Honor Your Family With A Simple Estate Plan
By Angela Moore, CFP® of Modern Money Advisor
Estate planning is for the unselfish. Yeah, I said it!
The first time I ever experienced it, I was a finance director at a car dealership, and I was sitting across the desk from a woman in her mid-50s to early 60s. We were in a cold grey office and I could tell she was tired, exhausted and frail. She seemed to be so uncomfortable being at the dealership. It’s an uncomfortable place to be. It’s like walking through a flood of predatory salesmen waiting to devour you. I get it! I was happy that she had landed in my office because, out of everyone there, I knew I had the patience and gentleness to help her and make her feel more comfortable. I was probably about 25 years old then. Her husband had passed away and she was trying to find out who their car was financed through. She cried to me and told me of her husband’s sudden passing. I tried to console her and it was a super uncomfortable situation to be in. I wasn’t sure what to say. She explained that her husband had managed all of their financial matters and she was now left to figure it all out on her own. She had no clue who the car or house were financed through and didn’t even know where all of their accounts were. I looked but couldn’t find her name or his in my system. I recommended that she pull a credit report and I helped her, but there was no car loan listed. I remember taking note and thinking to myself, I can never let this happen to me. I will need to know what’s going on from a financial perspective when I get married. Anyways, I digress.
A few years later, I became a financial advisor and I was seeing these situations constantly. ALL THE TIME! It’s heartbreaking. Husbands, wives, children, parents, siblings, friends... you get it; It affects everyone around you. You’ve just lost someone you love, you’re grieving, and now you’re supposed to go deal with their mess.... all the creditors, financial institutions, government offices. That’s the last thing you want to do when you are dealing with the loss of a loved one. If someone was listed as a beneficiary, it was easy. Give us the death certificate and funds were disbursed. Otherwise, it was about to be a loooonnggg process.
57% don’t have a named beneficiary
One problem was that so many people didn’t have beneficiaries listed. Without beneficiaries, the family would have to go through the probate court process. Probate court means that there is a court process that involves judges, lawyers, legal fees, court costs, time, complexity, creditors and more. It’s not fun. It can also involve a lengthy legal battle if there are multiple people who believe they should be entitled to any part of that person’s assets or property. It can take years!
A typical probate process will take up to 24 months from the date of the decedent's death. However, in cases of contested issues or lawsuits, the process may take up to several years, or even decades
Basically, you just lost someone you love and now you have to go to court, pay lawyers, deal with legal paperwork, creditors, banks and more. NOBODY WANTS TO DO THAT! Especially after losing a loved one. In the movies, after someone dies, they show the family at the funeral and then at some swanky home gathering celebrating or mourning the death. Then life magically goes on. In real life, there’s a LONG, annoying, overwhelming legal and financial process that ensues when you have not done estate planning. And there are tough decisions that have to be made about what to do with everything, from planning the funeral, to what to do with your house, your business, handling your creditors and distributing your assets, which by the way, some random judge will decide for you. And what if you have children or pets... who gets them? Most of your loved ones don’t even know where you bank or what you have. Imagine how lost they’d be.
78 percent of millennials (ages 18-36) do not have a will. Even more surprising is that 64 percent of Generation X (ages 37 to 52) doesn’t have a will, and nearly half of respondents in the 53 to 71-year-old age group (40 percent) said they don’t have one.
A major problem is that most people have not done any estate planning. They either don’t think estate planning applies to them because they don’t have a lot of money or they think they still have time to get it done. I can roughly say that over my 12+ years as a financial advisor, only about 5% of people I’ve encountered have even a basic will, and I’ve worked with clients with up to $40 million in assets. It’s crazy!
Having an estate plan is a selfless act that demonstrates your love and thoughtfulness for loved ones. By not having an estate plan, you are essentially saying it’s too hard for you to think about it or deal with it, so instead, you choose to let your grieving children or your distraught spouse figure it out (and pay for it) all by themselves. What would take you roughly 2 hours and a little bit of money could save your loved ones tens of thousands of dollars and months or even years of their time.
Behavioral Finance
Behavioral finance is one of my favorite areas of study. Why do we make the financial decisions we make? What biases do we have when making these decisions? What did we experience or see growing up that is impacting how we make financial decisions? How do our emotions or past failures play into these things? When it comes to estate planning, many people are uncomfortable addressing the possibility of death, even though we are all aware that it is an inevitable thing... unless scientists come up with some everlasting life serum. It’s often even a cultural thing. I want you to think about this. Are you making a sound financial decision or are you making an emotional decision? I can go on about this topic for days, maybe I’ll explore this more in my next piece.
I’m not an estate planning attorney, but as a CERTIFIED FINANCIAL PLANNER™, I recommend that everyone complete an estate plan... even if you don’t have any assets. I think the biggest problem is that most people don’t know what an estate plan is or what it does. So let me break it down.
An estate plan is a plan for when you are incapacitated or when you die. We are all going to die and that can happen any time... we know that for sure. There is also a risk that you could be alive, but not able to make decisions... that’s called incapacity. For example, being in a coma, having Alzheimer’s or dementia.
An estate plan is a written record of instructions that is honored legally. As far as I know, and any lawyers can chime in if I’m missing something, there are a few main components to an estate plan and there are a million ways to drill down and get complex if you want or need to. There’s also specific laws in each state.
Here are the basics:
Will - lists who should get what, otherwise a judge decides. If you have children, lists who you’d like to serve s as custodian over your kids if something happens to you. If you don’t have this, a judge(random stranger who does not know you or your family) decides. I think you’d like to decide who raises your children or who gets your dog or your house. A will still goes through the probate process which costs money and is a public proceeding.
Trust - Like a will but it’s private and skips the probate process. I think you already see the value in that. In addition, a trust allows you to be much more specific about what you’d like to happen. For example, I want my daughter to get 10% on her 25th birthday but only if she’s not on drugs, etc. The trust only controls assets that are titled in the name of the trust, so after a trust is created, you actually beef guidance from your attorney and financial advisor about what to put in the trust and how.
Beneficiaries - easy. Everyone should have beneficiaries on as many accounts as possible... life insurance, 401(k), brokerage accounts, bank accounts, IRAs, etc. And be sure to review them every 2 or 3 years or whenever there’s a life change. I can’t tell you how many people have their deceased parents or ex spouse listed as a beneficiary. Worse, many people have no one listed as beneficiary. That means it becomes a free for all in probate court. NOT SMART! Also, on retirement accounts, if you have a beneficiary listed, they can move that money into their own retirement account. Otherwise, that money could be distributed and taxed 100%. ALSO NOT SMART!
Healthcare Directive - Says What you want to happen if you are still alive but are incapable of making decisions. Who do you want making medical decisions for you... your spouse? Your parent? Your best friend? Who? And if you are in life support, do you want them to let you go or keep you alive at all costs.
Power of Attorney - Gives someone the power to manage your business affairs and finances if you are incapable/incapacitated. Imagine if you are in the hospital after a car accident and you are in a coma... is there someone you’ve designated to be able to pay your bills for you, manage your business, make sure your financial affairs stay in order? See where I’m going with this?
Life Insurance - If you can qualify to get life insurance, it can help pay for fees and expenses associated with your estate. It can also pay for funeral expenses, legal assistance and more. Life Insurance typically pays out immediately whereas your other assets can take time to become available to your beneficiaries. There are calculators online that help you determine how much life insurance you should have and there are many different types of life insurance that can be structured to fit your specific needs.
There’s more, but these are the basics and an estate planning attorney along with your financial planner and tax accountant can help you put this all together. An estate planning attorney typically charges anywhere from $800 to $ 15,000 depending on the complexity of your estate from my experience.
How do you get an estate plan if you can’t afford an estate planning attorney? There are online services that can help you establish a basic estate plan for free or for a small fee. There are also organizations that do legal work for the community based on need. And last but not least, some of you have a legal plan through your employer benefits. You can use that as well.
There’s never a better time than RIGHT NOW to get your estate plan done. You never know what could happen or when. I say the same thing about having an emergency fund. We are experiencing the unexpected now as we find ourselves in a sudden Global Pandemic. Who would’ve thought! This is another reason for you to do your estate plan now. As we fight Covid-19, it’s possible for your circumstances to change overnight. Either you choose to create an estate plan or you leave your loved ones to potentially deal with a “hot mess”. I hope this article ruffles your feathers. If I don’t say it, who WILL? Pun intended.
By Angela Moore, CFP® of Modern Money Advisor
Our team would love to help you evaluate your options. Join one of our upcoming Student Loan Masterminds. Whichever route you decide to go, I wish you the best of luck in your endeavors!
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