Let's get this out of the way first: the advisors at WT Wealth Management are not practicing attorneys. However, in our roles as financial advisor fiduciaries, each member of our team works and networks with estate planning specialists in dozens of states. We also have the experience of seeing good and bad situations after our clients pass away.
The Covid-19 pandemic has increased Americans' awareness of the need to have a will, a living trust or another similar end-of-life document prepared. Yet, according to a new survey from senior living referral service Caring.com, only about 33% of Americans have put these plans in place. That means that 67% of us are leaving what happens to us and our assets, in case of disability or death, up to others, including the state.
The biggest reasons people cite for not getting something in place: They just haven't gotten around to it, according to 40% of survey respondents. Another 33% said they don't believe they have enough assets to pass on to their loved ones. 13% said the estate-planning process is too costly. And 12% said they do not know how to get a will. (1)
Estate planning is the process of designating who will receive your assets in the event of your death or incapacitation. Often done with guidance from an attorney, one primary goal is to ensure heirs and beneficiaries receive assets in a way that manages and minimizes estate taxes, gift taxes and other tax impacts.
We always tell clients, "make the transition after your passing as easy as possible for your loved ones, heirs and friends by having a plan in place. Rather than burden loved ones with the task of organizing your financial affairs after the fact, your preparation now will allow them to peacefully grieve."
Here are 5 steps to consider when starting your plan.
Inventory Your Stuff
You may think, like 33% of Americans, that you don't have enough assets to justify estate planning. But you might be surprised by all the tangible and intangible assets you have.
Tangible assets in an estate may include:
- Real Estate (e.g., homes, rental properties, vacation properties, land, etc.)
- Vehicles (e.g., cars, trucks, motorcycles, RVs, boats, etc.)
- Collectibles (e.g., coins, art, antiques, trading cards, memorabilia, etc.)
- Personal Property (e.g., household items, furnishings, tools, toys, etc.)
- Sentimental Personal Possessions
Intangible assets in an estate may include:
- Bank Accounts (e.g., checking, savings, CDs, etc.)
- Investment Accounts (e.g., stocks, bonds, mutual funds, etc.)
- Retirement Plans (e.g., workplace 401(k) or 403(b) plans, IRAs, etc.)
- Life Insurance Policies
- Health Savings Accounts
- Business Ownership
Once you inventory your tangible and intangible assets, you need to estimate their value. For some assets, third-party valuations such as appraisals, account statements, business valuations, and so forth, can help. When you don't have a third-party valuation, value the items based on how you expect your heirs will value them. This can help ensure your possessions are distributed equitably among the people you love. (2)
Establish Your Wishes
A key objective in estate planning is bypassing probate, a process by which the courts determine how to distribute your property to your heirs. The process is long (commonly 12 to 24 months) and follows government statutes that may or may not be compatible with your wishes.
In some cases, a trust might be appropriate. With a revocable living trust, you can designate portions of your estate to go toward certain things while you're alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing probate. There's also the option to set up an irrevocable trust, which can't easily be changed or revoked by the creator. Typically, irrevocable trusts are used by people with large estates as a means of getting assets out of their estate, thereby reducing estate taxes.
A medical care directive, also known as a living-will, spells out your wishes for medical care if you become unable to make those decisions yourself. You can also give a trusted person medical power of attorney for your health care, giving that person the authority to make decisions if you can't. These two documents are sometimes combined into one, known as an advance health care directive.
A durable financial power of attorney allows someone else to manage your financial affairs if you're medically unable to do so. Your designated agent, as directed in the document, can act on your behalf in legal and financial situations when you can't. This includes paying your bills and taxes, as well as accessing and managing your assets.
A limited power of attorney can be useful if the idea of turning over everything to someone else concerns you. This legal document does just what its name says: it imposes limits on the powers of your named representative. For example, you could grant someone the power to sign documents on your behalf at the closing of a home sale or to sell a specific stock.
Be careful about who you choose to give power of attorney. They may literally have your financial well-being — and even your life — in their hands. Some people choose to assign medical and financial representation to different people, as well as designating a backup for each in case your primary choice is unavailable when needed. (3)
Review Your Beneficiaries
Your will, your trust or other documents may spell out your wishes, however wills and trusts may not be all-inclusive.
Check your retirement and insurance accounts. Retirement plans and insurance products typically have beneficiary designations that you need to keep track of and update as needed. Beneficiary designations can trump what's outlined in a will or trust.
People sometimes forget the beneficiaries they named on policies or accounts established many years ago. If, for example, your ex-spouse is still a beneficiary on your life insurance policy, your current spouse will get the bad news — and none of the policy's payout — after you're gone.
Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
Consider the Value of Professional Advice
Whether you should hire an attorney or estate tax professional to help create your estate plan generally depends on your situation. If your estate is small and your wishes are simple, an online or packaged will-writing program may be sufficient for your needs.
If you have doubts about the process, it might be worthwhile to work with your financial advisor and jointly consult an estate attorney and possibly a tax advisor. Professionals can help you determine if you're on the proper estate planning path, especially if you live in a state with estate or inheritance taxes. (4)
Plan to Reassess
Life changes. So should your estate plan. The opportunity to revise a plan means you've already avoided the biggest mistake: never drafting an estate plan at all.
Revisit your estate plan when your circumstances change – for better or for worse. This may include a marriage or divorce, birth of a child, loss of a loved one, getting a new job or being terminated.
Revisit your estate plan periodically even if your circumstances don't change. Although your situation may be the same, state and federal laws may have changed.
WT Wealth Management has relationships with estate planning specialists in nearly every market where we have clients. (5)
We'd be happy to make a professional introduction and sit through the initial meetings with you to ensure the fit between you and your estate planning specialist is a good one.
As with all other White Papers, our goal here is to impart basic wisdom, provoke thought and start conversations. We stand by to help answer basic questions about your portfolio and provide guidance and recommendations when other expertise is needed. Please reach out to your advisor if you would like to discuss more.
- 67% of Americans have no estate plan, survey finds
- Estate Planning: A 7-Step Checklist of the Basics
- Estate Planning 101: What is Estate Planning?
- Estate Planning: 16 Things to Do Before You Die
- Sedona's Estate Planning Attorney w/ Alma Dumitru Esq.