should have been updated more often.

Reviewing your will annually gives you the chance to reexamine your desires — your bequests, the guardians of your children and the executor or executors of your estate — as things change in your life. In Jackson's case, he named in 2002 his mother as the temporary guardian of his children and Diana Ross as an alternate guardian in the event that Jackson's mother could not or would not serve. But it's quite possible that his wishes had changed in the ensuing years.

Guardianship of the Minors

Choosing a guardian for minor children can be a difficult. It's important that you consult with financial professionals including a trusted lawyer and an investment advisor or other professional who can help you evaluate your choices and select the guardian that's right for you, your minor children, and the guardian you select. In Jackson's case how will his children fare with his mother? Will her lifestyle be suitable for the children? Does she have the energy and patience needed? What experience did Ms. Ross have with children? Are either of the designated guardians willing to make changes in their current lifestyle to devote their time and strength to the children?

Choosing a guardian should be the result of careful consideration and should always be driven by how to give the children the greatest possibility for a healthy, happy and productive life.

Besides naming a guardian of your minors, you'll also need to name a guardian of the estate, someone who will have the responsibility to invest your children's money until the children reach, typically, the age of majority.

Decision Makers for Incapacity

As important as it is to name the decision makers in the will, it is equally as important to name those responsible for making medical and property decisions if you are “merely” incapacitated. Can you imagine the conflicts that would have occurred if Michael Jackson had become incapacitated without naming someone to hold his Powers of Attorney? Having Medical Directives and Durable Powers of Attorney (for business affairs) are as important as having documents for the disposition of your assets when you pass. Many people fail to contemplate their incapacity and as a consequence create tremendous heartache, costs and conflicts for their families.

Probate and Alternatives

Having a will typically means probate. That's the process where the parts your estate or at least the parts don't get transferred by contract (such as life insurance death benefits and retirement accounts) will be administered and processed through the legal system after you die. Although there are advantages with the probate process, there are also disadvantages. For the average estate, probate can be a complicated and a lengthy process, costs can be onerous, and — as has happened in Jackson's case — there's a lack of privacy.

If you do not want your estate to become a public matter, you may want to consider the use of a revocable trust rather than a will as a key testamentary instrument.

A revocable trust is any trust in which the grantor (i.e., creator of the trust) retains the right to amend, modify or revoke the trust at any time until his or her death or incapacity.

There are many different types of revocable trusts. Contact your financial planner to work with your estate attorney to help you establish an estate plan that fits your — and your children’s — needs.

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This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Saving for College and Retirement--How to Save for Competing Priorities

When it comes to saving for college and saving for retirement, many couples with children sometimes opt to save for the former and not the latter. That's a big mistake.

You need to look at your goals as part of a total picture, instead of taking them sequentially. A financial planning rule of thumb says that while there are safety nets in the form of financial aid for college, there are no loans or financial aid for retirement.

Furthermore, ignoring retirement in favor of your children means missing 18 years — or more if you have multiple children — of retirement savings. That could put you significantly behind the eight-ball when it comes to your life after work.

If you fund your children's education to the exclusion of your retirement, it's likely that you will underfund your retirement so significantly that you will have to "play catch up" big time later on.

Over time money in a retirement plan such as a 401(k) or 403(b) accrues without taxes, allowing this tax deferred pot of cash to grow faster than in a taxable account. If you are among those parents who are funding a 529 plan but not your 401(k), it might be time to shift your priorities.

You don’t have to cut your children off — just don’t put all your eggs into one proverbal basket. If you start early, both savings plans can grow—including the green and yellow basket with your retirement nest egg.

Consult a Registered Investment Advisor (RIA) like Oaktree Capital on how best to balance your savings plans.

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This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Why Women Need to Save More for Retirement

Women remain at a higher risk in retirement than men according to research recently published by the National Institute on Retirement Security (NIRS).

Women, according to the report, Shattering the Retirement Glass Ceiling: Women Need a Three-Legged Stool, need to accumulate more retirement assets than men because they on average live longer. However, acquiring enough assets is more difficult for women because they still have lower wages and less access to retirement plans during their working years as compared to men.

Lower Wages Continue to Haunt Women

Retirement is made secure with a combination of a traditional pension, supplemental 401(k) type individual savings and Social Security. Because of her longer life expectancy a woman with a salary of $50,000 must save $1,000 per year more than her male counterpart to achieve equitable retirement income. That might be hard to do given that full-time female workers made just 76.2 percent of their male counterparts' wages according to figures from 2007, the last year available.

To be fair, both men and women need to save more for retirement, said Financial Planning Association (FPA) board member, Karin Maloney Stifler, of True Wealth Advisors, LLC. Men and women also need to take more responsibility. "Women and men can both choose to make long-term financial security a higher priority," she said.

Women Less Prepared for Retirement

But women are worse off. "Unfortunately, it is a reality that women are less prepared for retirement," warned Senior Vice President Stacy Schaus of PIMCO and Defined Contribution Practice. "We also know elderly women are also far more likely than men to fall below the poverty line."

Deena Katz, an associate professor at Texas Tech University, agrees with the study's results that women are worse off and need to save more. "The demands on a woman's resources post retirement are far more dramatic than a man's," she said. For example, women are the primary caregiver for parents. The average age of widowhood is 56, and over 60 percent of marriages end in divorce.

Women Likely to be Alone Through Much of Later Life

Women need to plan for the probability that they will be alone during their lifetime especially during the last years of life, Maloney Stifler said.

"While is less able to prepare financially for retirement, her need for the resources at retirement are generally more," Katz said. "I'd say forget the three-legged stool and plan on a big sturdy four-legged chair that includes an expectation of needing double the personal savings."

Plan for “Me First”

Women need to take a "me-first" approach when it comes to planning for retirement. "Like pulling down the oxygen mask in a bumpy plane ride and then helping others, women would be well served to look after themselves when it comes to saving for retirement," said Bonnie Hughes, of The Enrichment Group.

Maloney Stifler added that "Many women put their own well being, financial and otherwise, on the back burner while tending to other's needs first….Women need to know that it is not selfish to make self-care a priority. If you do not care for yourself, you have less to give to others. Self care includes investing in skills and careers to remain employable, to save for retirement long-term before paying for the children's "wants" to maintain good health and to boost financial literacy so they can make wise decisions about the money they do have. Being financially secure is part choice and part luck (good or not so good), but it is undoubtedly one of the best gifts we can give to ourselves and to the people we care about most.”

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This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.