Nothing More Certain than Death and Taxes

Thoughts about estate planning when you don’t have a “taxable estate”

A few years ago, I convinced my father who is over 70 years old, to find an attorney in Florida to have some basic estate planning documents drafted. This was the result of multiple conversations and his claims that it wasn’t necessary, because I am his only child, and his wife (my mother) had passed several years prior. When my cousin and I received an email from him with a short blurb about his wishes and the contact information for the attorney, I was incredibly relieved that he had put something in writing. To introduce a bit a levity to this conversion, which can be a heavy one for most, part of my father’s email read:

No coffins, no graves, no gravestones. Cremation if you can’t convince them to just toss my remains…

I wish that I could say that I will make you rich, but that is extremely unlikely. Hopefully, most of the mortgage on my Florida house will be paid off and the market will be good so you can get some money for the house.

Ever the pragmatist, that is my father’s approach to death in a nutshell: no fuss and I hope you get a few pennies. A few years later, I realized it would be good to have a copy of the documents in my own files. With a written request from my father, it took just over four months and multiple follow-ups to get copies from the attorney. Hopefully this will serve as a cautionary tale for you, as it did for me, about how important it is to have these things planned out and organized ahead of time. Now, from the standpoint of assets passing to me as my father’s only living child, he was correct in his initial assumption: according to Florida state law he didn’t have to be concerned, but this is not the case in every state. If you die without a will, assets will pass according to state law, which may not have the results you would prefer. Further, there are many other aspects of estate planning documents that are not related to the transfer of assets at all.

Most people know that the will states your wishes for after you have passed, but there are a few more documents that focus on want you want to happen while you are alive. Each of the following is important for different stages of life:

1. Last Will and Testatament –

• Inheritance – The will primarily deals with detailing what you own individually and how you want it to transfer. This includes real estate and investment accounts, but also tangible personal property. Think about who you want to have that Waterford punchbowl that has been in the family for generations, specific jewelry items, or a special Christmas ornament you purchased many years ago. Even if the relationships between your family members are great so you don’t anticipate any squabbling, you don’t want anyone to feel guilty or uncomfortable while having to make these decisions.
• Guardians for children (if you have minor children)- even if you are young, healthy, and have modest savings in your bank account, you will still need this document to direct who you want to be responsible for your children.
• Executor – simply put, it is very important to determine who should be responsible for handling your estate and any paperwork that goes along with this. Discussing this role with this person or these persons, prior to noting it in your will, helps ensure that they feel capable and willing to take this on.

2. General or Financial Power of Attorney (POA) – gives someone(s) you trust the ability to make financial decisions and execute transactions on your behalf. POAs that relate to financial matters can be given in the event of your inability to make decisions or even prior.

3. Health Care Power of Attorney (HCPOA) – This makes it easier for doctors to communicate with those that you want to be involved in your care: this is of particular importance if you want them to be able to speak to anyone other than your spouse, as there are laws that prevent them from being able to share information with a non-spouse without this documentation on file. For example, I am my father’s only immediate living relative, but if he were in the hospital and didn’t have a health care POA in place, the doctors wouldn’t be allowed to share anything with me about his health and options.

4. Living Will – The living will is a type of advanced directive which details end of life preferences for treatment. This pairs with the HCPOA document to help them know your wishes. This eliminates the incredibly difficult task of having your loved ones make these decisions without any guidance.

If you already have each of these documents in place, it is a good idea to review them at least every 5 years, or if something significant changes, to ensure that they still reflect your wishes and name the correct executor, trustees, and beneficiaries. It’s not uncommon for clients to find that those named may not be people they are very close to anymore or that have predeceased them.

What are some other ways to make this as easy for your heirs as possible?

1. A “Document Locator” – This can be a file or document that provides additional instructions on items not included in a formal will. Some questions you may want to answer are as follows:

• Where should your heirs find your estate planning documents?
• Who should they call immediately to notify of your passing?
• Which accounts, insurance policies, pensions, etc. do they need to look out for?
• What are your funeral and or burial wishes?

2. Titling and Beneficiaries – Logistically speaking, making use of beneficiary designations and Transfer on Death or Joint with Rights of Survivorship titling can help bypass all kinds of paperwork and headache. These designations allow assets to pass to your heirs or charity outside of any formal estate planning documents. For example, if you make your child the beneficiary of your 401(k), the account will pass to an inherited retirement account in their name just by providing a death certificate and filling out forms directly with the financial institution. In most cases, this happens much more efficiently and quickly than settlement of the rest of an estate. Making a taxable account TOD or JWROS can have the same effect, but you should discuss the implications with your financial advisor, as there are some other considerations for non-retirement assets that you want to be aware of. Your estate planning attorney and financial advisor can help you make sure that your beneficiary designations and titling are coordinated with your estate planning documents.

The most important thing to remember is that it is almost always easier to make these decisions when everyone is healthy and there is time to think about what you really want to happen without pressure and added stress. We encourage our clients to prioritize having these discussions with family and documenting their wishes. It will eventually be a great gift to those you care about most.