Estate Planning: Brush Up On The Basics

Fall not only marks the start of cool weather and the changing color of leaves, but it is also a good time to revisit and evaluate your estate plan. By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs.

When estate planning is sound, you leave a legacy, instill your values, and provide resources to loved ones in a responsible and efficient manner. You should not wait until you are older or near death to start the process – but where should you begin?

In recognition of National Estate Planning Awareness Week, October 17- 23, 2016, we are pleased to share insights to help you evaluate the state of your personal estate plan and raise awareness of its importance in preserving, protecting, and transferring your wealth. Below are six simple steps to estate planning success.

Steps to Successful Estate Planning

Should You Create a DIY Estate Plan?

Are you a fan of do-it-yourself (DIY) projects? A visit to the hardware store or a search through the internet shows the popularity of a wide variety of DIY ideas. Many folks are taking this approach with their estate plan. Online document preparers offer a low-cost solution for the simplest type of estate planning, but it is important to understand the many pitfalls to this approach.

Complexities are often hard to detect. You might not realize what complexities exist in your situation. Family circumstances, asset characteristics, net worth, and state residency, among others, are all factors in an estate plan, each with its own unique complexity. For example, you might have a seemingly simple situation (small net worth and simple family structure), but the will you have drafted online may not address your 401(k) plan. If you don’t coordinate the beneficiary designation on this account, it may not be aligned with your plan. Without the guidance of an attorney, individuals may not fulfill the requirements of a well articulated estate plan.

There is no substitute for the advice of a qualified attorney. Attorneys can use their experience to help you with decision making. What are the responsibilities of an executor, and which family member would best fill this role? How about a trustee? These are questions an attorney can help you answer. Attorneys are obligated to stay apprised of changing federal and state laws, as well as nuanced options that can affect an estate plan. Online tools, on the other hand, simplify options as much as possible for ease of use.

Small details count. Consider this: “Bob” drafted a will using an online service several years ago. Luckily he noticed that the draft did not include his beneficiary’s middle initial. Since two of his family members have the same first and last names, including a middle initial was critical to avoid confusion at Bob’s death.

While the do-it-yourself approach is appealing due to perceived ease and lower up-front costs, there are risks. Paying for the expertise of an estate planning attorney could save you money in the long run. If you’ve had estate documents prepared online or are considering doing so, be sure to review your estate plan with your attorney.

The information on these pages is intended for informational purposes only and should not be construed as investment, legal, or tax advice. Please consult with your attorney regarding your specific situation.

The Four C's to Choosing a Good Trustee or Executor

When developing an estate plan, it’s important to select the right person as trustee or executor (fiduciary). Unfortunately, there are many stories of things going awry and family relationships being damaged. These unintended consequences can be minimized by remembering the four “C’s” when designating a fiduciary:

1. Consider Your Family

A family member, especially an adult child, is often the first person who comes to mind when considering candidates. Make sure that all involved get along and that they will continue to get along in the future. If considering your child, ask if hard feelings will develop among your other children. Circumstances surrounding money don’t always bring out the best in people. Someone other than a family member may be a better candidate.

2. Consult a Third Party

Consider naming a trusted friend or professional, especially for large estates or when the interest of a special needs beneficiary must be preserved. A professional, such as an institution or attorney, can ensure that assets are managed in the most effective manner. Another strategy is to name co-fiduciaries – a professional and a trustworthy friend, for example. Your friend will ensure your interests are carried out, while the professional will make sure assets are properly managed and legal requirements are met.

3. Confirm The Fiduciary Is Willing

Managing a trust or estate can be time-consuming. Verify that the fiduciary is willing and able to take on this responsibility. Also include language allowing the fiduciary to receive compensation for their time and energy.

4. Create a Way for Change

Include provisions for removing a fiduciary and selecting a new one. You can place limits on possible replacement candidates, such as requiring the replacement fiduciaries to be a professional.

The Importance of Beneficiary Designations

With year-end planning approaching, advisors recommend reviewing your beneficiary designations – the people/organizations who will receive your assets at death – no matter what your trust or will states.

Beneficiaries are named in accounts such as 401(k)s, 403(b)s, IRAs, life insurance, annuities, payable on death accounts, and certain pension accounts (i.e., 5- or 10-year certain pension options).

Generally, the owner of the asset is allowed to choose who will inherit the account upon the owner’s death. For accounts like 401(k)s and 403(b)s, spouses must be named unless they approve the beneficiary designation in writing. Some state statutes also affect the rights of spouses.

Each custodian, insurance company, bank, and retirement plan has its own beneficiary forms and “default” rules for accounts with unnamed beneficiaries. Those default rules may or may not benefit the estate of the decedent. Some beneficiary forms do not have a method for adding the “per stirpes” designation to beneficiary designations. Per stirpes essentially means that if the named beneficiary is deceased, the designated beneficiaries will be the living children/grandchildren of the deceased beneficiary. If the per stirpes language is not clearly stated or allowed, the interest of a deceased beneficiary may be divided amongst the other surviving beneficiaries, which may or may not be the intended consequence.

Consider a beneficiary designation review by:

  • Checking the default provisions for your beneficiary accounts.
  • Reviewing and understanding the tax implications for naming the beneficiary you choose. There can be differences if you name a spouse, charity, child, or trust.
  • Requesting a confirmation of the beneficiary designation in writing.
  • Ensuring that your customized beneficiary form drafted by your estate planning attorney has been accepted by your custodian, trustee, or plan administrator and is on file.
  • Checking periodically to determine if you need to change your beneficiaries due to a birth, death, divorce, or marriage. Don’t forget about life insurance and annuities in addition to retirement accounts.
  • Periodically consulting with your financial advisor to make sure that your current beneficiary designations are best suited for you and your family.

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