Estate Planning before a loss in four steps

Money is one of the last things you want to think about after the loss of a loved one. To help to minimize the financial decisions during a sensitive time, there are actions and conversations to consider prior to a loss. Financial decisions are inevitable in the death of a loved one, even for the most prepared. Wading through the financial decisions before a loss with your partner will help you to be more prepared and understand each other’s wishes more completely.

There are countless lists available outlining the documents you should have prepared for the unexpected ranging from guardianship for children to Wills to Power of Attorney documents. Those documents, of course, are a must for most people reading this blog. Having your estate planning documents prepared by an attorney is your baseline for preparing for the unexpected.

Ongoing process…

Once you have the documents prepared, those files should be pulled out and reviewed every few years. If no updates are required, then they should go back into their fire-safe storage, wherever that may be in your home. If they do need to be updated, the cost will generally be much less than the original consultation to create the documents.

The steps that people tend to avoid are the steps that bring the possibility of loss into reality. There are four steps that can ease the weight of navigating finances before the loss of a loved one.

Step one: Discuss funeral wishes in detail.

There are a few questions you and your partner should discuss in advance, as the answers serve as guidelines and come with financial implications. Knowing the answers to these questions will ease the decisions you have to make in the future.

 Two questions to get you and your partner started in this conversation could be:

1. Do you want to be buried or cremated?

2. How do you want to be remembered?

These wishes do come with costs. Review insurance coverages and emergency fund savings. Where will the funds to pay for your funeral wishes come from? 

As you calculate your family’s needs during a loss, you are starting the analysis to evaluate how much life insurance coverage is really necessary. The family needs analysis method is our go-to analysis to ensure you are not overpaying on insurance or underinsuring. Our blog post, ‘How Much Life Insurance Do you Really Need?’ reviews the ‘family needs’ evaluation in detail.

This conversation often evolves into a discussion of how you want your legacy to carry on after your passing. Your wishes for your legacy could include charitable contributions, leaving assets to certain people, or something else entirely. The sooner you begin planning for these wishes, the more significant your impact will be, and the more likely your preferences will be able to be carried out.

Step two: Who will play what role. 

There is some organic aspect to people stepping in to support in the wake of a loss. Yet there has to be some structure to ensure the decisions are being made according to the person’s wishes, especially if children are involved.

There are several vital roles people play at the end of a person’s life. Roles that must be assigned include who will be the person to will make decisions in the event you cannot. These decisions range from financial to medical. You may have different people for decisions in various aspects of your life.

The most general authority you may grant is a durable power of attorney. In naming someone as your durable power of attorney in your estate planning documents, you are permitting someone to act for you in legal or financial decisions, most importantly in the event, you are incapacitated. There are cookie-cutter documents available online. If you have specific parameters you’d like to include in this authority, your attorney can help you spell that out in your documents.

More specifically, to your medical decisions, a healthcare power of attorney is someone you trust to make medical decisions for you when you are incapacitated. This person would have the responsibility to make major decisions such as when to take you off life support. Before you name this person in your estate planning documents, you must discuss your wishes with them and ensure they are up to the task.

The person who will be acting in your place after your death to ensure all your wishes in your will are carried out is the executor. The size of your estate, including the property you own and the size of your investment accounts, play a role in just how complex this role becomes. Naming an executor of your estate is a big decision for you and the person being called to act. It must be a conversation and should never be a surprise for the person being named. They have to understand your wishes and the responsibilities they agree to navigate. Are there possibilities there will be disagreements among family members? Spoiler alert, if the answer is yes, there should be a conversation, including those potentially feuding members sooner rather than later.

Step three: How organized are you for a loss?

The last part of the conversation with your partner will fit all these pieces together. Now that you have your estate planning documents in place, you know who will be playing what role, the next question is, how do you make all these wishes actually happen?

Knowing where copies of documents are is a good start. Both partners should know where car titles are kept, where old tax documents are filed, where birth certificates are stored, for instance. Ideally, such important documents are kept in a fire-safe and securely locked box.

Double-checking the little things now, before you have to, will make the inevitable easier. Do you and your partner know usernames and passwords for online banking and bill pay? How comfortable are you both with your entire financial team, including your accountant, financial advisor, insurance agent?

Step four: Planning for taxes.

Estate tax and state inheritance taxes can take a chunk out of what you are planning to leave as your legacy. Structuring your entire financial situation efficiently can dramatically impact your wealth as it grows and once you leave it behind. As your assets increase and as you solidify your legacy desires, there may be a possible need for a trust account. A trust account essentially allows you to shelter funds in a specific account administered by a specific person for a specific purpose. The analysis to evaluate if a trust is right for you will consider the tax implications as well as your specific intent.

Before a loss…

The role of financial planning in preparing for a loss is magnified the earlier you begin. Navigating the IRS FAQs on estate taxation is not something you want on your place in the loss of a loved one. Having all these pieces in place does more than give you peace of mind, it can also save you tax dollars. 

Ultimately the more you do now, before the loss, will make life just a touch easier in the transition to life after the loss of a loved one. Your financial team should guide you through the precise guidelines for your estate plan based on your life stage and your unique needs.

If you know someone who could use help getting this conversation started, please share this blog with them.