While many of us like to think that we're immortal, the old joke is that only two things in life are for sure: death and taxes. Not only is it important that you have a plan in place in the unlikely event of your death, but you must also implement your plan and make sure others know about it and understand your wishes - as Benjamin Franklin's famous quote goes, "by failing to prepare, you are preparing to fail". If you've procrastinated on your estate planning, this article will help you get going in the right direction.
Must Do No.1: Physical Items Inventory
To start things out, go through the inside and outside of your home and make a list of all items worth $100 or more. Examples include the home itself, television sets, jewelry, collectibles, vehicles, guns, computers/laptops, lawn mower, power tools and so on.
Must Do No. 2: Non-Physical Items Inventory
Next, start adding up your non-physical assets. These include things you own on paper or other entitlements that are predicated on your death. Items listed here would include: brokerage accounts, 401k plans, IRA assets, bank accounts, life insurance policies, and ALL other existing insurance policies such as long-term care, homeowners, auto, disability, health and so on.
Must Do No. 3: Credit Cards & Debts List
Here you'll make a separate list for open credit cards and other debts. This should include everything such as auto loans, existing mortgages, home equity lines of credit, open credit cards with and without balances, and any other debts you might owe. A good practice is to run a free credit report at least once a year and make sure you close out any credit cards that are no longer in use. (For more, see Digging Out Of Personal Debt.)
Must Do No. 4: Organization & Charitable Memberships List
If you belong to certain organizations such as the AARP, The American Legion, Veteran's associations, AAA Auto Club, College Alumni, etc, you should make a list of these. Include any other charitable organizations that you proudly support or make donations to. In some cases, several of these organizations have accidental life insurance benefits (at no cost) on their members and your beneficiaries may be eligible. It's also a good idea to let your beneficiaries know what charitable organizations are close to your heart.
Must Do No. 5: Send a Copy of your Assets List to Your Estate Administrator
When your lists are completed, you should date and sign them and make at least three copies. The original should be given to your estate administrator (we'll talk about him or her later in the article), the second copy should be given to your spouse and placed in a safe deposit box, and the last copy you should keep for yourself in a safe place.
Must Do No. 6: Review IRA, 401(k) and Other Retirement Accounts
Accounts and policies where you list beneficiary designations pass via "contract" to that person or entity listed at your death. No matter how you list these accounts/policies in your will or trust, it doesn't matter because the beneficiary listing will take precedence. Contact the customer service team or plan administrator for a current listing of your beneficiary selection for each account. Review each of these accounts to make sure the beneficiaries are listed exactly as you like.
Must Do No. 7: Update Life Insurance & Annuities
Life insurance and annuities will pass by contract as well, so it's just as important that you contact all life insurance companies where you maintain policies to ensure that your beneficiaries are listed correctly.
Must Do No. 8: Assign TOD Designations
Many accounts such as bank savings, CD accounts and individual brokerage accounts are unnecessarily probated every day. Probate is an avoidable court process where assets are distributed per court instruction, which can be costly. Many of the accounts listed above can be set up with a transfer-on-death feature to avoid the probate process. Contact your custodian or bank to set this up on your accounts.
Must Do No. 9: Select a Responsible Estate Administrator
Your estate administrator will be responsible for following the rules of your will in the event of your death. It is important that you select an individual who is responsible and in a good mental state to make decisions. Don't immediately assume that your spouse is the best choice. Think about all qualified individuals and how emotions related to your death will affect this person's decision-making ability.
Must Do No. 10: Create a Will
Everyone over the age of 18 should have a will. It is the rule book for distribution of your assets and it could prevent havoc among your heirs. Wills are fairly inexpensive estate planning documents to draft. Most attorneys can help you with this for less than $1,000. If that's too rich for your blood, there are several good will-making software packages available online for home computer use. Just make sure that you always sign and date your will, have two witnesses sign it, and obtain a notarization on the final draft.
Must Do No. 11: Review & Update Your Documents
You should review your will for updates at least once every two years and after any major life-changing events (marriage, divorce, birth of child, and so on). Life is constantly changing and your inventory list is likely to change from year to year too.
Must Do No. 12: Send Copies of Your Will to Your Estate Administrator
Once your will is finalized, signed, witnessed and notarized, you'll want to make sure that your estate administrator get a copy. You should also keep a copy in a safe-deposit box and in a safe place at home.
Must Do No. 13: Visit a Financial Planner or Estate Attorney
While you may think that you've covered all avenues, it's always a good idea to have a full investment and insurance plan done at least once every five years. If you're not looking to spend the money for professional help, there are several good books out there on getting your financial plan and estate in check. As you get older, life throws new curve balls at you such as considerations for long-term care insurance and protecting your estate from a large tax bill or lengthy court processes. Tips like having an emergency medical contact card in your purse or wallet are little things that many people never think of.
Must Do No. 14: Initiate Important Estate Plan Documents
Procrastination is the biggest enemy to estate planning. While none of us likes to think about dying, the fact of the matter is that improper or no planning can lead to family disputes, assets going into the wrong hands, long court litigations and huge amounts of dollars in federal tax. At minimum, you should create a will, power of attorney, healthcare surrogate, trusts, living will, and assign guardianship for your kids and pets. Also make sure that all the concerned individuals have copies of these documents.
Must Do No. 15: Simplify Your Life
If you've changed jobs over the years, it's quite likely that you might have several different 401(k)-type retirement plans still open with past employers or maybe even several different IRA accounts. While this normally won't create a big problem while you're alive (except lots of additional paperwork and account management), you may want to consider consolidating these accounts into one individual IRA account to take advantage of better investment choices, lower costs, a larger selection of investments, more control and less paperwork/easier management when assets are consolidated.
Must Do No. 16: Take Advantage of College Funding Accounts
The 529 plan is a unique tax-advantaged investment account for college savings. In addition, most universities do not consider 529 plans in the financial aid/scholarship calculation if a grandparent is listed as the custodian. The really nice feature is that growth and withdrawals from the account (if used for "qualified" education expenses) are tax-free.
The Bottom Line
Now you have the ammunition to get a pretty good jump-start on reviewing your overall financial and estate picture; the rest is up to you. While you're sitting around the house watching your favorite sports team or television show, pull out a tablet or laptop and start making your lists. You'll be surprised how much "stuff" you've accumulated over the years. You'll also find that your inventory and debts lists will come in handy for other things such as homeowners insurance and getting a firm grip on your expenses.