An Estate Plan is for Everyone

Do I need an estate plan? Sadly, many people put off creating an Estate plan or think they don’t have enough assets to bother with it. This can create a headache for heirs who must wait to receive their inheritance after probate. It can also negatively affect your situation, should you become incapacitated.  These five steps can help you start planning.

Written by: Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®

If you’ve been putting off estate planning because it feels too complicated, you’re not alone. Even the rich and famous put off proper estate planning. Well-known people like Abraham Lincoln, Sonny Bono, Pablo Picasso, Howard Hughes, James Brown, John Denver, and Amy Winehouse died intestate, or without a valid will. More recently, Aretha Franklin and Prince died without wills or estate plans tying up Franklin’s $80 million estate and Prince’s $200 million estate while both landed in probate.

What will an estate plan cover?

At a minimum, an estate plan allows you to select someone you trust to make decisions on your behalf after your death or should you become incapacitated. This enables your wishes to be carried out quickly and smoothly and helps you determine the degree to which probate can be avoided. An estate plan also lets you determine what happens to your property, the well-being of your family, the guardianship of minor children, and how to minimize or eliminate taxes. Estate plan documents can also cover the extent of medical treatment you desire.

Estate plans cover an array of your financial assets and concerns including:

• Healthcare directive
• Beneficiaries, executor, designee or trustee
• Care of minors
• Care of pets
• Your home and other real estate
• Automobiles, boats or other vehicles
• Investment accounts, bank accounts, 401(k) or IRA
• Artwork
• Jewelry
• Intellectual assets
• Digital assets
• Businesses owned assets

We walk you through several steps to get you started with your plan.

1) What are your objectives?

These are the types of questions an estate planning attorney will want to cover so carefully consider your answers:

• How do you wish your wealth to benefit your heirs?
• Would you like to leave assets to any family members other than your children (grandchildren, siblings, nieces, nephews)? What about special friends or your community?
• Do you wish to provide for specific gifts (art, jewelry, vacation home) or charitable bequests?
• Do you wish to put controls in place to determine when, why, and how much your beneficiaries receive, or would you prefer to give your trustee complete discretion to make decisions? Or maybe your wishes fall somewhere in the middle?
• Do you have any children with special needs? If so, do you have specific concerns regarding their care? Who would be a good fit as a guardian, if necessary?
• Do any of your family members have credit or financial immaturity problems?
• Are you concerned about the negative effects of wealth on future generations?
• If you have a mixed family (stepchildren, adopted children, or children by different partners), what are your priorities and your concerns in planning for their care?
• Have you had multiple marriages? How would you like to benefit your current spouse?
• Are you in a same-sex marriage or partnership?
• Is anyone else dependent upon you for support? If so, how do you wish this support to continue?
• Do you have any health concerns or disabilities that should be considered in your estate planning?
• If you become incapacitated or terminally ill, do you have any wishes that you would like incorporated into your estate plan?
• Have you considered using life insurance as part of your estate plan, and are you insurable?
• Do you own a business? If so, do you have a plan for its future upon your death?
• Are your children or other family members involved in the business? If so, have you considered whether you would like to transfer ownership to them?
• If you have children who are not involved in the business, do you have an idea of how you’d like to benefit them?
• Have you signed a buy-sell agreement or other legal documents to govern the transfer of your business?

2) Gather the documents needed for your estate plan

You’ll likely need help determining what topics should be included as part of your estate planning process.  Topics to discuss with your financial advisor include:

• Financial Power of Attorney. A financial power of attorney (POA) authorizes a trusted principal to act on your behalf, either effective immediately or based upon a future event like incapacitation.
• Healthcare Power of Attorney. A healthcare power of attorney authorizes a trusted designee to make decisions on your health care should you become mentally or physically unable to do so.
• Living Will/Advanced Directive. A living will and advanced directive can express your specific desires should you become critically injured, terminally ill or unable to express your wishes. It can spell out the types of life-prolonging medical treatment you want or do not want such as a “do not resuscitate” order.
• Will. A will helps take care of property that must go through probate. You can appoint someone you trust to act as executor and appoint a guardian or conservator to handle the care of minor children, including adult children or minor children with disabilities.
• Living Trust. A living trust can help you distribute property, avoid probate and minimize estate taxes, especially if you have a large estate. One type to consider is a revocable living trust, where property is transferred to the trust. You control the property while living and you can revoke it at any time.  Upon death, a trustee you appoint ensures property is transferred to those you selected as beneficiaries. An irrevocable living trust avoids probate but requires you to give up your right to revoke.
• Beneficiaries. Beneficiaries include those your assets are transferred to upon death. Be sure to review beneficiaries listed on insurance policies, bank account (transfer on death) and retirement plans including your 401(k) and IRA.
• Asset ownership. Assets that have title ownership can be setup so that the title automatically passes to a co-owner. The co-owner, however, would have to agree to any loans secured for the property. Also, careful consideration of value should be made for titled property which could trigger a federal gift tax.
• Insurance. Insurance policies you should carefully consider can help you cover your debts and even your burial costs. These include life, disability, automobile and homeowner policies.
• Business Succession Plan. For business owners, a succession plan details a roadmap for smooth transition of ownership after death or should you become incapacitated.

Don’t forget to gather important documents for your college students

Even if a parent is paying a son’s or daughter’s college tuition or claiming him or her as a dependent on tax returns, in most states a parent lacks the necessary legal authority to act on a child’s behalf (or even to obtain information!) in the event of an emergency. That’s why an increasing number of parents are choosing to have their children sign a health care proxy and a durable power of attorney (durable POA) before they head off to school.

• Health care proxy. When your son or daughter signs a health care proxy, he or she is allowing you to give consent for medical procedures, make health care decisions for him or her, and discuss treatment options if he or she becomes incapacitated. Without a health care proxy, HIPPA laws protect your child’s right to privacy. Consequently, you may need a court order to access your son’s or daughter’s health information or otherwise act on his or her behalf.
• Medical release documents. It’s also important to keep in mind that colleges and universities may have their own medical release documents. Be sure to check with the school and fill out any applicable paperwork in advance.
• Durable POA. A durable POA gives you the authority, if needed, to handle financial or legal matters on behalf of your child. This can be especially valuable if your son’s or daughter’s school is far away, or if he or she is studying abroad. Even if he or she is nearby, you may want the ability to sign tax returns, access bank accounts, pay bills, or sign a lease on your son’s or daughter’s behalf. The durable POA allows you to serve as your child’s trusted agent.

The specific requirements of a health care proxy and durable POA vary by state, so consult with a qualified estate planning attorney to ensure that these documents are prepared correctly.

3) Review Beneficiaries

Some assets pass outside of probate by virtue of a beneficiary designation or the manner in which title is held. Therefore, it is important for you and your financial advisor to review the ownership and/or beneficiary designation of these assets to be sure that they will be distributed according to your wishes upon death. These assets include:

• Jointly held property
• Life insurance proceeds
• Retirement benefits
• Employee death benefits
• Retirement plan proceeds

Consider your pets

Did you know that you can formally plan for the care of your pet in your estate planning? All U.S. states have enacted legislation authorizing the establishment of pet trusts. With a pet trust, a pet owner can designate an individual to care for a pet after his or her death and provide funding for the pet’s ongoing care. When working with your attorney to establish the trust, here are a few factors to consider:

• Selecting a trustee. Your trustee can be the same person as your pet guardian, or you may consider a separate financial trustee to help invest the assets and provide oversight on how they are spent.
• Pet guardian. When choosing the individual to name as your pet guardian, it is important to have a serious conversation with him or her. You want to be sure that there is mutual understanding regarding the expectations involved and the ability to make the commitment. You should also consider naming a successor who can step in if your original appointment is unwilling or unable to serve.
• Identify remaindermen. Consider who should benefit from the remaining trust assets if your pet does not outlive the assets. It can be a family member (or members) or even a charitable organization dedicated to helping pets.
• Fund the trust. The amount of money or other assets that would be reasonably necessary to fund the trust depends on the number of pets supported and their anticipated life expectancies. It is also a matter of the pets’ health concerns, special dietary needs, veterinary expenses, and so forth.
• Instructions for care. Special circumstances should be considered. For example, if you have more than one pet and you would like to keep them together, be sure to discuss this with the pet guardian. You can also ease the transition by providing some form of detailed instructions for pet care—but don’t restrict your trustee’s discretion too much in the event that unexpected or new circumstances arise.

Although a pet trust provides a legally enforceable obligation to care for a pet, you may not want or be in a position to set aside separate assets to establish one. An alternative would be to identify in your will or trust someone on whom you can rely to provide genuine care for your pet(s).

4) Follow this end-of-life checklist

Organizing your personal and financial affairs can be difficult if you don’t know where to start. Use the following end-of-life checklist to guide you through the process:

Planning

• Execute and update living wills, durable powers of attorney (POAs), and any other documents that contain instructions for your care if you become incapacitated. Provide copies to your physician, health care facility, and primary agents. Keep the originals in a safe place that’s known and accessible by family members
• Execute and update a will (and trust, if necessary) that directs the disposition of your assets. Keep the originals in a safe place that’s known and accessible by family members
• Consider specific bequests of personal property (e.g., family heirlooms, jewelry)
• Consider charitable gifts
• Review beneficiary designations on assets that will transfer to a named beneficiary (e.g., retirement accounts and life insurance policies)
• Review your property titles, and make necessary changes
• Consider organ donation or other deathbed wishes
• Prepare instructions to your executor and/or family members, including a list of assets and personal records and their locations. Note the locations of safety deposit boxes, post office boxes, and safes, as well as keys and lock combinations

Financial

• Execute the documents you’ll need
• Prepare a list of your advisors and their contact information
• Document the location of financial records (e.g., tax returns; bank statements; homeowner, life, and automobile insurance policies; automobile titles, and deeds)
• Document the location of personal records (e.g., social security card, divorce papers, birth certificate, and passport)
• Document social security or other pension benefits that may provide death benefits
• Document contact information for utilities, repairmen, and so on
• Review and discuss your financial picture with family members

Arrangements

• Consider preplanning and paying for burial arrangements, including transportation. Select participants for a memorial service (e.g., the officiant and pallbearers)
• Consider helping family members assemble personal information for an obituary
• Prepare a list of individuals whom you would like to be contacted upon your death
• Notify family and friends of the arrangements and any other burial wishes

5) Create a letter of intent

Composing a letter of intent or statement of desires should also be part of your comprehensive estate plan, and it is often overlooked. Though not a legally binding document, it can offer your executor guidance. You should include details like:

• Who to notify of your death or incapacitation such as family, friends, attorney, financial advisor, CPA
• Wishes and desires on what happens to your children
• Location of safety deposit boxes, storage units, boat slips, etc.
• Storage of stocks, bonds, annuities and pension documents, and even hidden cash around the house
• Where deeds are stored including home, land, burial plot and titles for vehicles
• Details on insurance policies, financial accounts, loans and credit cards, and it should list any accounts setup on auto-pay
• A reminder to notify the big three credit bureaus of a death, which is helpful in prohibiting fraudsters who watch for obituaries and may attempt to open credit in the deceased’s name
• A list of online accounts and login ID and password credentials (keep this updated every few months)
• Burial desires like cremation, funeral ceremonies, prepaid cemetery plots, organ donation and other special requests
• For business owners, business continuity instructions can provide clear orders as to how you want your business ownership to transfer as part of your business exit planning

It’s important to ensure a trusted designee knows where to locate the letter of intent. Other documents that might be helpful include marriage licenses, divorce papers, military discharge documents and previous tax returns.

Don’t forget your mementos in your estate plan

Something a lot of people forget to do when creating an estate plan is to include their mementos. You may not think any of your cheap furniture or costume jewelry is worth anything, but others might hold sentimental attachments to them. Often, people are hesitant to discuss such matters but ignoring this important part of estate planning can set the stage for fierce battles and even dishonesty as items are removed from the household before others can arrive.

To avoid these types of situations, you might consider giving things away to remove any doubt as to who you want your belongings to pass to. You might also call a family meeting and discuss how you plan to distribute your personal effects after your death, and let members know it will be in writing as part of your will to help ward-off future power plays.

How to handle your digital assets

Most of us maintain at least some personal and financial information online. We pay bills online, keep contact records digitally, store photos and documents in the cloud, and share our personal lives on social media. Although this digitizing of information makes it easier to store and recall, it also presents some concerns when it comes to accounting for all of these “assets” in your estate.

Digital assets include your online financial accounts, personal email accounts, social accounts, and anything in the cloud. The assets may or may not have a value. For example, you might own a domain name for your small business, which would have value, but the photos you uploaded to Shutterfly have sentimental value only.

Your executor should be able to access information on your computer’s hard drive relatively easily with the help of a technician. But this may not be the case for online accounts and data stored remotely. Even if you give your usernames and passwords to your executor or a family member, he or she may run up against service-agreement limitations that deny him or her the ability to access, manage, distribute, copy, delete, or even close accounts. Further, “unauthorized use” laws can lead to legal issues for your representatives if they are deemed to have exceeded permissible access levels. What can you do now to start organizing your digital assets?

• Decide how you want your online life handled after your death. Facebook, for example, allows a personal administrator or immediate family member to close the account or “memorialize” it. This may help ease your loved ones’ pain during a time of grief. Consider creating instructions for a family member to do this, or something similar, on your social media accounts. You may assign different roles to different people. For example, you may decide to appoint one person as your executor and another to have access to certain social media accounts.
• Create a comprehensive inventory of your digital assets. Be sure to store this inventory somewhere other than an e-mail account. Some e-mail providers, like Yahoo!, will close an account that has been inactive for several months and delete the e-mail history. Even if an executor promptly contacts the e-mail provider, he or she may not be able to copy important e-mails or contact lists before the account is deactivated. Back up important information elsewhere and update it regularly.
• Don’t assume your digital estate has no value. Some frequent flyer points are transferable after your death. Credit cards with cash-back feature stores are generally redeemable after your death, but only if they are claimed. Internet domain names are potentially sellable, and blogs are a form of intellectual property.
• Consider investing in a password manager. Sites such as LastPass and Dashlane maintain a record of your online accounts and passwords in a digital safe. You can set them up to transfer the passwords to your representative at a specific event, such as your death or incapacity.

Ensure that fiduciaries and family members have access to your assets:

• Ask your attorney about inserting provisions into your will that grant your executor the authority to access your non-financial digital assets and accounts.
• Talk to your attorney about adding language to grant your power-of-attorney agent authority to act on your behalf with your digital accounts and assets.
• If you have assets in a trust, ask your attorney about the possibility of amending the trust agreement with language that will allow the trustee access to digital assets and accounts.
• Check online service providers’ policies on death or disability. Each provider has its own access authorization tools, and the terms vary, so be sure you understand who can and can’t access information. If the provider allows access to your executor, trustee, or power-of-attorney agent, inform these individuals where important information is stored.

One final note: Be careful if you include provisions covering digital assets in your estate planning documents and complete a provider’s access-authorization tool. The provisions in the documents should match the information you give in the provider’s access-authorization tool. If they don’t, the provider likely will follow the instructions you gave in its access tool and not your estate plan.

Regardless of how much or how little your estate consists of comprehensive estate planning can help offset high levels of emotions and unfortunate resentments that can occur after your death. A trusted financial advisor can help you determine the best course of action for transferring property, caring for your family, and mitigating taxes.

We’ve also published an Estate Planning Guide with additional information about creating your own estate plan.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at info@gwadvisors.net.

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