John never gave much thought to the possibility that he could become disabled until a sudden work injury sidelined him for months.
As a result, his core activities were severely limited. So was his ability to earn income in the same way he had before. He’d need to engage in a lot of rehabilitation to make his way back to normal, and it looked like a slow recovery.
Planning for a potential disability within the scope of estate planning is important. If you work for a living and rely upon an income stream, a disability can hamper your ability to earn income and maintain your standard of living. So if you can’t work – or do as much work as you used to – you need a plan to make up some of the income.
One way to do that is through disability insurance, which will provide a certain level of income replacement to cover basic expenses like food, housing, and certain bills. It acts as a safety net to guard against going from full income to zero income in the event of a continuing disability.
Why Does This Come Up In Estate Planning So Much?
Estate planning focuses on long-term goals, legacy, and accumulation and growth of assets both for yourself and potentially for future generations. It’s important in the estate planning context because to protect your goals – and achievements – against a sudden or unforeseen event from happening.
Also, estate planning contemplates naming an agent who can act on your behalf in the event a disability prevents you from acting for yourself. This is done with powers of attorney, health care directives and documents that allow an agent to step in and help you with day-to-day decisions. This kind of planning determines who will make decisions and administer assets that already exist. This is a different question than ensuring that income is still flowing to cover your needs.
For Business Owners, Estate Planning Couldn’t Be More Critical
Many small businesses are dependent on the owner being present at his firm, running things day-to-day, meeting with current and prospective customers, etc. If he’s not there, he earns no money. Yet, he has to take care of his family, right? They may not have the luxury of sick days, vacation days and personal days. And if you’re unable to work on the business (or in the business, whichever it happens to be that day), the wheels aren’t going to turn. You won’t be actively participating in the business and the income is not going to come in. For the small business owner, planning for disability is essential.
If Employed, Seek Adequate Coverage.
If you are employed by a larger organization, there may be a form of disability insurance in your benefit package. If so, it’s important that you look at it to see what exactly that covers, and when. It may not provide everything that you would want, for example:
– It may be time limited
– It may have a delayed starting point
– It may apply to a very reduced portion of income
– It may cover the salary only
In other words, there can be many limitations to it to be aware of, so you want to make sure that it’s not less coverage than what you want and need.
Unless you are financially independent from needing to do any kind of work, it is important to know how income will flow if you are unable to work. Estate planning is not just for what you can control. It includes addressing less predictable things too. For a strategy session, call us at 312-278-1187.