As the deadly coronavirus swept the world, many took precautionary steps to keep themselves and loved ones healthy. Physical well-being is at the forefront of day-to-day living and naturally what we prioritize in reaction to catastrophic events alike – washing hands, wearing a seat belt, wearing sunscreen.
While these hopefully commonplace actions are paramount to physical protection, ensuring a lasting legacy is protected through a comprehensive estate plan should be a top priority for financial well-being. Usually it takes a couple of dramatic life events to even think about one’s estate plan, and sometimes no action is taken at all, leaving a laundry list of to-dos for heirs, friends, or a team of legal experts.
The triggers can be vast – world virus, passing of a loved one, marriage, divorce, birth of a child – yet the action that needs to be taken to ensure the people loved most are properly cared for can seem like a daunting task.
No healthy person wakes up one day and voluntarily decides to draft a will or name a guardian, but there are simple steps to take now that allow you and your loved ones to focus on primary physical needs during dramatic times of unrest.
Typically the easiest to address to start a preliminary estate plan. Assets can range from physical property like home, car, and land, to accounts like bank, investment, and retirement, to just about anything you deem worthy of value.
If you are single, this ownership assessment is the easiest step because it is simply a review to make sure you are the 100% sole owner. If you are married, then the assets should be in your name and your spouse’s name so that both are owners entirely.
Note that the most appropriate person to own joint property with is your legal spouse, because stretching that ownership responsibility to someone other than your spouse makes that individual an equal, independent owner and controller of the assets. There are many different applicable ownership options outside of joint ownership for business partners, other family members, or loved ones that limit liability (think trust, partnership, Uniform Transfer to Minors Act or UTMA, corporation).
Again, we are highlighting preliminary, foundational estate planning elements. For the most part, joint ownership with rights of survivorship entitle both owners to act independently of the other, and the entire asset is transferred to the surviving owner in the event of the other’s death – no will, beneficiary, or probate to consider.
There are a few other types of joint ownership options for spouses, but various accessibility limitations and probate nuances make the rights of survivorship the most favorable.
Naming beneficiaries is another step to creating your estate plan, and this one requires a bit more thought.
Essentially, you need to determine who or what (yes, beneficiaries can be charitable organizations or trusts) inherits your assets in the event of your passing.
If you are a joint owner with rights of survivorship the “built-in beneficiary” is the other owner, so naming a beneficiary for those assets is usually unneeded. If you are the sole owner, then the named beneficiary will receive the assets directly, avoiding the need for a will or probate process.
Most assets allow for multiple beneficiary designations with varying percentage allocations, so you can allocate a portion of an asset to someone you deem more deserving while still rewarding others with a smaller piece of the pie.
Furthermore, unless you directly notify a beneficiary of their designation they will never know of this future inheritance until your passing, so it is important to keep your beneficiary information up to date. Whether you decide to inform your beneficiaries or not is a personal decision, but the paramount action is designating a beneficiary in order to avoid a potentially messy custodial fight between beloved heirs.
Another step in the estate planning process is naming durable and medical powers of attorney (POA). To some this seems like a “skip” step, but it helps to have an example to drive home the importance. If you drive a car and happen to be in an accident that renders you unconscious and needing medical services for an extended period of time, who will make the medical and financial decisions to keep you alive? Note that “that’s my spouse (or other loved individual)!” is not a sufficient entitlement for most institutions delivering treatment or holding assets.
Taking a different approach, if someone you love, like a parent or spouse, is unable to make decisions for themselves due to health issues or a severe accident, wouldn’t you or someone you trust want to be the person assisting in the decision-making process to further their life?
A designated, trusted, legally binding POA must act in your best interest during those critical times until you are back to healthy. You can even notate that the POA is not effective until a physician furnishes a letter certifying your incapacitation. While this is morbid, these are all-too-real scenarios that can happen at any moment.
Unlike a beneficiary, you and your named POA must mutually enter and sign the agreement, and it is advised to keep an electronic or physical copy of the signed and notarized agreement somewhere safe. Naming durable and medical POAs provides you the peace of mind knowing that if you become unable to care for yourself, someone who you assign and trust will be there to act in your place.
Finally, a large piece of the estate plan puzzle is your last living will and testament. Your will does not become active until your passing. This document is analyzed by legal professionals and loved ones to determine who is the rightful owner of your posthumous assets. If you have efficiently addressed the ownership and beneficiary designation steps of your estate plan, then the necessity of a last will and testament is minimized.
Most think of a will as a document to designate ownership of assets to loved ones, another large component is the establishment of trusts, tax planning support, and in some cases appointing a guardian for minor children.
Additionally, usually included in a will is the designation of a fiduciary, or executor/executrix, of your estate. This individual is tasked with gaining access to and organizing assets, distributing assets to named heirs, and ensuring estate taxes are paid, among many other duties.
This person can bring in professionals to assist with the sometimes arduous process, but it is in your best interest to name someone you fully trust, have known personally for an extended period of time, and has some financial expertise around the matter. The last will and testament is a necessary document in the estate plan, and the designation of an executor or executrix should be carefully considered to ensure your legacy is fulfilled.
Addressing and implementing baseline requirements can dramatically increase the power of your estate plan. This work can be deemed as an unnecessary waste of time, money, and effort that people attempt to justify with any number of excuses ranging from “I don’t have anything to leave behind” to “(Insert name here) will take care of it” to the sheer fact that estate plans are associated with death.
There are a few simple steps to take to ensure whatever you leave behind ends up in the hands that you intend. A comprehensive plan can start with simply having the correct ownership and beneficiaries in place, but not following through with implementing everything necessary can be detrimental to any estate. And just like with your financial plan, your estate plan should be re-evaluated annually at minimum. It is your financial advisor’s duty to help guide you through the process to ease the planning burden while solidifying your legacy to those you love.
Ready to talk about your future? Make an appointment today with one of our financial advisors.