A will is important in any estate plan, as it serves as the backbone document of what will happen when you pass away. But there are several other pieces to a good estate plan that go beyond a will. If you don’t tie up some loose ends, you might be surprised at how wrong things can go even with a shiny new will in place. So keep reading to discover some key non-will factors you need to consider for your estate plan.
For many if not most Americans, the majority of their estate won’t be controlled by their will. The will controls the probate estate, but there are many assets that won’t be included in this. For example, life insurance proceeds, IRA and 401(k) accounts, and Jointly held accounts won’t be directed by the will but rather by the beneficiary designations on file.
So while you think you’ve protected one of your kids from receiving too much of your estate too early, you may have them listed as a primary or contingent beneficiary on an insurance policy and they could receive a sizeable windfall. Or you may intend to give 10% of your estate to charity and designate this in your will but it turns out that the will only controls 25% of your actual estate, leaving the charity with 2.5% rather than 10%.
With this in mind, be sure to look at all of your accounts and insurance policies to make sure that beneficiaries are up to date and that they are coordinated with your will.
With the above in mind, adding beneficiaries is a great way to minimize your probate estate. Probate assets are subject to probate fees, and are also subject to public record. So whenever possible we often recommend that you add beneficiary designations to banking and investment accounts so that they’ll go directly to your loved ones and not get caught up in probate.
Investment accounts that aren’t jointly owned can have a Transfer on Death (TOD) designation added, and bank accounts can have a Payable on Death (POD) designation added. Talk to your financial advisor or bank representative to get these added – it’s simple to do and can make things much easier down the road.
Another benefit to these designations is that if your desires change down the road, it’s much simpler to update the TOD or POD designation than it is to update your will (and it’s free!).
When a basic will doesn’t seem to be sufficient, a trust can coordinate with your will to help achieve your estate goals. Revocable Trusts (or Living Trusts) are made during your lifetime and can be altered, edited, and revoked as long as your live. They are often used as a will substitute than can shelter assets from probate (particularly useful for real estate in other states that would have to go through multiple probates) and can keep more of your estate out of public record.
Irrevocable trusts, on the other hand, are permanent and, yes, irrevocable. They become a separate tax entity and can be useful when you’re needing to limit estate taxes, are trying to do some Medicaid planning for long term care coverage, etc. Once assets get placed in an irrevocable trust, they are no longer property of the grantor but instead belong to the trust permanently.
Testamentary trusts are trusts that are established through your will at death, and can be used to hold assets for minors or young adults, for spousal benefits, and many other uses.
There are also special trusts that can be useful for special needs situations, blended families to make sure that assets get distributed properly at a second death, and many more uses. The bottom line is that if you’re trying to pull something off through your estate, there’s probably a trust that can help you out if your will can’t do it!
While a will can help control your assets when you pass away, it won’t help with the other planning for end of life.
A Power of Attorney document will enable a spouse, child, or other loved one to help you with your financial affairs if you become incapacitated or mentally unable to perform the necessary tasks. If you don’t get this in place before you need it, you’ll have to have the courts appoint someone for you. This could be for something as simple as paying your bills to helping you sell your home.
A Healthcare Power of Attorney gives someone you choose authority to make medical decisions on your behalf. The last thing you want is to require a major procedure with the doctors unable to consult anyone about it. You can choose how wide of a scope you want this to have if desired.
A Living Will or Advanced Medical Directive will take the pressure off of your Healthcare Power of Attorney by pre-deciding how you would like your end of life care to be. Do you want to be kept alive under all circumstances? Do you want to be resuscitated? These simple decisions can help accomplish your will and will be a huge weight off of your loved ones.
Once you have your documents in place, it’s important to let those involved know if they may have a role to play in your overall estate plan. This will give some folks the chance to opt out of the responsibility or to ask any questions they might have.
Some folks want to prep their heirs for any large sums that may or may not come their way, or to leave some notes along with their wills to be delivered after their death that offers some insights as to why certain decisions were made.
It’s also a great idea to sit down with whoever would be in charge of your funeral/memorial and discuss your desires. That in and of itself is a big gift to your loved ones so they don’t have to spend the first few days after you pass away event planning rather than grieving. Let them know some of your preferences such as location, officiants, and maybe even a few songs to take this responsibility off their plate. You may want to give them some guidelines for any obituary as well.
As always, we’re only peeling back a few layers of this onion. There are many possibilities and decision points, but the main point is that you should take some time to think through these non-will decisions before it’s too late. We’d be glad to process them with you if need be, and help hold you accountable for getting these important yet not urgent tasks done!
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