Five "must do" tips for Estate Planning - Don't Wait!
Estate planning and wills are often things we don’t think about until later in life. Even then, we often focus on want to leave to whom and how to minimize taxes than simplifying the process for beneficiaries and loved ones.
Four "must do" tips (if you do nothing else) for Estate Planning
These four things - if you do nothing else - will make things considerably easier for your loved ones, your spouse, and your children, and of course, if you can convince your parents to do the same to make things easier on you.
1. Added Beneficiaries on all accounts
There is a significant amount of work required by spouses, children, and other beneficiaries to settle an estate - whether an executor, admin cta, or simply beneficiary. If there are no beneficiaries on an account, assets need to glow into the estate and go through probate. Most estates require a minimum of 6-7 months to settle. Having beneficiaries on specific accounts will allow beneficiaries to receive distributions immediately. As a top priority put beneficiaries and contingent beneficiaries on all your accounts; banking accounts, investment accounts (mutual funds, brokerage), IRAs, and insurance policies. Security accounts and IRAs make this easy to do online. For banks, adding beneficiaries or POD designees is typically more of a separate form-based process.
Even when there are beneficiaries, the right documentation needs to be provided to each financial institution for beneficiaries to get access to those assets.
There may be accounts you want to direct in a more complex way through your Will, but you should be able to designate most assets directly at the account level.
2. Make accounts Joint Ownership where ever you can?
Where appropriate for you and your spouse, make accounts joint. This requires no work for your spouse to continue to get access to those assets. While you cannot do this for retirement accounts (IRAs, Roths, Pensions, etc.) which can only have a single account holder, you can do this for bank and investment accounts. Some accounts you can modify. Others you may need to close and re-open as a joint account, but the effort to do that today will have significant benefit for your spouse if and when they may need to settle your estate.
3.?Create a List of Accounts
Having a central list of all bank accounts, investment accounts, retirement accounts, and insurance policies is critical for any loved one managing an estate and trying to discover where all assets are. My parents never did anything online, therefore had a huge paper trail of account statements and incoming mail. While this has been a nightmare to figure out, I cannot even imagine what the next generation does for account discovery in the world of paperless statements. Unless a List of Accounts was put together and shared with loved ones, how would anyone even begin to go about that discovery process?
In your list, include institution names, account numbers, online ids and passwords, and designated beneficiaries. Items to include are:
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As my parents aged and did not share much of this information, we encountered utilities being shut off, insurance policies where premiums were paid for years but were then terminated, and a struggle to simply know what type of drug insurance was available.
When you become a caregiver for a parent, it can be really hard to manage things without knowing what existing policies are in place, what payments are needed, and when, and where all assets are. You may not be able to control what information you can get from your parents, but be sure to make a good comprehensive list available of all your accounts in one place for your own spouse and children.
4. Establish Healthcare Proxies?for HIPAA info release for yourself and your elderly parents in advance. This can be much harder to do when parents are no longer capable, and really important especially if managing parental care remotely.
5. Establish Living Wills or DNR orders?for you and your elderly parents in advance, so your wishes are clear around degree of medical intervention at end of life. It’s much hard to have that conversation once in the hospital or at a critical moment.
Hope some of these tips help. #1 and #2 are critical. Managing an estate can be incredibly difficult for beneficiaries, whether you are doing for your parents, or whether your spouse or children are doing it for you. Making both information discovery of accounts, policies, and liabilities easier, as well as assets needing to flow through probate wherever possible are two things that will greatly help all involved.
My father used to have a phrase "You'll know when you need to know." Of course, we didn't and unless the information is simply put together in advance, you won't know when you need to know.
Be sure to do all the above for your family. And if you are able, while they are alive, try to convince your parents to put together something similar to make things easy for you!
If you would like a simple template to create your own list of accounts (assets, liabilities, general info), feel free to reach out for a copy.
Bonus: The 6th item to think about is IRAs. Traditional IRAs are typically poor estate assets. Beneficiaries need to pay taxes on distributions, often at higher rates than an elderly parent would, and the 2022 SECURE Act now requires a new 10-year Required Minimum Distribution (RMD) for beneficiaries of inherited IRAs. Traditional IRAs also do not get a stepped-up cost basis when inherited, like securities or real estate do.
A few things you can do to avoid leaving traditional IRAs to your heirs:
Alan - All very good recommendations.