What Duct Tape Can't Do
Are your financial affairs ready for anything?
By Mary Beth Franklin, Senior Editor
From Kiplinger's Personal Finance magazine, May 2003
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Are your financial affairs ready for anything?
Earlier this year -- when the nation was at Threat Condition Orange, and bottled water and duct tape were flying off store shelves -- Kyle Krull responded by volunteering to help newly called-up Army reservists put their affairs in order. The lawyer and financial planner in Overland Park, Kan., spent a weekend drawing up wills and durable powers of attorney so that family members left behind could handle everything from filing income-tax returns to selling a car or refinancing a house while their loved ones were overseas.
The planning that the soldiers were doing for themselves and their families is "a reflection of what everyone needs to do for themselves," says Krull, a former Army lawyer who faced a similar call-up in 1991 during Operation Desert Storm. "No one knows what the future holds, and there is something to be said for being prepared."
If you're age 18 or older, you need a durable power of attorney, which authorizes someone else to handle your legal and financial affairs if you're not able. It won't work miracles -- Krull tells the story of one young soldier who asked for a durable power of eternity -- but even if you're not among those shipping out, make sure your financial documents are shipshape.
Called to action
This means not only writing that long-put-off will, but also making sure beneficiary designations on insurance policies and retirement plans are up-to-date. That's particularly important if you have had a life-changing event, such as marriage, divorce, the birth of a child or the death of a spouse. Also, decisions you made when your children were little may be wildly off the mark if they're now grown up.When Air Force reservist Timothy Griffith of Sanford, Fla., was called to active duty following the terrorist attacks on September 11, 2001, he had a wife and two children -- and no will. "We had talked about it for years, but it's one of those things you put on the back burner," says his wife, Tammy. "When Timothy got called up, it was like a flashing red light. It was time to stop thinking about it and start acting on it."
The Griffiths, both 37, drew up wills, appointed guardians for Erika, 10, and Joshua, 5, and updated beneficiary designations on their life insurance policies and retirement accounts. They also verified that all of Tim's life insurance policies would remain in force in the event of war. Their attorney recommended that Tammy be named the primary beneficiary and that a trust for their children be named the secondary beneficiary.
That's a typical strategy for families with young children, says Krull. What you don't want to do is list your minor children themselves as beneficiaries. That would mean a probate court would control their access to the money until they reach the age of majority -- 18 in most states -- at which time the money would be theirs to use as they please. "An inheritance can be a blessing or a curse," says Krull. "In the case of an 18-year-old, it tends to be the latter, often going to red sports cars and stereo stores."
What if you name a parent or sibling as a secondary beneficiary with the intent that he or she would use the money to care for your children? If something happened to that beneficiary, the money would pass to his or her estate, not to your children. Blended families create special challenges and require careful planning.
Reporter: Katy Marquardt
