In every aspect of financial planning, proper preparation is the key to success. Whether it’s saving toward your child’s college education, retirement or potential long-term care expenses, the key is to plan for it. The same goes with estate planning. Estate planning is something that often gets put off because people assume it’s complex and expensive. No one ever plans on being sick or dying prematurely, yet it’s this kind of planning that can make all the difference in a time of emergency for your family.
Not having an estate plan can create family feuds, and, furthermore, your family might fail to claim assets that they were unaware of. Unfortunately, this situation happens more often than not. You have heard of the famous family feuds over estates such as with Michael Jackson, Robin Williams and, most recently, Prince. Dealing with family death is enough of an emotional stress, but imagine having to also fight with your family members over who gets what.
According to the National Association of Unclaimed Property Administrators (unclaimed.org), state treasurers currently hold $60 billion in unclaimed property. These include abandoned bank accounts, life insurance claims that were never made, forgotten stocks and pension benefits (you can search for unclaimed assets at Missing-Money.com).
It’s important that your family is aware of all your assets and insurance policies so that the designated beneficiaries can make the proper claims. Not having a proper estate plan can lead to significant emotional stress and financial consequence.
A good starting point for any estate plan is to gather all documents for every asset you own and decide how you want each of those assets to be distributed upon your death. Here’s a basic list of important documents that you should have in your “vault”:
Will and/or trusts. Aside from naming who gets what, if you have children who are minors, you will also need to decide who will be their guardian if both you and your spouse were to die. Everyone should have a will, but whether you need to have a trust will vary case by case. The main reason people create a trust is to avoid probate, which can sometimes take years and cost thousands of dollars.
Durable Health Care Power of Attorney Form (Advance Health Care Directive). This is a legal document in which you give another person permission to make health care decisions on your behalf if you ever become incapacitated. AARP offers a state-by-state listing of advance-directive forms on its website.
List of all bank and investment accounts, life insurance policies and their beneficiaries. Some assets will bypass probate by contract because you are able to name beneficiaries. Examples: IRA, Roth IRA, 401(k), life insurance, annuities, TOD (transfer-on-death) brokerage accounts and POD (payable-on-death) bank accounts. Beneficiaries listed under these contracts will supersede your will or trust, so it is very important that you update your beneficiary list whenever there are major events in your life such as marriage, divorce, addition of a child, or if you simply wish to make changes. Having an organized list will make it easy for your beneficiaries to locate your assets upon your death and ensure that they end up in the proper hands — and not deemed unclaimed property.
Long-term care insurance. If you have long-term care insurance, it’s important one of your family members or someone with a health care power of attorney be aware that you have the policy, which can help cover some or all of your long-term care expense.
Marriage license. If your spouse dies, you will need your marriage license to claim any type of spousal benefits.
Contact information of attorneys, CPAs and financial advisers that your family can reach out to for help. This is a basic list of documents that everyone should keep readily accessible to their family and trust executor so that they’re not left scrambling through the house looking for them. These can be kept in a physical locked vault or secure websites that allow you to keep an online vault. I do not recommend using a bank safe deposit box, because your executor might not have access to the box after your death. And since these documents have no street value, the worry with estate planning documents is not so much that they’ll be stolen, but more so that your family won’t be able to find or access them. Therefore, I would recommend keeping them in your home in a personal safe or fireproof file cabinet.
It’s not only important to protect important documents, but to get rid of unnecessary papers as well. Sometimes people hold on to so many papers, it takes hours to find the important ones. Last year I assisted an elderly client in organizing her documents; it took us an entire day to sort them out as she had kept statements from 30 years ago, including accounts that she had already closed. When getting rid of old, unwanted documents, make sure to destroy them properly to protect yourself from identify theft.
Estate planning sounds intimidating and complicated, but it really isn’t as bad as it sounds. If you do not have a plan and I have convinced you to create one, that’s half the battle. Remember, an estate plan is simply a strategy for what happens to your assets when you die or if you are unable to make decisions for yourself. Putting your affairs in order will give you peace of mind knowing that the ones you love will be taken care of after you’re gone and that the nest egg you worked so hard to build will be passed down according to your wishes.
Kana Aikawa is a financial adviser at Wealth Managing Partners Inc. She has a Bachelor of Business Administration in finance and management from the Shidler College of Business at the University of Hawaii at Manoa. Reach her at 954-7072.
