For Our Clients

Educational Resources

By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning Strategies

Print This Post Print This Post

As the Scary Financial Mistakes blog series comes to an end, we turn to another necessary end: end of life issues. Many people fear death, some embrace it, but regardless of your perception, it’s coming. One thing you can do to prepare for this, and to help make things less scary for you and your family, is to have an estate plan in place.

Many people think estate planning is only for the rich, or something that you don’t really need to worry about, but both of these are misconceptions. While more wealthy people may have more issues to deal with like estate taxes and such, everyone needs an estate plan at two basic levels, incapacity planning and wealth transfer.

For incapacity planning, many feel “that won’t happen to me.” However, by the time you reach the age of 65, your chances of becoming incapacitated rise to over 50 percent. If you live to be over 80 years of age, this statistic reaches nearly 75 percent. Although age is often a disability factor, even those under retirement age have a 20 percent chance of becoming incapacitated.[1]

As a solution, you should consider creating a durable financial power of attorney to name someone to act on your behalf should you be unable to manage your financial affairs. Most states also allow you to name someone to make medical decisions for you, often called a medical power of attorney, along with what’s commonly referred to as a “Living Will” that states your end of life decisions for life prolonging procedures. If you fail to proactively create these planning documents, state courts will become involved in managing your affairs. Now that’s scary!

For wealth transfer, there are several mechanisms to achieve your goals. You may have direct transfer on death assets like an IRA, 401(k), insurance policy or annuity for example. These types of holdings allow you to name a beneficiary that will inherit your asset directly upon your death, no probate process necessary. However, under these accounts you have to actively name a beneficiary, and often you can name contingent beneficiaries as well.

Individually titled assets, on the other hand, require a more proactive approach. If the account doesn’t allow transfer on death it must pass in some other way. The most common technique is probate court, which is designed to change title from your individual name to your beneficiaries after your death. If you have a will, the will dictates where your assets will go. If you don’t have a will, your state’s intestate rules will decide where your assets go. Again, allowing the state to decide is a scary thought.

Many people now use trusts to avoid probate while still transferring assets how they wish. Generally speaking, you create a trust, often called a “living” trust or a “revocable” trust. During your lifetime you title your assets into the trust, thereby avoiding the need for the probate court to change title upon your death. When you pass away, the trust owns the assets and your provisions dictate where they pass and how. This allows you to avoid probate, potentially control assets beyond the grave, and generally avoid issues associated with probate court.

Life can be scary, and so can the prospect of death. However, creating a plan for your possible incapacity and eventual death can make this scary prospect a little more tolerable. For more on how you may want to address these concerns, work with your financial advisor along with your tax and legal advisors to put a plan in place for you.

[1] Stephen M. Walter, Smart Estate Planning in Washington

October 29, 2020 |