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.