5 things to consider when making a will, other end-of-life plans

Planning who makes decisions and who gets what when you die is “a gift” to your family, says one financial adviser.
While many people think estate planning is only for the rich, experts say that’s not the case.
Here are some important things to think about as you consider your own end-of-life plans.

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Thinking about your own death may not be on the list of things you really want to do.

But for your family or other loved ones who would be trying to put their affairs in order while also dealing with the emotional fallout of your loss, it’s important that you have what is called a succession plan, experts say. And that’s true whether you’re rich or not.

“Getting your things in order is a gift you’re giving your family,” said certified financial planner Lisa Kirchenbauer, founder and president of Omega Wealth Management in Arlington, Virginia.

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Simply put, your estate plan dictates who will make decisions and who will inherit what you own. “Estate” simply refers to possessions and other assets.

Experts say most estate plans don’t need to be complicated. But to ensure your wishes are granted, they need to be executed correctly – which is why it can be worth consulting a local estate planning lawyer.

Here are five important things to know when you start thinking about how you would create an estate plan.

“If your ex-spouse is listed in the beneficiary designation, your ex-spouse will receive the money regardless of what your will says,” said CFP Stephen Maggard, a consultant with the Abacus Planning Group in Columbia, South Carolina.

Note that many 401(k) plans require your current spouse to be the beneficiary unless they legally agree otherwise.

Even regular bank accounts may have beneficiaries listed on a death form that your bank can provide. The same applies to brokerage accounts.

If your ex-spouse is listed in the beneficiary designation, your ex-spouse will receive the money regardless of what is in your will.

Stephen Maggard

Advisor at the Abacus Planning Group

If there is no beneficiary listed on these various accounts, or if the nominated person is already deceased (and no conditional beneficiary is listed), the assets will automatically go into probate.

This is the process by which all of your debts are paid off and the remaining assets subject to probate – including those going through the will – are distributed to the heirs. This can take anywhere from several months to a year or more, depending on state laws and the complexity of your estate.

When you make a will, you appoint an executor to fulfill your wishes and administer your estate. It can be a big task.

Things like dissolving or closing accounts, making sure your assets go to the right beneficiaries, paying off any unpaid debts (i.e. taxes owed) and even selling your home could be among the tasks overseen by the executor.

That means you need to make sure whoever you’re naming is ready for the job — and that they’re ready to take it.

In addition, a succession plan should include other end-of-life documents, including a living will. This outlines the health care you want and don’t want when you are no longer able to communicate those desires yourself.

You can also grant powers of attorney to trusted persons so that they can make decisions on your behalf if you become incapacitated. Often the person given this responsibility for making decisions related to your health care is different from the person you would designate to handle your financial affairs.

Just name alternatives.

“It’s super important to have backup people in all roles in the estate plan … in case someone isn’t able to serve,” said CFP Jennifer Bush, financial planner at MainStreet Financial Planning in San Jose, California.

If you have assets like stocks, bonds, or real estate (such as a house) and are considering giving them away to children or other heirs during your lifetime, it may make more sense to wait.

When these assets are sold, any increase in what is known as the acquisition cost (the value at the time the asset was acquired) and the selling price is subject to capital gains tax.

However, after your death, your heirs who inherit those assets will receive an “increased foundation”. In other words, the market value of the property at your death becomes the cost basis for the heir – which generally means that any appreciation in value before that goes untaxed. And if the heir sells the asset, any gains (or losses) are based on the new cost basis.

On the other hand, if you were to gift such valued assets to heirs before your death, they would inherit your original cost basis – which could result in an inflated tax bill if the assets are sold.

“We often recommend that customers give cash to adult children instead,” Maggard said.

If you want your children to receive money, but don’t want to give a young adult – or one prone to bad money management or other worrisome behaviors – full access to a sudden windfall, you may consider forming a trust that the beneficiary of one is special good.

A trust holds assets on behalf of your beneficiary or beneficiaries and is a legal entity determined by the documents that create it.

If you go this route, the assets will be left to the trust and not directly to your heirs. You can only receive money as (or when) you specify in the escrow documents.

Any time you have a major life change — like having a child or getting divorced — it’s important to review your estate plan.

You should confirm that your nominated executor (or trustee if you are forming a trust) is still an appropriate choice. Also, check any listed beneficiaries on your financial accounts to ensure no updates are needed.

Also, if you’re moving to a new state, check if you need to update any part of your plan to comply with that state’s laws.


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