By H. William (Bill) Wolfson, DC, MS, MPASSM, CFP®
Estate planning is one of the most common topics of discussion between financial planners and their clients. The first step toward ensuring that the wealth you build and enjoy during your lifetime will enhance the lives of your children or other recipients for decades to come is having a basic understanding of the options available to you for distributing your assets after death.
First, let’s clarify some common terms in estate planning. A “decedent” (i.e., the term for an individual upon death) is considered “testate” or died having a will. The will allows for final disposition of a decedent’s estate and follow through on the terms of the will and any final wishes or bequests. Conversely, “When someone dies without a will—known legally as dying “intestate”—there are laws in each state that govern how the assets are distributed and to whom.” A will falls under the rules and regulations of the state law where a decedent was “domiciled” (or lived). A judge will appoint an executor or personal representative per the terms of the will.
Probate is the process where a will is determined to be valid and adjudicated by a judge. Probate is open to the public and anyone may attend the proceedings in court and learn of the estate and disposition. Probate can be expensive both in legal fees and court costs. When a person dies without a will a judge can appoint necessary representatives, and these individuals may not have been known to the decedent.
Some legal documents (i.e., beneficiary designations as used with insurance products or retirement accounts, and payable or transfer on death designations as used with bank or investment accounts) are often known as will substitutes. These transfers when made are private and not open to public scrutiny, thereby avoiding probate. Additionally, a will cannot override these documents, and any transfers made are outside of the probate process. As such, special and careful attention should be given to these documents. For example, if previously married and your-then spouse was named as a beneficiary on a life insurance policy and never removed, upon your death this individual will inherit the proceeds of the policy. Any children married or divorced? Were their spouses a named beneficiary? Still want them to get proceeds upon your death? Importantly, there are circumstances where former spouses or other individuals should or must remain listed as a beneficiary if part of an original agreement.
Types of Wills
There are several types of wills depending on the needs of an individual or family dynamics. These include: simple, complex, mutual, pour-over, conditional and others. Each type is used for a specific purpose and anticipated result.
If single, never married and without any dependents, a simple will may be sufficient to dispose of assets and any property not properly titled to specific recipients. There may be an opportunity to forgo the need for a will if all assets are titled correctly with primary and secondary beneficiary designations and financial accounts have payable on death designations. However, there is usually something that is forgotten and without it specifically having the appropriate or necessary transfer documentation, you would be deemed to have died intestate and whatever residual property exists would need to be probated. Obtaining a simple will by consulting with an attorney or on your own using an online legal website should be relatively inexpensive.
According to estate attorney Jeffrey Greener, “You have blended families, second marriages. Mature couples might cohabitate after a divorce or death of a spouse. You may want to provide for that spouse or significant other, but when that person is gone, reroute those assets back to the children from your first marriage...I don’t want to throw out the assertion that a will is always necessary, but people have to be realistic about their family makeup, their needs and where these assets may go.”
Guardian vs. Custodian
If children (i.e., of this or another marriage), former spouses, pets, elderly parents, businesses, etc., are involved, a complex will with trusts and other necessary or suggested documents should be considered. As personal and family dynamics are usually complex, it is increasingly important to be mindful of guardianships for minor children. Consideration must be given to the transference of a business interest, personal assets and property, all while being aware of any potential family challenges and possible tax implications. Usually trusted family members are selected as guardians, especially if both parents are deceased. However, good parenting skills are not indicative of sound financial abilities. You may want to have a financial custodian oversee the financial part of raising children. This may also be appropriate if care is required for an elderly parent or a disabled child. As an aside, before naming an individual to a certain role, ask if they are willing to take on this role upon your death. The answer may not be yes. However, without a will or by not clearly delineating appointments for guardian, custodian or trustees, this responsibility shifts to a judge. Those appointed may not have been the same that would have been chosen by the decedent and possibly not even a family member.
What if your children, no matter their ages, stand to inherit your estate? What if you re-married and want to leave your current spouse an income stream but not have direct access to any of the assets because you want to leave a legacy to children, charity or others? Are there concerns that individuals who stand to receive assets will not be able to control the sudden influx of wealth and possibly spend it all? Trusts are used for a whole host of reasons. One may be to ensure that intended recipients ultimately receive their share of an estate. Another may be to prevent overzealous spending so that inheritances last a lifetime or some intended duration.
A revocable living trust becomes irrevocable upon death and avoids probate.
Supplant vs. Supplement
If a disabled or special-needs individual will require long term or lifetime care, the importance of consulting with an attorney extremely knowledgeable about these scenarios should not be underestimated. If recipients receive or potentially may receive social benefits (e.g.,Medicaid) or some other social benefit, the trust document must be written according to state law so that any inheritance does not supplant any social benefit but instead be allowed to supplement the needs of the individual without any negative legal or financial repercussions.
Additional Estate Planning Documents
Durable power of attorney, durable power for health care, advanced directive, living will and HIPAA, etc., are all important documents and forms to be considered with estate planning and implemented if and when the need arises. These forms are often used by those who are married, in a domestic partnership, a parent for child, child for parent and other scenarios. Careful consideration should be given before any of these forms are authorized, and you should discuss you wishes with the chosen agents or representatives prior to signing.
The parent or guardian of a minor child can make important health care and other decisions until the child reaches the age of majority, which varies in different states. Importantly, once a child is no longer considered a minor, a parent may not necessarily make health care, financial or other important decisions if the now young adult becomes unable to speak for themselves. Having the necessary documents in place before tragedy strikes is considered good planning so you may speak when a loved one cannot.
Dr. Wolfson is a financial consultant and advisor. He retired after 27 years of active chiropractic practice. Dr. Wolfson can be reached at (631) 486-2792 or email@example.com. View more published articles here.