Four Steps to Truly Get Your Estate Planning Ducks in a Row

If you're like me and you get restless easily while you're sheltering in place and practicing social distancing, here's an idea—how about you finally get your estate plan in order.  I help a few hundred clients every year with estate plans and we've handled hundreds of estates after clients or their family members pass away.  That experience has proven that there's more to getting your affairs in order than simply having documents.  As I've explained to clients, estate planning is really a four-step process. First, you do your documents. Second, you have appropriate beneficiary designations in place. Third, you create a list of assets and everything else your family needs to know. And, finally, you make sure your family knows where to find that list. Experience has shown that whenever a client misses on even one of those four steps, the family can be left in a lurch.

Let’s go over those steps in a bit more detail, shall we?

STEP ONE – GETTING DOCUMENTS IN PLACE.

Everyone should have basic estate planning documents.  Those include a Will, a financial (or durable) power of attorney, and a healthcare power of attorney.  A trust tends to be appropriate in many situations for a variety of reasons (about 90% of our clients have trusts).  I won’t get into the nitty gritty on estate planning documents here. Basically, for purposes of this post, if you don’t have them, you should look into getting them. We can help you with your estate plan, but there are other qualified attorneys, as well, and the point of this post is not to drum up business during a time of crisis. If you already have documents, you should still make sure you’ve completed the next three steps.  

STEP TWO – LINING UP YOUR BENEFICIARY DESIGNATIONS. 

A lot of people have step one done, but their estate plan is still a hot mess.  This can often happen because (1) they don't have beneficiaries designated on assets, or (2) they have beneficiaries designates, but the beneficiary designations don't line up with their estate plan.  What the heck am I talking about?  Let me explain. 

I have a wife, three kids, and a trust.  My wife and I created the trust so that, if we both passed, the trust would receive all of our assets.  But having that trust in place is just the first step.  If I never filled out a beneficiary designation form with my life insurance company, the life insurance company will not pay out the death benefit to my wife, our trust, or our kids.  Instead, the life insurance company will only deal with the individual who is appointed as the executor of our estate.  This is how you end up with an asset "in probate."  Conversely, I may have filled out the beneficiary form but named my wife as the primary beneficiary on the policy and my kids as the contingent beneficiaries on the policy.  In this instance, if my wife and I passed, the life insurance "avoids probate," but the insurance funds are actually in probate as part of guardianship proceedings for my kids, and my kids would receive the funds outright at age 18.  I created a trust that protects funds from kids until they are age 30, but if the kids are named on as beneficiaries of my life insurance instead of the trust, that trust doesn’t mean diddly squat as to my life insurance.

As that example illustrates, beneficiary designations trump everything else in your estate plan.  They are what's followed first.  If a person writes a Will that says $20,000 goes to charity, then 80% goes to a daughter and 20% goes to a son, but that person designates the daughter and son as 50/50 beneficiaries on every asset, guess what?  The charity gets nothing, and the assets all pass 50/50 to the daughter and son.  The Will won't matter.  To put it another way, the Will only governs assets that pass through probate.  So as a general rule, if probate avoidance is a goal (and 99% of the time it is), the Will should be the least important document you sign.

STEP THREE – WRITING IT ALL DOWN. 

I've seen instances where clients have all the documents in place, and all the beneficiary designations in place, but things still don’t go smoothly when the clients pass away.  How can that happen?  It's easy—nobody knows what to do or where assets are.  Kids don't know if their parents had life insurance, where they banked, or if they owned any real estate other than their house.  They don’t know what the person wanted in terms of cremation versus burial, or where remains were supposed to be scattered.  They don't know that the ugly painting that hung for decades in the dining room is actually worth $100,000. 

If you want to make things as easy as possible for your loved ones, here's what I recommend: imagine a scenario where you passed away yesterday, and your family and loved ones are gathered around today trying to figure out what to do.  What do they need to know?  At a minimum, it should include a list of all your assets.  But what else is there?  A list of people to call (attorney, accountant, funeral home, priest)?  Instructions on how to sell or wind down a business?  Everyone’s situation is different, which is why I suggest you start with putting yourself in the shoes of your family and loved ones.

STEP FOUR – MAKING SURE PEOPLE CAN FIND WHAT YOU WROTE. 

This one is easy, and almost goes without saying, but I've seen people struggle when this step is left out.  You may have great documents, beneficiary designations on everything, and a nice binder with all the necessary information for your family.  But if your family doesn't know that binder exists or doesn't know where to find it, the binder serves no purpose, and your family is still struggling to figure out what to do. 

I'm not the biggest fan of electronically storing this information.  We’re well past the days when it was easy to access information by merely having a username and password.  I think a good old-fashioned folder is typically the best way to go (it may not work as well if your family isn't geographically close, in which case some online option might be more appropriate).  You can tell you family that, if anything happens, look for the folder (or binder, or Trapper Keeper, whatever tickles your fancy) in your secret, but memorable hiding spot, and they can get to it fairly quickly and easily.