Just What Is in an Estate Plan?

Getting your affairs in order may not be on anyone’s top ten fun list for a weekend. However, once it is done, you can relax, knowing your loved ones will be cared for. Is estate planning more or less painful than doing taxes once a year? The answer depends on who you ask, but a recent article titled “Estate Planning Checklist: 12 Things to Get in Order” from South Florida Reporter breaks it down into easy-to-manage steps.

A last will and testament outlines how your assets will be distributed after your death. They include personal property, real estate, bank accounts, etc. You can name a guardian for minor children, and name an executor, the person who will be in charge of managing your estate.

Proof of identity. Your executor will need information including a valid birth certificate, Social Security card, marriage or divorce certificates, a prenuptial agreement, or military service discharge papers.

Digital asset information. With so much of our lives lived online, everyone needs a digital vault, an integrated password manager or some kind of system for managing your digital assets. Without this, your traditional and digital assets are vulnerable to identity theft and fraud.

Property deeds and titles. You have titles for cars, homes, or real estate property. They need to be gathered and kept in a safe place, then one or two highly trusted individuals need to be told where these documents are located.

Revocable living trust. Creating a trust with an experienced estate planning attorney can help loved ones avoid the time and cost of having your estate go through probate. The trust creates a legal entity allowing you to control property while you are alive but preparing for the future. If you are living and become incapacitated, the successor trustee controls the assets owned by the trust.

Debts. These do not disappear when you die. Your executor will need to know what debts exist because they will need to address them. Compile a list of your debts, which may include mortgages, auto loans, credit cards, personal loans and student loans. Add contact information for the lender, account number, login information and approximate amount of the debt. If you have credit cards you rarely use, include those also, so they can be closed out before identity theft occurs.

Non-Probate Assets and Beneficiaries. Assets with named beneficiary designations can be transferred directly to beneficiaries. However, this does not happen automatically. Your executor will need to provide beneficiaries with the information for the assets, including the name of the insurance company or financial institution, the location of policies, account numbers and the value of the asset. The beneficiary may need to provide a death certificate and identification information before the assets are released.

Financial information. Let your executor skip the scavenger hunt. Create a detailed list information including bank accounts, car insurance, credit cards, health, home and life insurance, pension plans, retirement plans and tax returns.

Advanced Health Care Directive. This document is an opportunity for you to tell health care providers how you want medical decisions to be made, if you cannot communicate your wishes. The AHCD typically has two parts: Health Care Power of Attorney (also known as a health care proxy) and a living will.

The Living Will outlines your wishes, if you are unable to communicate. It describes your preferences for end-of-life requests, medications, resuscitation, surgeries, or other invasive procedures.

Power of Attorney is a document to give someone else the power to act on your behalf regarding financial and legal affairs. The scope of power can be as broad as managing everything or limited to selling your classic car collection. Your estate planning attorney will help you clarify what responsibilities you wish to give in a POA.

Funeral Wishes. If you want to save your family a lot of stress during a very difficult time, outline what you would want to happen. Do you want a cremation or embalming and burial? Should it be a full-on faith-based memorial service, or a few poems read at graveside? Make sure that your wishes are communicated and shared with loved ones, so everyone knows what you want.

Meet with an Estate Planning Attorney. Make an appointment to meet with an estate planning attorney to put all of this information in the appropriate legal documents. They may have recommendations for options that you may not know about.

Reference: South Florida Reporter (April 2, 2022) “Estate Planning Checklist: 12 Things to Get in Order”

What Assets Should Be Considered when Planning Estate?

The numbers of Americans who have a formal estate plan is still less than 50%. This number hasn’t changed much over the decade., However, the assets owned have become a lot more complicated, according to a recent article from CNBC titled “What happens to your digital assets and cryptocurrency when you die? Even with a will, they may be overlooked.”

Airline miles and credit card points, social media accounts and cryptocurrencies are different types of assets to be passed on to heirs. For those who have an estate plan, the focus is probably on traditional assets, like their home, 401(k)s, IRAs and bank accounts. However, we own so much more today.

Start with an inventory. For digital assets, include photos, videos, hardware, software, devices, and websites, to name a few. Make sure someone you trust has the unlock code for your phone, laptop and desktop. Use a secure password manager or a notebook, whatever you are more comfortable with, and share the information with a trusted person.

You’ll also need to include what you want to happen to the digital asset. Some platforms will let owners name a legacy contact to handle the account when they die and what the owner wants to happen to the data, photos, videos, etc. Some platforms have not yet addressed this issue at all.

If an online business generates income, what do you want to happen to the business? If you want the business to continue, who will own the business, who will run the business and receive the income? All of this has to be made clear and documented properly.

Failing to create a digital asset plan puts those assets at risk. For cryptocurrency and nonfungible tokens (NFTs), this has become a routine problem. Unlike traditional financial accounts, there are no paper statements, and your executor can’t simply contact the institution with a death certificate and a Power of Attorney and move funds.

Another often overlooked part of an estate are pets. Assets cannot be left directly to pets. However, most states allow pet trusts, where owners can fund a trust and designate a trustee and a caretaker. Make sure to fund the account once it has been created, so your beloved companion will be cared for as you want. An informal agreement is not enforceable, and your pet may end up in a shelter or abandoned.

Sentimental possessions also need to be planned for. Your great-grandmother’s soup tureen may be available for $20 on eBay, but it’s not the same as the one she actually used and taught her daughter and her granddaughter how to use. The same goes for more valuable items, like jewelry or artwork. Identifying who gets what while you are living, can help prevent family quarrels when you are gone. In some families, there will be quarrels unless the items are in the will. Another option: distribute these items while you are living.

If you can, it’s also a good idea and a gift to your loved ones to write down what you want in the way of a funeral or memorial service. Do they want to be buried, or cremated? Do they want a religious service in a house of worship, or a simple graveside service?

If you are among those who have a will, you probably need it to be reviewed. If you don’t have a will or a comprehensive estate plan, you should meet with an experienced estate planning attorney to address distribution of assets, planning for incapacity and preparing for the often overlooked aspects of your life. You’ll have the comfort of expressing your wishes and your loved ones will be grateful.

Reference: CNBC (Jan. 18, 2022) “What happens to your digital assets and cryptocurrency when you die? Even with a will, they may be overlooked”

Write a Letter of Instruction for Loved Ones

A letter of intent is frequently recommended for parents of disabled children to share information for when the parent dies. However, letters of intent or a letter of instruction can also be a helpful resource for executors, says the article “Planning Head: For detailed instructions consider a letter of instruction” from The Mercury. This is especially valuable, if the executor doesn’t know the decedent or their family members very well.

For disabled children, legal documents address specific issues and aren’t necessarily the right place to include personal information about the child or the parent’s desires for the child’s future. Estate plans need more information, especially for a minor child.

The goal is to create a document to make clear what the parents want for the child after they pass, whether that occurs early or late in the child’s life.

For a disabled child, the first questions to be addressed in the estate plan concern who will care for the child if the parent dies or becomes incapacitated, where will the child live and what funds will be available for their care. Once those matters are resolved, however, there are more questions about the child’s wants and needs.

The letter of intent can answer questions about the special information only a parent knows and is helpful in future decisions about their care and living situation.

The letter of intent concerning an estate should also include information about wishes for a funeral or burial and contain everything from directions for the music list for a ceremony to the writing on the headstone.

Once the letter of intent is created, the next question is, where should you put it so it is secure and can be accessed when it is needed?

Don’t put it in a bank safe deposit box. This is a common error for estate planning documents as well. The executor may only access the contents of the safe deposit box after letters of administration have been issued. This happens after the funeral, and sometimes long after the funeral. By then, it will be too late for any instructions.

Keeping estate planning documents in a safe deposit box presents other problems. If the bank seals the safe deposit box on notification of the owner’s death, the executor won’t be able to proceed. This can sometimes be prevented by having additional owners on the safe deposit box, if permitted by the bank . Any additional owners will also need to know where the key is located and be able get access to it.

The better solution is to keep all important documents including wills, financial power of attorney, health care powers, living wills, or health care directives, insurance forms, cemetery deeds, information for the family’s estate planning attorney, financial advisor, and CPA, etc., in one location known to the trusted person who will need access to the documents. That person will need a set of keys to the house. If they are kept in a fire and waterproof safe in the house; they will also need the keys to the safe.

If the parents move or move the documents, they’ll need to remember to tell the trusted person where these documents have moved., Otherwise, a lot of work will have been for naught.

Reference: The Mercury (Jan. 19, 2022) “Planning Head: For detailed instructions consider a letter of instruction”

What Power Does an Executor Have?

Being asked to serve as an executor is a big compliment with potential pitfalls, advises the recent article “How to Prepare to Be an Executor of an Estate” from U.S. News & World Report. You are being asked because you are considered trustworthy and able to handle complex tasks. That’s flattering, of course, but there’s a lot to know before making a final decision about taking on the job.

An executor of an estate helps file paperwork, close accounts, distribute assets of the deceased, deal with probate and any court filings and navigate family dynamics. Some of the tasks include:

  • Locating critical documents, like the will, any trusts, deeds, vehicle titles, etc.
  • Obtaining death certificates.
  • Overseeing funeral arrangements and memorial services, if any.
  • Filing the will in probate court.
  • Creating an estate bank account, after obtaining an estate tax number (EIN).
  • Notifying organizations, including Social Security, pension accounts, etc.
  • Paying creditors.
  • Distributing assets.
  • Overseeing the sale or transfer of real estate
  • Filing estate tax returns and final tax returns.

If you are asked to become the executor of an estate for a loved one, it’s a good idea to gather as much information as possible while the person is still living. It will be far easier to tackle the tasks, if you have been set up to succeed. Find out where their estate planning documents are and read the documents to make sure you understand them. If you don’t understand, ask, and keep asking until you do. Similarly, obtain information about all assets, including joint assets. Find out if there are any family members who may pose a challenge to the estate.

Today’s assets include digital assets. Ask for a complete list of the person’s online accounts, usernames and passwords. You will also need access to their devices: desktop computer, laptop, tablet, phone and smart watch. Discuss what they want to happen to each account and see if there is an option for you to become a co-owner of the account or a legacy contact.

Many opt to have an estate planning attorney manage some or all of these tasks, as they can be very overwhelming. Frankly, it’s hard to administer an estate at the same time you’re grieving the loss of a loved one.

As executor, you are a fiduciary, meaning you’re legally required to put the deceased’s interests above your own. This includes managing the estate’s assets. If the person owned a home, you would need to secure the property, pay the mortgage and/or property taxes and maintain the property until it is sold or transferred to an heir. Financial accounts need to be managed, including investment accounts.

The amount of time this process will take, depends on the complexity and size of the estate. Most estates take at least twelve months to complete all of the administrative work. It is a big commitment and can feel like a second job.

A few things vary by state. Convicted felons are never permitted to serve as executors, regardless of what the will says. A sole executor must be a U.S. citizen, although a non-citizen can be a co-executor, if the other co-executor is a citizen. Rules also vary from state to state regarding being paid for your time. Most states permit a percentage of the size of the estate, which must be considered earned income and reported on tax returns.

Be very thorough and careful in documenting every decision made as the executor to protect yourself from any future challenges. This is one job where trying to do it on your own could have long-term effects on your relationship with the family and financial liability, so take it seriously. If it’s too much, an estate planning attorney can help.

Reference: U.S. News & World Report (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate” 

What is not Covered by a Will?

A last will and testament is one part of a holistic estate plan used to direct the distribution of property after a person has died. A recent article titled “What you can’t do with a will” from Ponte Vedra Recorder explains how wills work, and the types of property not distributed through a will.

Wills are used to inform the probate court regarding your choice of guardians for any minor children and the executor of your estate. Without a will, both of those decisions will be made by the court. It’s better to make those decisions yourself and to make them legally binding with a will.

Lacking a will, an estate will be distributed according to the laws of the state, which creates extra expenses and sometimes, leads to life-long fights between family members.

Property distributed through a will necessarily must be processed through a probate, a formal process involving a court. However, some assets do not pass through probate. Here’s how non-probate assets are distributed:

Jointly Held Property. When one of the “joint tenants” dies, their interest in the property ends and the other joint tenant owns the entire property.

Property in Trust. Assets owned by a trust pass to the beneficiaries under the terms of the trust, with the guidance of the trustee.

Life Insurance. Proceeds from life insurance policies are distributed directly to the named beneficiaries. Whatever a will says about life insurance proceeds does not matter—the beneficiary designation is what controls this distribution, unless there is no beneficiary designated.

Retirement Accounts. IRAs, 401(k) and similar assets pass to named beneficiaries. In most cases, under federal law, the surviving spouse is the automatic beneficiary of a 401(k), although there are always exceptions. The owner of an IRA may name a preferred beneficiary.

Transfer on Death (TOD) Accounts. Some investment accounts have the ability to name a designated beneficiary who receives the assets upon the death of the original owner. They transfer outside of probate.

Here are some things that should NOT be included in your will:

Funeral instructions might not be read until days or even weeks after death. Create a separate letter of instructions and make sure family members know where it is.

Provisions for a special needs family member need to be made separately from a will. A special needs trust is used to ensure that the family member can inherit assets but does not become ineligible for government benefits. Talk to an elder law estate planning attorney about how this is best handled.

Conditions on gifts should not be addressed in a will. Certain conditions are not permitted by law. If you want to control how and when assets are distributed, you want to create a trust. The trust can set conditions, like reaching a certain age or being fully employed, etc., for a trustee to release funds.

Reference: Ponte Vedra Recorder (April 15, 2021) “What you can’t do with a will”