- August 29, 2021
- Posted by: Marra-Admin
- Category: Finance
Basic Estate Planning Strategies
An estate plan is a collection of legal documents that are prepared in advance of your incapacitation or death. These documents allow you to leave clear and concise instructions about your intentions when you are unable to do so. Once complete, it ensures that your assets as well as your healthcare are managed according to your wishes.
Estate planning tends to be one of the most critical parts of your retirement plan, and yet because of its unpleasant or uncomfortable nature, people often ignore it or leave it until it is too late. Virtually no one likes to think about their own death or incapacitation and what comes afterwards. There is a line in a song by Paul Simon: “I will continue to continue to pretend my life will never end…” But taking the time to do this will make all the difference to your family and the legacy you leave behind. A good estate plan is the greatest gift you can leave your family when it’s your time to go.
Experts call estate planning an “act of love” because it’s not something that will directly benefit you; instead, it will benefit your loved ones. It can involve many complicated and heartfelt decisions, so it can be an emotional experience for you (and for your spouse, if you are married). It may help to view the process as being not so much about your death as about your deep care for your loved ones.
Why Do You Need An Estate Plan?
If you want control over who will handle your affairs should you become incapacitated, and over what happens to your assets when you’re gone, you simply need to do something about it—sooner rather than later.
People who do nothing in this regard leave a mess for their families to clean up. I have witnessed this nightmare firsthand many times. It rarely goes well and it’s completely avoidable. This is not the last memory that most people want to leave for their loved ones. I believe it is our responsibility to put a plan in place before these events happen.
You might be amazed at how many people think that they don’t have an “estate.” The fact is, even a child with a small savings account has an estate. Obviously, estates vary greatly in size and some require only simple documents to manage, while others necessitate a vast amount of planning.
A young single person may need only a beneficiary form for their 401(k) and life insurance, some form of power of attorney, and healthcare directives. Funeral arrangements or instructions are always helpful too.
By contrast, far more in-depth planning will be required to address the estate complexities of the married couple with a blended family, five children, nine grandchildren, a home or two and accumulated wealth. You should use whatever strategies are available to you to help control how your estate is taxed, how it is managed, and of course how it is distributed. If you do nothing, your family will likely be paying taxes, court costs, and attorney fees they would not otherwise have had to pay. You will leave it to the courts to decide how your estate will be distributed—and that distribution may look nothing like what you would have wanted.
Do you want to give the government, the courts, and attorneys money that could easily have gone to your family? Do you want the courts telling your family who gets what? If you have small children, do you want the courts deciding who will become their guardian? I’m hard-pressed to believe this would be acceptable for most people. Yet by not placing a plan into effect, that’s what you’ve set up. Yes, it will cost some money to set up an estate plan. However, depending on the size of your estate, it may cost your family a lot more than the cost of an estate plan if you do nothing.
While cost is certainly a consideration, it’s far more important to have a clear understanding of the proposed plan design and what it will accomplish. Interview several estate-planning attorneys. I would recommend favoring an attorney whose primary focus is on estate planning, and who has years of experience with this. It’s very likely that you’ll pay more for this, but once again, you do tend to get what you pay for.
Planning Your Estate: Your Part
To begin, you need to know whom you want to include and whom you want to exclude. Today, many families have divorces, multiple marriages, stepchildren, step-grandchildren and so on. You may or may not wish to include all members of a blended, extended family; that’s up to you.
For example: you will probably want to include your children and grandchildren, but you may want to exclude their spouse(s). Or suppose your spouse remarries—do you want your estate to fall into the hands of the new partner (or his/her children) once your spouse is gone? There are ways to prevent these occurrences.
Think about the personalities and family dynamics you’re dealing with. Some people are good at handling money; others are not. Some spend and some save. Is there someone who is great at managing money? Is there someone competent who is great at paying attention to detail and following your instructions? Maybe that’s the person you should consider to be named as your executor (or trustee, for trusts).
Who may need stipulations on distributions? Do you have underage children you want to provide for? Who will be the trustee of their inheritance? What about older beneficiaries, such as your parents? Do you feel they are able to handle an inheritance, or do you think they will need help? If so, from whom? Do you have any special charities that you would like to include?
Put an inventory list of assets together. Include: real estate and how it’s titled; bank accounts; brokerage accounts; 401(k)s, IRAs, life insurance policies, hard assets, and so on. You’ll want to list where the account is held, the account numbers, and beneficiaries. This would be a good time to check and confirm your beneficiary designations. Do any of the accounts have a TOD (transfer on death) or DUD (due upon death) naming beneficiaries?
Other assets that should be on your list include cars, boats, jewelry, artwork, collections, digital assets such as websites, and furniture, just to name a few. Are there specific people who you would like to receive these items? Write it down.
You should also list any liabilities that you have. Are there existing loans or other debt that will need to be settled?
Once you have a list included, preferred beneficiaries for your estate, and have prepared an inventory of your assets, decide who will get what. For some assets, such as IRAs and life insurance, you can use beneficiary forms. Other assets will need to be manually listed—this would be true of a vehicle or appliance, a jewelry or stamp collection, or a piece of art of furniture.
If you become incapacitated, who will make medical decisions for you? Will they have access to your medical records? Who will handle your financial affairs? Write this down. Make sure your selected individuals know who they are and what is involved. You will need to make a decision regarding whom you will name as your executor. This is the person that will administer your estate when you’re gone. These are enormous responsibilities, so choose wisely. Have a conversation with the people that you choose, and make sure they are comfortable handling these responsibilities for you. Have a contingency list in place as well, in case your first-choice executor is unable to perform these functions when the time comes.
Put together a list of contacts such as financial planners, bankers, life insurance agents, accountants and attorneys with whom you do business. Include their addresses and phone numbers. Have you planned for funeral arrangements? Some people pay for their funeral in advance. It’s another way of taking a load off your loved ones at a very difficult time. If you do this, your family needs to know about it. The arrangements may be the last thing they look for when you die, and if they aren’t aware that you’ve already taken care of it, you may end up paying for your funeral twice. Make sure your wishes are written down and make sure your loved ones know where this information is kept.
In our current times, another important document to leave behind is a digital asset guide, including usernames and passwords to any online accounts or websites. Some online services keep all your passwords secure, so that the executor of your estate will have access. With these, only one username and password will be necessary to access all the others. Some people are very comfortable with these services, and others are not. This is a personal decision. But if you don’t find some way to leave this information to your executor and loved ones (even if it’s a typed-up list or piece of paper), accessing your files and accounts may be very troublesome indeed.
Finding Good Legal Advice
Are you updating an existing plan? If so, you may want to consider using the attorney that created it. Since he/she already has your information, and assuming you’ve already built a working relationship, it may only take a brief conversation over the phone or in person to facilitate any changes. This will save you the nuisance of telling your entire story again, and it will probably save you some money.
If, on the other hand, your financial and/or personal situation have had significant changes, or you feel you would benefit from a greater degree of sophistication, then by all means consider making a change. The most important thing is that you’re buying the level of expertise that your situation warrants. Read on for a few ideas on finding a new attorney to suit your needs.
If this is the first time you’re having an estate plan prepared, or you are in the market for a new attorney, the following are some steps that you can take to find one who is right for you:
• If you have an ongoing relationship with an accountant or a financial advisor, I assume you trust their judgment; this may be a good place to start. Ask this advisor for a referral to an attorney used by other clients with comparable circumstances.
• Perhaps you already know (and like) an attorney or two, but their expertise lies in other area of the law. They may be an excellent resource for you.
• Martindale.com is a well-known nationwide directory that allows you to search in your specific location as well as in a particular area of practice.
• The American College of Trust and Estate Council is another resource. According to their website, members are elected to the college by demonstrating a high level of integrity, commitment to the profession, competence, and experience in the area of trusts and estates. Their website is actec.org.
Once you have narrowed your choices down to two or three, make the phone calls and set up the consultations. You may even be able to have the consultation via phone rather than face-to-face meeting. Personally, however, I would prefer to meet a prospective attorney face-to-face. Either way, this is your next step. After you’ve made the decision about which one you will hire, gather everything you’ve put together and meet with your new attorney. He or she will conduct a fact-finding assessment, for which you will be completely prepared because you did your part (you might pleasantly surprise the attorney with your knowledge and preparation!).
Keep Your Plan Current
Estate planning is not something you do once and check off your to-do list. Life changes constantly, and some events are significant and affect your estate. Laws are always changing and evolving as well.
In general, to keep your estate plan current, having it reviewed at least once every three to five years is a good idea (and more often in the event of significant life changes). Here is a short list of events that may require you to update your plan:
• The birth of a child or grandchild
• The death of a spouse
• Death of a child or grandchild
• The sale or purchase of a home
• Serious illness
• Purchase of a business/sale of a business
• Significant increase or decrease in assets
• Change in marital status
• Death of other beneficiaries
• A move to a new state
• Relationship changes with beneficiaries or fiduciaries
• New tax laws
• New marriages
• Children reaching adult age
Basic Estate Planning Documents
There are several common estate-planning documents that you should be aware of. Understanding the purpose and function of each of these will prevent you from leaving out anything important, and will educate you on the range of potential options when formulating your plan.
• Last Will and Testament: This is the most basic estate-planning document. Its purpose is to state how your property will be distributed upon your death. Here you will name the recipients, or beneficiaries, of your property; an executor and contingent executor who will administer your estate; and who will take care of minor children. Those are the basics; other more advanced planning techniques can be included. For example, you can direct that trusts be set up for minor children.
• Beneficiary Forms: A document that allows you to specifically name the person(s) or charitable organization(s) to whom a particular asset will go upon your death. They are generally revocable, meaning you can change the beneficiary designation at will. An irrevocable beneficiary setup (less common) would need the actual beneficiary’s consent to change. Accounts that have beneficiary designations pass outside probate. It is not necessary to place these accounts inside a trust. Such accounts can include savings accounts, CDs, IRAs, and other tax-deferred accounts. Ensure that these forms are filled out and check them frequently for accuracy.
• Power of Attorney (POA): There are different types of POAs that serve different needs. A Limited POA will give someone the power to act on your behalf for a limited purpose (e.g., if you need to sign a deed and you are not available to do so. A General POA is much more comprehensive. It gives your attorney-in-fact (person you designate) the same power that you yourself have— for example, the power to sign documents and conduct financial transactions on your behalf. These may be rescinded, and end upon your incapacitation or death.
A Durable POA remains in effect even after you become incapacitated. Without this, if you do become incapacitated, no one can represent you in court unless and until a conservator or guardian is appointed by the court. These can also be rescinded prior to incapacitation and can remain in effect until your death.
A Springing POA allows your attorney-in-fact to act for you if you become incapacitated and does not become effective until you are incapacitated. It is important to indicate the standard for determining incapacity that will trigger the POA within the document.
• Healthcare Power Of Attorney (also called health care proxy): In this document, you can authorize someone you trust to be your health care agent to make medical decisions for you when you are unable to make them for yourself.
• Living Will: This is also known as your advanced medical directive, a patient advocate designation, or an advanced directive. This document spells out how you should be cared for in an emergency when you cannot speak for yourself or you are incapacitated for any other reason. It covers topics such as desired quality of life and end-of-life treatments, including treatments you do not want. It also covers resuscitation. It provides a way to “speak” with the doctor who is caring for you when you cannot, and advises him/her about how to approach your care and treatment. You should be as specific as possible within this document about your wishes.
• Trusts: Trusts are a massive and intricate subject about which entire books are written; they are beyond the scope of this article.
The most common type of trust which you have likely heard about is a revocable living trust. Depending on your circumstances, a revocable living trust may or may not be helpful. The more assets you have, the more helpful a trust can become. Assets that already have named beneficiaries, however, do not need to be titled inside a trust.
You Don’t Need An Attorney For These:
• Inventory of Assets: A comprehensive list of all your assets, as mentioned previously in this chapter. This should be done prior to meeting with an attorney. You do not need an attorney for this.
• Personal List of Contacts: This details who your personal advisors have been: attorneys, bankers, accountants, financial advisors, etc. Include your utility and service providers too. You will save your family hours and days of frustration by documenting this information. You don’t need an attorney for this.
• Digital Asset List: This list should contain usernames and passwords for your digital assets, such as websites or online properties, credit card accounts, and any other account that you think your executor may need to access. You don’t need an attorney for this.
• A Document Detailing Your Funeral Arrangements: You can state your desire to be buried or cremated, along with any other express wishes. This should also be discussed with your family or the person(s) who will take care of your burial prior to your death. It’s possible that they won’t read or be aware of this document until it’s too late. You do not need an attorney for this.
The above list is enough to get you started; it may be all you need. Never assume that your own estate is too small to require your attention. Larger estates will require more advanced planning. It is always to your advantage to meet with an attorney who has the knowledge and expertise in estate planning. They are trained to recognize potential problems you may know nothing about. The goal should be to have your estate administered in a timely fashion with few to no issues along the way, passing on a legacy to your loved ones that you can be proud of.
We are all going to die someday. What degree of planning you need is obviously going to be based on your personal situation.
Don’t procrastinate—just dig in and get it done. Get a check-up every few years or so and feel good that you’ve done the best that you can do to make a difficult time easier on your loved ones. Just follow the simple steps in the “Retirement Planning Made Easy Workbook” (if you would like a copy it can be found at Amazon or you may contact me for a copy) and a few hours later you’ll be ready to put your plan into action. Get your part done and leave all the technical stuff to the professionals. Let them earn your money and your trust. It will be worth every penny and more.
I really hope this article has been helpful to you in some way.
(Please note: I am not an Attorney and do not give legal advice. This article is informational in nature and not meant to give legal advice. For legal advice on estate planning please contact an estate planning attorney) 🙂