How your clients can make smart financial decisions for difficult circumstances
by Ellen KleinMs. Klein is a free-lance writer covering a broad range of topics related to financial planning. Connect with her by e-mail: [email protected]
Death may be an uncomfortable subject, but it’s one of the only guarantees in life. As unsettling as it may be, it’s important to prepare for it financially, for your benefit and those left behind.
Surveys indicate that between 2017 and 2020, 25% fewer Americans have estate planning documents or wills. Considering that in 2017, only 42% of Americans said they had a will or another estate planning document, and in 2020, only 32% have such documents, the decrease is alarming. America is horribly underprepared and underinsured for death.
The lack of preparedness is not necessarily due to people being unwilling to face their mortality, as 30.4% of respondents surveyed in 2020 said that they did not think that they had enough assets to bequeath to anyone. However, this does not negate the need for estate planning.
As the following tips show, you may have more assets than you realize, and there’s more to preparing for your passing than drawing up a will.
1. Draw Up An Inventory Of Physical Assets
The easiest way to start is to draw up an inventory of all your physical assets. Go through your home, garage, and garden shed and make a list of your valuable assets.
Items that could appear on your inventory include:
- Your property (and any other property you own)
- Sound systems
- Power tools
- Garden tools and equipment
While itemizing your inventory, make a note of whom you wish to bequeath specific items to.
2. Itemize Non-Physical Assets
- Non-physical assets would include:
- Bank accounts,
- 401(k) plans,
- Life insurance policies,
- Brokerage accounts
- Auto, disability, health, long-term care and homeowner insurances
Any other entitlements should also be listed, as should your social media accounts.
Try to avoid referring to non-physical assets vaguely. Instead, write down the account numbers and passwords, the contact details of firms that hold those possessions, and where the physical documents are stored.
3. List Memberships And Charitable Organizations
Make a list of the clubs and organizations to which you belong.
This can include:
- A church or other religious organization
- The Knights of Columbus
- American Legion
- College alumni group
- Professional accreditation association
Some groups have life insurance benefits or other plans to assist your spouse, children, or other beneficiaries.
Include the charitable organizations that you support on the list. If your bank account is set up to make a monthly contribution, or you volunteer, your beneficiaries will be able to contact them and let them know you’ve passed. Listing your charitable involvements will also enable people to make donations in your memory.
4. Make A List Of Your Debts
After you’ve passed away, your estate generally becomes responsible for settling any outstanding debts. There may be cases where debt is canceled, but this is certainly not the norm. For planning purposes, you should list all your debts, including any open credit cards, home equity lines of credit, mortgages, and vehicle loans.
As with your non-physical assets, write down the account numbers, contact details of the institutions or companies to whom you’re indebted, and where relevant paperwork pertaining to credit agreements can be found.
5. Consolidate Your Accounts
If you have a number of different IRA accounts or 401(k) retirement plans open, consider consolidating them. For example, you can consolidate multiple IRA accounts into one. Consolidation means less paperwork for you and your estate administrator and fewer costs. Plus, it can offer you better options for investment.
6. Set Up Transfer On Death Designations
If you have a CD, bank savings or brokerage accounts, you can amend them to include transfer on death (TOD) designations. A TOD ensures that the appointed beneficiaries receive the assets in the event of your death.
Accounts with TOD designations are not subject to the probate process your other assets will be required to follow. You can set up or amend accounts with a TOD by contacting your bank or custodian.
7. Update Your Insurance Policies
Out-of-date beneficiary designations or administration errors on policies are a common issue when wrapping up an estate. Check that the beneficiaries you named on all your policies reflect your current wishes and not those of several years prior.
If you don’t already have one, now’s the time to set up a senior final expense program. This type of life insurance policy can cover the costs of final expenses, such as a funeral and burial or cremation, relieving your family of any financial burden. You can qualify for a program if you’re between the ages of 45 and 85, and the rates cannot be increased.
8. Draw Up A Will
Drafting a will is an essential step in planning for your passing. You can write your own using online resources, or you can enlist the help of an attorney to draft the document.
In addition to covering your assets’ distribution, you should appoint a guardian if you have minor children. If you have pets, name the individual who will care for them, or the organization they should be surrendered to.
Your will should be dated and signed by yourself and two witnesses who don’t stand to inherit. The document should be notarized too. Although this isn’t generally a legal requirement, it can assist the executor in speeding up the probate process.
9. Appoint An Estate Administrator
If you’ve not already appointed an estate administrator, you should do so with immediate effect. The appointee should be responsible and not be someone whose mental state or decision-making abilities are adversely affected by emotions.
If you’re married, consider appointing someone other than your spouse, who will have enough to deal with. Administering your estate would be an added burden during a time of grief.
10. Copy Your Documents
Make copies of your physical and non-physical asset lists, will, and any other relevant documents. If you’re married, give copies to your spouse and estate administrator and keep copies for yourself too. As these documents contain sensitive information, they should be stored safely. Consider placing your copies and your spouse’s copies in a safety deposit box.
Planning and preparing for your passing may seem like a lot of work, but it can be completed relatively quickly if done methodically. If you struggle to do it yourself, estate planners are readily able to assist you.