In my experience, there are two huge challenges when it comes to estate planning.
First, no one (and I mean no one!) wants to talk about and tackle the “details” surrounding illness and death. And, because death and estate planning are so taboo, many people act on assumptions that are based on limited knowledge and little or no professional guidance.Alice and Cliff had been together for over a decade, but they’d never married. Already in their late 60s when they met, Cliff had already been retired for years. So even after they moved in together, they decided to keep their estates separate as an inheritance for their respective children. Alice was still in shock and barely functioning when she called to tell me Cliff had died after a short and intense battle with cancer. Cliff’s diagnosis had been completely unexpected, and his intense treatment of surgery, chemo, and radiation had been their only focus from the moment they received the test results until the day he died just three months later. In the whirlwind, there had simply been no time or energy to think about the details of estate and financial planning. Now that Cliff was gone, Alice needed my help to get her financial future in order—and to get “unstuck” so she could focus on her future.I knew the first thing we needed to do was to identify Cliff’s assets, and then determine how each asset was owned and the named beneficiary for each. Alice knew where Cliff’s records were kept, but that was about it. They had always filed separate taxes, and all of their investments—including their individual IRAs, 401(ks), and brokerage accounts—were kept separately. To make matters more difficult, they had never discussed finances at this level with each other (or with me), so there were a lot of questions on the table. Was the house owned in his name only, or in joint tenancy with Alice? Who were the beneficiaries for his life insurance policy and his 401(k), IRA, and brokerage accounts? And what about Cliff’s savings and checking accounts? Did Alice even have access? Were those funds hers to use as she needed?We started with the pieces of the puzzle that were most important to Alice’s well being: her home and her immediate cash flow. The house was originally Cliff’s, and Alice didn’t know if she was on the title or not. Unfortunately, the deed was kept in his safety deposit box. Had they been married, Alice would have had immediate, unrestricted access to the box. But because they were unmarried and he had never authorized her as a joint renter or given her access to the box, we had to take another route. By looking at the property tax bill, we were able to determine that Alice was on the title as a
joint tenant with right of survivorship. This meant that the house could be easily transferred into her name by taking Cliff’s death certificate to the clerk and recorder’s office and filling out a form. One down, many to go.Luckily, accessing their joint bank account proved just as fruitful. When I looked at the bank statement, I was relieved to see the letters “JTWROS” after their names. Alice had joint tenancy with rights of survivorship to these accounts as well. All she had to do was present the death certificate to the bank and the accounts could be transferred into her name. Within days, Alice had full access to the accounts that were used to pay the bills, including the monies from their pensions and social security benefits.This was great news, but not everything was quite so simple. If Alice and Cliff had met with me beforehand, I would have advised them to make some important changes to Cliff’s “plan”:While I understood their desire to maintain separate estates, marrying would have given Alice spousal benefits from Social Security totaling about $1,000/month more than she was receiving from her own Social Security income. Plus, it would have been easy to retain all of the benefits of separate estates by classifying each asset appropriately.A portion of Cliff’s remaining assets went to his children, one of whom is in jail and has a serious drug problem. With the right planning, Cliff could have put certain contingencies on his son’s access to the money to protect the assets.##TRENDING##Simply naming Alice as a joint renter on the safe deposit box would have given her immediate access to important documents such as a copy of his Will, his life insurance policy, and the deed on the house. This would have made the weeks following his death much less stressful for Alice as she struggled to figure out where she stood financially.If Cliff had been unable to make his own medical decisions, without a Healthcare Power of Attorney, Alice would have had no rights. Having a POA gives the person you designate the power to make medical decisions on your behalf. (For more on this, read my last article,
Life happens! What’s your long-term game plan for handling the inevitable?.I’m happy to report that, despite some planning shortfalls, Alice is in fine shape financially. We learned that Alice was the beneficiary on Cliff’s IRA, and that the balance of that account had been pumped up by the rollover of his 401(k) just months before he got sick. We set up a new Inherited IRA for Alice using the funds, and although it requires minimum withdrawals, at least she did not have to pay taxes on the IRA all at once. Plus, she has the freedom to take out what she needs, when she needs it, paying out taxes only at the time of withdrawal.Regardless of your age, health, marital status, or level of assets, take steps now to protect the financial security of your loved ones. Talk to your loved ones about your wishes before you get sick, and take the necessary steps to put those wishes into action. Provide access to your estate planning documents and review them with your spouse or partner. Get a Healthcare POA. Review the beneficiaries named to each of your accounts. And once you’ve discussed your plans, meet with a competent advisor to ensure you’re making the best possible decisions. Taking the right steps today can have a significant impact on the financial security of the people you love most—more than you’ll ever know once you’re gone.
