Four Tools of Financial Education Print
Written by Lee Phillips   
Monday, 01 March 2010 16:42

The Most Important Financial Tools that Every Investor Needs to Secure Their Assets


Just like a house, you can't build a financial fortune from the roof down. You need to build a foundation first.

Have you ever noticed that some people seem to have wealth flow to them? Yes, some professions tend to pay more than others, but in every field, those with the most wealth are the ones that have a legal foundation already in place.

This foundation is set up using an understanding of the legal strategies associated with wealth accumulation. Unfortunately, many people are "taken to the cleaners" by less-than-competent lawyers who fail to educate their clients.

The basic foundation of wealth consists of four legal tools. If you understand the tools and know how to use them, your chances for success are much better. If you and/or your parents don't have the four tools already, it is time to get moving. It's worth every effort you make and every dime you spend getting the foundation in place. Here's a basic overview of the four tools:

Testamentary Will
Everyone needs a will. Even if you have a revocable trust, you need a will. The will names the personal representative (the executor or executrix). A family member, who is geographically near the bulk of your estate, has good business sense, and can be fair with your heirs, is the person you are looking for. It is basically malpractice for the attorney to name himself or herself as the personal representative.

The will names the guardian for your minor children. If you have minor children or grandchildren, you had better see to it immediately that a guardian is named in the parent's will. The will should put restrictions on the guardians. Most wills simply state, "John and Mary guardians to my minor children." You can do better than that. Coach the judge in your will. It should read, "John and Mary; provided they raise the children in our family home where the children are living at the time of my death." "John and Mary; provided they are still happily married and harmoniously living together." "Grandma and Grandpa; provided they have the health to take care of the kids." "Grandma and Grandpa; provided they don't sell the kids." You get the picture.

If you already have a will and don't have a living trust, you will have to get a new will which goes along with your living trust. It is called a "pour over will," because it "pours" all of your property, not already in the trust, into the trust for ultimate distribution after your death. The living trust is the next part of the foundation.

Living Revocable Trust
The living trust allows an estate to avoid probate, get twice the estate tax exclusion, and provide for a smooth transfer of property. It is definitely worth having for most families. Yes, there is a big argument in the legal profession between the standard will and probate guys and the living trust "hawkers." I come down in favor of the living trust, but I think it is your decision. In Protecting Your Financial Future, I go through the pros and cons in detail. Frank Sinatra was called the "Chairman of the Board," and he knew how to handle money. His living trust provided his estate with total privacy, much to the media's chagrin, even though on a $130+ million estate the financial impact of the trust was only a few hundred thousand dollars.

The problem with the trusts is not with the trust, but the lawyer and user of the trust. The trust has to be maintained, and it has to "own" all of your estate. It isn't hard to manage, but the lawyer never takes the time to teach you how to do the management, and you can't afford to pay the lawyer to do it for you. As a result, a majority of people who get a living trust don't get the benefits they could from the trust. The living trust will "overlap" with a durable power of attorney.

Durable Power of Attorney
Durable powers of attorney allow an individual to control the property of a person who is unable to control their own property. As a physician, you know that people of all ages, not just old people, fall victim and are rendered unable to control their business life. A good living trust will have a provision that automatically lets a successor trustee manage trust property if you, acting as trustee, become incompetent. The durable power of attorney lets the person of your choice manage all of your other business affairs when you can't do it. Power doesn't transfer from you until the criteria outlined in the document are met, then there is an automatic transfer of power. This prevents messy court proceedings that are required to name a guardian/conservator for an incompetent individual.

The emotional and financial drain of a court proceeding when a family member has an accident or gets sick is the last thing the family needs at that time. The durable power of attorney prevents all of the legal problems at a time of crisis in the family, when a family member becomes incompetent.
Many powers of attorney include a section which addressed an individual's instructions and desires for their health care. This is a durable power of attorney for health care, which appoints an "agent" and grants them power to interface with the medical industry. You may not have a hard time getting what you want in a hospital, but it will be very frustrating for your spouse or children if you are the one who suddenly becomes unable to direct your own medical care. The durable power of attorney for health care can be part of the document entitled durable power of attorney or it can be a separate document. It deals only with the medical treatment, not the right to die, which is addressed in a living will.

Living Will
A living will directs the doctors to keep you alive or pull the plug. You need one and so does the rest of your family. The best place to get one is in your hospital. Hospitals give them away free, and the hospitals like to see their own document rather than the 30 page beautiful, very expensive document you get from your lawyer.

These four legal documents form the basic foundation for all wealthy people. They are always there. They are what I call the "basic tools of wealth." Use them, and it will be worth every effort you make and every dime you spend.

Attorney Lee R. Phillips is a Counselor of the United States Supreme Court. He has three university degrees-BS, MS, JD - and has held licenses in real estate, mortgage brokering, securities, and life insurance, as well as being a registered investment advisor. Lee is nationally recognized in the fields of business structure, asset protection, financial planning and estate planning. He is the founder of LegaLees Corporation, a company specializing in solving asset protection and tax problems for high net worth individuals.