In this segment of our Planning Matters series, we explore the basics behind the estate planning process and outline the four key steps you should take to develop your own estate plan.
For many of us, thinking about the future can feel unnatural or difficult, especially when we’re caught up in the hustle of daily life. But there is one aspect of your future that you should not leave to chance: your estate plan. While we don’t believe in employing scare tactics to motivate setting goals or making plans for the future, we do believe that a thoughtful estate plan can help ensure that no matter what tomorrow brings, your wishes are carried out, the transfer of assets to your heir(s) is seamless, and your values outlive you.
In a nutshell, your estate consists of all your assets. This includes your physical “stuff” — your furniture, computer, car, jewelry, even that old set of golf clubs in the garage. It also includes any real estate that you own. It includes any checking, savings, or investment accounts (even that old 401(k) from your first job); it also includes life insurance and annuities. Though often overlooked, your digital assets are also included in your estate. After all, these days, that digital footprint can be pretty large. This is by no means an exhaustive list, but you can see how your “estate” may easily be more extensive than you originally thought.
Since we all have different wishes and priorities, estate planning can be complex and varies from person to person. It is impacted by personal factors like health, age, heirs, financial well-being, important causes — even pets. At Treehouse Wealth Advisors, we believe that estate planning should be an integral part of everyone’s overall financial plan. Unfortunately, a recent Caring.com survey showed that only 42% of US adults currently have estate planning documents, and for those with children under the age of 18, that figure is even lower.
Estate plans often focus on issues related to someone’s passing. They can create instructions for how wealth is transferred or can designate guardian(s) for minor children. A common goal for estate plans is to minimize or avoid probate (which often involves a lengthy court process) and allow for a seamless asset transfer, with minimal tax consequences, to heirs. Sometimes, estate plans include desires for assets to skip a generation or be donated to charitable causes. In short, estate planning typically looks beyond one’s own mortality to consider the future.
Estate planning is also about the present. While it is often the furthest thing from our minds when we are healthy, an estate plan can also provide health care directives so that your loved ones know how you want to be taken care of if you get sick. Especially with today’s increasingly complex family structures, the decision maker the courts would turn to by default in case of your incapacitation might not be the person you would prefer. A comprehensive estate plan can allow you to dictate who should make these decisions on your behalf.
We know that estate planning can bring up some tough conversations and decisions. A trusted advisor can help walk you through the sticky stuff and ensure that those conversations lead to a plan that you are satisfied with. Unfortunately, none of us know what might happen tomorrow, but with a comprehensive estate plan, you can save your family emotional stress, time, and even money.
As we mentioned, we do not believe that there is a “one size fits all” for a comprehensive estate plan. Traditionally, estate planning was associated with attorneys, the drafting of wills, and strategies to minimize taxes and avoid probate. Today, estate planning encompasses much more than just transferring assets. Instead, an estate plan must be an actual plan rather than a series of uncoordinated financial and/or legal transactions. That plan should be nimble enough to develop as your life develops.
For example, if you are your family’s breadwinner, today your plan might indicate you need more life insurance. Tomorrow, you might be more concerned with a charitable legacy or perhaps you wish to leave assets to support a favorite pet. As life changes — birth of children, divorce, loss of a spouse — your estate plan should be reviewed and modified to accommodate those developments. However, no matter how your estate plan evolves, we think there are four main considerations:
1. Document Your Wishes
Whether your main desire for an estate plan is the seamless transfer of wealth, concern about healthcare in case of your incapacitation, or another goal entirely, voicing your wishes and documenting them correctly is a key part of any estate plan. There are often several documents involved. These may include life insurance policies, retirement account beneficiary forms, durable power of attorney documents, and others that we’ll describe briefly below.
A Will can direct the handling of assets, designate an estate executor, and provide proof of your intentions for your estate. More elaborate plans might employ a legal agreement called a Trust. With a trust, assets are placed “in trust” by a Grantor (typically, you) and a Trustee whom you appoint manages the assets for the benefit of the person(s) or entity(ies) you want to take care of (the Beneficiary[ies]). If this is done during your lifetime, you could be the grantor, the trustee, and the beneficiary; this is known as a Living Trust. If the Trust begins upon your passing, it may be known as a Testamentary Trust and can be used to help provide for minor children, a spouse, philanthropy, or other entities you designate.
The key to any type of trust is that it allows assets to be placed in a legal “envelope” for the benefit of your heirs (legally related or non-related individuals, charities, pets, or others) without necessarily giving the beneficiary control over the assets. It also can include directions for how/when the assets can be distributed to the beneficiaries. For example, in the case of minor children, all the assets could be turned over to the beneficiary upon reaching the age of 30. Or, you might direct that trust assets can only be used for educational purposes. There are numerous forms of trusts; some are meant to be temporary, while others might survive for generations; some are meant to designate control over assets while others are created specifically for tax purposes. Still others designate charitable causes as beneficiaries or provide for a loved one with special needs.
2. Appoint Trusted Decision Makers
As suggested by the term “trustee,” one of the most important moving parts of any estate plan is your appointment of the person or entity who ensures that the terms of your plan are carried out according to your wishes. These may be a trusted friend or family member; they may be an institutional entity such as a law firm or the trust department of a financial institution. But the most important qualification is your confidence in their ability to see that your wishes are carried out as stipulated in your estate planning documents.
In fact, it may be important for your estate plan to include a provision for a Successor Trustee: a person or entity you designate to carry out the duties of executor or trustee in the event that the original appointee is unable to fulfill their duties.
When it comes to your digital estate, it’s important to know your options — for instance, more and more websites allow you to designate a “legacy contact” who can manage and make decisions about your online accounts after your passing. You may wish to make accessing your online accounts easier by giving a trusted person instructions for accessing your digital assets.
For financial or healthcare purposes, you may want to designate someone to hold a Power of Attorney (these can be different people for different tasks). An Advance Healthcare Directive — sometimes called a Living Will — allows you a say in what life-saving measures should or should not be taken on your behalf. According to a 2017 study by HealthAffairs.org, two-thirds of US adults do not have these advance directives in place. By executing these documents now, you can gain more control over your life and help ensure your loved ones know your wishes. This can save untold emotional wear and tear for your loved ones. Be sure to discuss with your selected POA holder(s) your goals and ensure that they feel up to the task, as they may have to make difficult decisions on your behalf in stressful times.
3. Review Beneficiary Designations
Make sure your beneficiary designations are up to date on retirement account(s), life insurance policy(ies), annuities, pension plans, and other contracts that permit designation of beneficiaries. This is key to ensuring an easy transfer to your intended heirs. Beneficiaries should be regularly reviewed – especially when there is a big life event. Just because your life has changed does not mean the paperwork reflects it! In fact, according to a recent article in the National Law Review, careful review and updating of beneficiary designations is necessary to avoid “derailing the entire estate plan.” In other words, that old IRA account that you opened years ago during a previous marriage could pass to your ex-spouse, even if your current will directs otherwise. The only way to avoid such unintended consequences is to periodically review the beneficiary designations for all your accounts and policies and update them accordingly.
4. Engage Your Advisory Partners
Today’s estate plan often involves much more than just an attorney-drafted will or trust, and the need can be overwhelming. A trusted financial advisor can help break down the estate planning process into manageable tasks. They also can help watch for bumps in the road or any life changes that might require updating your estate plan. A good financial advisor will help you organize documents and coordinate lawyers, accountants, and other professionals. Eventually, your wishes will need to be executed, and a trusted financial advisor can help make sure your loved ones understand your wishes.
If you are wondering about the next steps for your estate plan, contact us today. We’d love to help you and your loved ones plan for the future and achieve your goals.
Garrison Point Advisors, LLC doing business as “Treehouse Wealth Advisors” (“TWA”) is an investment advisor in Walnut Creek, CA registered with the Securities and Exchange Commission (“SEC”). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. TWA only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of TWA’s current written disclosure brochures, Form ADV Part 1 and Part 2A, filed with the SEC which discusses among other things, TWA’s business practices, services, and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.
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