Your Estate Plan, Your Love Letter

Estate planning is about life and death and the impact on your loved ones. Several years ago, one of my daughter's sports teammates had a family member who experienced an unforeseen health episode and fell into a coma. No estate documents were in place, so no one knew the patient's wishes or who she would elect to make medical and financial decisions on her behalf.

As a result, there were countless heated discussions and flat-out family brawls. My daughter's teammate would show up at practice exhausted from another sleepless night of loud arguments but glad to be there, if only to escape the fighting for a couple of hours. Here's the clincher: this emotional nightmare dragged on for not one, not two, but three years!

I know there are many gloomy stories about people who did not get their estate plan documents in order before they died, but this one struck me because it dragged on for so long while the person was still alive. If the pain and suffering were unbearable to watch as an outsider, imagine how her family members felt.

Estate planning is often the most challenging part of the financial planning process because we can guide you, but we can't do it for you, and it's completely natural to avoid thinking of your death or incapacitation.

However, as my estate planning attorney colleague* says, "An estate plan is your last love letter to your loved ones. What do you want it to say?"

Here's what your estate plan – your ultimate love letter to your loved ones – should include. I've also included some shout-outs for "internationals".

"Internationals" in this context = US residents who have close family ties or property abroad, and US expats living overseas.

1. Designate Beneficiaries

Estate planning discussions often start with the will, but designating beneficiaries is a smaller but mighty step to implement. Beneficiary designations generally override the instructions in your will. So, if you forget to change the beneficiary on your insurance policy after you split with your ex, your ex will get the insurance payout, even if you name a new spouse in your will.

Naming the individuals who will inherit your accounts and specific assets means that your loved ones can receive those assets directly without undergoing lengthy and costly legal probate proceedings. And it's typically just a matter of completing the beneficiary forms or fields on your account profiles (e.g. brokerage, retirement, employer equity accounts, life insurance, and annuities). Designating beneficiaries also means that your assets transfer to your beneficiaries privately. In contrast, anything that goes through probate goes into the public record.

Internationals:

• Should provide all the necessary contact information for locating beneficiaries, especially if you (or they) are abroad.
• Will have to follow different jurisdictions' procedures for designating beneficiaries. Some countries have specific rules about who you can select as your beneficiary — you may not be able to choose just anyone you want.
• May have to strategize to match up beneficiaries with suitable account types based on their residency, citizenship, and domicile.

2. Create a (Testamentary) Will

The testamentary will is the foundational document of your estate plan. The term testamentary signals that the will becomes actionable at your death. In a will, you:

• Select an executor to manage your estate.
• Elect guardians for your minor children and pets.
• Describe where your property will go (family, friends, charitable organizations).

Although everyone needs a will, a will won't stop your assets from going through probate court, which can be expensive due to legal fees and take months and sometimes years. Probate proceedings are public, which may invite drama if someone decides to contest the will. To be clear, it is far better to have a will than not, but the goal is to have most of your property pass directly to beneficiaries, as discussed in #1, or via trust (to be discussed in #3). In probate, the court examines the will's contents and oversees the distribution of your assets within the context of the state laws. For example, some of your instructions may not be carried out exactly as you requested because your estate has to pay off debts first. If your guardians or beneficiaries are in another state or abroad, the court may need to put some interim measures in place while the guardians are being located or in transit. Note that the court always retains the power to intervene to protect children's best interests.

Internationals:

• May need to create multiple wills in different jurisdictions.
• May need to implement other estate planning strategies?if one spouse is a non-US person.
• May want to name a temporary US guardian if their guardian of choice is not a US resident.

3. Set Up a Revocable Living Trust (Not for everyone)

Like a will, a revocable living trust contains instructions for distributing your assets to your beneficiaries. Trusts are more expensive because you must pay legal fees to set up.

However, a revocable trust:

• Is the most efficient way to pass assets to minor children. Since minor children cannot directly inherit assets, the trust protects these assets until the child is an adult or meets other requirements.
• Offers a lot of control. I've seen trust instructions that are very specific about when and how beneficiaries can receive assets (e.g. after graduation, only if they maintain a certain grade point average, etc.).
• Provides more privacy and protection. Assets in a trust do not pass through probate, so the asset transfers are private. People cannot contest the trust in the same way that they can contest?a will.
• Allows flexibility while you're still living. You can change beneficiaries,?update the trust instructions,?and even dissolve the trust altogether.?

Internationals:

• Should be aware that other countries may not recognize the character of US trusts, which may lead to undesirable financial and tax outcomes.
• May find that US trust provisions may violate foreign inheritance and gift tax laws.
• Must discuss the consequences of appointing non-US persons as successor trustees with a qualified estate attorney.?

4. Establish Advance Healthcare Directives: Living Will and Medical or Healthcare Power of Attorney (POA)

An Advance Healthcare Directive typically consists of a Living Will and a Healthcare POA.

The Living Will?outlines which medical treatments you would and would not want doctors to use to keep you alive. It prevents your loved ones from having to guess and make these difficult decisions for you under duress.

A Medical or Healthcare Power of Attorney (POA) designates someone who can make healthcare decisions on your behalf if you cannot.

Internationals:

• Should know that other countries have their own protocols for healthcare decision-making, and may not follow the instructions in a US Healthcare Directive or consult your Medical POA.

5. Durable Financial Power of Attorney

A durable financial power of attorney (POA) names someone to manage your finances (e.g. bill paying and various tasks) and make financial decisions if you are incapacitated.

Internationals:

• May need to appoint different individuals to play this role in different countries (the US and abroad), depending on where they live or own property.

Final Words

If you've been putting off creating or updating your estate plan, please get in touch with a qualified estate planning attorney to put your documents in place as soon as possible. If you have cross-border issues, consider working with a cross-border financial planner or an estate attorney with international experience. Your estate plan doesn't have to be perfect, but having something in place means you at least left the ultimate love letter to your loved ones.

Sefa Mawuli is a Managing Partner and Certified Financial Planner (CFP?) at Jade & Cowry. She helps international families, professionals who move around globally for work (including those with equity compensation), and cross-border entrepreneurs manage their finances so they can live their dream lives.

*Credit to Cameronne Taillon for inspiring the "Love Letter" title.