retirement

A Guide to the Softer Side of Estate Planning

Once you've written your will, pat yourself on the back. Then get back to work to spell out your wishes on what could be far more important than how your assets are divided. Your family's harmony could be a stake.

Who should get Grandma’s cherished engagement ring? How would she want her funeral to be arranged? Where are the keys to the shed out back? Who is going to take care of her dog?

The days and weeks after a loved one passes can be filled with equal parts sorrow and confusion. Not only must you say goodbye to an important person in your life, there is the added stress of sifting through their estate to make sure family members and friends receive their inheritance.

Proper estate planning, of course, makes this easier. Hopefully you have a will of your own in place to address the transfer of your financial interests. Beyond that, you’ll likely have named an executor to handle those affairs. This is the stage of estate planning where most people stop because they think, “My will directs all the assets in my estate, so if that’s in place, I’m done, right?”

Not quite. There are many other important parts to this process that can get forgotten along the way. Call it the “softer side" of estate planning.

Heirs vs. beneficiaries

Even if your will is written just like you want and addresses all your finances, it’s wise to complete and review beneficiary designations for your retirement accounts, life insurance and annuities.

Why bother? While it is part of your estate and covered in your will, designating a direct beneficiary of an account or insurance policy can have a few significant benefits.

  1. Assets like IRAs, life insurance and annuities that designate a named beneficiary generally bypass the probate process. Probate is the reading of the will and the settling of the estate and is typically performed by an attorney, for which they are compensated.
  2. Along with the cost savings benefit, naming a beneficiary often results in a more timely transfer of assets. Usually, the executor supplies the death certificate of the account owner directly to the custodian or insurance company, and in turn, the beneficiaries receive their respective share of the assets. There is no probate process, significantly reducing the time it takes to transfer the assets.
  3. Certain accounts, like IRAs and annuities, have tax advantages. When inheriting these types of accounts as a named beneficiary you have the option of leaving the majority of the assets in them, with the only requirement being that you must take the required minimum distribution. Preserving the tax benefits of these accounts often leads to more dollars to the beneficiary over their lifetime.

Funeral matters

Have a favorite song you want played at your funeral? Include that in your will.

For many, estate planning is difficult to discuss, particularly the details of your own funeral. But when the time comes for a spouse or child to arrange a husband or parent’s final service, it can be even more difficult for them to make those incredibly personal decisions: Burial or cremation? Open casket? What will you be wearing? Instead of flowers, would you rather have donations made in your name?

Make a plan to address these matters, and don’t be afraid to make it personal — this is, quite literally, the last chance you’ll have to make an impression. I have a client in her 60s who has a personalized CD that she has directed in her will to be played at her funeral. In addition, she wrote down the colors she wants to wear and other personal touches for her funeral. I can’t emphasize enough how much her children will appreciate this when her time comes.

Family feuds

Your financial accounts can be split up equally for your heirs, down to the penny. The same can’t be said for an engagement ring that has been in your family for generations.

In my experience, the largest point of contention within a family following a death relates to physical assets, particularly family heirlooms. From jewelry and vehicles to photo albums and gun safes, unless these items are specifically passed down to an individual, group or charity, arguments can develop over who gets what, or if they should be liquidated and the assets split.

An easy way to settle any disputes is to add codicils to your will. In short, a codicil is an addition to your will that spells out the distribution of specific physical assets. These documents can be updated when necessary and may prove to be the most valuable part of your estate plan, particularly as it relates to the harmony of familial relations.

Your digital footprint

Who gets my Bitcoin?

It’s a sign of the times that digital assets, such as digital coins worth thousands of dollars or cloud-based photo albums, can be part of an inheritance. Estate planning with respect to digital assets is finally starting to catch up to the world we live in. To bequeath digital assets, specific language must be written in your will, and some assets cannot be passed down at all. For example, your iTunes terms of service generally states that your song library cannot be transferred to anyone, ever. You could leave your heirs your username and password, but from a legal standpoint, it’s a violation of the terms and your heir could be accessing your account illegally.

It doesn’t stop at a remastered Best of The Beatles album. Other non-physical assets include rewards programs, like those offered by airlines. Some people build up thousands of dollars’ worth of points, but airlines have different policies as to whether they be transferred. Some airlines are willing to transfer points while others explicitly state that when the owner dies, the points die with them. There may be points from other rewards programs that can change hands, but each program will spell out the details in its terms of service agreement.

Perhaps most important is cataloging the information you keep online and making sure your spouse or other trusted family member has an inventory of these accounts and the necessary credentials shared in an online password manager. In the event of your death, this person will be able to access your 401(k) to begin the death claim, shut down credit card accounts, cancel automatic utility payments and update your social media accounts to reflect your passing. In the past, the utility company, for example, sent a paper bill every month, now most have electronic statements, which just further increases the need to inventory your accounts via a password manager.

Lost accounts

It’s not uncommon to be cleaning out a recently deceased loved one’s house and find some cash squirreled away that no one knew was there. You might be leaving behind something like this and not even realize it.

Through life, you might change jobs, retirement plans or banks. For myself, I have a pension account from a former employer that I can’t touch until I’m near retirement. I wasn’t married when I set it up, which illustrates the importance of reviewing and updating your beneficiaries and including all of your accounts in a shared password manager account.

Do you have any accounts that you never receive any correspondence about? How would your heirs know they exist? Having a complete and updated net worth statement can be extremely valuable to your heirs when they are trying to get a handle on what assets you had and where they’re held.

What you can do now

Suddenly, it seems like planning for the end is a major inconvenience for you and those you leave behind, but there are ways to make it more manageable. In addition to consulting with a trusted financial adviser or attorney, there are plenty of services to guide you through the process, including comprehensive checklists.

For many — probably most — thinking of our own mortality is difficult, so it’s easy to leave planning to a simple will that only distributes accumulated wealth, not your personal possessions and other assets, and then leave it alone until the time comes. I often remind my clients that estate planning is not for you, it’s for those who you care about deeply, so ignoring it is a disservice to those you leave behind. Taking the time to manage these softer and sometimes-forgotten aspects to estate planning can prove to be more valuable to your heirs than any inheritance could ever amount to.

About the Author

Casey Robinson, CFP

Managing Director - Wealth Planning, Waldron Private Wealth

Casey Robinson is the Managing Director of Wealth Planning at Waldron Private Wealth, a boutique wealth management firm located just outside Pittsburgh. He focuses on simplifying the complexities of wealth for a select group of individuals, families and family offices. Robinson has extensive experience assisting multi-generational families with estate planning strategies, integrating trusts, tax planning and risk management.

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