5 Tips to Creating an Effective Estate Plan

5 Tips for Creating an Effective Estate Plan

Estate planning is not dependent upon age, but rather life stage. Frank Mulé, an estate settlement and trust termination officer at Rockland Trust, has helped Massachusetts families with estate planning for more than a decade. “Generally, if you don’t have an estate plan, the law will prescribe one to you,” Frank shared.

 

He recommends spending time proactively making an estate plan or adjusting an existing plan to be sure your wishes are known and that you can address any gaps. Frank shared five tips and best practices for ensuring you have an effective estate plan.

 

Tip 1: Review your beneficiaries

Do your beneficiaries include a spouse, an adult or minor child/children, a blended family and/or a charity? If you have young children, you may want assets to flow into a trust for their benefit until they reach a certain age.

 

A trust also works well with blended families to secure assets for different family members at different times with different restrictions or flexibility. Some assets, such as retirement assets, are also better suited for charitable beneficiaries.

 

Over time, our life situations change — and so should our beneficiary designations in an estate plan. Life events are always a great time to review designations: marriage, divorce, a new baby, a death in the family, illness and/or a recent inheritance are only a few.

 

Changes to tax laws are another reason to review our beneficiary and estate plan. Frank pointed out that some proactively adjusted their estate plans when the 2017 Tax Cuts and Jobs Act doubled the estate tax exemption. Because the exemption is set to sunset at the end of 2025, additional adjustments may need to be made if legislators do not extend or change it. An ongoing relationship with an estate planning attorney you trust can be helpful to staying ahead of any federal or state law changes that impact estate plans.

 

Tip #2: Create a list of your assets and liabilities.             

A great starting point for creating a well-thought-out estate plan or updating one that already exists is to take inventory of your assets and liabilities. Doing so ensures that you can meet your planning objectives, and helps you avoid unfortunate outcomes that can occur when beneficiary designations or title assets aren’t properly assigned.

 

Asset control is achieved through proper asset titling, so title with care. It can also help give you peace of mind that your beneficiaries will receive the right assets at the right time, and in the manner that you think best, ensuring your wishes are fulfilled and carried out.

 

How do I create an asset summary?

You’ll first need to identify if your assets are owned individually, individually with a “transfer on death” designation, jointly, or in a trust.

 

Here are some examples of questions to ask yourself:

• Do you own a savings account jointly with a child? This could put your savings at risk if they’re in an accident or choose to get divorced.
• Do you own real estate with another person other than your spouse?
  • If so, is it owned jointly with rights of survivorship, where it passes to the surviving owner? Or is it owned jointly as tenants in common, where your half passes under your will at death and not to the surviving owner?
• Do you co-own a business with a partner? Succession planning is vital for business owners.

 

Answering these questions and understanding how you own an asset can have a significant impact on who ends up receiving that cherished asset.

 

While reviewing how your assets are owned, check your beneficiary designations again. Life insurance, annuities, and retirement accounts are all governed by contracts. Beneficiary designations for these assets are vital and supersede anything stated in a will or trust. The beneficiary designation will determine for example, who receives your life insurance proceeds or IRA account. Naming an individual or charity will guarantee that these assets bypass the probate process and will not pass under your will but instead according to the beneficiary designation.

 

Tip #3: Determine who you trust to carry out your plan.

An estate plan is more than deciding where your assets will land. A key aspect is appointing the right people or institution to manage your affairs if you are unable to do so yourself. It is very important to carefully plan which trusted individual or corporate fiduciary will fill these roles.

 

You will need to carefully consider who you would like to be responsible for the administration of your estate plan. Some questions to consider include:

• Who do you envision carrying out your plan - will it be a family member, an attorney, or a corporate trustee?
• Who would you feel comfortable giving ownership to wind down your affairs and distribute your assets?
• How much control or flexibility do you want them to have in administering your estate?

 

Aside from your financial assets, consider who you want to care for your family in the event of death or incapacitation. If you have young children, who do you trust to take care of your children’s well-being? This requires a different skill set and may not necessarily be the same person you want to manage your assets on behalf of minor children.

 

Tip #4: Plan for any possible future incapacity.

Frank recommends that everyone 18 years or older have basic documentation in case they become incapacitated and need someone to make health care or financial decisions for them. These documents include a durable power of attorney, health care proxy and HIPAA release form. For access in the event of an emergency, Frank suggests saving electronic copies that you can access on your phone. These are critical documents to have in place should you become incapacitated and therefore no longer able to make decisions for yourself or share your wishes.

 

Family members can disagree on the right course of action for a loved one’s medical treatment and the situation can become more complex in blended families with a spouse and children from a prior marriage. Designating a health care proxy can help offer clarity in a stressful time. This individual should understand your medical situation, your wishes, and have the ability emotionally to carry out your intentions under difficult circumstances.

 

Tip #5: Plan for your digital assets.  

Frank advises keeping careful track of your digital assets. “The more organized you can be during your lifetime, in terms of knowing where your assets are or telling your family what you have, the easier it’ll be after death to process the estate,” Frank says. “If we know nothing, we’re sifting through mail and file cabinets to piece together what you have. It’s even harder with electronic statement delivery to find any kind of paper trail.”

 

The average person has more than 200 online accounts to manage: think not only of your preferred social media apps, but accounts that pay bills like electricity or car insurance. Take a second to think about all the different passwords and usernames you use on a daily or weekly basis.  It is important to inventory these assets and find a safe method, such as a password management system, to store your passwords so your loved ones can access important information and precious memories.

 

Our digital age has changed many things, including what we think of as precious or valuable. We often think only of tangible personal assets such as our mother’s cherished jewelry, but what about the new treasure trove of digital photos? We don’t want to lose access to these photos therefore, identifying someone with the right authority who can manage access to these assets can avoid the threat of losing your precious keepsakes.

 

Since the laws, company practices and agreements are still evolving, this is a complicated area to plan. We advise taking a three-pronged approach.

 

1. Make an inventory of all the digital assets in your own name. Identify which ones you want your personal representative to access and which ones should be deleted - record detailed instructions.
2. Check the terms of use or terms of service for each platform, website or app that houses a digital asset. Some companies provide their own method for transferring digital assets at death.
3. Consult with your attorney and add specific language to your trust and/or will that specifies your wishes for transferring digital assets to your intended heirs.

 

Estate Planning Sets Your Loved Ones Up for the Future

Creating an estate plan that reflects how you would like your assets to transfer at your death will help ensure that your intended heirs are provided for in the best possible way, minimizing taxes and avoiding unnecessary delays. Updating and/or creating a new estate plan can be complex, but you don’t need to navigate the process alone. Contact Rockland Trust Investment Management Group (IMG) for advice and guidance.