You Have a Will – Is It Time for an Estate Plan?

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Most people have a will. But a simple will often doesn’t cover some complex issues facing your heirs, which is why I recommend an estate plan.

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I work with doctors, accountants and other professionals, small-business owners and people getting ready to retire. They may have a will and a trust for their children, but an estate plan answers three fundamental questions:

What you want to happen after you pass away;
Why you want it to happen;
Who will ensure it happens.

Most people have legal documents that answer the first question; in addition to a will, these include powers of attorney, a health care directive and trusts. But these documents rarely explain the intent or reasons for choosing to give money, property and other assets to some people and not others.

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An estate plan provides clarity about each heir to your estate. And this can be particularly important if the deceased person had multiple marriages and families. In addition, with a plan in place, you and your heirs will likely pay substantially less in taxes, fees and court costs and avoid nasty family battles over your assets after you are gone.

Here are four tasks you’ll need to complete to get started:

1. Make a Current Statement of Net Worth

This is a complete list of all assets, debts and life insurance. Assets will range from houses and personal property to retirement and bank accounts. Debts will include any loans – a mortgage, home equity, car or credit card debt.

Include the approximate value of each asset as well as the current owner(s) and any beneficiaries. For example, it’s likely that a married couple will jointly own their house. But when it comes to retirement accounts, 401(k) or individual retirement accounts, most will be in the name of each individual.

It’s vital to account for every asset, even some of the smallest ones. For example, in a California case, two siblings spent almost 10 years in court and over $750,000 on legal fees in a dispute over who should inherit their father’s surfboard. If the father had spelled out the heir in his will, they would have likely avoided financing an attorney’s vacation home!

2. Write Letter of Intent and Instruction

After a person has died, disputes often arise. Even if a particular piece of property is given to one person, other heirs often will argue that “Mom and Dad really wanted me to have it.”

Writing a letter that explains the reasons — and the intent — for choosing to give a particular asset to a person can forestall needless family strife and legal challenges. If possible, the letter should provide as many details as possible. For example, if you have decided to give an heirloom or other sentimental piece of property to only one person, state the reasons and intent behind this gift.

3. Choose the Right Decision-Makers

Several people may play key roles in enacting your estate plan, including the executor, as well as possibly a trustee and guardian.

The executor, who will serve as your personal representative, often has a complex role. They will need to make important, time-sensitive decisions while the burden of losing a loved one weighs on their emotions. Because of this situation, it may be difficult for a spouse to carry out these duties.

If the estate plan includes a trust, a trustee can be chosen to oversee it if your heirs may not have the financial ability to properly manage millions of dollars or other new assets. If you don’t know someone who can fill this role, consider a professional, such as a bank or corporate trustee.

The guardian will have legal responsibility for any minor children. If you have minor children, this position requires the most forethought and consideration. The guardian will in many ways be stepping into the role as parent.

If you would like your children to attend private schools, and a life insurance policy provides them the money to do that, the trustee and guardian will work together to carry out your wish. Also, any instructions should provide context to help the trustee and guardian make the best decisions. For example, if you provide funds for a car that provides “reasonable comfort,” it could mean a Honda Accord for one person and a Mercedes-Benz to another.

Once you’ve decided on a person for each role, speak with them prior to signing your legal documents to ensure they understand their responsibilities.

4. Make Regular Updates to Your Plan.

Review your estate plan at least every five years and at “milestone” events, such as marriage, divorce and new children. Also, make certain to regularly update beneficiaries and potential decision-makers.

Unfortunately, many people work hard to develop a plan, but even after several years, fail to update important information. Work with your financial adviser to ensure your estate plan is implemented. Otherwise, an estate plan that gathers dust over years is an expensive pile of paperwork.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jason Cross is a wealth adviser at McGill Advisors, a division of CI Brightworth. He works with high-net-worth families in investment management and estate planning and helps business owners develop financial plans to sell their businesses. Jason is a Certified Financial Planner™, Certified Trust and Financial Advisor and an active member of the Georgia Bar Association.