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Preparing your finances for death and disaster
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  • Create a road map. I suggest that the very first file folder, placed in front of the others, should be called "road map" and contain a summary of all your property and financial holdings. On it, list your assets, account numbers where applicable and approximate fair market values as of a particular date. It should list real estate holdings, business interests, current accounts (bank and brokerage), cars owned, cash or face values of life insurance policies, retirement benefits, and any personal property of significant value. The road map should also list your liabilities as of a particular date.

Phone numbers of the institutions that you do business with would be a useful addition to the road map file. If you deal with an accountant, financial planner or attorney who is familiar with your financial situation, be sure to include his or her phone number and address. If additional papers pertaining to your finances exist outside the security file, indicate their whereabouts on the road map. When you've assembled everything, let your family members know that your road map exists and where you keep it.
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Oh -- and if you have any specific preferences about your funeral or burial, you might want to include a file folder called "Last wishes for my funeral." Maybe you don't want sonatas by Beethoven and Bach to be piped in during the wake, but would rather have Steppenwolf's "Magic Carpet Ride" or Led Zeppelin's "Stairway to Heaven" playing. This is a good opportunity to let your wishes be known.

The pieces of an estate plan

A road map gives your progeny some direction of how much you owe and own, but your job isn't finished yet. Have you created or updated your will? If you have not yet created one, you are leaving the vitally important task of asset distribution to the state in which you live. It may turn out differently from what you have in mind. If you have a will but haven't updated it in years, it may be time to do so -- especially if your circumstances have changed.

Some 50 percent to 70 percent of Americans die without a will, according to Stephen Maple, author of "The Complete Idiot's Guide to Wills & Estates," which is an excellent resource on the subject. Do-it-yourself will kits may do the job if your estate plan is relatively simple, but for more complicated family situations, hire an estate planning attorney. On its Web site, the AARP can help you find a lawyer that will do the job for reasonable fees.

Don't forget that the beneficiary information that you designate on certain financial documents supersede whatever you might state in your will. So be sure to update the beneficiary information for your life insurance policies, annuities, 401(k) plans, IRAs and other accounts so that your assets go to the right folks. You don't want your retirement money going to your ex, right?

In addition to creating a will, you might want to set up a trust for one of any number of reasons. Maybe you want to include a pour-over provision in your will to specify that some of your assets be placed in a trust for your spendthrift son at the time of your death. That way they could be disbursed, say, three times over a period of 15 years so that he doesn't squander his inheritance all at once.

Or maybe you want to set up a trust with income going to your current spouse and the remainder going to the children from your first marriage -- to ensure that it doesn't end up in the hands of your spouse's next husband or wife. Or maybe you have substantial assets and want to make sure that you and your spouse avail yourselves of the estate-tax exemption to which you are both entitled by creating a bypass trust.

Next: "You're not finished yet. ..."
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