I’VE BEEN INVOLVED in settling five estates. They ranged from insolvent to almost seven figures. Some were well-organized, but one took significant time and effort to settle. These experiences taught me a key lesson: An organized and easily understood estate is a gift to those you leave behind.
I’m not an estate planning attorney. I’ve dealt with a few and found them to be professional, empathetic and helpful. If you have a complicated financial life or family situation, I highly recommend finding a good one. For most of us, however, an estate plan can be fairly simple and shouldn’t involve large legal costs. Here’s a list of seven must-haves:
1. A will. This important set of instructions directs who inherits assets that you own individually but with no beneficiary listed. A will also designates a guardian for minors and appoints an executor to administer your estate after your death. You’ll want to keep the signed original in a secure place, known to your family or your executor.
2. Powers of attorney. You’ll need two types of power of attorney, or POA—one financial, the other medical. The financial POA names someone you trust to help manage your financial affairs. You can control the timing of when it goes into effect and when it lapses.
You also need a durable power of attorney for health care. This POA appoints someone to make medical decisions for you, if you can’t make them yourself. You should discuss both these documents with the people you’re assigning, so they understand your wishes. Both documents no longer have any legal standing upon your death.
3. Beneficiaries named. If you have a beneficiary listed on an asset, that almost always trumps what your will says, so the asset goes directly to the beneficiary and doesn’t go through probate. This is an area where many people mess up: Make sure your beneficiary designations are up to date.
Check all your retirement accounts, insurance policies and pensions. Many taxable accounts, such as savings, checking and brokerage accounts, can have transfer-on-death (TOD) designations that act like a beneficiary designation. Check with your financial institutions on how to set up a TOD beneficiary. You can usually have primary and secondary beneficiaries, and designate that folks receive differing percentages of the account.
4. Funeral instructions. Pondering their own demise is difficult for many people. Still, it’s important to make sure your family or executor know your wishes. It’s so much easier to go to the funeral parlor with a clear idea of what your loved one wanted, right down to small details like the songs to play at a service. You can even plan your own funeral, if that’s something you’re comfortable with.
5. Letter of instruction. A letter of last instruction is an informal document that gives your survivors information concerning important financial and personal matters that must be attended to after your demise. I’ve heard people call this the “death file” or the “doomsday letter.” The more detailed it is, the better.
6. A family conversation. As difficult as this subject may be, it’s important that someone knows your wishes and where key information can be found. I’m a big proponent of being open with your adult children about your finances and other personal matters. The discussions may bring up issues you hadn’t considered or perhaps have the wrong idea about.
7. Account consolidation. We spent more than two years finding and simplifying the financial assets of my wife’s aunt. Sadly, we didn’t start this until her cognitive decline had taken hold. We had to file a dozen POAs. Many institutions had their own forms which needed to be notarized or have a medallion signature guarantee. It was a labor of love and very educational, but also a lot of work.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Treasure Hunting, Taking the Hit and Buyer Take Care. Follow Rick on Twitter @RConnor609.