The topic of estate planning intimidates many of us. It summons to mind legal documents, court procedures, and other matters that many of us think of as complicated or even impossible to understand. But it doesn’t have to be intimidating. In fact, many crucial steps in estate planning involve relatively simple actions. Here are a few relatively uncomplicated steps you can take that will get you off to a good start.
- Make lists. One of the most obvious needs of those who are charged with the responsibility of settling the affairs of those who have passed is simply knowing what the deceased owned and where the items and assets are located, along with the outstanding debts. You can greatly simplify this task by simply writing down your bank and investment accounts and the institutions where they are held and also listing any credit card or other loans outstanding. List the account numbers and contact information for the persons you deal with. Is there a coin collection somewhere? Write it down. A vacation home? Put it on the list, along with how it is owned (Jointly with a spouse? Single ownership?) Life insurance policies and annuities, IRA accounts, 401Ks, artworks, cars… write it all down and make two copies, one of which you should keep in a secure location (I’ll explain what happens to the other one below).
- Draft a will. In simplest terms, this is your way of explaining how and to whom you want your possessions distributed upon your death. If you don’t write a will, your state will make its best guess as to what you wanted, based on its probate laws. Why take a chance? Especially if you have minor children, it’s important to indicate your wishes in a will. Depending on the size of your estate, a will can be relatively simple or more complicated, requiring the services of an attorney who specializes in estate planning. But if you are 18 or older, you need a written will, and you need to make three copies: the original (which should be witnessed and notarized) should be kept in a secure location known to your executor (see #4, below); you should keep a copy in a secure location at your home for your own reference; and you should give a copy to your executor.
- Check your beneficiaries. Any time you purchase a life insurance or annuity or open a retirement account like an IRA or 401K, you must name a beneficiary. This person will receive the balance of the funds in the policy or account upon your death, no matter what your will says. This means it is vital for you to check these financial documents regularly to make sure that the beneficiary designations are up-to-date. By the way, it’s also a good idea to own bank and brokerage accounts in either a joint tenancy form (often with a spouse) or with a transfer-on-death (TOD) designation that automatically transfers ownership of the account to the designated person upon the death of the owner. This can save weeks or months of having the accounts tied up in probate proceedings.
- Choose your executor—carefully. Your will must name an executor: a person or entity charged with seeing that the terms of your will are carried out. While many would assume their spouse would do this, that is not often a good idea. After all, your executor will have to make judgment calls and decisions, and a recently bereaved spouse may not be in the best emotional position to do that. Indeed, the task of the executor can involve refereeing disputes among heirs, communicating with companies, settling the debts of the deceased, inventorying the deceased’s possessions (remember the lists in item 1?), arranging for the sale of property, and keeping a record of everything. Even simple estates can take months to settle, and the executor is responsible for seeing that all is done properly. Particularly with complex estates, a law firm or trust department is often the best choice for this task. Whomever you choose, your executor should have a copy of your inventory of assets and liabilities, along with a copy of your will. They should also know where the original, signed and notarized copy of your will is kept.
One of the most important aids to estate planning is expert advice. As I counsel my clients in their financial affairs, part of my job as a fiduciary advisor is to offer access to a network of qualified professionals in estate planning and other areas. To learn why it is crucial to have a fiduciary advisor for your financial planning needs, click here to read my whitepaper, “The Fiduciary Standard and the Individual Investor.”
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