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Use Unexpected Downtime to Update Your Estate Plan

By MICHELLE ROBB, CPA

August 29, 2020

The COVID-19 pandemic has turned business operations upside down and forced us to rethink almost all our assumptions about how businesses should be run. Business leaders have felt these changes acutely, but so have employees. Many of us were asked to work from home months ago, and we are so used to it by now that the term “home isolation” no longer fills us with dread and anxiety. For a lot of us, this additional time at home provides the perfect opportunity to address some of the clutter – both figurative and literal – that we’ve built up over the years. Estate planning documents are just one example.

What documents are important?

When gathering your estate planning documents, pull all of the following:

Wills

A will is a document that directs how your assets should be distributed after your death. When drafting your will, you must name your will’s executor. This individual is often a family member or close friend, but you can assign executorship to anybody you choose, including a business advisor.  You should also name at least one successor in case the first executor named is unable to serve.  If it has been some time since you first created your will, take some time to rethink your selection. At your death, this person will take legal responsibility for your financial obligations and control your assets, so you want to choose somebody with integrity who will honor your wishes.

Your will should also include the names of your minor children – if any – and should name (1) who their guardians will be if you pass, and (2) who will be responsible for their financial welfare. These two individuals may not be the same. For example, it is standard for parents to financially provide their children with a trust but ask a family member to take guardianship until the children reach the age of majority.

Trusts

Trusts can be created as part of your will or as separate documents. Trusts are legal entities that operate outside of yourself or your spouse. They hold assets, and at predetermined times, the trust’s assets (or income that derives from those assets) will get distributed to named intended beneficiaries. People create trusts for various reasons, but some common ones are to support a charity, care for special needs individuals, or hold life insurance.

One or more trustees operate trusts. Your trustee will be responsible for carrying out your wishes, as outlined in the trust documents. We recommend reviewing your selection every few years and update it as needed.

Powers of Attorney

A power of attorney is a legal document that, in a broad sense, grants another person the right to act on your behalf while you are living. As part of your estate plan, you will want to consider both financial powers and medical powers. Financial powers of attorney limit the trusted agent’s control to financial matters, while medical powers of attorney only allow the authorized agent to make medical decisions on your behalf. Advanced medical directives (sometimes called “living wills”) describe what type of medical intervention you are comfortable with if you are unable to communicate your desires firsthand. They are different from the medical powers of attorney. The person to whom you grant medical power of attorney will be the person who enforces your wishes and makes medical decisions on your behalf should you become incapacitated.

There are two types of powers of attorney: durable and springing. A durable power of attorney is effective immediately. The person named in the document will have the freedom to act in your stead in whatever capacity you grant them in the document. A springing power of attorney is different. It only becomes effective upon the occurrence of an event. For most, a springing power of attorney becomes effective only when you become medically incapacitated. Your trusted agent will likely need a court to confirm such an event occurred, so there is often lag time before a springing power of attorney becomes effective.

Why is estate planning important?

Estate planning is always essential, but it becomes imperative during a pandemic. You want to have a plan in place if you pass away or become incapacitated. If you do not document your final wishes in a will, your state’s intestacy laws will determine how your assets are distributed. A court will decide who will be the executor of your estate, who will be the guardian for your minor children, and at what age your children will receive their inheritance.

If you have a will that has been drafted and signed, you should first locate a copy of the will. Read it over and determine if it continues to express your wishes accurately. As a general rule, a will should be updated when a life-changing event occurs, such as birth, death of a beneficiary, marriage, divorce, disability of self or a beneficiary, or receipt of an inheritance or other windfall.

Are there assets not governed by a will?

Probate assets are assets that are distributed by direction in a will, or by a court in the absence of a will. Non-probate assets are governed by law. Examples of non-probate assets include retirement plans, annuities, and certain life insurance contracts. For these accounts, the account owner completes a designated beneficiary form. This form, not your will, directs the distribution of the asset. Just as you update your will after life-changing events, review your designated beneficiary forms after life-changing events. Most financial institutions have these forms readily available on their websites, and there is typically no cost to file a new form.

What additional steps do I need to take?

An important part of your estate plan should be protecting your digital assets. It is helpful to compile a master list of usernames and passwords for your digital assets like your social media profile, domain names, and email accounts. A reputable password manager can store this information electronically and securely until your executor needs it.

As you collect this information and the rest of your estate planning documents, consider how you can be more transparent with your loved ones. While your survivors do not need to know the details of your estate plans, they need to know where to find those documents when you die. This is especially important for executors who are unfamiliar with your everyday affairs. Klatzkin has developed a Beneficiary Planner where you can document your assets – physical, financial, and digital – and list your trusted advisors’ contact information. The planner will be a useful road map for your executor.

If you need assistance in updating your estate planning documents or developing an estate or tax planning strategy, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

This material is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.

About the Author

Michelle is a Partner in the firm’s tax practice focused on serving the planning and compliance needs of nonprofits, manufacturers and distributors, and professional service firms. She works closely with business owners and executive directors of nonprofits to manage their assurance and audit needs, but primarily focuses on tax planning and compliance. While she enjoys...

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