Articles Posted in Estate Planning

We often think of financial planning as a set of distinct practices – including those such as estate planning, investment planning, retirement planning, etc.

But what events typically lead you to reach out to a financial advisor (or, if you are an advisor, when do your clients reach out to you)? A job or career change, marriage, the birth of a child, death, divorce, disability, or other huge life changes. Not many people seek out an advisor because they simply woke up one morning and realized that their asset allocation could be better.

It’s almost always life that leads to any interest in financial planning. Maybe a better way to think of the purpose of financial planning is this:

Although there are a number of valid form wills online or at local office supply stores, a lot of problems can come from creating a will this way without the advice and expertise of an attorney.

With a will that you download, you get a form and perhaps some instructions and choices for things you can fill in or cross out. However, this type of will doesn’t advise you on things such as how to prepare for if someone predeceases you or how best to leave property to someone who is a minor. It also cannot help you with your choice for a personal representative or a guardian for a child.

Although a will can be simple enough to create without the help of an attorney, bad or unanticipated things can come from making a will by yourself. It’s also incredibly important that the document be executed correctly or it likely won’t be considered valid.

Different people grieve in different ways, and sometimes people handle the death of someone they love in ways that are confusing or frustrating, such as fighting over small things like who gets a furniture set.

I’ll write today about no-contest clauses. A no-contest clause is a provision in your will or trust or estate plan imposing a penalty if someone were to challenge it. Common challenges to an estate plan include claims such as lack of capacity, not understanding the estate plan they signed, being influenced by another beneficiary to give them more, or not having the documents witnessed appropriately or notarized.

As an example, say I had one son and one daughter and wanted to leave one of them more of my estate. If I wanted to leave my son 60% and leave my daughter 40% of my estate, I could institute a clause stating that if my daughter challenges the fact that it’s an unequal division, she would get nothing. With this clause as part of the estate plan, she might be encouraged to simply accept her 40% instead of filing a lawsuit to say that the document wasn’t valid or that I was influenced by my son. However, if I were planning to leave nothing for my daughter at all, a no-contest clause isn’t going to help as there is no part of the estate she will potentially lose if she files a lawsuit.

Last week I wrote about health care components of an estate plan that can bring some peace of mind during the current pandemic. Today I will cover important financial components of your estate plan.

Financial Components of an Estate Plan Financial Power of Attorney

With a financial power of attorney, you can choose someone to help with your finances in the event that you become incapacitated and are unable to manage your finances yourself. You can decide how much control you want your power of attorney to have. You may give them power to do things such as access your accounts, sell stock, and manage real estate if you so choose. Make sure to pick someone you trust fully, like your spouse, adult child, or a close friend or family member.

The coronavirus has taken a toll on all of us in a number of ways, including our physical and mental health. Most of us know at least one person who has been affected by the coronavirus. Planning well for health care and financial needs in your estate plan can bring some needed peace of mind during this time. I’ll write today about important health care components of an estate plan and will write next week about financial components.

Health Care Components of an Estate Plan

Advance Health Care Directive

The unveiling of one’s last will and testament almost never happens like it does in the movies, where an attorney reads the document out loud and those in attendance are shocked. Although a formal reading is rare, those who are named (or not named) in someone’s last will and testament might still be surprised when the probate or trust administration commences. Surprises in a will typically lead to conflict between family members and more challenges for whoever is handling the estate.

The best thing you can do to prevent future conflict is to be transparent about your estate planning each step of the way. If possible, include trusted family members in the planning process. In spite of the natural bias they may have, they will hopefully put their own interests aside for the sake of what is best for you and in order to avoid potential problems.

Your loved ones may also be able to offer you insights that you wouldn’t have otherwise. They may be able to advise you on how best to meet ongoing support needs of beneficiaries. They may also know more about tensions within the family that you are not aware of but that you will want to address within your estate plan.

People often focus on their finances and physical property when planning for asset management after their passing, but it’s also important to make a digital estate plan since more and more of our personal information is stored online these days.

Social media accounts, email accounts, subscription services, images or videos stored online, blogs, and online currency are all included in this list of assets. Often, the terms of service and user agreements that we scroll through when signing up for an account state that the company will terminate the account after someone passes away instead of waiting for requests for content from their next-of-kin.

Most states have some type of legislation in place regarding how to handle one’s digital assets. Often, traditional executors or will representatives have access to some digital information, but this access is often limited and they may only be able to access information related to files needed for managing the physical estate.

The documents that make up your estate plan should be living documents that evolve and change with you. It’s best to review your plan at least every 5 years or whenever you or one of your beneficiaries has a major life event, including marriage, a new child, divorce, inheritance, or death.

Here are 10 topics to address when updating your estate plan:

DISTRIBUTION OF YOUR ESTATE

Many of us have accumulated a lot of stuff over the course of our lifetimes. Some of it may have significant monetary value, but most items have more sentimental worth.

All of a person’s belongings have to end up somewhere after they pass away, and a lot of people don’t do the planning to clearly communicate where these possessions should go. This can lead to a lot of stress, confusion, and sometimes conflict among loved ones after someone has passed. One might have a collection of sports memorabilia that they built during their lifetime that may be passed down to someone who doesn’t really care about sports, or there may be multiple heirs that feel entitled to one important item, like a parent’s wedding ring.

Losing a loved one is already very difficult, and things can become even more difficult when tension arises among family members without guidance on how to divide valuable or complex assets. Here are some tips to consider for your estate plan: