A New Year’s Resolution Worth Keeping
New Year’s Eve is famous for the New Year’s Resolutions people make to better themselves in the coming year. The most common New Year’s Resolutions are:
- Eat healthy and exercise regularly
- Drink less
- Learn a new skill
- Quit smoking
- Create a better work/life balance
These are all well and good, but how many of us can look back in December and say we truly stuck to our New Year’s Resolutions? According to Forbes, just 8% of people are successful. I have a theory to explain why the success rate is so low. With the exception of quitting smoking, none of these resolutions have a real measuring stick. They also have the greatest impact on the actual individual as opposed to their family. The only person you directly let down by failing to accomplish these goals is yourself.
So why not start off 2016 with a very achievable and measurable resolution that will greatly impact not just yourself, but your family’s long-term security.
Complete a Financial Health Checklist
We all want to take care of our family in life and in death. We work hard our entire lives to give them everything they need and we often put money away to help them after we pass away. But just putting away money is not good enough; you need to ensure that you undertake the appropriate tax planning as you prepare your estate plans. By structuring your affairs properly, you will ensure your family gets as much money as possible in the future while minimizing what money needs to be paid to the government.
Unless we’ve received a terminal diagnosis, none of us think death is right around the corner. Accidents can and do happen, none of us are invincible, and the last thing you want is for your death to be harder on your family than it would otherwise be.
And what happens if an accident occurs and you survive but are no longer capable of working or caring for yourself? Without an income, and with growing medical and care bills, you would eat into your savings, drastically reducing what would be available for your family upon your passing.
Simple tasks can seem impossible when there is not a written document outlining your wishes. The financial ramifications of your death could be magnified if you haven’t planned effectively.
This article will help guide you in the right direction. There are measures you can take now to protect your family’s financial well-being, whether you die or become disabled.
Properly Drafted Will
Simply put, a properly drafted will outlines your wishes and allows your appointed executor to carry them out. No one is ever too young to have a will, because as I mentioned earlier, accidents happen. Start the New Year off by reviewing your will with your lawyer and your accountant, and make any necessary changes. If you have never drawn one up, do so now.
I recommend reviewing the will, at a minimum, every five years and also after any major life changes such as marriage, divorce, a financial windfall, or the birth of children.
Make sure you discuss your will with your family. Let them know your intentions. This will help avoid disputes when you are gone.
Ensure your executor is willing and capable of managing your affairs.
You can also build in testamentary trusts to help facilitate your wishes and reduce taxes. It is important to make sure that your wishes work in conjunction with existing trusts and other legal agreements.
If you have a self managed super fund, be aware that your will does NOT cover this.
Power of Attorney - Financial and Health (POA)
A Power of Attorney is an important tool that can make your life a whole lot easier in the event you become incapable of making your own decisions. It appoints someone to legally make those decisions on your behalf.
A financial POA appoints someone to make financial decisions in the case of mental incapability, most likely in the later years of your life. You should consider getting one for yourself, and if you have elderly parents, discuss with them the need for a POA to manage their finances if they become incapable.
A health POA is the same as a financial POA, except instead of financial decisions, the person makes health care and medical decisions, up to and including terminating care and life support.
Be sure to choose someone you trust to act on your behalf and discuss it with them.
There are a lot of different types of life insurance that you can acquire, but I’m not going to go into too much detail explaining them all. What I will say is that life insurance should be on your 2016 Financial Health Checklist.
Life insurance protects the financial security of beneficiaries. Insurance pays out a tax free, cash benefit on your passing that is paid to your named beneficiary. The amount of the payout depends on the policy you purchase. Some employers provide life insurance for their employees, but there is no reason you should not get another policy on your own.
Life insurance is just another effective way to ensure your family’s financial well-being when you pass away.
While life insurance only pays out upon your passing, there are other types of insurance to seriously consider that can help ease the burden on your family if an accident occurs and you survive, or if you get a life altering diagnosis from your doctor.
Trauma / Critical Illness
With critical illness insurance, you receive a cash payout in the event of cancer, heart attack, stroke, bypass surgery and more. The rehabilitation costs associated with these ailments can be exorbitant and can financially cripple a family that has not planned effectively.
Total & Permanent Disability
Disability insurance is designed to protect you from the possible loss of income should you become injured and unable to work. You do not want to be dipping into your savings to pay your medical bills. Workcover only covers work related injuries, so you would not be covered if you were injured outside the workplace.
Income Protection Insurance
Income protection insurance, also known as salary continuance, can help you manage your expenses if you are unable to work for a certain amount of time. Income Protection provides you with a regular monthly payment for a specified period to replace a proportion of the taxable income you’d usually earn from your primary occupation.
We touched on a lot in this article and all of these things should be discussed further with your advisors and your family. Remember, accidents happen and you do not want to leave your family with a debilitating tax bill if something happens.
Get started on your Financial Health Checklist for your 2016 New Year’s Resolution!
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