Estate Planning is a Critical Factor in Financial Planning
No one likes to talk about the difficult times in life like death or disability. No one. Talking about our own mortality can be daunting, especially if we are unprepared. But the very thing that will help us be prepared is actually talking about it and planning for it.
Although it is not easy, starting a conversation with your family can bring goals and purposes and even someone’s wishes out in the open to be acknowledged and discussed. Even if dollar amounts or other specifics are left out, the conversation itself can be a starting place for many families and/or loved ones to begin a heart-to-heart talk about what is important to each family member. Sometimes without context, good intentions can have a negative impact.
The point of having estate planning documents in place is to ensure intentions are backed up with documents that can legally be acted upon. Good estate planning accomplishes the intent of the individual. Good family communication ensures there are no surprises and helps avoid strained family dynamics in the future.
Financially speaking, there are several ways we can prepare that will not only give us peace of mind, but also make it much easier on our loved ones. It will also be important to have taken the necessary steps if we are the one left to make the financial decisions after our loved one is gone.
Step one is having all your financial documents in place so that you are not caught off guard. Adequate documents that outline your and your family’s wishes are necessary in order to accomplish family goals and objectives. This is true in the event of death or physical or mental incapacity. Crucial documents include:
A records inventory – This includes: a list of your assets and where they are located; account numbers; online sources and uses of funds such as automatic withdrawals; passwords for online accounts; names and contact information for family members; where important documents are located such as those for insurance, taxes, medical history and doctors, investments, real estate, guardians, marriage and divorce, business documents, military records, wills, trust, and powers of attorney.
A current Will – Many people neglect to update their will after moving to another state or after a major change in their personal life or business affairs. Updating can often be done by obtaining a codicil that amends the will instead of starting from scratch. Do not assume you do not need a will if you plan to leave everything to your spouse. Not all state laws guarantee that a spouse will receive all assets upon a spouse’s death in the absence of a will. Be sure to work with a qualified estate planning attorney.
Financial Power of Attorney – A power of attorney is not expensive and allows you to appoint a person or organization to manage your affairs in legal or financial matters if you become unable to do so. In most states, it does not cover medical decisions.
Health care directive – These documents vary by state so it is important to check with an attorney to see what form you would need. A directive, which can also be called a “living will”, is a written record that gives you control over the medical decisions made on your behalf when you are not able.
Beneficiary Designations – keep in mind that insurance policies and qualified retirement accounts (401k, 403b, IRAs, annuities, etc.) do NOT pass by the directions in the will, but by the beneficiary designations listed for each account or policy. This is a common oversight and one that can have unintended consequences.
Another document(s) that may be helpful is a trust document – A trust agreement can give greater flexibility and control than a will alone but will be more complex and require ongoing responsibilities. An estate attorney can give guidance on the necessity of a trust when minor children are involved and/or there are complex needs. It’s worth paying for specialized expertise when it comes to distributing your life’s work or making literally life and death health decisions.
Without these documents in place and written according to your desires, family members will have to spend much time and money to predict and intervene for what was intended.
We always recommend working with a qualified estate planning attorney when drafting these documents in order to avoid missing nuances of the laws of the state and due to their expertise in this field.
A third step of being prepared for the unexpected is to become educated about your personal finances and take ownership in the decisions that affect your family. Sitting down with a financial planner who can help you understand your individual financial needs and who will work in tandem with your estate attorney can be one of the most thoughtful actions you can do for those you care most about.
Creating a comprehensive financial plan with your long-term objectives for security and well-being in mind and then outlining a strategy for achieving those objectives, will help prepare you if you were to lose a loved one - or prepare your loved ones if you were to die. As certified financial planners, we will run what-if scenarios that paint a picture of what could happen in various situations.
Whether you are young or old, married or single, it is critical to have discussions when you can exchange views thoughtfully in a way that honors one’s wishes and feelings. A financial planner can give an objective ear to your needs and goals and include those family members and friends that need to be informed. Combined with the documents prepared by an estate planning attorney, your family will be well prepared for whatever may happen. We are here to help you talk through and plan for those daunting end of life issues.