Legacy & Estate Planning

Estate Planning for Mere Mortals

When you hear 'estate planning,' what comes to mind?

Is it massive mansions, complex legal documents, and a colossal inheritance?

Well, truth be told, estate planning isn't just for the well-heeled. In fact, it's a must-do for anyone and everyone who wants to keep their hard-earned assets safe, distribute their wealth in an organized way, and take care of their loved ones even when they're not around.

So then, what does it take to have an effective estate plan?

Well, first things first, you'll need to come to terms with the fact that, by legal definition, you have an estate no matter your net worth. Then, you'll need to identify the assets in your estate and choose who will inherit certain portions of your wealth.

You'll also want to assign trusted individuals to take care of your affairs and settle your estate, and, at the same time, identify individuals to step in and make decisions on your behalf if you become incapacitated.

And after you've created your estate plan, the work doesn't stop there. That's because life changes and the ever-evolving tax code can quickly make your estate plan obsolete.

Indeed, keeping your estate plan updated can help ensure it always reflects your wishes and protects your loved ones and assets.

You know, when it comes down to it, estate planning is not just an exclusive club for the rich and famous. It's a savvy move for everyone who wants to safeguard their financial future and leave their mark, no matter how big or small your estate is.

 

You Have an Estate, Who Would You Like to Leave it to?

So then, what exactly is in an estate? Well, let's start at the beginning by defining what an estate is. Now, the term "estate" often refers to the total net worth you possess, including all your assets, properties, and liabilities upon your death. It encompasses everything you own or have an ownership interest in, such as real estate, bank accounts, investments, personal belongings, and debts owed.

When considering the term "estate," it's understandable why many individuals associate it with high-net-worth individuals. To be sure,  resources related to estate planning frequently revolve around strategies for minimizing taxes, protecting assets, and ensuring the smooth transfer of wealth.

This exclusive perspective is compounded by the fact that the media and popular culture tend to depict estates in the context of the affluent, showcasing opulent properties, complex wills, and disputes over large inheritances. These portrayals reinforce the idea that estates primarily pertain to the wealthy.

Even so, it's crucial to note that estates are relevant to individuals of all income levels, including yourself. Indeed, regardless of your net worth, estate planning plays a vital role in ensuring the organized distribution of assets, appointing guardians for dependents, and expressing your desires regarding end-of-life decisions.

Indeed, estate planning involves the legal processes and documentation necessary to manage, settle, and transfer assets and obligations in your estate.

 

Assets that Do and Don't Need to be in Your Will

Now, here's the kicker that well-intentioned individuals miss out on. Your estate can either be settled according to your expressed wishes as defined by your will or, if you don't have a will, the government will settle your estate according to state law.

And the process for settling your estate is called probate. And probate is the legal process that validates a deceased person's will and oversees the administration of their estate. Now, when a person dies with a valid will, their estate will generally go through probate to ensure its authenticity and to appoint an executor or personal representative who will be responsible for managing the estate.

What's more, during probate, the court supervises the settlement of debts, payment of taxes, and distribution of assets as outlined in the will.

And, so, what happens if you don't have a will? Well, this is what's called intestacy. Now, intestacy refers to a situation where a person dies without leaving a valid will or any other legally recognized estate planning document. When this occurs, the distribution of the deceased person's assets is determined by the laws of intestacy in the state where they resided.

Now, it's essential to note that these laws typically provide a predetermined order of inheritance, specifying how the assets will be distributed among the surviving family members.

So then, if you have an estate plan in place, your final wishes will be observed according to the reading of your will, validated by a probate court. If you die intestate or without a will, the court will decide how your assets will be divided according to state law.

 

Probate vs. Non-Probate Assets

Alright, so we've discussed what an estate is and how the settlement of your estate works. The next step is to determine what you need to specifically call out in your will, and what can be dealt with outside of the court system. We call this distinction probate and non-probate assets.

Now, probate assets are those that are owned solely by you at the time of your death and that don't have a designated beneficiary. These assets include real estate, bank accounts titled in your name alone, individual brokerage accounts, cars, boats, personal belongings, and business interests.

Now, when you pass away, these assets likely will go through court proceedings where either a reading of your last will and testament or a judge's decision will determine what happens to your assets.

For example, let's say you're unmarried and own a house solely in your name. Now, unless you've titled your home differently, upon your death, your house becomes a probate asset and will be subjected to the probate process. The same goes for individual bank accounts or vehicles registered only under your name.

Non-probate assets, on the other hand, are those assets that bypass the probate process altogether. These assets have either been jointly owned, have a designated beneficiary, or are held in a living or revocable trust. And when you pass, non-probate assets are transferred directly to the named beneficiary or surviving co-owner without any need for court involvement.

And how does this work?

Well, imagine for a moment that you have a life insurance policy with your spouse as the designated beneficiary. Now, upon your death, the proceeds from this policy will go directly to your spouse, without having to pass through probate.

In a similar way, if you have a joint bank account with rights of survivorship, the surviving account holder will automatically inherit the account's remaining funds without court intervention.

Now, why does this distinction matter? Well, there are a couple key reasons.

First, probate can be time-consuming and expensive, given the legal and administrative costs associated. Therefore, more of your assets can go directly to your loved ones more quickly if you minimize your probate assets.

What's more, the probate process is public record, meaning the distribution of your assets becomes public information. In contrast, the transfer of non-probate assets maintains a level of privacy, as it doesn't become part of the public record.

 

Beneficiaries: Determining Who Gets Your Assets

Now, how do you specify who gets your assets when you pass? Well, this is the part of the estate planning process where preparing a will and defining your beneficiaries comes in. To be sure, when deciding on your beneficiaries, you should consider several important factors.

For instance, you'll first need to carefully think about who you want to receive your assets. For most people, their beneficiaries will include their spouse, children, or other close family members. However, you can also leave assets to friends, charitable organizations, or anyone else you choose.

Now, when specifying beneficiaries, it's essential to use their full legal names to avoid any potential confusion. For example, instead of writing "my spouse" or "my children," use their actual names. If the beneficiary is a minor, you may want to consider establishing a trust or appointing a custodian to manage the inheritance until the child reaches the age of majority.

Next, think about the types of assets you're leaving and to whom you're leaving them. Some assets may have more emotional significance than monetary value and vice versa. That's why you'll need to consider the needs, preferences, and circumstances of your beneficiaries. For instance, some beneficiaries may benefit more from receiving certain assets compared to others.

Also, keep in mind that certain assets, such as life insurance policies or retirement accounts, are not typically transferred through a will but through designated beneficiary forms. And so, as you go about preparing your will, you'll also want to ensure that beneficiary designations for non-probate assets align with your overall estate plan.

 

Who Will Manage Your Affairs?

Now, with all this talk about what happens with your assets after you pass, one factor that many individuals need to consider is who, outside of the courts, will honor the wishes of your estate plan.

 

Estate Administration

And, when you pass, the role of an estate administrator, also known as an executor or personal representative, is a pivotal one in the estate planning process. That's because they're responsible for managing and settling your estate after your death, according to the stipulations in your will.

Now, the estate administration process can be quite complex regardless of the size of your estate. That's why when selecting an estate administrator, you should take some time and mindfully consider the process.

For example, you'll likely want to appoint someone who is responsible and organized. That's because this role involves managing assets, paying debts, filing tax returns, and possibly overseeing the sale of property or managing investments. And, all this work requires a certain level of financial acumen and administrative competence, so you'll likely want some to oversee your assets who won't get overwhelmed by the work.

Next, you should consider a person who you consider to be trustworthy. Now, this is clearly a no-brainer. With that said, however, it's still worth noting because, even though the courts oversee the probate process, your administrator will have significant control over your estate, so you need to be confident they will act in the best interests of your beneficiaries and will be honest and transparent in their dealings.

Finally, you’ll need to take into account the potential time commitment and consider an individual who has the capacity to take on the responsibility. Depending on the complexity of your estate, administering it could require a substantial amount of time and effort. That's why it's essential to ensure that the person you choose is willing and able to devote the necessary time to the task.

And, after you have chosen your estate administrator, it is a good idea to discuss the role and responsibilities with them to ensure they are willing and able to take on this duty. Also, consider appointing a successor executor in your will in case your first choice is unable to serve.

 

Powers of Attorney

Alright, so we discussed individuals who will settle your affairs when you pass, but what happens to your assets if you become incapacitated?

More specifically, imagine here for a moment that you step off a sidewalk, get hit by a bus, and find yourself in a coma for an extended period of time.

In this situation, you’ll need to ask yourself who will make decisions regarding your health when you can't do it on your own? If you're engaged, but not married, your partner may not have as much of a say in your level of care as your next of kin might.

And when it comes to your finances, how will your mortgage get paid, who will pay your bills and otherwise take care of your financial matters if both you and your spouse or partner become injured and cannot make decisions?

This is where financial and health care powers of attorney (POA) come into play and they play a critical component of your overall estate plan.

For example, one of the primary benefits of having a healthcare power of attorney is that it allows you to nominate a trusted person to make medical decisions on your behalf if you become incapacitated or unable to make these decisions yourself. This person is typically referred to as your agent or proxy.

And their decisions can cover a wide range of medical issues, from approving routine medical procedures to life-sustaining or life-ending decisions. The power vested in them helps ensure that your healthcare wishes are fulfilled even if you can't voice them yourself.

Now, a financial power of attorney, just like a healthcare power of attorney, allows someone else to make healthcare decisions on your behalf and to handle your financial matters if you are unable to do so.

Here again, one of the crucial benefits of having a financial POA is ensuring that your financial affairs continue to be managed efficiently if you become incapacitated. In this situation, your appointed agent will have the authority to perform a broad range of financial tasks, such as paying your bills, managing your investments, filing taxes, and buying or selling property.

Now, a key question that often comes up with these documents is, "if I haven't passed away yet, why do I need a financial power of attorney?" or "Can't my spouse just call the bank and tell them what's going on?"

Well, in situations like these it's essential to note that the financial institutions often do not understand the kind of relationship you might have with your spouse, partner or significant others. And if your name is not on a bank account, more often than not, you'll likely not have access to that account. That's where the POA comes into play.

 

Guardianship for Minors

Another role that you'll want to define within your estate plan is that of guardian, especially if you have minor children or dependents. Now, it's essential to note here that this decision is not just about your assets or estate, it's about ensuring the welfare of the people you care about the most.

Now, in an unfortunate event where both you and your partner pass away or otherwise become unable to care for your minor children, the person or people you've designated as guardians will assume the responsibility for your children's care.

And, if a guardian isn't designated, the court will decide who is best suited to raise your children, and that might not align with your personal preferences.

That's why naming a guardian in your estate plan helps ensure that your children are cared for by someone you trust and who aligns with your values and parenting philosophies. It also provides a clear directive, which can eliminate potential conflicts or legal battles among family members who might have differing opinions on who should assume the guardianship role.

So, how exactly do you specify a guardian? Well, in your will, you would include a section specifically for the nomination of a guardian. It's here that you would name the person or people you've chosen to care for your minor children or dependents should you and your spouse or partner become unable to do so. This person can be a family member, a friend, or anyone else you trust and believe would be suitable for this role.

Now, when making your choice, consider the potential guardian's values, parenting style, age, health, and willingness to take on this responsibility. Additionally, you may also want to consider their financial stability and the quality of the relationship they have with your children.

Along these same lines it's essential to name an alternate guardian in case your first choice is unable or unwilling to serve as guardian when the time comes.

 

 Review Your Estate Plan for Changes

Alright, so what do you do if you already have an estate plan in place?

Well, if you're at this phase, then you likely already understand how crucial it is to protect your assets and ensure that you're doing everything you can for your loved ones. And while you might be doing everything right to ensure that your loved ones are protected, the truth is that changing circumstances, not only in your own life but also in the lives of your designated agents, personal representatives, beneficiaries and other interested parties, could warrant an update to your estate plan.

 

To be sure, one of the primary reasons to revisit your estate plan is if there have been changes in your personal or family situation. For example, events like marriage, divorce, the birth or adoption of a child, the death of a loved one, or even a change in your own health status could necessitate changes in your estate plan. As a result, it's vital to ensure your plan reflects your current circumstances and wishes.

Start with Your Team

So then, as you begin your review, you'll likely first want to start with your designated estate administrators, beneficiaries, and guardians. Take a moment and evaluate whether they've moved recently and whether their addresses need to be updated in your will or estate plan.

At the same time, take a moment and ask what your relationship with these individuals is like? Have there been any family conflicts or other changes that may have led to a different role in your estate plan?

For instance, if you appointed your sibling as the guardian for your children, but they have since moved abroad, you might want to consider another person who is more geographically accessible.

 

Check Your Beneficiaries

Another significant aspect of your annual review should include checking your beneficiary designations in your will, as well as your non-probate assets like life insurance policies, retirement accounts, and other payable-on-death accounts.

As time passes, you may find that your initial designations no longer reflect your current wishes. For example, you might have named a close friend as a beneficiary on your life insurance policy, but if you have since drifted apart, you may want to update this designation.

 

Make the Changes, Update Your Plan

Now, once you've identified the required changes, it's crucial that you seek the help of a competent estate planning attorney. While it might be tempting to make minor changes by yourself, it's always best to have an experienced professional guide you through this process.

This is particularly true when dealing with complex estates or significant changes. The attorney can help you avoid potential legal pitfalls and ensure that your revised estate plan is valid and aligns with your current wishes.

Now, as you work with your attorney, don't forget to communicate your changes with your loved ones. To be sure, transparency can prevent surprises and potential family disputes down the line. For instance, if you've decided to change the division of your assets among your children, it's a good idea to explain your reasons to them now so that there's no misunderstanding in the future.

Finally, after you've updated your estate plan, store the documents in a safe, easily accessible place and destroy the older versions of the documents to avoid any confusion. And remember, updating your estate plan is not a one-time event. You should review it regularly, especially when significant life events occur, to ensure that it always reflects your current circumstances and wishes.

 

Estate Planning Made Simple: Practical Steps for All Individuals

Taken together, estate planning is not just for the wealthy or those with vast fortunes. Indeed, it's a fundamental aspect of financial planning for everyone, regardless of your net worth.

Remember, an estate plan involves more than just a will or trust. It encompasses various decisions, such as identifying all of the assets in your estate, including probate and non-probate assets and then deciding who gets what.

What's more, estate planning involves the process of bringing together a team of individuals who will oversee your affairs not only when you pass, but also if you become incapacitated. And in either situation, this crucial process will also determine who will care for your children without court involvement.

And finally, it's crucial to note that estate planning is not a one-and-done type of event. Indeed, reviewing and updating your assets, beneficiaries and chosen agents on an annual basis is an essential component of the estate planning process. And by keeping your estate plan up to date, you can ensure that it remains aligned with your wishes and provides maximum protection for your assets and loved ones.

In the end, you can't take it with you. That's why taking the time to establish a solid estate plan is a powerful step toward securing a financial future for your loved ones, leaving a lasting legacy, and helping your family along their own path to financial independence.

---

by Peter Donisanu, ChFC®, AIF®