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Estate Planning Basics

| September 01, 2020

Unless you have discovered the fountain of youth or a new superfood, you will eventually leave this world behind. You will also leave behind the family and friends that you care about most. While grieving, they will have the chore of dealing with your assets and belongings. Someone will have to decide who gets the proceeds of your life insurance policy, your bank accounts, retirement funds, and even your home and everything in it. If you plan ahead, that someone can be you!

 With proper planning, you can save time, money, and heartache for everyone involved. The best way to do this is to avoid probate. Probate is a legal process that occurs after someone dies. The court ensures that any taxes and debts are paid, and that assets and property are given to the correct people. Everyone should convey their wishes through a Last Will and Testament, to make the process easier. However, all assets transferred through a Will still go through probate.

 Probate isn’t necessarily a bad thing. It does provide structure and support for families going through a difficult and often confusing situation. However, probate often takes months to sort out. Large and complex estates can even take years! Additionally, probate is not a free service. On average about 5% of the estate is used to pay probate related fees and costs. Furthermore, records of probate court proceedings are public. So, anyone can look up exactly what was transferred and to whom. Lastly, if you do not have a Will, state intestacy laws or a probate judge will decide who receives your assets. It is possible to support your loved ones, maintain control, and save time and money by taking action now.

 The first, and most important, step is to review your beneficiaries. Contrary to what many people believe, beneficiary designations supersede a Will. That means whoever is listed as the beneficiary on an account or insurance policy receives those funds, regardless of what your Will says. Transferring assets via beneficiary designations can save money on taxes and avoid probate. Review your accounts and insurance policies to ensure that you have beneficiaries listed, and that they are up-to-date. Review beneficiaries at major life events, especially when your family grows or shrinks due to marriage, birth, adoption, divorce, or death. You should have a primary beneficiary and also secondary/contingent beneficiaries listed on all accounts. Often a spouse is the primary beneficiary and children, trusts, or even charities are secondary.

 Accounts and property can also avoid probate if titled properly. If set up as POD (Payable On Death) or TOD (Transfer On Death) the assets automatically transfer to the named beneficiary upon the death of the account owner. It is also possible to own and title assets jointly. Similarly, this allows the asset to transfer to the surviving owner upon death. However, joint owners both have full access to the account while both owners are alive. So, I recommend reserving this for spouses or trusted family members only.

 All families would be well served by creating a Will, properly titling assets, and maintaining beneficiaries. However, individuals with substantial assets, blended families, or complex planning needs may also consider creating a trust. Trusts are powerful estate planning tools. They can be complicated and costly, but they do have the ability to accomplish nearly any goal you have. If interested, or unsure of the benefits, our team would be happy to begin the conversation with you and even refer you to an estate attorney if needed.  

 As part of your overall estate plan, I would also recommend establishing a durable power of attorney. A durable POA is a legal document that allows someone you choose to act in your place if you become mentally or physically incapacitated. An estate attorney usually drafts these alongside your Will. They should include two types of POAs: 

  1. Medical/HealthCare POA
  2. Financial POA

 A Medical POA is a health care directive that establishes your health care wishes in advanced. If you are unable to make decisions for yourself, then your POA can approve procedures and even decide if you should remain on life support. For that reason, it is imperative that you choose someone you trust and make your wishes known ahead of time. A Financial POA gives someone the authority to handle financial transactions on your behalf. They can keep your bills paid while you receive care and also handle financial matters for you if an illness or injury prevent you from doing so long term.

 I have seen families, including my own, torn apart after the loss of a loved one. Siblings arguing over who gets what and who knows best. The fighting can drag on for years and the scars may never heal. It’s unpleasant to think about what happens after death, but it’s selfish to force others to sort it out after you’re gone. Spend some time this month getting your financial house in order. You will feel better and your family will thank you for it.