You know you should have a will–but WHY?

Originally published CNBCYou’ve surely heard the sad news that music legend Prince has died, and you likely caught the fact that he did so without leaving a will. This high-profile case of apparent negligence has rekindled the collective finger wagging over having the correct estate planning documents. But the question remains—WHY?

I had the opportunity to answer this question recently on the Today show, but I wanted to further explore the topic in the hope of providing some additional, actionable clarity:

WHY NOT?

Statistics suggest that a majority of Americans don’t have a will. And, after reading hundreds of these documents, I’ve found that even most people who do have a will have one with sub-optimal language they don’t understand.

Why don’t we do a great job planning for our death? Primarily, most of us want to avoid contemplating the subject of our own demise. Secondarily, we tend to gauge the probability of our imminent passing as extremely low—“I’m not going to die anytime soon!”—and therefore discount the impact of its occurrence.

WHY?

Here are the top three reasons why it’s vital to write a will:

1) However improbable, the negative impact of dying intestate, with no estate plans in place, is so significant that it demands our attention and action. Prince is just one of many who’ve left behind a legal cacophony for courts to iron out and heirs to fight over. The whole situation, however, could’ve been avoided with one meeting with his attorney. But while this effect is magnified in the case of a celebrity, it’s no less important for you.

You have the opportunity to make the impossibly hard decisions involved in estate planning for and on behalf of those you leave behind. You can make your final word a blessing instead of leaving behind at best a mess and at worst a curse. Think of your will as your advanced instructions on how to administer whatever you’ve left behind, instructions which are followed by the person you designate as the Personal Representative (or the Executor or Executrix as it’s still called in some states).

2) It gives you an opportunity to fulfil your responsibilities, even after you’re gone. Your influence over your assets, businesses, charitable goals and in the lives of your family and friends can be extended well beyond you. In your will, you may name a Trustee to oversee assets that you direct to be held in trust on behalf of those you leave behind.

And don’t think you’re off the hook if you’re younger or have less money than you think is required to justify throwing around words like “trust” and “estate.” If you own anything, the law considers that your estate. And even if it doesn’t show up on your personal balance sheet, your life insurance proceeds are one of those assets.

Most parents of minor children—and even those of adult children—see the wisdom in directing their assets and life insurance proceeds to a Testamentary Trust with rules for distribution that they write. For example, my will allows my Trustee to distribute funds to my now 12- and 10-year-old boys for their “health, education, maintenance and support” throughout their youth. Then, they’ll get one-third of the balance in the trust if and when they receive a bachelor’s degree (not a mandate, but a sign of maturity in their mother’s and my opinion), followed by two additional distributions at later ages. This will hopefully ensure that the money helps, not hurts, them. Consider Warren Buffett’s estate planning advice (which I’ve paraphrased) to leave your kids enough to do anything, but not enough to do nothing.

3) Perhaps the most important reason to write a will pertains to the parents of minor children. It’s in your will that you elect new parents in case both mom and dad are gone. Yes, we’re talking about the religious office of godparents, but in order to make it official in the eyes of the state, your selections must be noted as Guardians in your will.

What happens if you don’t? A court in your state will decide the matter. Wouldn’t you rather choose who should raise your kids if you’re unable to do so? That way you can select Guardians who will continue raising your children with values similar to those you’re working so hard to impart. (By the way, for those who think the children’s grandparents are the natural fit for Guardians, a word of caution: Your mom and dad have already had their run at parenting. They might appreciate, and would almost certainly accept, the invitation, but consider going with someone younger who can keep up better with the kids and allow Grandmom and Pop-Pop to spoil their grandkids as planned.)

HOW?

Make your estate plans as complex as necessary, but as simple as possible. This helps ensure that you understand what you’re doing and that your plan can be sufficiently explained to your heirs after your passing, minimizing misinterpretation.

Consider choosing individuals to fill the offices of Personal Representative, Trustee and Guardian as you see fit. It’s not a popularity contest, and it’s likely best that different people serve different roles. Also consider establishing back-up designees to fill those positions in case anyone is unable or unwilling.

Yes, you can write out your will on the back of a bar napkin if you wish, but it may not be worth a lot more than the paper it’s written on (and seriously, it likely won’t be enforceable). Yes, having an online or software-produced will may be (much) better than nothing, but I still can’t bring myself to recommend it, and here’s why:

Wills are written in a different language than the one we speak. It’s called “legalese.” Your interpreter is an attorney. We can argue all day long whether this is unjust, but it won’t change the reality. Additionally, the process of administering wills, dubbed “probate,” is handled on a state-by-state basis. This is why I recommend having your will completed by an attorney specializing in estate planning (you wouldn’t ask your orthopedic doctor to perform brain surgery) in your state of residence.

How do you choose the right attorney? Approach friends and family members you deem the most responsible and ask them whom they used. (If they don’t have a will, take them off of your “most responsible” list.) Ask your accountant or financial advisor. Then, talk to at least a couple attorneys before making a decision. Confirm that they are more adept at translating legalese than speaking in it, and know right up front how they charge for their services. Many attorneys charge on an hourly basis, but consider asking for a flat fee so that you don’t feel pressure to withhold any questions for fear of running up the bill.

One alternative that falls between the napkin route and hiring an attorney is using a pre-paid legal service (perhaps it’s one of your company benefits). Here, you are still likely to come away with more “boilerplate” documents that may not be optimally customized, but at least it adds more of a human element into the process at a reduced cost.

WHAT?

Is a will all that you need to adequately prepare your estate plans? Likely not. While you’re drafting or updating your will, also consider having drafted a Durable Power of Attorney document (to authorize someone else to make financial decisions when you’re unable or unavailable) and Advance Directives (authorizing someone to make medical decisions on your behalf if you’re unable). Most estate planning attorneys will offer a package complete with all three documents. The cost for these documents can vary widely depending on your geography, but you should be able to write these extremely important documents for between $250 and $1,000.

If your level of wealth falls below something like Prince’s but above average, it’s altogether possible that you’ll want to include other documents—like revocable, irrevocable and charitable trusts, for example—to ensure your assets get where you want them to go while minimizing federal and state estate tax, as well as state inheritance and income tax, to the greatest degree possible. Yes, you’ll pay more for your estate planning documents as the complexity increases, but consider it the cost of being financially blessed.

Lastly, don’t allow the time and money you invest in your estate documents to become invalidated by failing to ensure your beneficiary designations—on life insurance policies, retirement accounts and annuities—are in alignment with your will. This is especially important because your beneficiary designations will trump the wishes outlined in your will. That’s right, if you updated your will but never changed your 401(k) beneficiary designation from your mom to your new spouse (or from your ex-spouse to your new spouse!), the designated beneficiary on record wins in a conflict with your will.

THE BOTTOM LINE

Estate planning can be costly and confusing. I get it. And I also understand that we’d generally prefer not to discuss death. But when you engage this topic purposefully, the discussion can actually be quite life-giving. This is because regardless of our age, health or the size of our financial estate, we’re all creating a legacy.

Simple Money Featured On The Today Show

Recently, I had the distinct privilege to join Sheinelle Jones on the Today show, discussing some rapid-fire personal finance issues in Simple Money style.  Is now a good time to buy stocks?  Is it a good time to buy, sell, refinance or renovate a home?  We even discussed a version of the Simple Money Portfolio and my top two picks for cash flow apps that can improve your financial situation.  Click HERE or on the image below to view the segment.

Tim Maurer on Today Show

Building a Strong Portfolio in 7 Simple Steps

Originally published CNBCThe movement of markets is so incredibly complicated that even the world’s most skilled portfolio managers struggle mightily to “beat the market” over the long-term. Building a strong portfolio, therefore, must be similarly (and singularly) complex, right? Wrong. While portfolio architecture and management is not easy, here is a seven-step process that makes it surprisingly simple:

Step 1: Know thyself.

This ancient Greek wisdom is where we must begin, because personal finance is more personal than it is finance. Investing is complex because we are complex. Therefore, we must understand ourselves before we try to understand the markets. This means honestly gauging your time horizon and the returns necessary to meet your goals, but it’s especially important that you understand your willingness to take risk in the markets. You must take the gut-check test.

Step 2: Understand investing.

It’s true that you shouldn’t invest in something you don’t understand, because when times get tough you’re more likely to part with even the best investment strategy if you don’t sufficiently comprehend the logic behind it. My colleague, author Larry Swedroe, says in his unmistakable New York accent, “You oughta be able to explain your investment strategy to a fifth grader.” You should be familiar with the compressed history of “the market” and work to become conversant in the foremost systematic, academic approach to market investing—Modern Portfolio Theory (MPT).

Step 3: Design your portfolio.

Once we’ve acquainted ourselves with, well, ourselves (as well as the fundamentals of markets and investing) it’s time to build our portfolio. I’ve created a simple starting point for investors that synthesizes the essentials of MPT—by diversifying across a broad cross section of equity asset classes, favoring those that have historically outperformed—and a basic understanding of behavioral finance—by reducing portfolio volatility through the anchor of conservative fixed income. Refer back to Step 1 to determine if this balance of stocks and bonds is appropriate, or if it should be calibrated more aggressively (by increasing the allocation to stocks) or conservatively (by increasing the bond allocation).

Simple-Money-Portfolio-Chart

Step 4: Implement your portfolio.

Ok, now you’ve got the knowledge and the plan, but all of that is worthless if you don’t actually translate it into action. Because we have no control over market fluctuations, we must focus on controlling the factors that we can. Chief among these is the cost of investing. I recommend avoiding commission-sold mutual funds and “actively” managed funds with higher internal expense ratios, favoring instead no-load, “passive” or indexed funds in your corporate retirement plans, self-managed accounts and accounts under the stewardship of a financial advisor.

Step 5: Monitor—but don’t micro-manage—your portfolio.

You want to be cognizant of what’s happening in your portfolio but not obsessed about it, because paying too much attention to your portfolio usually works against you. Yes, certain actions may be advisable when markets move—see Step 6—but making major changes midstream typically hurts more than it helps. And if you absolutely must, when it’s appropriate, “get out of the market,” click HERE.

Step 6: Rebalance your portfolio.

Especially in times of significant market volatility, the inevitable question arises: “So, I’m just supposed to sit here and watch my portfolio get clobbered?” No, you need not sit idly by. If the market has moved enough that you’re getting a nervous feeling in your gut, chances are good that your portfolio is out of balance. In such cases, it’s entirely appropriate to bring your portfolio allocation back to its starting point through the act of rebalancing. While rebalancing has not necessarily been proven to “make you more money over time,” it does help reduce overall portfolio volatility.

Step 7: Fund your portfolio.

Too often, we seek to blame others—perhaps a spouse, investment managers or even the markets—for having too little in our portfolios. But while any (or all) of those parties may share in the blame, don’t forget that we—YOU—are the primary determinant of your investment success through the contributions you make. How your portfolio is structured absolutely is important (and that’s the focus of this article) but the biggest factor for success in investing is not the nuance of your portfolio management style, but your willingness to persistently save a meaningful portion of your hard-earned income. This ensures you can recreate your income at some point in the future when you’re unwilling or unable to do so.

The Millennial Guide To Managing Risk With Insurance

Originally in Forbes“I’m too [fill in the blank] to worry about insurance.” If you’re a millennial, there are plenty of words you could choose from to complete that sentence. Perhaps “young,” “poor,” “busy” and “skeptical” are good ones (for starters).

You might have enough insurance.  You might even have too much.  But I’d bet you don’t have as much as you need in some categories, too.  Regardless, ignorance is neither blissful nor beneficial at any age, so let’s ask and answer the questions below, reviewing the most prominent types of insurance that may—or may not—be important for you to consider.

First, allow me to offer a fundamental insurance lesson that will serve you well now and into the future: Don’t just buy insurance. Instead, manage risk.

I offer the following Risk Management Guide as a template for making insurance decisions in my book, Simple Money:

Risk Management Guide

Are you living the life you chose?

Financial Wisdom From Jason Isbell

Originally in ForbesI love finding financial wisdom in unlikely places, like in art and music. These opportunities are more abundant than you might expect. For instance, the punk-Americana outfit, The Avett Brothers, dedicated an entire tune, aptly titled “Ill With Want,” to the scourge of greed and Mumford & Sons taught us that “where you invest your love, you invest your life.”

The newest melodic metaphor to catch my ear comes from singer-songwriter Jason Isbell. He expresses his appreciation for having work in the title track of his newest album, “Something More Than Free,” but it’s the pair of questions he poses in another song, “The Life You Chose,” that really got me thinking.

“Are you living the life you chose? Are you living the life that chose you?” asks Isbell.

jasonisbell

I fear it is the latter for many, if not most, of us. Perhaps we are stuck living a life that has grown into a web of circumstances driven more by external compulsions than autonomous impulsions. For too many, life is lived at the behest of someone else’s priorities and goals, in pursuit of someone else’s calling.

Simple Money Is Here

A No-Nonsense Guide to Personal Finance

Unfortunately, personal finance has been reduced to a short list of “Dos” and a long (long) list of “Don’ts” typically based on someone else’s priorities in life, not yours.

But personal finance is actually more personal than it is finance.

Learn More and Get Your Copy of Simple Money

That’s why what works great for someone else may not work as well for you. Money management is complex because we are complex. Therefore, it is in better understanding ourselves—our history with money and what we value most—that we are able to bring clarity to even the most confounding decisions in money and life. As an advisor, speaker and author, I’ve made a career out of demystifying complex financial concepts into understandable, doable actions. In this practical book, I’ll show you how to

  • find contentment by redefining “wealth”
  • establish your priorities, articulate your goals, and find your calling
  • design a personal budgeting system you can (almost) enjoy
  • create a simple, world-class investment portfolio that has beaten the pros
  • manage risk—with and without insurance
  • ditch the traditional concept of retirement and plan for financial independence
  • cheat death and build a legacy
  • and more

Learn More About The Author

The problem with so much personal finance advice is that it’s unnecessarily complicated, often with the goal of selling you things you don’t need. Tim Maurer never plays that game. His straightforward, candid and yes — simple — prescriptions are always right on target. Jean Chatzky
financial editor of NBC's 'Today Show'

Here’s what others are saying about Simple Money:

“Reading this book is like having your own personal financial advisor.”—Kimberly Palmer, senior money editor at US News & World Report; author of The Economy of You

“You can’t manage your money without thinking about your life—and the system that Tim proposes can make a radical difference in both.”—Chris Guillebeau, New York Times bestselling author of The $100 Startup and The Happiness of Pursuit

“Maurer teaches us how to literally redefine wealth in a way that will both honor your life values and priorities while simultaneously reducing your stress.”—Manisha Thakor, CFA, director of wealth strategies for women for the BAM Alliance; writer for The Wall Street Journal

“Amen! Amen! Amen! Simplicity is a gift . . . and this book offers it by the truckload!”—Carl Richards, New York Times columnist;  author of The One-Page Financial Plan

Read more praise for ‘Simple Money’

How To Know When To Get Out Of The Market

Originally published CNBCHas the market’s recent volatility worried you? Me too. It’s inevitable. Apparently, it’s how we’re wired. But better understanding that wiring can give us a clear decision-making framework to help us know if and when to get out of the market.

The field of behavioral finance has demonstrated that the pain we derive from market losses impacts us twice as much as the pleasure we feel from market gains. For this reason, investors are well served to name and address these emotions instead of setting them aside as they (unfortunately) have been taught.

We’ve all heard of the cost/benefit decision-making model, but “cost” and “benefit” are intellectual constructs too distant from the actual emotions that drive our decision-making. We need to address the gut—the “pain” and the “pleasure” associated with a tough decision. The following four-step model seeks to merge the head and the gut. And while it’s applicable in virtually any either/or scenario, let’s specifically address the decision to stay invested in the market or to move to cash:

Market Decision Image Cropped

1) The pain of staying invested is that I could lose even more.

SPEAKING: On Personal Finance

I'd love to speak at your next event!

Personal finance is more personal than it is finance. This is a message, grounded in science, that I’m privileged to share in various forms speaking for various audiences. Whether for an association of financial planners, a Fortune 500 company, an academic institution or a non-profit, my strategy is to ENGAGE, ENTERTAIN and EDUCATE your audience, giving attendees tangible takeaways to improve their lives and work.

Why The Stock Market Is Volatile, Why Volatility Hurts, And What To Do About It

Originally in ForbesUnless you made a resolution not to read, listen to or watch the news in 2016, you’ve likely noticed that “the market” is off to a stumbling start. Indeed, one glance at the headlines, at least the ones that don’t involve the presidential election, quickly reveals that the market is having one of its worst starts to any new year. This is a dubious distinction, to be sure.

The factors involved appear similar to those credited for causing the extreme volatility we saw in the fall of 2015—slower growth in China, falling oil prices, geopolitical instability and the threat of bankruptcies in junk bonds. But the optimist’s case seems equally compelling—high-quality bonds (the only kind I recommend) are performing very well, falling oil prices are good for consumers, the Fed’s interest rate rise signals a strengthening U.S. economy and the most recent jobs report was positive.

An objective view of the market reminds us that on every trading day in history, there have been compelling cases to be made for both optimism and pessimism—for purchases or sales. (Remember that every single security transaction involves a buyer and a seller, each of whom believes he or she is getting the better end of the deal.)

Ultimately, there is only one sufficient answer to the question, “Why is the market so volatile?” The market exhibits volatility because that is its nature.

10 Things You Absolutely Need To Know About Life Insurance

Originally in ForbesLife insurance is one of the pillars of personal finance, deserving of consideration by every household. I’d even go so far as to say it’s vital for most. Yet, despite its nearly universal applicability, there remains a great deal of confusion, and even skepticism, regarding life insurance.

Life insurance

Perhaps this is due to life insurance’s complexity, the posture of those who sell it or merely our preference for avoiding the topic of our own demise. But armed with the proper information, you can simplify the decision-making process and arrive at the right choice for you and your family.

To help, here are 10 things you absolutely need to know about life insurance:

  1. If anyone relies on you financially, you need life insurance. It’s virtually obligatory if you are a spouse or the parent of dependent children. But you may also require life insurance if you are someone’s ex-spouse, life partner, a child of dependent parents, the sibling of a dependent adult, an employee, an employer or a business partner. If you are stably retired or financially independent, and no one would suffer financially if you were to be no more, then you don’t need life insurance. You may, however, consider using life insurance as a strategic financial tool.