Take Care of Your Family with a Good Estate Plan

Jane Young, CFP, EA

Jane Young, CFP, EA

Most of you put tremendous effort into saving and investing for the future.  It’s common to routinely monitor our budgets, portfolios and progress toward retirement but neglect our estate plans.  It can be uncomfortable and awkward to work on your estate plan but the failure to plan for the thoughtful distribution of your assets can be disastrous for your loved ones.  Your estate plan is a significant part of your financial plan and needs to be accurate and thorough to cover most contingencies.

I encourage most individuals to work with an estate planning attorney to develop or maintain a plan.  To select an attorney ask friends, colleagues and professionals you know or work with for a referral.  Have a brief phone call with at least three attorneys to find one you feel comfortable with, who provides the services you need and whose fee structure seems reasonable.   If you have a complicated situation select an attorney who is proficient with complex estate planning.   If your situation is straight forward, you’ll want to guard against an unnecessarily complicated and expensive estate plan.

Prior to seeing an attorney think about how you want your assets distributed and who should serve as your personal representative to manage the distribution of your assets.  Also consider how your plan will change if one or more of your heirs predeceases you.

Your estate plan should address and coordinate assets that are distributed using a will and those to be distributed using a beneficiary designation, transfer upon death or other automatic transfer.  Give beneficiary designations serious consideration as they may impact a large portion of your estate. Beneficiary designations, accounts transferable upon death, accounts held in Joint Tenancy, beneficiary deeds on real estate and assets held in a trust all supersede a will.  A will provides instructions on the distribution of your residual estate or those assets that are not distributed via other legal transfers.

Assets in retirement accounts, annuities and life insurance policies are generally distributed using beneficiary designations.  Be especially careful to name an individual rather than an estate or trust as beneficiary on a retirement account. This will make it easier for your beneficiaries to spread out distributions from the account over time and avoid a substantial tax bill if the entire balance is distributed all at once. Additionally, don’t leave the beneficiary designation blank on the assumption it will be distributed in accordance with the will.  Many financial institutions distribute retirement accounts, without beneficiary designations, in accordance with “intestacy guidelines”.  These are rules your state uses to distribute assets when no will or beneficiary designation is in place.

In addition to the distribution of assets your estate plan should include a durable power of attorney, health power of attorney, advance health care directive or living will and a HIPPA authorization.  Most attorneys provide these as part of a complete estate planning package.

Beneficiary Designations Trump Your Will

Jane Young, CFP, EA

Jane Young, CFP, EA

You really don’t want the state deciding how your money is distributed when you die, so be sure to specify how you would like your assets divided.  In Colorado this is most commonly accomplished through the use of a will or beneficiary designations, in more complicated situations a trust may also be used.

Virtually, any financial account can be divided using a beneficiary designation, but it is most commonly used with retirement accounts, life insurance policies and annuities.  Assets distributed through a beneficiary designation will pass to heirs outside of probate.  In addition to assets with a beneficiary designation, assets that are held in joint name or that are designated as “transfer upon death” (TOD) will also transfer outside of probate.

Beneficiary designations and TOD accounts supersede your will, so it is of upmost importance to keep your designations current.  This is especially important when there is a major change in your life such as a marriage, divorce, or death.  Beneficiary designations are legally binding and will be enforced regardless of any changes in your relationships.

You can also transfer your real estate using a beneficiary designation. According to Steve Ezell, a local Estate Planning Attorney, this type of transfer can be accomplished with a “Beneficiary Deed”.  A Beneficiary Deed does not go into effect until death so you will have full ownership of your home while alive and you home will transfer outside of probate.  In an effort to avoid probate, many people deed property to their children and themselves. However, this could create complications if you later decide to sell your home.  It could also affect your possible Medicaid eligibility. 

Probate is the process of legally distributing your assets upon death.  In Colorado, this is usually a relatively simple and inexpensive process.  According to the Colorado Bar Association, the Uniform Probate Code has dramatically simplified probate.   Currently, over 90% of Colorado estates are not court supervised allowing the personal representative to do most of the administration.

Most individuals need a will to control the disposition of everything in their probate estate, this excludes accounts in joint name, distributed by beneficiary or distributed by TOD.  If you want all of your financial assets distributed through your will, leave your beneficiary designations blank or list the estate as the beneficiary. 

When dividing your assets with beneficiary designations or a will, Steve Ezell suggests you consider the use of percentages rather than specific dollar values.  Over time, as you make changes to your various accounts, percentages can help you maintain the desired proportion of assets to be distributed to each heir.  Additionally, identify both primary and contingent beneficiaries, just in case your primary beneficiary dies before you. Should a primary beneficiary predecease you, you will need to specify if their share goes to the remaining beneficiaries or the deceased beneficiaries’ children.

Beneficiary designations and wills are both effective tools, if you utilize them and keep them current.

The Possibility of Becoming a Widow Should be Part of Every Married Woman’s Financial Plan

Jane M. Young CFP, EA

I know this is a subject we don’t want to think about but the reality is most wives will out live their husbands. We plot and we plan all kinds of cash flow scenarios for couples to live happily ever after until they fall gently asleep in each others arms at age 100. That would be nice but life isn’t quite so predictable. Therefore as a wife, you should plan to out live your husband. This includes being ready to handle all of the arrangements and paperwork that must be handled upon death as well as long term planning for your financial needs. Below is a list of issues that should be addressed before you become a widow.

 • Select an Estate Planning Attorney who you trust and are comfortable with to draft a will and help you through the process of settling your husband’s estate.
• Draft a will and a Health Power of Attorney.
• Discuss end of life plans with each other.
• Review the beneficiary designations on IRAs, 401ks, and life insurance policies.
• Organize your financial papers so you know what you have, where you have it and who your contact is.
• Take an active role in managing your finances.
• If you are uncomfortable with finances, take some classes and read some books to educate yourself.
• If you choose to work with a Financial Planner take the time to select someone who you trust and feel comfortable with – especially when you are alone. The National Association of Personal Financial Advisors provides some good guidelines on selecting a financial planner at www.Napfa.org.
• Run some retirement planning scenarios as a widow – will you have enough money to cover your expenses if you husband predeceases you? Are you still entitled to his pension or will you receive a decreased payout?
• Does your cash flow fall short of what you need? Consider buying some term life insurance? Consider adjusting your work situation to save more money?
• What happens if one of you needs long term care? Can you cover the expense or should you consider long term care insurance?
• What happens to your health insurance when your husband dies? How much time do you have to secure health insurance in your name?   Are you entitled to Cobra?
• Establish credit in your name, get your own credit card.
• Do you have adequate emergency reserves to cover funeral expenses and several months of expenses?

The loss of a spouse is extremely difficult. Most widows feel like they are in fog for the first year. The last thing on your mind will be money but some issues will need to be addressed. Make it easier on yourself and plan ahead.