Financial Literacy Month: Are All Of Your Financial Ducks In A Row?

In March 2004, the Senate passed Resolution 316, which officially recognized April as National Financial Literacy Month. Both Houses of Congress have passed similar resolutions since then designed to encourage financial literacy so that individuals are better prepared to manage their money, credit and debt.  Nevertheless, in the fourth quarter of 2019, U.S. household debt (which includes student debt, credit card debt, auto debt, mortgages, home equity loans and other debts) exceeded $14 trillion for the first time ever.[1]  

In addition, forty percent of the respondents of a recent survey indicated that it would be very difficult for them to meet their current financial obligations if their next paycheck were delayed for one week, and another thirty-four percent said it would be somewhat difficult.[2]  The COVID-19 pandemic has unfortunately made this potential difficulty a scary reality for many Americans.  

Whether or not you are indeed struggling financially, it is important to realistically assess your financial situation and how prepared you and your family are for the future.  Creating or updating your estate plan is an important part of exercising control over your finances, and ensuring that proper plans are in place can provide substantial peace of mind and security for you and your family.  

Take an Inventory of Your Assets

One of the first steps in creating an estate plan is to take an inventory of your money and property. Regardless of whether you are wealthy or just making ends meet, everything that you own is part of your estate and should be listed – or at least accounted for – in your inventory. This inventory should include the following:  

  • all of your real estate, including your home, and their values
  • all tangible personal property (e.g. cars, heirlooms, artwork, jewelry, furniture, electronics, etc.
  • all financial accounts (e.g., bank, investment, retirement accounts) and their balances according to their most recent statements
  • the contents of all safety deposit boxes (noting their location)
  • the cash value and death benefits of all insurance policies
  • all liabilities (e.g. mortgages, lines of credit, notes, and other debts) and
  • all business interests

Consider These Valuable Questions

As you and your estate planning attorney evaluate your inventory, there are several important questions to ask yourself.  

1. Am I saving adequately for retirement?  

Clearly, the answer to this question will vary for different individuals and circumstances, but many financial advisors recommend saving ten to fifteen percent (10%-15%) of your pre-tax income during the entire span of your working years.  If you have not been saving adequately, consider increasing your contributions to your retirement accounts.  

2. Are sufficient funds available to provide for my spouse and dependents if I pass away?  

 If the answer is no, consider purchasing a life insurance policy large enough to replace your income, as well as pay off any outstanding debts, college for your children, your final expenses and other important expenses (e.g., the cost of your child’s wedding, their first car or a down payment).  

3. Do I have a lot of debt? 

If you have substantial debt, your family members generally will not be responsible for paying it once you pass away.  However, your estate must pay off your creditors before your beneficiaries receive anything.  Consider the following options:  

  • Life insurance can help in this situation as well: You can either purchase life insurance sufficient to pay your debt or you can make family members or loved ones the beneficiaries of your policy (or a trust for their benefit).  When properly structured, the proceeds of the insurance policy never become part of your estate and instead are transferred directly to the beneficiaries of the policy.  
  • Similarly, retirement, investment, and brokerage accounts allow you to name one or more beneficiaries, keeping those funds outside of your estate.  Real estate or financial accounts owned jointly also pass directly to the surviving owner when permitted by your state law.  
  • An even better course of action, however, would be to meet with a financial planner who can help you create a budget enabling you to decrease or eliminate your debt so that your loved ones will receive all of the money and property you would like them to have. 

Protecting Your Assets

If you transfer money and property you would like to preserve for your beneficiaries into an irrevocable trust, that is, a trust that cannot be amended, modified, or revoked (except under limited circumstances), those assets will be protected from any of your future creditors or judgments (with time limits).  Because the money and property used to fund the trust is no longer yours and you have no control over it, it is not available to pay your creditors.  Your family members and loved ones can be named as beneficiaries of the irrevocable trust.  This strategy can be particularly helpful for individuals working in professions that are at a high risk of lawsuits (e.g., doctors, lawyers, etc.). 

Warning: An irrevocable trust will not protect money and property from creditors having a claim at the time the trust is created.  Courts can rescind transfers to trusts if they are determined to have been made with the intention to defraud current creditors.  

Consider the Needs of Your Beneficiaries

There are several different types of trust agreements you can choose from to best manage your assets for the benefit of your beneficiaries after your passing.  

Protect Their Inheritance From Their Creditors 

Even if you take all of the steps necessary to ensure that your beneficiaries receive a nice nest egg when you pass away, it can disappear quickly once it is in their hands unless your estate plan is designed to avoid this possibility.  

Fortunately, you can create a trust with terms that will protect your beneficiaries’ inheritances against claims arising from their creditors, divorcing spouses and lawsuits. There are a variety of different types of trusts that can protect the money and property from such claims, but the following are among the more commonly used:  

  • Discretionary Trust: A fully discretionary trust gives a trustee complete and absolute discretion regarding the amount and timing of distributions to your beneficiaries.  In fact, the trustee is not required to make any distributions to your beneficiaries at all.  In this case, because the beneficiary does not have an enforceable right to receive any distributions from the trust, the beneficiaries’ creditors will not be able to reach the funds held by the trust.  
  • Beneficiary-Controlled Trust: A beneficiary-controlled trust gives a beneficiary, who is also a trustee, the discretion to make distributions to him or herself for their “health, education, maintenance and support.”  An independent co-trustee has the authority to make discretionary distributions for other purposes.  Thus, the beneficiary has some degree of control over the trust funds, but the money and property held in the trust, with restrictions on distribution, may still be protected from creditor’s claims.  

Create a Trust for a Specific Purpose(s)

You can include terms in your trust authorizing the trustee to make distributions for your children or other loved ones for specific purposes so that even after you have passed away, you are still able to help the trust beneficiaries make certain important purchases or pay for special care.  

  • Purpose-Driven Trusts: A trust can authorize distributions for certain important expenses.  For example, you may want to help your child pay for a wedding, make a down payment on a home, or start a business while you are alive, so you may want to create a trust authorizing distributions for those purposes so that they will be covered even after your passing.  Like other types of discretionary trusts, the money and property held by the trust cannot be reached by the beneficiaries’ creditors.  Once the money has been distributed to the beneficiary, though, the creditors will be able to reach it. 
  • Special Needs Trust: If you have a special needs child or grandchild, a special needs trust will be an appropriate consideration.  This type of trust, which must be carefully drafted, allows you to provide for someone with special needs without causing them to become disqualified from government benefits for which they would otherwise be eligible.

Let Us Help You and Your Family Move Toward a Secure Future

Celebrate Financial Literacy Month by taking steps to get your financial house in order.  Estate planning is an essential part of this process, as it is all about providing you and your family with the peace of mind that comes with knowing that even if the unexpected happens, the future is secure.  

Please call or contact us online today to set up a meeting so we can create an estate plan that meets all of your needs and goals.

[1] Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit, February 2020,” accessed March 17, 2020,

[2] American Payroll Association, “Getting Paid in America Survey,” last modified September 10, 2019,