Paul Ferraresi

Many married people have never prepared a will, although they recognize that this is something that should be done. Perhaps the rather morbid title, “LAST WILL AND TESTAMENT,” has caused them to delay taking action.

If you do not prepare a will, the state will draw one for you, and chances are very good that your survivors will not like the provisions. The legal term for dying without a will is “intestacy,” and the distribution of your property will be based on the intestacy laws of the state in which you reside at the time of death.

In the absence of a will, the Probate Court will appoint an administrator, such as a family member or local attorney. Then after a complicated procedure, all of your assets will be distributed according to the state’s formula.

Your estate consists of personal property (furniture, jewelry, clothes, automobiles), investments (cash, savings, securities), real estate, employee benefits (group insurance, retirement or profit sharing) and other items such as the proceeds of a lawsuit against someone who accidentally caused your death.

You cannot rely on joint property title as a substitute for a will because it does not solve problems arising with the second death. Some forms of joint title do not pass entirely to the surviving spouse.

Having a will drawn can prevent family disputes, and will give you the opportunity to be certain that your property will be distributed promptly to the parties designated as beneficiaries.

Your will should designate an Executor to carry out your bequests efficiently and promptly and with less expense than if there had been no will. The will should also provide for flexibility in the administration of your estate. You may also wish to provide special bequests to non-profit organizations.

Having a will prepared will also help establish a relationship with an attorney, which could be extremely valuable in the future. Naturally, a will should be periodically reviewed and updated to reflect changing personal circumstances and new tax laws.

All of us are generally aware of recent awards of large liability settlements. Usually, these are written up in the newspapers as they relate to aircraft accidents, hotel fires or similar catastrophes.

To a lesser extent, we read of individuals being sued for large amounts of money because of some unusual occurrence such as a water skiing or automobile accident.

Typically, we buy specific insurance to cover us against the more common types of liability. For example, we purchase automobile liability insurance to cover us for the operation of our cars. We buy comprehensive personal liability insurance to cover us for activities arising out of our residence or personal activities. Frequently, the limits on these policies are $100,000 or $300,000.

We tend to feel comfortable behind this shield of protection. However, the diversity of activities that individuals now engage in at times, goes beyond the limits of coverage of those policies. Therefore, the insurance industry has developed an umbrella policy that provides a broader scope of coverage with higher limits of liability than is normally encountered. The purpose of the liability umbrella policy is not to replace the other policies, but to provide excess liability coverage over and above what is referred to as the underlying limits.

The liability umbrella policy has two deductibles. The first deductible constitutes the limits of the underlying auto and personal liability policies. The second is a deductible, usually $250, for any liability exposures beyond the scope of underlying policies.

In acquiring a personal umbrella liability policy, it is very important to choose an adequate limit of liability ($1,000,000 to $5,000,000), and to fully disclose all underlying policies and all liability exposures. Then the policy’s exclusions should be reviewed to make sure they do not delete coverage for an exposure to which you are subject.

Liability insurance is vital to protecting your assets and future earning power.

An emergency fund is needed to meet unexpected expenses that are not planned for in the family budget, such as short-term illness causing a loss of income, unexpected medical expenses, property losses that purposely are not covered by insurance (deductibles and co-insurance) and to provide a financial cushion against such personal problems as prolonged unemployment or some other financial crisis.

Need for an emergency fund has received greater attention in recent years. Many capable people have lost their jobs because of mergers and acquisitions, economic dislocations or plant closings. A reasonable emergency fund can help to prevent a temporary unemployment from becoming a financial crisis. The fund will give the family time to adjust without having to drastically change its living standards or disturb other investments.

The size of the needed emergency fund varies greatly. It depends upon such factors as family income, number of income earners, stability of employment, assets and debts. The size of insurance deductibles, health and property insurance exposures, and the family’s general attitudes toward risk and security are also important. The size of the emergency fund can be expressed as so many months of family income. As a guideline, it is advisable to reserve a minimum of two and a maximum of six months of income. The larger the percentage of your monthly expenses that are fixed and must be paid, the larger should be the emergency fund.

By its very nature, the emergency fund should be invested conservatively. There should be almost complete security of principal, marketability and liquidity. Within these investment constraints, the fund should be invested so as to secure a reasonable yield, given the primary investment objective of safety of principal. Logical investment outlets for the emergency fund would include:

• Bank savings accounts (regular accounts)
• Credit Union accounts
• Money market accounts
• Mutual Funds
• Life insurance cash values

Access to emergency funds is important. If check-writing services are available, even at a fee, it might be wise to arrange for them. The careful person may also want to have some ready cash available for emergencies, even if it is non-interest earning. Such an individual might consider setting aside $200 in cash at home to be used ONLY in case of dire emergency.

When it comes to your personal finances, which are you more like, the Alfred E. Neuman (What, me worry?) type, or the neurotic Scrooge McDuck? Take this quiz to find out whether you are worrying too much, too little, or just the right amount. Circle the answer that corresponds with your feeling.

1. I check my stocks and mutual funds in the financial pages…

a. every day – 20
b. every week – 10
c. only once a year or so – 5

2. I will be able to afford a comfortable retirement because…

a. I am saving to the max right now – 10
b. I am counting on a relative to leave me a pile – 5
c. Fat chance! I am going to end up working until I drop – 20

3. When I get my bank statement…

a. I throw it in the wastebasket – 5
b. I go crazy if it does not match my checkbook balance – 20
c. I give it a once-over to make sure I know roughly how
much is in my account – 10

4. If I am laid off…

a. I’ll get through the following three months on the money
in my emergency fund – 10
b. I bet I will find another, similar job quite fast – 5
c. I will be a wreck – 20

5. I clip cents-off newspaper coupons…

a. every day – 20
b. only when I see one for a product I like – 10
c. never – 5

6. If I buy something I have to stretch to pay for…

a. I cannot sleep for weeks thinking I overpaid – 20
b. I am pleased that I got my money’s worth – 10
c. I just put it on plastic and forget about it – 5

7. When I get cash from a cash machine…

a. I do not bother to get a record slip – 5
b. I always enter the withdrawal in my checkbook – 10
c. I always get a queasy feeling that I’m taking out
money too often, even when I am not – 20

HOW TO SCORE YOURSELF

Add up the numbers to the right of the response you made to each question. If you did not answer an item, give yourself a “10.” The total score will be a good indicator of your “Worry Index.”

1. If your score is 35 to 45, get real! You need to worry a little more. You may not be accomplishing what you could achieve – perhaps due to inattention being paid to your financial matters.

2. If your score is 50 to 70, you have a fine grasp of your personal financial situation. You are taking an interest as well as taking many of the steps that will assure success.

3. If your score is 75 or above, get a life! You are worrying way too much. Perhaps you should delegate more of these responsibilities to professionals – and let them worry for you! You need to have a financial plan and let it work for you.

AVOID THE PARALYSIS OF WORRY

Some persons acquire a sense of helplessness about their financial circumstances. Perhaps it is worry about debt, concern over ever-rising inflation, career limitations and hazards, family health matters, or maybe prior financial problems. It may be simply a lack of comprehension about financial and tax issues that grow more complex each year.

Worry will not help conquer these issues. The guidance of a financial professional, steady attention to a financial plan and a slow diet of financial reading will produce the desired results. Plus time, of course…