Chapter 2 - Financial & Estate Planning
Whether your assets (net worth) are meager or substantial, you should have or prepare some basic estate planning documents. In addition to your own peace of mind, your heirs will benefit by knowing where to find the necessary details with which to execute your estate. Depending on your circumstances, following is a list of documents recommended for the benefit of you and your heirs.
Basic (original) Will
This document specifies your individual wishes for distribution of your assets when you die. Without it, the state (of your domicile) may determine how your assets are distributed, without regard to your wishes, intentions or promises. Moreover, without a will, legal fees and possible litigation may consume a significant part of your assets rather than pass to the benefit or your heirs or desired recipients.
cf: Nolo Press; SmartMoney, and other On-line, down-loadable wills & documents
Revocable Living Trust
In addition to a will, many estate planners recommend a revocable living trust, which provides additional privacy to your affairs, and may be harder to dispute. After transferring ownership of your principal assets to a trust, you can serve as the trustee (without additional costs or fees), and the trust can be modified or changed at any time during your lifetime; you do not lose control of your property or assets.
Other trust arrangements
If your net worth exceeds a couple million dollars, or your family circumstances warrant special considerations or instructions, locate an experienced estate lawyer (better still, interview two or more for comparison) and consider a more elaborate estate plan involving trusts. It will allow you to resolve more complicated issues of inheritance, distribution, tax considerations, and family circumstances. It may be well worth the extra cost for you, your partner and heirs.
cf: American Bar Assn; and local or state bar associations for estate planning lawyers.
Letter of Instruction
While it will not carry legal standing in your state, a letter of instruction can be an excellent vehicle in which to convey to heirs, executor, accountants, lawyers and financial advisors the rationale and objectives of your estate planning. It can help resolve ambiguities or unforeseen issues in the execution of your estate after your death. Ideally it should also contain details on “where to find things,” passwords & pin numbers, end-of-life care and desired funeral arrangements.
Cf. Chapter 3 - End of Life Planning.
Durable Financial Power of Attorney
The Durable Financial Power of Attorney – or financial power of attorney – is a document to identify and empower someone to manage your finances if you should become incapacitated. It can be a blessing to your partner/heirs should you suddenly become unable to manage your financial affairs; without it, they would need to petition the court for such authorization.
Titles to Property, Vehicles & Other Assets
In addition to keeping original titles to all tangible property in a safe place (accessible to your heirs and executor), evaluate the optimal type of title by which to hold each individual property or major asset. There may be a specific form of ownership for some properties that best serve your objectives for current ownership and transfer on death. (Seek legal advice if uncertain.) “Other Assets” includes partnership agreements, family business or corporate agreements, notes, receivables, bonds, etc. Assets that are overlooked by your partner/heirs may never be found when you die; state treasuries around the U.S. presently hold over $30 billion in unclaimed bank accounts and other assets.
Recent Tax Returns
At least three years of your most recent federal and state tax returns should be available in your estate planning documentation. They will help your partner and accountant complete the necessary tax filings following your death.
Financial Accounts & Assets
Maintain a current list of all accounts including account numbers and contact information. Note: ID’s and password details should be recorded separately as an addendum. This includes bank & savings accounts, investment accounts, credit & debit cards, insurance policies & beneficiaries, IRA’s, 401k plans, pensions, annuities … You and partner may have separate accounts; evaluate the type of ownership, beneficiary (ies) in event of death, and decide on appropriateness of Payable on Death characterization for each account, or adding an heir as signatory to the account.
Note: An IRA without withdrawal by age 70 ½ may be considered dormant and unclaimed. (cf. Required Minimum Distribution, IRS …)
Note: An IRA should have specific instructions for inheritance; do not rely on a will to make that specification.
Marriage & Divorce
Have a copy of your marriage license accessible; the surviving spouse may need it as proof of eligibility for some survivor benefits. Ditto for a copy of any applicable divorce judgment, decree or stipulation agreement to confirm or counter claims by an ex-spouse. These latter documents may also specify terms of child support, alimony and property settlements; include documentation of all settlement terms, assets, accounts and the most recent child support payment order. Requirement to continue child support payments may continue after death. If you have an insurance policy benefiting your children, it may offset ongoing child support.
Note: If your current relationship is tenuous, be alert to possibility of a secret will; even in a community property state you may be deprived of your rightful share of assets if a secret will exists. Consult a lawyer for advice regarding options for pre-empting or countering any possible secret wills.
Identify all life insurance policies and benefits covering you and partner including individual policies, group policies (via employer), and nominal policies offered (often free of charge) by financial institutions with which you have accounts.
Safe Deposit Box (Home Safe, if you have one)
Identify location of these important documents and the existence of & access to safe deposit box(s) or home safe. To avoid risking compromise of this essential information, list the contact information, passwords, and identifying information separately as an addendum, keyed to the main list of accounts & assets. Ensure that at least one of your heirs (and/or executor/lawyer) has a copy of or access to a complete list of all your assets plus the separate addendum with passwords & pins.
cf: Chapter 4 – End of Life Planning, for other recommended documents, viz.:
Living Will, Durable Health Care Power of Attorney, Advanced Health Care Directive, DNR, DNI, PSAS, POLST
In-laws and Ex-Spouses
Careful and explicit documentation of your individual wishes upon your death are particularly important in avoiding potential disputation or litigation by extended family – siblings, in-laws, ex-spouses, common law arrangements, paramours, fraudulent claimants, etc.
Your estate documentation should include identification of your digital accounts, smart phones, passwords, etc. Without knowledge of passwords for your email & other digital account(s), your partner may be unable to identify or notify your friends & colleagues of your passing. Your digital accounts may contain other essential information for your partner/executor/heirs to which they may be denied access unless you have made necessary arrangements.
cf: Google’s Interactive Account Manager; Legacy Locker; Planned Departure; protecting, sharing your PW’s (passwords).