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What Are Some Things To Consider In Estate Planning?

Estate planning is not just for the rich.

Estate planning is not just for the rich. As soon as you have any assets at all, the process of planning for the future needs to begin. After all, it is not a matter of “if” but “when” your plan will be implemented.

Estate Planning encompasses a number of factors but in general is the process for deciding how you want your estate to be managed and distributed during your life and after you are gone. You will want to prepare your estate to minimize taxes, probate costs, and complications. The earlier preparations begin the better. Some retirees look at this for the first time in their 70’s when cognitive capacity may have diminished making the process all the more difficult.

The reasons for delaying are numerous. Lack of time, too busy, confusion about where to start, being overwhelmed, and a fear or uncomfortable feeling about end of life planning are some of the most common. Add to that the fact that many families don’t discuss money matters and it becomes clear that estate planning is postponed.

Families with multiple children and multiple marriages have the most difficulty in communicating the important aspects of estate planning but those are the families where it is most necessary. The news is full of famous people who die intestate, (without a will) and the disagreements among family members as they all jockey for a favorable standing with regards to the estate. Prince, Aretha Franklin, and Martin Luther King, Jr. , to name a few, all failed to plan for their estates and their heirs have suffered many lawsuits and heartache because of it. Even for those not famous, the upheaval following the death of a loved one without a will has led to broken relationships that will never heal.

It is easiest to plan for your estate when you can bring your family together in a frank and open discussion; however, that is easier said than done. Money discussions tend to bring up old resentments and sibling rivalries that the family thought to be long past. At times, the parent is the one who is unwilling to to listen and complete the estate planning process. One way to deal with this effectively is to involve a third party which could be an attorney or financial adviser. They can set ground rules and keep the conversation focus on the main objective which is to establish an estate plan that works. In the long run, the more transparency with your heirs, the better even if the process is difficult..

Before we get into the mechanics, it’s also important to remember that the plan needs to represent you! It should honor your values and ideals and be representative of what has been important in your life. Words of advice and wisdom can be included in estate documents.

Keep in mind that estate planning should be clear and easy to administer. It needs to be comprehensive and well organized in order to make the process of transferring assets as simple as possible. The more organized you are the easier it will be for those who need to facilitate your wishes.

The first thing that comes to mind with estate planning is the creation of a will. If you do nothing else, a will is essential for everyone with any possessions such as a car, a home or even a stash of collectables. Wills are not difficult to create and establish but it’s essential to sign the document and have your signature verified by witnesses. Check to ensure that a will drawn in a different state from where you currently reside is viable. Change your will if there are any major changes in your circumstances. Many a grandchild was left out because was not updated when they were born.

A will is one of the least expensive documents to have done and it preferably should be completed by an attorney. If that is too expensive there are senior law centers in many communities that can help for a reasonable price.

Trusts, especially with the new and higher limits for estate taxes, are not needed as often. They are necessary if you want to plan for future care for adult disabled children or pets. A trust can also provide instructions for your care should you lack the capacity to control your own affairs. Special needs trusts, charitable trusts, and irrevocable trust all provide for specific requests and may be needed for your special circumstance. A trust is in addition to and not a replacement for a will. You can have a will without a trust but not the reverse. Seek legal advice to determine if a trust is right for you.

In addition to a will and possibly a trust, an advance health directive is necessary. A health directive, often referred to as a living will, expresses your wishes for the level of medical care you want should you be unable to communicate the decision yourself. It involves naming an individual as your agent to make health-care decisions for you. Naming an alternate agent is also recommended. Often spouses are not the best choice for this role as they are hesitant to make tough decisions but this is a choice that needs to be done carefully. Acting as a person’s health-care agent is an enormous responsibility.

Planning can minimize taxes and provide for family or charities after you are no longer here. It should include major items such as:

  1. A will or trust
  2. An Advance Health-Care Directive
  3. Instructions for your care if disabled
  4. A guardian for your children and pets
  5. Special provisions for family members who are disabled or irresponsible
  6. Enough insurance to cover disability or early death
  7. Assets organized to minimize probate
  8. A list of passwords and investment accounts including checking and savings, 401Ks and IRAs.
  9. Instructions for your virtual estate: Facebook, Ebay, airline miles, etc.
  10. Funeral, obituary and memorial instructions
  11. Updated beneficiaries are all bank and investment accounts

I have seen far too many clients come to the office with banker’s boxes full of paperwork from a deceased loved one which took months to organize and process. Even then, more assets are often found hidden in cabinets and drawers and could easily have been overlooked or thrown out.

Once the plan is in place take steps to simplify your life. Close old credit cards and bank accounts. Consolidate brokerage and investment accounts. For the average person, the idea that you are adding to diversification by having accounts with numerous advisors is misguided. Downsize your living space by cleaning out the accumulated stuff we all have and no longer need. Hire an organizer to help with the process if it is too much for you to handle on your own. Shred old tax returns and invoices. Only 7 years of records need to be kept in case of an IRS audit and for most 3 years is enough. Tax returns can be accessed from the IRS if you need them so the paper copies are unnecessary.

All of the planning and documentation needs to be in a place where it is easily found by your heirs. A bank safe deposit box is the last place to store your estate planning efforts. Put them in a notebook or computer file and provide access to your executor.

Estate planning is for everyone. It will make it infinitely easier for your loved ones after you are gone. Eliminating any fighting over grandma’s silver or having to search the house to find documents will endear you to your loved ones even more.


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About the Author

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Lorraine Ell

CEO and Senior Financial Advisor

As the CEO and co-owner of Better Money Decisions (B$D) Lorraine is excited to help others solve challenging financial problems. For those experiencing dramatic change such as divorce, retirement, or the loss of a loved one she is a dedicated advisor and acts as equal parts investment manager, financial planner, coach, and personal guide. It’s her mission to help families lead their best financial lives.

Author of the book, Bozos, Monsters and Whiz-bangs: Bad advice From Financial Advisors and How to Avoid it!, Lorraine is also frequently quoted in MarketWatch, Investment News, Investor’s Business Daily, Yahoo Finance, and The Wall Street Journal.