Now that I am retired, how do I go about crafting an estate plan?
We often hear the following questions from people we work with:
- What will happen with my estate upon my death?
- Who will look after my spouse and help them make good financial decisions when I am gone?
- If either my spouse or I become disabled, who will look after us and who will help us to not make poor financial decisions as we age?
- When we pass away, what will happen to our hard-earned savings?
- What can I be doing now to protect my family’s savings from taxes?
- Is there any way to make sure our heirs use the money wisely?
All these questions can be answered by crafting a good estate plan. Many people are familiar with, or have at least heard of, the legal documents that are used in an estate plan such as a will, trust, or power of attorney. These legal documents are critical to a good estate plan. However, if these documents are hastily thrown together without first defining what it is you are trying to accomplish, and who it is that you want to carry out your wishes, the outcome can be less than desirable.
There are five things to consider when creating an appropriate estate plan:
First, there are questions that need to be answered when creating an estate plan:
- If I become incapacitated, who do I want to appoint to look after my financial and legal affairs?
- Who would I want to make medical decisions for me if I get to the point where I can’t make them for myself?
- What end-of-life decisions do I want to make now and/or who would I want to make life-ending decisions for me?
- When I pass away, what do I want to happen with my possessions and assets?
- Are there any special considerations (needs of a disabled child) or preconditions that I want to put in place for my beneficiaries?
Second, you will need to choose one or more people that you fully trust to follow your instructions and carry out your wishes. You should choose someone with integrity. When choosing one of your children to fill an important role in your estate plan, it is helpful to choose one who works well with others and can build consensus. Conflict and hurt feelings are common between siblings after the death of a parent. Therefore, choosing the child who can cross divides with maturity and grace is more important than one who happens to be good in business or simply choosing a child because they happen to be the oldest.
There are several roles in a typical estate plan. These roles include:
- Executor: The person who administers your estate/will
- Trustee: The person responsible for trust administration
- Power of attorney: The person responsible to act on your behalf for legal and financial matters when you are unable to do it for yourself
- Medical power of attorney: The person designated to make medical decisions on your behalf when you are incapable of making them yourself
These roles can be filled by a single person, or by multiple people working together on your behalf. Additionally, each of these roles can be filled by different people. It is also wise to consider choosing a backup for each of these roles if your first choice is unable or unwilling to serve in that capacity.
Third, you will need to meet with qualified professionals to help you implement your estate plan. You will need to work with a licensed attorney to draft any legal documents that are required to carry out your wishes. In partnership with an attorney, your financial planner can help coordinate the attorney’s advice with other areas of your financial plan. Your financial planner can be very helpful by making sure you update your retirement account beneficiaries and that your investment accounts are properly titled to make sure they are in accordance with your overall estate plan.
Fourth, clear communication is a must when it comes to estate planning. Your son or daughter shouldn’t learn that you have chosen them to decide when to end lifesaving medical care when you are in the hospital. There may be good reasons to not share all the details of your estate with your family before your death, however, walking through your general intentions and the roles each person is being asked to fill will help prepare those involved for the great responsibility you are asking them to carry out.
Fifth, once you have implemented your estate plan, it should be reviewed often. There are common reasons why you should consider regularly updating your estate plan:
- It has been several years since you last reviewed your estate planning documents
- There have been major changes in estate or tax law
- There have been changes in your family like deaths, divorce, or disability that could impact your beneficiary’s designations as well as impact your potential choices for trustee, executor, etc.
- After major changes in your financial situation
Spending a small amount of time to periodically review your estate plan can help you avoid major mistakes down the road. Reviewing your estate plan will also ensure your plans still make sense amid life changes.
It is uncomfortable for most of us to have to make decisions regarding our own death or disability. Additionally, finding an attorney, dealing with all the documents, changing beneficiaries, and transferring titles to property can make the estate planning process overwhelming, and therefore it is often put off. Your estate planning attorney and financial advisor have been through this process many times before and can carefully, and easily, walk you through the steps of creating an estate plan.
An estate plan outlines the wishes for your care while you are alive and frees your family members from the burden of second-guessing what you would have done with your estate after you are gone. A well thought out estate plan is truly a gift to your family.
Mark P. Whitaker, MS, CFP®, CRPC®, is a financial advisor and partner with Peterson Wealth Advisors, an SEC-registered investment advisor practice located in Utah. Mark holds a bachelor's degree in Personal Financial Planning from Utah Valley University and a master's degree in Financial Planning from The College for Financial Planning. Mark holds various other industry-recognized certifications. Mark served for 11 years in the Utah Army National Guard, including a deployment to Afghanistan. Mark loves his family and lives with his wife and children in Provo, Utah.