25 January 2022

Leave Your Money to Your Heirs

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It's the ultimate gift to your loved ones. An airtight estate plan not only takes the guesswork out of who gets what when you pass away, sparing your family costly court battles and potential infighting, but also delineates your wishes for end-of-life medical decisions.

Parents who fail to select a legal guardian for their minor children, for example, unwittingly leave that decision in the hands of the court in the event tragedy strikes. The same is true if you fail to name a health-care proxy or financial power of attorney and illness or injury renders you unable to manage your money and medical care. The following list of dos and don'ts can help ensure your affairs will be handled according to your wishes.

The to-dos 

Do update your beneficiaries. With each life event, including a birth, death, divorce or marriage, you should review the designated beneficiaries to your life insurance policy and retirement accounts and amend as needed. Naming beneficiaries in your will is not enough, Frye said, especially if a discrepancy exists.

Do trust in trusts. A revocable living trust is a powerful estate-planning tool. Its primary benefit is that it allows you to pass assets to heirs outside of probate, the costly and lengthy legal process that is used to resolve all claims, pay off debt and distribute what remains of your property to your heirs. In many states, probate can last two years, during which time your heirs will not have access to their inheritance. 

Do name a guardian for your minor children. If your kids are under the age of majority, which is 18 in most states, it is critical that you designate a guardian to care for them in the event you die prematurely. A judge will otherwise be forced to select the person they deem fit. And it may not be your first (or fifth) choice. A trustee should also be named to manage and distribute their inheritance according to your wishes. Just be sure to ask their permission first.

Do be specific. Estate planning is not the time for ambiguity. If you want your kids to sprinkle your ashes at sea, tell them which coast or what beach. Don't leave your jewelry collection to your children and let them sort it out later. Itemize your valuables, including jewelry, antiques and artwork, and name a beneficiary for each item.

Do get help. A do-it-yourself mentality is all well and good when it comes to home improvement, but estate planning is one area where failure to secure expertise can cost you more in the end. The more complex your estate, the more valuable professional counsel becomes. (Perhaps one of your children helps to run your family business, or your new spouse and children don't get along.)

The don'ts 

Don't name your estate. The biggest no-no when it comes to estate planning is naming your estate as your IRA beneficiary. Your assets would, as a result, be subject to claims and creditors during probate. Thus, when you die, the proceeds from your IRA would be used to pay off any debt in your name. Whatever money remains, if any, is then distributed to your heirs.

Don't keep it a secret. All the estate-planning documents in the world won't do you or your loved ones any good if you forget to tell your beneficiaries where the paperwork is kept. For assurance, you may want to consider leaving a copy with your attorney, keeping one in your fireproof home safe and even giving a copy to your heirs. Otherwise, your family won't know what your burial wishes are, or that you intended to leave the pearl necklace to your granddaughter, until it's too late.

Don't tilt trouble. It's not sufficient to create a revocable living trust. To fulfill its purpose of keeping your assets out of probate, you need to actually transfer assets into the trust. Be sure, too, he said, that if you leave assets to your spouse in a trust and he or she has children from a prior marriage, the language clearly indicates that upon your spouse's death, any remaining assets should pass exclusively to your own children.

Don't get stuck in the TOD trap. Another common misstep is over-reliance on "transfer on death" accounts, an easy and (sometimes) effective alternative to a trust that avoids the need for probate and clarifies how your investment assets will be divided among your children. Such accounts, however, are not immune from creditors or angry ex-spouses should your child's marriage end in divorce.

Don't forget a backup plan. You must also look out for yourself, of course. That's where the living will, or advanced health-care directive, comes in. Such documents outline your end-of-life preferences regarding medical treatment, including surgery, organ donation and cardiopulmonary resuscitation. Essentially, it tells them whether to pull the plug or not should you become critically ill.

No one can predict how long they will live, but a carefully crafted estate plan can preserve your financial legacy and protect your family even in the event of sudden tragedy. Better yet, it can all but eliminate opportunity for conflict among those you love most. 

Click here to access the full article on CNBC.

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