What Happened When My Aunt Died With No Estate Plan (It Wasn’t Good)

September 29, 2017

When it comes to financial planning, any planner worth their salt will tell you that having the proper estate planning documents in place is essential to a complete plan, and yet so many people are still resistant to getting that step done. They wonder, isn’t estate planning for old people or the very rich? Why is estate planning so important?

A real-life example of the importance

Several years ago, the answer to that question became very clear to me when my aunt got sick, was incapacitated in the hospital, and subsequently died. She was a very smart woman who had a PhD and was dean of her college. She knew a lot about investments as I remember listening to her talk around my grandmother’s dining room table about various stocks she had in her portfolio. She was what most people would consider financially sophisticated.

But her lack of planning in one critical area left a hole that caused difficulties, was expensive and could have easily been avoided. Here are the critical estate planning steps that she missed, that everyone should take today, while they’re healthy and able:

1. Create or update your Last Will and Testament. This is your chance to direct assets that will go through the probate process to your preferred destinations after you’re gone. And if you have children, this is the only place to name guardians who will take care of your most precious assets, your kids.

My aunt had no will, to there was no clear indication where she wanted her property to go. So, it was distributed according to the laws of Tennessee, where she lived.

Each state is different in how they distribute the estates of those without a will, so just know that if you pass without a will, someone you’d rather not receive your money may end up with it anyway. Check with your employer to see if they offer a legal benefit that includes free will and estate planning document preparation — many do.

2. Update your beneficiary designations. These are found on any financial accounts that have a direct beneficiary, such as your 401(k), 403(b), IRA, HSA, life insurance policies, and annuity contracts.

My aunt had not completed any beneficiary designation forms which meant assets flowed through the probate estate. There can be two problems with a situation like this.

  • Estate assets pass according to the will but remember– if there is no will then it passes according to state law and perhaps not to the preferred destination.
  • It is especially important for retirement accounts to have a beneficiary designation so beneficiaries can stretch out required distributions over their lifetime. If no beneficiary is named, distributions may be required over a mandatory 5-year period which could lead to increased income taxes for the heirs.

3. Create or update a Healthcare Directive. This is your chance to tell healthcare providers which medical procedures you want and those you don’t want when at the end of your life (called a Living Will). This also will name someone who will make sure your health care decisions are followed (called a Healthcare Power of Attorney). Some states combine these in a single document while others keep them separate so it’s important to check what is required in your state.

My aunt also had no healthcare directive, so the days she spent incapacitated in a hospital were full of challenging and emotional decisions for the family, not knowing what healthcare treatment she preferred as her end of life neared.

4. Create or update a Durable Financial Power of Attorney. This gives a trusted family member or friend the power to manage your finances if you are unable to make decisions for yourself. This also would have been helpful so money could be moved around easily to pay household and medical bills that were stacking up while my aunt was in the hospital.

Estate planning isn’t just for people with kids and spouses

My beloved aunt was single and without children yet still needed these critical pieces of a financial plan, perhaps even more so than someone who was married. So, if you are unattached and think this doesn’t apply to you, please think again.

Estate planning is not just for our benefit but for our loved ones we leave behind to make it easier during the emotional trauma of death and the time afterwards. It’s not pleasant to think about dying but with a little bit of preparation, you can rest easier knowing your loved ones have been thought of and cared for in case something happens to you.

 

The 6 Step Estate Planning Checklist

September 07, 2017

Estate planning is an essential part of the financial planning process. Yet, it is often the most overlooked element of a basic financial plan. Only 4 out of 10 adults have wills and trusts in place. But an estate plan is so much more than that.

You may be thinking you don’t need to worry about this because you don’t have an “estate,” or you’re too young to worry, or you don’t want to pay for the necessary documents, or that simply thinking about estate planning will somehow alter the universe in a way that speeds up your checkout date on Planet Earth.

I understand. There are far more pleasant things to think about than death and dying. In fact, I used to think the same thing until that life changing event occurred about a dozen years ago – my wife and I found out we were expecting a child.

What’s your “aha moment?”

The birth of a child is a common “aha moment” that can trigger a desire to get your estate planning affairs in order. But it’s not the only one. Other life events could be the death of a loved one, legacy planning after accumulating wealth, or health concerns that create a need to make sure you have somebody there to make important decisions on your behalf.

But really, don’t be like me. You shouldn’t wait for some major life change to spark the need for an estate plan. That’s because the word “estate” can be misleading when it comes to this type of financial planning.

Estate planning deals with more than just who gets your stuff when you die and doing it properly can save your family and friends a lot of headaches should your time come too soon. Unfortunately, most people mistakenly think they need to have a family or significant wealth for an estate plan to matter. That’s not true, it matters even for single people who never plan to marry or have kids.

Here is a simple estate planning checklist to help get you started.

Step 1: Determine what matters to you. You can start creating your estate plan by establishing meaningful goals. Here are some important questions to get you started:

  • What do you want your estate plan to accomplish?
  • Are you concerned about choosing an executor to follow through on your final wishes?
  • Do you need to name a guardian for your children?
  • Is charitable giving in your current and/or future plans?
  • Are you seeking ways to avoid probate?

After you’ve established the “why” behind your estate planning, take action and avoid the dreaded procrastination monster. This can shelve your plans for months (or years) unless you commit to sticking with a few personal deadlines. You can use this Personal Estate Planning Worksheet to help you get organized and write down some of your goals.

Step 2: Get organized and assess your overall financial situation. It never hurts to focus initially on your total financial wellness. Part of this process could involve completing a net worth statement that includes a list of your assets and liabilities. Creating a summary of your financial resources puts you in a better position to determine where you stand. It also helps you start thinking about who you want to eventually receive your assets after you pass away.

Step 3: Have basic estate planning documents created. This is where your estate plan gets transitioned from good intentions to an actual plan. The important documents below will allow you to state your wishes for how to distribute assets when you die. You also can use wills to name guardians for your children.

You can also decide who you want to make important financial or medical decisions if you are ever unable to make them yourself. These documents should usually be part of every estate plan:

Step 4: Determine if you need advanced planning strategies. Life can get complicated. If your living situation has a few complications due to divorce, you have a loved one with special needs, or you have concerns about heirs’ ability to manage wealth, you may need to use a document which gives you more control. Trusts are legal arrangements that allow you to determine how and when property is distributed to your heirs. In certain situations, a trust may be necessary to maintain even more control over the distribution of your estate. If funded properly, many trusts can also help you avoid probate (wills are subject to probate).

Step 5: Update your beneficiary designations and title assets appropriately. Many people think that once a will has been created that their estate planning work is done. That’s far from the truth, especially considering the fact that the will only controls the distribution of assets that are subject to probate, which is the formal process of paying off debts and distributing property. Depending on the state you live in, probate can potentially be an expensive and time-consuming process.

Keep in mind that not everything transfers through probate, including your 401(k) or any IRA accounts you have. Therefore, it’s important to identify assets that do not pass to others by will. These are often called will substitutes and include any accounts with beneficiary designations such as insurance policies, retirement plans, IRAs, and annuities. Any jointly owned property or accounts bypass probate as well as accounts designated as payable on death (POD) or transfer on death (TOD).

Step 6: Find a professional or DIY approach to put your plan into effect. Not sure where to turn for help in creating your important documents? See this guide on How to Choose an Estate Planning Attorney. You may also check with your employer to see if they provide a prepaid legal service or free online document preparation.

If not, sites like LegalZoom and Nolo provide online tools to help get these documents created, which is important if you are concerned about the costs of hiring an attorney or have a fairly straightforward plan. Just remember that if you don’t have these important documents in place you still have an estate plan—it just happens to be a plan based on the intestacy laws of your state and probably isn’t how you want your stuff to go.

Estate planning may not seem like a top priority, but it is an important aspect of every complete personal financial plan. It’s also a great way of aligning your financial decisions with your life goals and the things that matter the most to you. That’s why it’s necessary to personalize your goals and create a basic plan to protect the people, organizations, and things you care about the most.

Want more helpful financial guidance, delivered every day? Sign up to receive the Financial Finesse Tip of the Day, written by financial planners who work with people like you every day. No sales pitch EVER (being unbiased is the foundation of what we do), just the best our awesome planners have to offer. Click here to join.