Estate Planning And Retirement Planning: Two Parts Of The Same Plan

When people think about retirement planning, they usually think about finances: Have I saved enough? When should I take Social Security? Will my money last?

Retirement planning should also answer another important question: What happens to me and everything I have worked for if I become incapacitated or when I die?

That is where estate planning comes in.

Ideally, estate planning should be part of your retirement planning before you retire. The years leading up to retirement are an excellent time to make sure your financial and legal plans work together.

Retirement often brings changes — rolling over a 401(k), consolidating accounts, paying off a mortgage, purchasing property, updating beneficiaries, or considering long-term care. Your estate plan should reflect those changes.

A comprehensive estate plan may include a last will and testament, revocable living trust, financial power of attorney and advance medical directive, depending on your individual circumstances.

Estate planning also addresses an important issue that financial projections alone cannot solve: What happens if you are alive but unable to manage your own affairs?

Maryland recognizes advance directives that allow an individual to designate a health care agent and state preferences concerning future medical treatment. Maryland law also provides for financial powers of attorney, which can authorize another person to handle financial matters on your behalf.

Choosing the right people for these roles requires careful consideration. The person who was the obvious choice at age 55 may not be the best choice at age 75.

A good estate plan should accomplish more than stating who receives your property after your death. It should provide a roadmap for managing your affairs throughout the later stages of life.

Your Will Does Not Control Everything

One of the most common misconceptions is that a will determines where all of your property goes. It does not.

Retirement accounts, life insurance policies and other assets commonly pass according to beneficiary designations rather than the terms of a will. Other property may pass through joint ownership or a trust.

That is why estate planning and financial planning should not take place in separate silos.

Imagine, for example, that your will or trust has been carefully updated to divide your estate among your children, but an IRA still lists a former spouse or a beneficiary designation completed decades earlier. The beneficiary designation may determine who receives that account regardless of what the will says.

A retirement estate plan review should therefore look not only at the legal documents, but also at how assets are titled and who is named as beneficiary.

How Often Should You Review Your Estate Plan?

A useful rule of thumb is to conduct a formal estate plan review approximately every three to five years or whenever there has been a significant change in your life, family, finances or the law.

Your financial plan helps determine how you will live during retirement. Your estate plan helps make sure you — and the people you care about — are protected along the way.

Karen M. Authement, Esq. is an attorney with KMA Law Office, where she assists individuals and families with estate planning. Learn more at www.kma-law.com.