Estate planning needs are one of the first things I address with a client. It is important to get the right estate plan in place without going overboard. Every estate plan needs a will; most need a trust. A durable power of attorney and living will are also some of your basic estate planning needs. Ignoring estate planning is like trying to build a house from the roof down. Without this foundation in place, everything collapses; people lose money in the form of probate, state estate taxes, and federal estate taxes. All this could be avoided.
One of our good friends was recently widowed; her husband had been struggling with Alzheimer’s for the last several years, so it was a mixed blessing. While he was alive, before the onset of the disease, her husband had set a very elaborate estate plan in place. He took care of the basic estate planning needs: the will, the trust, the durable power of attorney, but then he did more.
Her husband decided to hold all life insurance and investment property he purchased in a “Family Retirement Trust.” When the Alzheimer’s set in his wife took over management of their assets. Her level of tolerance for complication was not the same as his. She had no clue what the Family Retirement Trust was for, so she decided to move the assets she knew where there and close the trust and the trust bank account. Since his death, the insurance company will only write a check to the Family Retirement Trust. Unfortunately, the trust and bank account no longer exist.
I am now working with our friend to solve this problem. Though I am giving her a discount, the whole thing is something she cannot afford in either time or money. This poor woman has not only had the emotional disaster of losing her husband, first to Alzheimer’s and then to death, she is also faced with this financial nightmare. There are some lessons about basic estate planning needs to be learned from this case.
First of all, both spouses need to be involved in both the basic estate planning needs and the family finances. A husband who takes care of everything is not doing his wife a favor. In the reversed role, I have seen husbands who turn a blind eye to the finances and let the wife take care of it. This attitude may or may not be somewhat frustrating during life, but at death I have seen it be devastating. It’s never too late to start to involve both spouses in the family’s financial dealings.
Both spouses should be involved when they get the basic estate planning tools in place; the will, the trust, the durable power of attorney and living wills. If more is needed, both spouses should be aware of what the extra tools will do and how to care for them. My friend had no idea the insurance was held in the trust until the policy wouldn’t pay. How much better if she had been involved in deciding the estate planning needs?
It is a good idea as part of the basic estate planning needs to keep a ledger detailing where each of the assets are held and any special notes or instructions. Keep all of your banking, brokerage, and insurance statements in the same file drawer, and make certain that both spouses and the kids know about the drawer and so they have a place to start after you get sick or die.
When considering your estate planning needs remember there are needs before death. My friend’s troubles began before death. It isn’t only death that triggers the need to transfer financial control. Today there is a much greater chance of being unable to control your financial dealings next week due to a medical problem than being dead. Any number of things could happen to you which would make it so you couldn’t control your own financial dealings.
Taking care of the basic estate planning needs can make the death of a family member a lot less painful. The planning is worth every effort you make and every dime that you spend just to soften the frustration, expense, and time requirements expended in handling a deceased family member’s financial estate. My book, Protecting Your Financial Future covers much of this information in greater detail.