It is tragic when a client contacts us after losing a spouse; even more so when it is unexpected. Often times, the surviving spouse was not the financial decision maker in the household so the anguish they suffer from the loss is only compounded by the fiscal responsibilities that they must now assume. Questions abound as they struggle with unfamiliar financial issues such as cash flow budgeting, college planning, retirement planning and estate and trust issues, just to name a few. Where do I start? Am I going to be okay? Don't leave your spouse and surviving family members in the lurch. Here are just a few key estate planning steps that you should take now so that your loved ones have a plan if something happens to you. Following these guidelines will help to provide a smooth wealth transfer to your dependents.
Review your insurance coverage
One of the most important elements of a sound estate plan is to maintain adequate insurance coverage. Naturally, you should carry homeowners, automobile and, perhaps, inland marine coverages for your property. But it is equally, if not more important, to insure yourself and your earnings. To this end, you should hold life insurance (term and/or permanent), short and long term disability insurance and perhaps annuities, if circumstances warrant. You may also want to evaluate long-term care insurance to address morbidity risk as opposed to mortality risk. With the right insurance portfolio, you can provide your loved ones with tax-free benefits and/or an income stream, no matter what the future holds.
Consider establishing a trust
Establishing a trust can yield several benefits including shielding of assets for the benefit of future generations, providing tax planning strategies to reduce current and future tax burdens and providing a vehicle for charitable giving. Arguably the most important benefit of a trust though, is the avoidance of probate (i.e. the proving of a will). Assets held in a trust fall outside of your estate and, consequently, do not require probate, which is a costly and often time consuming process. In other words, the trust assets transfer cleanly to the intended beneficiaries which is the ultimate goal.
Open Transfer-on-Death and Payable-on-Death accounts
If you open a Payable-on-Death bank account with a named beneficiary (known as a Transfer-on-Death for brokerage accounts), the relevant assets will automatically transfer to your heir upon your passing. You can also designate more than one beneficiary. The beneficiary or beneficiaries named on a TOD or POD account simply need to show the financial institution a form of identification along with a certified copy of your death certificate to access the funds in the account. You should inform your beneficiaries in advance, on which accounts they are named and the procedures for claiming their inheritance.
Update your last will and testament
While the above suggestions will assist with a smooth transfer of assets upon your passing, you must have a last will and testament to ensure that those assets not passing by contract (per above) go to your intended beneficiaries through the court system (i.e. probate). A person who dies intestate, or without a will, loses the opportunity to name their inheritors and state statute will dictate the disposition of their estate. This is a less than ideal scenario. Furthermore, a will allows you to create conditional bequests (e.g. if my brother does not survive me his inheritance shall go to his children), name guardians for minor children and select an executor to administer your estate and navigate its settlement through probate. Your will should be updated periodically (e.g. every five years), upon major life changes (e.g. marriage, divorce or having a child) or the occurrence of major financial events (e.g. winning the lottery).
Create an emergency file
You should have a list of people to contact in an emergency. Keep this list in a safe place and maintain secure backups if stored electronically. Let your spouse and loved ones know where to locate the list, any keys to access safe deposit boxes and any applicable passwords.
Create a plan with your financial advisor
Do not go this alone. Failure to comply with legal statute, tax law and prudent financial planning measures can, and likely will, have a devastating effect. Contact a financial advisor who can champion your planning, assemble the necessary team of experts and help you develop a financial blueprint that will help you accomplish your goals.
Once the plan is developed, be sure to give your spouse and loved ones copies or access to the formalized plan as well as the contact information for your planning team (advisor, attorney) so everyone involved will know exactly how to proceed in the event of an emergency.
Careful planning with the help of a team of legal and financial experts will give you peace of mind knowing you have taken the necessary steps to care for your loved ones after you are gone. Contact Glass Jacobson to start your plan today.
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