In more than two decades working as a financial planner, I’ve assisted many people through the logistics of settling an estate after the loss of a loved one. Recently, I was on the other side of the table. Both my parents passed away in the last four years. As executor of my dad’s estate, I gained new perspective on the importance of planning ahead. As a son and a financial planner, here are some of my personal reflections on estate planning.
Create a Plan
Step number one is to realize we are mortal and should take some basic steps and begin an estate plan. You have already started one whether you know it or not. The titling of your bank accounts, home and automobile is a first step. How things are titled matters. The persons you list as beneficiaries on IRA, 401(k) and life insurance documents are a second step. Beneficiary forms typically supersede a will. Creating a will and naming executors, beneficiaries and guardians is a third important step in the event of your death, along with naming a power of attorney (durable, medical, etc.) in case you become incapacitated. These determine who can act for you and express your wishes. A revocable trust is a slightly more advanced step that allows planning while in life and death, as well as provides privacy and some estate tax benefits.
If you don’t create a plan, then your estate will go through probate and your state’s laws for an intestate estate will control who is to inherit (for example, all could go to a second spouse and none to your children).
Communicate Your Plan
It is important to communicate your plan to your loved ones. Discuss with them in either broad terms or fine details what have done. Then have a “fire drill.” Ask your spouse or children if they know where to locate you relevant documents and files if you pass. Who should they call? Do they know the names of your financial advisor, or attorney, or accountant?
Leave a Trail of Breadcrumbs
My dad was a fairly organized engineer. Yet, I still had to handle changing dozens of accounts and documents for banks accounts, brokerage and retirement funds, life insurance, real estate and car titles, credit cards and tax returns.
You may have all of your assets well-organized and saved electronically, but if your loved ones don’t know which computer, which password or which files to locate, they could be at a standstill. Having a physical paper trail is helpful. This is where I started after my dad died. I found checking accounts in the kitchen, investment statements in stacks in the office and life insurance statements in a filing cabinet. The will and trust were in a binder on a different shelf, and income tax papers in yet another location.
Consolidate and organize now, so others don’t have to clean up later. Remember to take the time to review your estate plan and communicate it to others. Your loved ones will appreciate your diligence, and it can greatly simplify an already difficult time in their lives.