We work with clients through all stages of life and through multiple generations. From going to college, paying off debt, getting married, saving for a house and of course, planning for retirement. And while accomplishing these important financial and life goals is critical, it can all go up in smoke in an instant if you haven’t planned properly. Premature death, disability, and an inability to handle one’s own affairs can leave you and your loved ones in a difficult position. Luckily, there are some simple things you can do to plan for the unforeseen and protect your loved ones and your financial legacy.
Before we begin, it’s helpful to acknowledge the fact that we will all die. And because we are living longer that we once did, it’s also helpful to acknowledge that there is a good chance we will become incapacitated and unable to handle our own affairs. I know this is probably not a pleasant thought. But forcing ourselves to think about these things with objectivity helps change in our mind not IF these things will happen, but when. And that helps us think about the things that we or a loved one would have to take care of in their or our absence.
So what are the things that would need to be taken care of? Yes, there are the bank accounts, investment accounts and insurance policies. But there are also houses, titled vehicles and equity in privately held businesses. There are also medical decisions, deathbed decisions and final wishes that you may want to codify now while you are still able to. So how do you do all of that?
The first and easiest thing to do is to visit the institutions where you have accounts. First, make sure they are titled properly. If you are married, make sure they are in joint ownership and that all names are current. If you have retirement accounts and/or life insurance policies, make sure the beneficiaries are correct. And take that a step further and specify a contingent beneficiary, someone who would take the place of the primary beneficiary if that need arose. Contingents are commonly children or a trust if you’ve done that planning. If you have an account that you want someone to be able to help you with, consider signing a Limited Trading Authorization. Unless that person is a spouse, do not list them as a joint owner. This can trigger gift taxes and could subject your accounts to legal action if that person defaulted on her/his own obligations, and could trigger penalties for Medicaid eligibility. Finally, if you have an account that is not an IRA, Roth IRA or Trust, many institutions have what they call a Transfer/Payable on Death (TOD/POD) option which functions much like a beneficiary designation in that it determines where those proceeds go once the owner(s) passes away. All of these things can be done without an attorney and for little or no cost at all.
Even if you’ve done some of the planning discussed above, there are still circumstances that necessitate more formal legal planning and consultation with a trusted estate planning attorney. If you are still living but want someone to be able to make decisions on your behalf, consider a Durable Power of Attorney (POA). A POA is a document that specifies a person – the attorney in fact – to make certain financial and other decisions on your behalf. This document becomes active once you become incapacitated, or allows the attorney in fact to function while you are in full health. A basic POA document ceases upon incapacitation but a DURABLE POA document persists through incapacitation. Make sure yours is drafted in such a way to fit your objectives. Lastly, all POAs cease upon death.
In addition to a POA, you may want a Healthcare POA. This is a document that allows a person to make medical decisions when you are not able. Say, whether to perform a surgery while you are unconscious. A Living Will is similar to a Healthcare POA in that it deals with medical treatment but is exclusive to deathbed concerns.
Once we die, there are typically two documents that will determine what happens. A will and a trust. A will is a document that tells a court what you want done with anything left in your estate after you pass away. In the state of Wisconsin, it also allows you to nominate a guardian for any minor children. If you have minor children, get a will right away. There are a couple considerations regarding a will. It is still subject to probate and as such, is a public document. This means that executing your will could take months and will be a public process. Some of which can be avoided by using a trust. Secondly, any beneficiary designations or TOD/POD on any accounts takes precedence over a will. Make sure those documents are either in agreement or that you approve of any discontinuity between them. Finally, a will is a good tool for telling the assets where to go but not usually for exercising persistent control over an asset.
A trust can be helpful in a number of circumstances. As stated above, if you wish to exercise control over an asset for any length of time after your death, a trust is a must. You can set distribution restrictions, requirements for distribution, and much more. Further, trusts are private documents and are not subject to probate. This means that a Trustee or Successor Trustee can begin acting on the trust and carrying out your wishes within days after your passing. In addition to determining how you want your trust to function, it is also wise to thoughtfully consider who you want to administer the trust in your absence. This is commonly a surviving family member. And while this can sometimes work, we often find that family members do not know their obligations in serving as a trustee which can subject them to legal action by the beneficiaries. To mitigate this, we will sometimes recommend a trust company to serve as a corporate trustee. A corporate trustee has the expertise to administer your trust and can also be a disinterested 3rd party which can help family dynamics in difficult times.
While the items here can be daunting, I hope you can see they are of the utmost importance. When my wife and I went through this process in 2012 with our attorney, it took longer than I anticipated. But when we were done, I felt much peace knowing that my family would be in good shape should something bad happen. Make this your 2-month goal; you’ll be glad you did.
-Michael Macco, Financial Advisor
"Any opinions are those of Michael Macco and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Raymond James does not offer legal advice. You should discuss any legal matters with the appropriate professional."