The Smart Estate Plan, Part 1: The Basics

As a financial planner, I help people figure out a plan for the entirety of their financial needs. I help them figure out how much money to save for their typical goals, like retirement, education, weddings, bar mitzvahs, etc. I help them put together insurance plans to cover the financial boogeymen that can ruin everything, death or disability. Finally, we handle their estate planning, and things often get weird. You’ve got a 401k, maybe some non-qualified investments, a home and a big chunk of life insurance, adding up to millions of dollars. This is not unusual.

The first problem: They’re not sure they need a will. Many people confuse the need for a will with extreme wealth, as in an estate big enough to be exposed to estate tax. But the primary needs for a will (and the related ancillary documents) have nothing to do with wealth.

First and foremost: Guardianship

Picture this: You finally take that weekend away from the kids. Toes in the sand in the Bahamas, fruity cocktail in hand. But on the way back, your plane doesn’t make it. Who’s taking care of your kids? Some people think about their own parents,  or more often, a sibling and their spouse, but there are common problems with these solutions. Your parents may be pretty old already, or will be by the time your kids are grown. Your sibling may get divorced. So here’s some guidance:

  • Pick the person, not the couple: when you choose your brother John and his wife Mary, chances are you’re actually choosing your brother John. If you name them both, and they divorce, or he dies, you could have a custody mess, with all best intentions (your sister-in-law and your other siblings ALL love your kids right?). This is a mess we want to avoid.
  • Pick the person who best represents your values about raising kids. Don’t worry so much about location. Your kids will get over changing schools, states, even countries! And don’t worry about financial circumstances. You should have taken care of the financial needs of your kids through your financial plan, life insurance and proper trust planning (more on this later), so this shouldn’t be an issue.

Pro tip: If you and your spouse are struggling with agreeing on whom to pick. Sit down in different rooms and make a top 3 list. There is usually at least one person on both your top 3 lists, and the first one “wins”.

Second: Executor

This person’s job is to get the will and do what it says. No special skills are necessary to do this, but a familiarity with the family certainly helps. Simple solution: Spouses name each other, and a close sibling as a contingent.

Pro tip: Have a contact sheet with the names and phone numbers of your attorney, financial advisor and insurance agent handy. Also keep some kind of semi-organized inventory of the policies, accounts and group benefits info in one place for easy processing.

Third: Trustee

Here’s where it gets complicated; handling the money. In most cases, I find my client prefer to go with a testamentary trust plan that I help them develop, explained in Part 2.

Some things to scare you into action!

The state you live in already has a will written for you. Typical provisions will include provisions like:

  • Equal distribution to your kids, or to your siblings if you don’t have kids (or they took that ill-fated trip to the Bahamas with you).
  • Because the state follows a pretty set protocol, the one guardian you WOULDN’T want could be the one the state chooses.
  • Dying without a will (intestate, as the court calls it), could mean maximum time in courts over the next year or so, and maximum costs (easily thousands) of court and possibly lawyer fees.
  • While your kids are minors, their will be a trustee named to handle the money you leave behind (God knows who that could be!), and the money will be flushed out to them after they reach adulthood, like age 18! Millions of dollars handed to an 18 year old. What could go wrong?

Finally, the ancillary documents: 

Health Care Proxy: Someone to make health care decision for you if you are incapacitated. Name your spouse, then a sibling who lives nearby.

Living Will: Directions for if you want to be kept alive by artificial means. Remember Terri Shiavo? Don’t do that to your family.

Durable Power of Attorney: Similar to the Health Care Proxy, but authorizes someone to make your financial decision if you can’t.

Happy Planning!

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