Plan Your Estate OR… Your State Will Plan it For You
By Chaz Fahrner, CFP®, EA, MSBA
Earlier this year, a client contacted me in regards to an inheritance that she received. She explained that her brother, let’s call him Mitch, passed away unexpectedly in his early 50’s. As she described the circumstance, I realized that Mitch had not properly planned his estate. Like many us with busy lives it’s hard to find time to sit down with an attorney and create an estate plan. Even if we do find the time to create a plan, we often fail to retitle our assets and make adjustments as life circumstances change. My client’s story about her brother’s sudden death is a stark reminder that our lives can change in an instant. With this in mind, I would like to share some estate planning basics and common mistakes that many folks make in preparation, or lack of preparation, for the inevitable.
Create Your Core Estate Planning Documents
If you own anything, than you should have an estate plan. If something happens to you and you are not prepared, then your default estate plan is a process called probate. The probate process is dictated and administered by your resident state. The problem with the probate process, especially in California, is that it can be very expensive, it can take a long time to complete and all of the details are public information. Another problem is that some, or all, of your assets may not transfer to the beneficiaries of your choosing. The probate process can be an unnecessarily stressful experience for your loved ones so it makes sense to keep your assets out of the hands of your resident state. To avoid probate, consider the following documents for your estate plan:
Revocable Trust: The primary estate planning document used to avoid going through the probate process. It will allow your assets to be managed, the way you want, should something happen to you.
Pour-Over Will: Created as a safeguard to transfer any of your assets that are not included in your Revocable Trust. At death, these assets will pour over into your revocable trust.
Financial Durable Powers of Attorney: Gives consent to another person to make financial decisions on your behalf.
Healthcare Directive: Gives consent for another person to make medical decisions on your behalf if you become incapacitated.
HIPAA Authorization: Allows a 3rd party the ability to obtain your personal medical information that would normally not be available.
Trust Certification: Gives a 3rd party reassurance that trustees have the authority to conduct financial transactions in the name of the trust.
Retitling Your Assets to the Name of Your Trust
Even if you have created a revocable trust, you must change the title of your assets to the name of your trust. This is probably the biggest mistake that folks make. This process requires some extra effort because changing your assets to the name of the trust may require paperwork.
Please consider retitling the following assets to the name of your trust:
- Cash account: Checking, Savings, Money Market, CDs
- Non-Retirement Accounts: Stocks, Bonds, Annuities
- Real Estate: Primary Home, Investment Properties
- Vehicle: Cars, Trucks, Boats, Trailers, ATVs
- Any Business Interest
- Life Insurance Policies
- Notes Receivables
- Valuable Collectables: Artwork, Stamps, and Coins
- Don’t forget to inform your mortgage company, Car Loan provider, Home and auto insurance provider that you plan to retitle your assets in the name of your trust.
Update your Beneficiaries on Life Insurance and Retirement Accounts
Unfortunately, my client’s brother, Mitch, did not update his current wife to the beneficiary, for his life insurance and retirement accounts. Imagine the shock that Mitch’s wife experienced when she realized, after the unexpected death of her husband, that the beneficiary on the accounts were still in the name of his ex-wife.
Life insurance and retirement accounts require you to designate a beneficiary on the account when you start the account. If you get divorced, married, have a child or have any significant change in your life, these beneficiaries are not automatically updated. It’s important to make sure your beneficiaries are updated because a mistake can cause a significant amount of suffering for your loved ones.
Everyone’s situation is unique and each state may require a different process to accomplish the goal of a seamless transfer of your estate. It’s always important to look to professionals for help. Working with an attorney that specializes in Estate Planning can help you create your core estate planning documents, or review and update your documents to reflect your current circumstance with any law changes that may affect you.
The above efforts may prevent your resident state from getting involved in your estate. More importantly, having an organized estate may avoid loved ones from experiencing unnecessary work, agony and suffering.