By Mark Colgan, CFP

By definition taxes are a fee charged by the government on a product, income, or activity to support public prosperity. This is assuming you are talking about monetary taxes. There is, however, an even heavier burden people often contend with. It is the devastation of personal legacy taxes. By definition personal legacy taxes are the negative consequences survivors face as a result of an individual dying without having properly documented her/her values, life lessons, memories and final wishes. If you have ever experienced the loss of a loved one you would likely agree that the absence of this vital information is emotionally taxing.

Before I expand on my concept of personal legacy planning, let me first let me clarify that I am not talking about common estate planning. As you know, estate planning traditionally addresses your material assets and possessions of financial value, and your wishes for how they will be disbursed in the event you should pass away or cannot communicate for yourself. Estate planning is accomplished with tools such as a legal will, trusts, powers of attorney, health care proxies, etc.

Your true wealth, however, is not measured in just dollars and material assets ― and that is where legacy planning comes in. Personal legacy planning addresses your non-material assets, possessions of emotional value. This includes your values, life lessons, memories, and final wishes ― information that is too valuable to risk being lost. It is a perfect complement to your estate plan.

Let’s get more specific. A couple of years ago Bob, a client of mine, called and told me that he had terminal cancer. He wanted to proactively document everything he could think of (both personal and practical) that would be beneficial to his wife. He had already taken care of his estate plan and made sure she was okay financially ― but he was more concerned about her emotional well-being and her ability to move forward after he died.

When I told him about our legacy planning solution, he was relieved. He was able to document practical information about things such as his funeral arrangements, maintaining the household, his plans for the kids, and the location of important documents. He was also delighted to share important personal messages such as thoughts about how and why he loved his wife, favorite memories about their family vacations to Florida, his views on religion, and other philosophical thoughts that he felt could positively impact future generations. The legacy planning process helped Bob gain clarity and confidence that everything that mattered to him would be passed on to those he loved.

Imagine the peace of mind Bob had, knowing that instead of a tangled web of unanswered questions, his loved ones would have all the information they would need and long for.

The absence of a carefully planned legacy leaves loved ones with an impending tax that will burden their soul. Recently, I had a heartfelt discussion on this topic with a professional acquaintance of mine Russell Friedman. Russell is the Executive Director of The Grief Recovery Institute frequently cited grief expert and author of several books related to grief recovery. According to Russell, “Grief is difficult enough without complications, but having interacted with thousands of grievers, I have learned that the absence of a carefully planned legacy leaves them with financial and emotional distress which compounds their grief

exponentially. The real tragedy here, beyond the loss of a loved one, is that these issues are totally avoidable. All you need to do is take the time and energy to prepare a well thought‐out legacy plan.”

Don’t let your fear stop you from doing what you need to do. Here’s what happens if you don’t plan your legacy.

1) Those you leave behind, when burdened by financial challenges and unanswered questions, will often bury their grief in an attempt to survive.

2) Distracted from their natural need to deal with their grief, the grief stays hidden, and since time can’t heal emotional wounds, it gets worse, not better.

3) The loved ones you leave behind won’t know how you really felt about them – I know, you tell them every day, but it is not the same thing.

4) Your loved ones won’t know where to find the vital documents they need to carry out your wishes – you’ll unintentionally leave behind a mess.

5) It can potentially cause incredible rifts between family members leaving emotional holes that can never be filled.

6) You won’t have the opportunity to have these discussions now, while you are still able to see what a powerful impact they can have on the people you love the most.

7) Your legacy will die with you. Your great-grandchildren and other future descendents will only have empty photographs and presumptions about who you were.

Don’t leave your loved ones with a legacy of pain because you didn’t take the time to put together your legacy plan. And don’t put it off because you are young, in good health or have a crazy schedule. It doesn’t matter how old you are, or how healthy you are. Every day the news is filled with tragic stories of young and healthy people whose lives ended suddenly. And while we would all like to believe “it will never happen to me,” the only way to ensure your loved ones are protected is to act now and plan your legacy.

If you’ve never taken notice of disability coverage before, it’s time to start.

Disability insurance protects your ability to earn an income. It provides money to pay your rent, mortgage and basic living expenses if you are injured or sick for an extended period. It is called disability insurance or disability income protection but think of it as income replacement when you are sick or hurt and cannot work. At any age, you are about six times more likely to become disabled for some period of time than to die.

Think your employer’s coverage is enough? Think again. You may have whatever sick leave you have coming, and then if an employer offers short-term disability coverage, it generally doesn’t last more than 12 weeks. There are employers that offer long-term disability coverage, but if you’ve never checked the terms of that coverage, you should.

It never hurts to consult a financial advisor with expertise in this subject, such as a CERTIFIED FINANCIAL PLANNER™ professional.

Basic components of long-term disability coverage:

Monthly benefits:

Depending on your income, long-term disability insurance is generally structured to pay 50 to 70 percent of your income up to age 67 or your normal retirement age. Research if the policy you’re buying offers you the chance to buy more insurance as your income increases in future years.

Benefit term:

For each disabling incident, your policy may pay benefits for a certain period – two or five years, or until retirement. It’s all about how your policy is constructed. Some policies even pay for life if you purchase this benefit and you are disabled prior to age 60.

Buying younger is generally cheaper:

Like health and life insurance, the younger you buy, the less you’ll pay. Occupation enters into the picture because high-risk jobs (where disability is a greater work-related factor) tend to draw more claims. Like health insurance, the company will consider your medical history and your lifestyle, including your weight, pre-existing conditions and whether or not you smoke.

Premium cost:

The premium will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they tend to live longer and may work longer) will be considered.

Non-cancellation provisions:

Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates.

Guaranteed renewable:

Like the category above, this means your insurance can’t be canceled,. The insurer can, however, raise the rates for everyone in the category.

Own occupation vs. any occupation:

If you have “own occupation” coverage, it is intended to go into effect if you can’t perform the functions of your current job. “Any occupation” coverage pays only if you can’t work at any job where you’ve been reasonably trained to do the tasks. For example, if you’re working a desk job, you could easily be transferred to a receptionist’s job or some other function within the company that you can now do or is your former position. That could significantly interfere with your recovery time, so consider the benefits and specify “own occupation” coverage.

Elimination period:

Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. Most policies will start paying after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period:  the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and funnel the money you’ll need in the meantime to your emergency fund.

Partial payments/Residual benefits:

Some policies may offer you ‘residual benefits’ or a partial payment if you’re less than 100 percent disabled, but still can’t perform all the duties of your job.

If you’re thinking about self-employment:

You’ll likely need disability coverage. But the time to buy is while you’re still in your current job. Why? You won’t be able to prove your income once self-employed, so consider obtaining your desired coverage before you leave.

February 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

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