Recently an elderly gentleman bought a Sovereign Debt bond maturing in 2022. Despite advice from his broker to place a named beneficiary he declined, saying emphatically “de pickney dem will work it out”. Needless to say he has departed the earth without a will and his dependents are now facing the hurdles of finding out where his investments are and how to begin the process of unraveling the investments to begin to derive benefits.
When we read a book we always wish to know what happens in the last chapter, but in life’s 12 chapter book we seemingly put it down after Chapter 11, which US citizens are painfully wary of.
Estate planning does not generate as great a focus for persons as they make their investment decisions. This usually causes some amount of stress on the dependent parties when the time comes to take stock of the departed’s portfolio. The last thing an individual would wish on their loved ones is to go through a probate. Probate is a legal process where your named executor goes before a court and does several things:
- Identifies and catalogs all of your property
- Appraises the property, and pays all debts and taxes
Probate is not cheap or quick. Because probate requires a hearing in over-burdened courts, the process can tie up your property for a year or more. That means your loved ones will not get the property you intended for them until the probate process is complete.
In addition, probate is very expensive. Probate is usually handled by attorneys, who sometimes charge a flat percentage or an hourly rate. Their fees and court costs can eat up 2-4% of your estate’s value.
Because probate costs can add up quickly, even before a single distribution to heirs is made, the estate must pay for these costs. However, if your estate consists of many illiquid assets, such as real property, art or long-term bonds, these assets will have to be sold to pay for probate.
Selling these types of items involves appraisal fees and additional delays, not to mention the fact that property you may have intended for children may be sold at below-market value to pay for probate.
No matter your net worth, it’s important to have a basic estate plan in place. Such a plan ensures that your family and financial goals are met and assets properly distributed after you die.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. Ask yourself these questions: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you’re ever incapacitated? Once you decide what kinds of bequests you wish to make, be sure to discuss your plans with your heirs.
The sooner and more distinctly you outline your intentions to your family and trusted friends, the less chance there will be for disagreements when you’re gone. As can well be imagined things get even more convoluted when there are other concerns, such as ex-wife (s) or children from prior engagements. In having a will (which somehow we procrastinate doing) you get to name the people to whom you wish to give your assets and know that your wishes carry the word of law.
Next week we will look at some of the other compelling reasons why we need to act now to ensure that there is a happy ending to chapter 12.
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David Weir is a personal financial planner with Sterling Asset Management Limited. Sterling provides medium to long term financial advice and instruments in U.S. and other world market currencies to the corporate, individual and institutional investor.
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