It was reported on the news recently that some of Aretha Franklin’s family members have found what they believe to be her will. It was handwritten, stained, and crumpled up in a couch. The courts may or may not choose to honor it, depending on whether or not they are able to verify its authenticity.
Unfortunately, this type of scenario occurs all too often. A family member unexpectedly dies or becomes incapacitated and they either don’t have the right documents in place or the validity of those documents is questionable. This can make things very difficult for the ones they love. There are four steps you should take now (if you haven’t already) to ensure your affairs are in order should something happen to you.
Step 1: Have a will and/or trust drafted.
A will is a list of instructions to a court that tells it how you would like your possessions to be distributed at your death. It should be drafted by an estate planning attorney who is licensed to practice law in your home state. Wills end up going through the public probate process, which effectively closes out all of your remaining legal and financial matters.
A trust is another type of document that can be used to control the distribution of your assets at your death. It too should be drafted by a qualified estate planning attorney. One of the big advantages trusts have over wills is privacy. Assets that pass to your heirs via a properly-structured trust completely avoid the probate process.
Step 2: Ensure your assets are titled correctly.
After you have a will and/or a trust in place, the next step is to make sure you have your major assets (homes, vehicles, accounts, etc.) titled correctly. If something is owned jointly between you and another person and you want your share of it to pass to that person at your death, then title it jointly. If you own an asset by yourself and you’d like it to pass according to the instructions in your will, then title it in your name only. Similarly, if you’d like an asset to pass according to the terms spelled out in a trust, then make sure the asset is titled in the name of the trust.
Another important part of the titling process is making sure the beneficiary designations on your retirement plans, IRAs, life insurance policies, and other similar instruments are up-to-date. This is because these designations may, in some cases, override the instructions given in your will. If you have any questions about how something should be titled or who the beneficiary should be, consult the attorney who drafted your will and/or trust in Step 1.
Step 3: Have power of attorney agreements drafted.
These documents specify what you would like to happen to you and your affairs in the event you are unable to weigh-in on these matters yourself. The laws that govern these types of situations vary by state, but it’s generally wise to have the following agreements in place: (1) a durable power of attorney, (2) a medical durable power of attorney, and (3) a living will.
A durable power of attorney allows you to name someone to conduct your financial affairs in the event you become disabled or incapacitated. A medical durable power of attorney appoints someone to make medical decisions on your behalf if you cannot make them yourself. Finally, a living will instructs medical personnel to either continue or end life-sustaining procedures when you can’t express your position on the matter. As in Step 1, you should have a qualified attorney draft these documents.
Step 4: Prepare a letter of instruction.
A letter of instruction isn’t a formal legal document, but it can provide your loved ones with clarity after your death. You should consider including the following items in the letter: a list of your financial accounts and account numbers (with online user names and passwords), a list of your important documents (like wills/trusts, insurance policies, tax returns, titles, Social Security card, etc.) and their locations, a list of the professionals you work with regularly (attorney, financial advisor, tax preparer, etc.) and their contact information, any creditor information, and your final burial/funeral wishes. You could also include a final message to friends and/or family members if you’d like. When the letter is complete, put it in a safe place and tell your personal representative how to access it.
Once you have completed the steps above, review the resulting documents periodically, and after the occurrence of major life events (deaths, marriages, etc.). The unfortunate reality is that death or incapacity can happen to any one of us at virtually any time. Completing the steps above and keeping everything up-to-date will require an investment of time and money. However, I would argue that it’s well worth it.
Brian Littlejohn, MBA, CFP®, CFA is a fee-only financial advisor serving clients in Glenwood Springs, CO and beyond. His firm, Sherwood Investment Management, provides investment management, retirement planning, and comprehensive financial planning to help clients organize, grow, and protect their assets. Sherwood Investment Management is completely independent, acts as a fiduciary for its clients at all times, and never accepts commissions of any kind.