A guilty pleasure from which I take some satisfaction is reading the r/Marriage subreddit (that's a message board on Reddit.com) in my nightly quest to reach the end of the internet. Normally, it is posts such as “I think my wife is having an affair with the cook at The Waffle House” that help me realize that I’ve probably got it pretty good in the marriage department. But occasionally, I’ll see a post or comment that is also excellent advice. That was the case recently when a widow from Texas posted, “Remembering the good times and sharing some advice for couples.”
The Redditor, u/TXRonin55, shared a picture of herself and her late husband in a post, detailing how his preparations made her life easier, despite his unexpected death. She provided specific details in the post, including:
He left copies of the will in a safe, to which she had the combination.
He had drafted a 7-page document outlining his accounts, insurance policies, Social Security number, and other crucial document storage locations.
He included a spreadsheet with usernames, passwords, and security questions for accounts, credit cards, social media, etc.
Planning for death is not a light topic, nor is it one that many of us care to discuss unless we experience events that jar us into action. For example, it is common to buy life insurance upon the birth of a child or create a will upon the death of someone close to us. But there are many other considerations that we should regularly take into account, and today is as good a day as any to pay attention to your plan.
It isn't that we purposely do things that create estate planning complications for our heirs; it is more the dynamic nature of our lives that leads to unintended consequences. u/TX Ronin55's post provided a valuable reminder of strategies to help those who are grieving and coping with the challenges of a loved one's death. Here are a few other examples of situations I’ve encountered where plans weren’t quite as well thought out.
The Giddy “Ex”
“Hi, Jeff, you probably don’t remember, but you helped me set up an IRA after my divorce a few years ago,” said the voice on the other end of the phone. “I’d like to come in to discuss investing some other money.”
Janice was giddy. Since her divorce, like many single parents, she has struggled to make ends meet. The IRA I had helped her establish was part of a Qualified Domestic Relationship Order (QDRO), where she received a portion of her ex-husband’s retirement account. She had subsequently withdrawn much of those funds to help make ends meet.
The reason for her joy? Her ex-husband recently passed away. She told me that while she grieved the loss of her children's father, she also celebrated a seemingly insignificant detail that her former husband had overlooked. When their first child was born 19 years earlier, her ex had taken out a 20-year term life insurance policy for $1,000,000. He had named Janice as the sole beneficiary. Although he remarried and had another child, he never changed that detail.
When I asked her if she felt sorry for his widow, she just smiled and nodded.
The PO POA
Another time, I was managing an office in California for Fidelity Investments.
The young lady sitting at my desk was understandably upset. A few months earlier, she had dropped off some paperwork at the office's front desk with one of our associates who worked the front counter. The representative duly completed the paperwork that granted her Power of Attorney (POA) over her ailing mother's accounts. She had asked the representative, “Will this let me take care of everything?”
The representative correctly replied, “This will allow you to act on your mother’s behalf.” However, it was what the associate didn’t say (or ask) that led to a problem later on.
Her mother subsequently passed away, prompting the daughter to return to the office to inquire about the necessary steps to transfer her mother's accounts into her own name. We reviewed the accounts and saw that there were no named beneficiaries on file. In the absence of beneficiaries, we let the daughter know that the executor would probate the IRA and distribute the assets.
"But I have power of attorney!" she protested.
HAD POA. She discovered, belatedly, that the power is only valid during the principal's (her mother's) lifetime. That now presented other issues.
Problem one was that in her mother’s state of residence, California, the probate process was expensive. In this case, her $250,000 of assets in the accounts were going to cost about $8,000 to probate. Without a named beneficiary, the distribution of the IRA over a five-year period would result in less opportunity for tax-deferred growth and potentially higher income taxes.
If beneficiaries had been named, all of those assets would have avoided probate and the associated costs. Additionally, we could have distributed the assets over a longer period of time.
She had asked to speak to me so that she could complain about my representative’s lack of understanding of her needs, resulting in an expense and hassle that she had wanted to avoid. I completely understood and empathized with her frustration, but I also couldn't fault my employee, who was essentially a counter clerk, for not delving deeper into the daughter's meaning when she correctly answered her question about taking care of "everything".
In both cases, these unintended outcomes could have been easily avoided with an occasional (I would suggest annual) review of those often overlooked but very important details. Regularly discussing these issues with an advisor is probably the best solution, but the following tips can also help your plan succeed.
6 Estate Planning Tips
The main issues facing these clients were essentially simple administrative tasks until the owner passed away. At that point, it became much more burdensome and expensive for the heirs to deal with lawyers, judges, and the IRS.
Keeping that in mind, here are six tips for reviewing your estate plan.
Review Beneficiary Designations
Your life insurance and retirement account beneficiary designations should reflect your current family situation and be consistent with your will and/or trusts. These designations, if established correctly, avoid the probate process.
Update Out of Date Documents
Your estate plan should reflect your current wishes—not your wishes from 20 years ago. Consult your advisor annually to confirm that the provisions you believe to be in place are indeed in place.
Plan for Incapacity
Your estate plan should include an incapacity plan that includes a power of attorney and health care directives, because the likelihood of becoming incapacitated at some point before you die is much higher than dying before life expectancy.
Title Your Accounts Correctly
The title to your assets has a significant impact on how they will be passed down upon death. Trusts are a great tool, but if you don’t take time to change the title on assets and fund the trust, it probably isn’t worth the paper it is printed on.
Joint Tenants with Rights of Survivorship (JTWROS) allows assets to pass to a joint owner easily, but it may complicate or even invalidate some common estate tax management approaches.
Adding a child's name as a joint owner of an account may sound like a simple solution, but what happens to the assets in that account if you die? Will your other children be upset that the account's assets legally belong to only one child? What if the child you name as an owner gets sued or has creditor or IRS issues? Simple sometimes ain’t so simple.
Protect Assets From The Next Spouse
If you pass away at a relatively young age, have you considered that your spouse may get remarried? If they divorce, failure to take certain steps to prevent asset commingling could result in the new spouse receiving some of your acquired assets in the settlement.
If you have children who you wish to inherit some or all of your assets, you should explicitly state this in your will and/or trust documents.
Don’t Forget About Disability
According to the SSA’s Disability and Death Probabilities, a male born in 1996 has about a 20% chance of becoming disabled before retirement age. Unlike death, with a disability, you not only lose your earning potential, but you also continue to need to support your family and yourself.
If you would like to review your plans, investment or estate wise, get in touch for a review.