Research suggests that fewer than half of Americans have a will. Even among high net worth families, close to half have no estate documents.
The consequences for this lack of planning can be dire. When someone dies without a will (lawyers call this “dying intestate”), their heirs will likely face a time-consuming and costly project. Sometimes the process of resolving an estate in the absence of legal documents is highly divisive. In some cases, family relationships never recover from the battle.
The need for planning is real. Experience has shown us that few things are more important than properly preparing for our own deaths. In recent weeks, many people are approaching their end-of-life and estate planning tasks with greater urgency. Estate planning attorneys we collaborate with report an overwhelming amount of work. Many people who started their planning process and failed to complete it are pushing to get it done. This is a good thing.
This article will explain what a well-planned estate looks like. Keep in mind that we’re not attorneys and that there is no substitute for working with a lawyer who specializes in estate planning. Our job is to inform and prod, not to produce documents.
Key Estate Documents, in Order of Priority
The most basic and important legal document is your will. It specifies who is in charge (your executor or personal representative), and who will receive which assets or what the division of overall value will be. The will determines when and in what manner your heirs will receive property or access the benefits of property (income, residence). In your will, you might choose to create legal restrictions and structures to protect your heirs, either from other persons or from their own inexperience or bad decisions.
If you’re a parent, you’ll need to select guardians and trustees for your children. This is one of the toughest tasks since it’s very difficult for anyone to imagine their children losing both parents. In fact, it’s so difficult that it often keeps parents from getting their estate documents in order. So what’s the best case scenario here? You have a really hard conversation, perhaps even a dispute with your spouse, but you pick some names and you never have to think about it again. What’s the worst case scenario? You do nothing, you’re involved in a car accident, and your kids are placed in foster care while your families fight over guardianship. The takeaway: buckle up, have the conversation, and protect your children. You can read more about the details of making this decision in our article “5 Things to Think About When You Start Planning Your Legacy.”
“You may never feel pride in your estate planning documents or death preparation file the way you might about a new car in your garage. And yet, it isn’t a good idea to hope that things will just work out.”
In addition to a will, other estate documents you should have:
A durable power of attorney names the person who will take care of your finances if you are unable to. If you’re married, your primary durable power of attorney and healthcare power of attorney will usually be your spouse. But you should also name a contingent, choosing someone who knows you well enough to have a good idea about what you would want if you could speak for yourself, and someone you can trust to act upon that knowledge.
Your living will (also called an advance directive) will document your wishes for medical care if you can’t communicate them.
A durable healthcare power of attorney names the person or people you would wish to make your medical decisions if you cannot. Your living will can be your first line of defense, with the provision that your healthcare power of attorney would take over if there is a situation that the living will does not address.
Two things to keep in mind: the perfect durable power of attorney is not necessarily the perfect health power of attorney, and these designations are only in force while you’re still living. They lose power the minute you pass away, and the person you’ve named as your executor assumes control. (Many people choose the same individual to be both durable power of attorney and executor.)
Your will or trust will probably control the disposition of only part of your assets. Other property (like a house held jointly with your spouse) will pass according to contract, law, or beneficiary designation.
Your will won’t override the beneficiaries named on a life insurance policy, annuity, or retirement account (like an IRA or 401(k) plan), though it may be possible to customize your beneficiary designations so those assets are coordinated with the objectives of your estate plan. Since your IRA, life insurance policy, or annuity may be among the largest assets you own, it’s critical that the proper attention be given to the beneficiary designations, and that they’re kept up-to-date as your life and family evolve, especially if the circumstances surrounding the estate are unique or complex.
Your beneficiary designations should aim to achieve three things: the disbursement of your retirement assets to the right persons, disbursement in the most tax-efficient manner, and protection against your beneficiaries’ creditors or divorce proceedings.
♦Unlike retirement assets payable to a surviving spouse, inherited retirement benefits that go directly to children or grandchildren are not protected against creditors or divorce proceedings. Only an irrevocable trust can protect against these risks.
♦With the passage of the SECURE Act, it’s no longer possible to name a trust for your children or grandchildren that will distribute your retirement assets over their lifetimes. The elimination of this provision is significant and we’ve worked with many of our clients on alternative strategies.
Written Down, Communicated, Accessible
When you die there will be many questions that need to be answered fairly quickly, and some of those questions may be difficult or emotional. You’ll be a hero to your loved ones if you’ve prepared a death file to help with the tasks at hand. Store it in a safe place and be sure that the right people know where it is and what their roles are in implementing your plan.
Your death file should include your estate planning documents, marriage/divorce certificates, deeds, automobile titles, other legal documents, passwords for your computer, email and social media accounts, funeral instructions, an ethical will, and letters to loved ones. Include the names and phone numbers of your estate planning attorney, CPA, and financial adviser, as their assistance will be needed. If all or part of your death file is digital, you may want to include recorded video messages for your loved ones.
It’s also important to write out instructions for the management of your day-to-day life. The trusted person who steps in to help in the event that you become unable to steer your own affairs or when you pass away will need to know when and in what manner your bills are paid. They may need your debit card pin. They’ll almost certainly need to access your digital presence—your email accounts, online bank and credit card accounts, social media accounts, retail accounts, and directories to photographs and other documents. In fact, almost all fifty states have passed laws that allow a person’s family or executor to access and manage digital assets when someone dies.
Small Steps are Better than None
We talk a lot about wealth in life, but many people procrastinate about their estate plans and family legacy plans. None of us wants to think about death. We recognize that getting all your documents in order may seem intimidating and that the complexity is one root cause for the fact that so many people never get them. We’re here to help.
You may never feel pride in your estate planning documents or death preparation file the way you might about a new car in your garage. And yet, it isn’t a good idea to hope that things will just work out. Keep in mind that no matter what stage of your estate planning project you’re in, any planning is usually better than no planning. We once helped to settle a $3 million estate where the will was literally written on a napkin and left in a bedside table. Even if your will is just a boilerplate document you download from the internet, that’s better than no planning at all. This planning checklist is a simple place to start.
We’re here to help you start the conversation, develop your plan, and hammer out the details in collaboration with your attorney. We look forward to planning with you.
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