Estate Planning - one of the most boring, unpleasant, arduous, complicated and absolutely necessary part of your financial well-being!
With so many clients I have helped with their finances, there are a few key items that are often neglected, forgotten or just not known about in regards to their assets and finances. These are the most common mistakes I see and guide clients to complete while we work together, to ensure a complete and smooth plan for themselves and their loved ones.
1. No Contingent Beneficiaries: This is often known as the "second" beneficiary, if your primary beneficiary passes before you do. And many times people buy life insurance, or open an investment account like a 401k or IRA and name a primary and then say "I'll get back to naming someone else." But they often forget amongst a growing To-Do List.
- If you have adult children it is best to name them directly, for minor children we have seen clients utilize naming a Trust that is established in tandem with a Will.
- If you do not have children, it's best to consider siblings, parents or even charities or organizations you love (even your Alma Mater!).
2. No TOD or POD on cash accounts and investment accounts: Unlike IRA's and 401k's there is usually no default to name a beneficiary on your cash accounts (like money market, savings, checking) and even your brokerage accounts (stock account, CD's, bonds, etc.). However, even if you are married and your spouse is not named on this account, there could be a significant delay in a loved one being able to access these funds.
- It takes a few minutes to go to your local bank, or online, and name a POD (Payable on Death) designation for all cash accounts. This is super important for spouses who do not have shared accounts.
- For your brokerage or investment accounts you can do the same online, generally it is titled as a TOD (Transfer of Death) designation. If you are a Joint-owner on an investment account, it is still good to name someone else if something happens to both of you.
3. Not sharing your plans: So you did the hard part, you created a Will and named guardians for your children, and an Executor to handle your affairs and close your estate...but you never told them! This is very important as family members do not like surprises, and it's best for them to know if they are named to a specific duty.
- The Executor is the named person(s) who will handle and close your estate, this is a tedious job and often times you will want to name someone your same age or younger, if possible, as well as someone local (versus living across the country). Guardians for your minor children are also very important to name, and ensure these people are willing and able to take over that role. Power of Attorneys as well as named Trustees need to be notified ahead of time too.
4. The missing piece - your Digital Assets: In today's world everything we do is online. We have checking accounts that aren't even at physical banks, we have social media accounts, we have automatic bill pays set-up. At a minimum, list out any digital assets or accounts, as well as a shared and encrypted password and username file for your loved ones. This is especially important again for spouses who do not have shared accounts, and if one spouse is doing the majority of the financial matters (paying bills, taxes, etc.)
5. Leaving the wrong assets to the wrong person: This is not a fault, but more of a higher-level planning tasks I handle with all clients. So you own a home, two cars, a boat, an IRA and CD's at 6 different banks, but if you pass who do you leave that to? And is one person(s) better than the other?
- Oftentimes leaving assets like non-qualified annuities, IRA's and 401k's to adult children in their higher income years is not as beneficial, as the tax considerations matter. Sometimes if you have shared giving goals (charity and family) taxable assets such as these are best to be left directly to those organizations. Whereas tax-free assets like Roth IRAs, Life Insurance, or Step-up assets like real estate and brokerage accounts may serve a more beneficial gift.
- Real estate is a touchy item, many people I work with despise inherited homes, planning for your home equity and how it supports you and family is a critical part we discuss especially as you age into retirement.
6. Not reviewing your documents: Remember I said estate planning is like a root canal? Many get a Will and maybe a Trust established, and years...or even decades go by without reviewing them. At a minimum, every four years (think Election years) take out your documents and review them. Ask yourself: What has changed? What is not relevant anymore? What has changed with the legal and tax landscape? Many estate planning techniques and strategies do change, expire or become irrelevant over time. This again is an area I can help you plan for, and keep tabs on.
So at a minimum, please get your Will established. But also, don't forget these items as well, and please reach out with any questions you have.