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Consumer Tips on Estate Planning

Here are a few tips to keep in mind about your life insurance purchase:

1. Take your time. On the other hand, donąt put off an important decision that would provide protection for your family. Make sure you fully understand any policy you are considering and that you are comfortable with the company, agent, and product.

2. When you purchase a policy, make your check payable to the insurance company, not to the agent. Be sure to get a receipt.

3. After you have purchased an insurance policy, keep in mind that you may have a free-look period, usually 10 days after you receive the policy, during which you can change your mind. During that period, read your policy carefully. If you decide not to keep it, the company will cancel the policy and give you an appropriate refund.

4. Review the copy of your application contained in your policy. Promptly notify your agent or company of any errors or missing information.

5. If an agent or company contacts you and wants you to cancel your current policy to buy a new one, contact your original agent or company before making a decision. Surrendering your policy to buy another could be very costly.

6. If you have a complaint about your insurance agent or company, contact the customer service division of your insurance company. If you are still dissatisfied, contact your state's or province's insurance department. Most departments have a consumer affairs division that can offer help, and some have a toll-free number to respond to consumer requests.

7. Review your policy periodically or when your situation changes to be sure your coverage is adequate.

Estate Planning

Only the wealthy need estate planning, right? No. The truth is that much of what you think will be passed on to your family may not actually reach them. Because of certain laws and taxes, your estate could be severely depleted, leaving less for your family and designated beneficiaries. If you take advantage of estate planning products and strategies from Northwestern Mutual, you can plan ahead and preserve more of your assets for your survivors. In this section we will examine estate planning processes, concepts and techniques, and the role of life insurance in estate planning.  

Estate Planning Processes - The estate planning process is different for every individual. Not everyone is in the same life stage, nor do they have the same objectives and income needs throughout life. As individuals grow older, their goals may change, but at any stage in life, most individuals want to manage risk, accumulate assets and preserve assets with their estate plan.

To accomplish these objectives, an estate plan will help you establish and clarify goals and objectives, identify and quantify needs, and identify and quantify resources.  

Concepts of Estate Planning - When constructing your estate plan there are three major concepts to keep in mind. You should calculate the assets you own and determine the type of ownership associated with it. You should evaluate what kinds of property transfers you want to make before and after your death. And finally, you should become familiar with how estate shrinkage occurs and the kinds of death and estate taxes that exist.  

Techniques of Estate Planning - Once you are familiar with the concepts behind estate planning, you still need to construct an effective and personal plan for your own estate. The techniques commonly used in estate planning are wills, trusts, durable powers of attorney and gifting. An effective estate plan will implement these various strategies in a way that will help you satisfy your needs and accomplish your goals.  

The Role of Life Insurance - Choosing the right policy to achieve your estate planning goals is important. Life insurance proceeds can be used to pay estate or inheritance taxes, preserving your assets for your heirs.

Policies can be purchased on a single life or on two lives. A single life policy insures one person and the face amount is paid at that person's death. A second-to-die or joint life policy insures two people and the face amount is paid at the second death.

Ten Pitfalls of Estate Planning

Settling an estate can be devastating to a family's finances. Heirs are often left with many unanticipated expenses, ranging from debts to taxes to administrative fees. Court and probate records show that in 75% of the cases, the estates do not have the cash to pay for these costs. So heirs are often forced to liquidate assets, like the family home... or the family business. This hurried liquidation can reduce an estate to a fraction of its former self. Life insurance is important in estate planning, because the proceeds from life insurance are payable immediately and can be used to meet these expenses. Life insurance helps to ensure that an estate passes to one's heirs... not to one's tax collectors.

To avoid the latter prospect, you may want to be on the watch for some common pitfalls in estate planning, which we've itemized for you in the Top 10 Pitfalls section.

You should work with an attorney on your individual estate plan. All estate plans can be checked against the following ten pitfalls. Although there are more than ten pitfalls to avoid, it is doubtful that any others could do more damage.

1. Failure to Make a Proper Will and Revise It Periodically
By failing to prepare a will, a decedent surrenders the right to distribute his or her property and allows the state to take over that task. Even after a will has been prepared, it may be seriously outmoded at death unless reviewed periodically.

2. Lack of Flexibility in Planning
A will must be drafted with enough flexibility to permit heirs and beneficiaries to deal with emergencies or changing needs. Ideally, a will should take into account not only current family requirements, but also future needs. Planning for the future, however, should not override basic necessities. For example, a decendent may provide for a child's college education without permitting proceeds to be diverted for any other purpose other than college, although the money is desperately needed for food and shelter.

3. Not Enough Liquidity at Death
If an estate plan does not provide enough cash to cover final expenses, valuable assets may have to be sold immediately, frequently at a fraction of their value. Thus, estate shrinkage must be taken into account when preparing an estate plan. One solution is life insurance, which can provide the required liquidity at death. In addition, life insurance proceeds are not generally subject to income tax and, when properly structured, may not be subject to applicable estate taxes.

4. Failure to Plan for Disposal of Business Interest
Intelligent planning can provide a guaranteed buyer for a business interest at a guaranteed sales price with assurance that money will be on hand instantly when death occurs. Another option is for heirs to continue the business. Advance planning will give them the best possible chance of succeeding.

5. Failure to Arrange and Integrate Life Insurance with Other Assets
Life insurance policies should be checked periodically and integrated with other assets, such as Social Security and stocks and bonds, to form a cohesive plan.

6. Failure to Take Advantage of Tax Saving Mechanisms
Estate plans should be reviewed annually to make sure that any tax law changes are reflected in the plan and to take advantage of any new tax-saving method. In fact, any properly drafted estate plan will strive for the greatest tax savings possible.

7. Failure to Plan for Retirement
Retirement plans and goals must be specifically identified. Unless such plans are known, an estate planner cannot determine whether sufficient funds are available to accommodate retirement desires. Retirement planning and the next pitfall are interrelated.

8. Overdependence on Government and Employer-Provided Insurance and Pension Plans
Social Security and pension benefits may be considerable. But overreliance on them can be disastrous. For example, if an individual changes jobs and fails to convert group insurance coverage on time, he or she may become uninsurable and die grossly underinsured. In another case, an individual may decide to return to work after retiring. If so, he or she may lose most Social Security benefits because of regulations governing earnings.

9. Failure to Apportion Sensibly
Funds should be allocated based on your risk tolerance. This means that life insurance and an emergency savings account should be primary concerns. Higher-risk investments may be appropriate if your risk tolerance so permits.

10. Failure to Prepare an Estate Plan and Review It Periodically
Proper planning and periodic reviews can help eliminate most common estate planning pitfalls.

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