According to an article in the July, 2010 Financial Planning magazine, key life events can and should generate reviews of estate plans and related documents. For instance, the birth of a grandchild may—but probably won’t—necessitate the updating of a will or trust to add the new heir to the list of beneficiaries. Gifts can be made to the new grandchild and existing grandchildren in the amount of $13,000 per donor. If a trustee or agent under a power of attorney or living will dies, the next named agent will serve. But what if you have fallen out with the named trustee or the trustee is unable to function mentally or physically? Periodically, review the power of attorney or trust to ensure that the person named as trustee or successor trustee remain acceptable to the family. Also, be watching the news and periodicals for the direction Congress is going to take on estate taxes. There should be some activity in this arena in the near future.
Another key life event is graduation from college and the start of your career. You will have a salary, but also the related expenses for food, housing, insurance, clothes, etc. All of a sudden, the generous salary is eaten up and disappears. Here are some ideas expressed in a personal finance column in the June 7, 2010 Morningstar.com e-mail. First, make sure you know how much money you are actually bringing home after taxes, insurance and any other withholdings. Develop a plan for eliminating credit card debt. Take on the highest interest rate debt first, followed by the lower rate balances. If feasible, switch the debt from higher rate cards to lower rate cards. Set up an emergency fund. A good rule is to build up 3-6 months of living expenses in highly liquid savings or money market accounts. Having this reserve allows you to buy a set of tires without going into new debt. Next, begin saving for retirement. In many of the financial magazines, you will find online calculators that allow you to project a future accumulation based on various savings amounts and rates of return. Start with an amount that fits your budget and increase it periodically. You might explore the pros and cons of a Roth 401(k) or Roth IRA. Don’t forget your student loans. You want to pay them off as soon as possible, but, with the low interest rates on the student loans, more attention should be paid to credit card debt. You still have living expenses to pay, so be sure and factor in reasonable numbers for travel, food and entertainment.
Got a job and prepared your budget? Ready for a family? The June issue of Kiplinger’s Personal Finance included advise for new parents. Write a will. This document will provide guidance to your heirs as to how your assets are to be divided (within the limits of state law) and can name a guardian for your child. Apply for a social security number for your child. This gives him/her an identity for banking, schooling, etc. Sign up your child for health insurance. There is generally a window of 30 days after your child’s birth to add him or her to your policy. Miss the deadline and you may have to wait for the next enrollment period to get coverage. Don’t forget to review your life insurance coverage. Chances are, it needs to be increased. Depending on your age, you can buy level term insurance that may run as long as 35 years. On your tax return, don’t forget to include your baby as a personal exemption, which is worth $3,650 in 2010. You also may be eligible for a child tax credit. After the expenses of the new baby are absorbed, consider setting up a savings plan for college. If your new child is a girl, you may want to add a savings plan for her wedding. Those expenses can approximate four years of college. Finally, don’t forget disability insurance.
Speaking of new babies, there was a Petula Clark song in the sixties with lyrics that, if the baby could sing, might communicate his love for his parents: “You’re the only one that I rely on, a shoulder there for me to cry on; and the hours alone that I’m without you, all I ever do is think about you. No one knows that you’re so understanding, even though my love is so demanding. Every time you look at me, then you’ll know we’ll both agree that no other love could be”. The parent’s could respond with the chorus: “I couldn’t live without your love. Now, I know you are really mine, I gotta have you all the time”. In fact, I think I might try to remember the chorus for my morning prayers. I think it fits.
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