Assembling Documents

While you may want to write on a clean slate when constructing your life's financial plan, you must consider the affect that existing legal documents and arrangements may have on those plans.

Some of these arrangements may changed readily, such as most wills and many trusts. Others, such as contracts and marriage dissolution agreements, may be difficult or impossible to amend. Still others can be changed--if you're willing to pay some kind of penalty or fee, such as variable annuities, or mortgages.

Your existing legal arrangements can affect your current and future financial position in several ways. Some of these arrangements have their primary impact on your current cash flow situation. If a current legal obligation requires you to pay out money (for example, a mortgage or alimony), you'll have to keep paying out this amount until the obligation is satisfied. Thus, you will have less money to use for other purposes. Other legal arrangements may primarily affect how you will dispose of your wealth at death. Will and trust documents are good examples of these.

Your first task is to locate and organize any documents and other evidence of your legal obligations and relationships. Once you have done this, you'll need to make sure that you account for these arrangements wherever they would be relevant to your life planning, wealth-building and wealth-distributing (at your death) plans.

Tip When gathering important documents it's advisable to make copies for your working file and keep the originals in your safety deposit box or some other secure location.

Once you have gathered, you need to determine whether you need to amend your personal budget to reflect money that you have to pay out, or will receive? Or, do decisions that you have made regarding the form of legal ownership of property (such as joint ownership, or choice of legal entity of your business) have an impact on how you can transfer wealth to your chosen heirs during lifetime, or at your death?

Here is a list of some of the items you should examine:

• Marriage dissolution agreements. Alimony, property settlements, pre-nuptial agreements and child-support agreements fall within this category. Whether you receive such payments, or are the one required to make them, they will have to be factored into financial and estate plans.
• Business organization documentation. If you're self-employed, how you have organized your business from a legal standpoint (sole proprietorship, partnership, limited liability company or corporation) will impact on your exposure to legal liability, how your business is taxed, and several issues relating to constructing a financial and estate plan.
• Business transfer/continuation agreements and plans. Any documents pertaining to your plans and agreements aimed at continuing or disposing of your business (including insurance policies to implement such plans) should be located. Unless you have made reasonably detailed plans to continue your business at your death or disability, and also have a workable plan to fund them -- whether by insurance or an accumulated side fund -- as a practical matter it is extremely unlikely that your business will survive as a going concern.
• Contracts. Contracts (including those that may require a continuing monetary outlay by you, and those that may provide you with an income source) can be expected to affect your current personal cash-flow situation. If the contracts are large, and of long duration, they may also have to be factored into your plans for passing on your wealth to your chosen heirs.
• Wills and trusts. Having these documents available will be necessary when you begin work on putting together a plan to dispose of your wealth to your chosen heirs at your death.
• Joint ownership property. Property that is jointly owned can be as a joint tenancy or as a tenancy in common. Knowing which of these forms of joint ownership applies to each piece of property you own is important for planning your estate.
• Documentation for large gifts. If you have made any gifts of money or property worth more than $13,000 to individuals, or have made large charitable gifts, you'll want to collect records of these gifts (including any federal gift tax returns you filed). This information will be needed by you -- or your advisors -- to create your estate plan.

What about oral contracts? Business owners frequently deal with contracts and other legal obligations (such as leases and purchase orders), both in their business and in their personal dealings. Usually these obligations are evidenced by written documents. But what about oral contracts? Are they only worth the paper they're not written on, or can they be legally enforceable?

The short answer is that if all of the legal requirements for a valid contract are met, an oral contract can be legally enforceable. However -- and this is a big however -- the legal rules that govern oral contracts strictly limit the monetary obligation (often $500) that will be enforced under an oral contract, and the type of property that can be exchanged under an oral contract. The exact rules that will apply depend in large part on your state's law on this issue. Accordingly, if you are concerned that you may have knowingly or unknowingly created legal obligations by way of an oral arrangement, it's best to consult an attorney.

Planning Tools Here's a Document Assembly Checklist of some of the types of documents you'll be collecting and where you might want to store them in the future.