Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

Estate planning is the easiest financial planning to-do to put off. It is certainly not fun to ponder your own mortality, and yet that is the very nature of estate planning. Lawyers are often involved, so it can be hard to get it done on the cheap. And while most financial planning jobs provide at least some payoff during your lifetime, estate planning is not as much for you as it is for your loved ones.

Given all of those reasons, it is no wonder that so many individuals put off creating or updating on an estate plan. But anecdotally, at least, the pandemic seems to be lighting a fire under some people to get serious about creating or updating their estate plans once and for all. It could be that they have been spurred on by the health crisis, which has already claimed too many lives, or they may finally have a bit of free time. Making sure you have the key estate planning documents in place is important; that means a will, an advance directive (or living will), powers of attorney for healthcare and financial matters, and guardianships for minor children, first and foremost. Trusts may also make sense in certain situations. But there are other add-ons that you can think about in the context of your estate plan, especially if your goal is to make life as easy for your loved ones as possible and to ensure that your wishes are carried out after your death. In contrast with a traditional estate plan, you can craft at least some of these documents on your own, without the aid of an attorney.

1. A Financial Overview
A financial overview lays out the basics of your finances in a straightforward narrative. It can be especially helpful if your loved ones are not especially conversant in financial matters, or if they are “words” people rather than numbers-oriented. (One way to think of it is that the financial overview is a Word document, whereas the master directory is Excel.)

A financial overview for your household could include the following:

  • Your estate plan (where to find the documents and who the key agents are—POAs and executors).
  • Your key financial assets (no dollar amounts or account numbers; just where accounts are held and who owns them).
  • Your insurance coverage (property/casualty, health, life).
  • Your house (property ID number, whether there is a mortgage).
  • Your cars (VIN numbers, whether there are car payments).
  • Regular household bills need to be paid.

2. A Master Directory
Think of a master directory as a detailed version of your financial overview. Whereas the financial overview is a Microsoft Word document, this is the Excel version. For example, your financial overview might say, “We each have 401(k)s through our employers: Emily’s is with Charles Schwab and Jake’s is with Fidelity.” But the master directory would include the actual account numbers for those accounts, the URLs, and the names of any individuals you deal with at those institutions. Because the master directory includes sensitive information, it is crucial to encrypt it or, if it is a physical document, to keep it under lock and key.

3. A Plan for Your Personal Property
Most wills will state that any tangible personal property, like furniture, should be sold and the proceeds added to your estate. But if you have sentimental or valuable items that you would like to earmark for specific individuals, such as jewelry, artwork, or special home items, you can also create a memorandum of tangible personal property that specifies who you would like to inherit those items. For your own sanity, do not go overboard in earmarking every little thing for specific individuals; focus on those items you treasure that will also have meaning for the recipients. In addition, because the memorandum is not technically part of your will, you can update it as you obtain or shed possessions (or loved ones!). Such a memorandum is legally binding in most states, as long as it is mentioned in your will. But even if the memorandum is not legally binding, it is probably still worth doing and assuming that your loved ones will honor it.

4. A Plan for Your Pets
If you are an animal lover, you know that pets are not possessions; they are part of the family. Thus, more and more estate plans include provisions for pets. There are a few ways to incorporate pets into an estate plan, and they are a gradation. The gold standard, albeit one that entails costs to set up, is a pet trust. Through such a trust, you detail which pets are covered, who you would like to care for them and how, and leave an amount of money to cover the pet’s ongoing care.

Alternatively, you can use a will to specify a caretaker for your pet and leave additional assets to that person to care for the pet; the downside of this arrangement is that the person who inherits those assets is not legally bound to use the money for the pet’s care. At a minimum, develop at least a verbally communicated plan for caretaking for your pet if you are unable to do so—either on a short- or long-term basis.

5. A Digital Estate Plan
Even people who think they have ticked off all of the usual boxes on their estate planning to-do lists may have overlooked an increasingly important component of the process: ensuring the proper management and orderly transfer of their digital assets after they die or become disabled. Just as traditional estate planning relates to the management and transfer of financial accounts and hard assets, digital estate planning encompasses your digital possessions, including the tangible digital devices (computers and smartphones), stored data (either on your devices or in the cloud), and online accounts such as Facebook and LinkedIn. The laws around digital assets are changing quickly, and different providers have different policies/level of access. But a key first step is taking an inventory of all of your digital accounts and storing it in a secure but accessible location. You can include it as a separate sheet on your master directory, discussed above. Discuss the existence of this document with your executor, and if you have valuable digital assets (cryptocurrency, for example) you will want to be sure to discuss them with your attorney and incorporate them into your formal estate plan.

6. A Plan for the End of Life
If you have an advance directive, you know that it articulates your attitudes toward life-extending care. But these documents are typically boilerplate; they do not go into great detail on these matters.

It is also worthwhile to spell out your wishes and any plans you have made for funerals, memorials, and the disposition of your body, either verbally, in writing, or both. Maybe your wishes are simply to have your loved ones say goodbye in whatever way gives them the most peace at that time; in that case, tell them that or write that down.

7. An Ethical Will
Last but not least, consider writing or recording an ethical will that spells out your beliefs and values. In contrast with a conventional will, which lays out how you would like your financial and physical property to be distributed, an ethical will is a way to “hand down” your belief system to your loved ones. The tradition of ethical wills began in the Jewish community, but it has gained more interest across cultures over the past decade. This is a heavy assignment, so do not too much pressure on yourself to be profound or to write an ethical will all at once. Instead, consider starting your ethical will by jotting down your beliefs as they occur to you. To help remove some of the pressure, balance light bits of wisdom (“always keep a bottle of champagne in the refrigerator so that you can celebrate happy events big and small”) with the deeper life lessons that you have learned.

 

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