Welcome to episode 71 of the One for the Money podcast. I am both glad and grateful you have taken the time to listen. In this episode, I’ll share about an estate plan checkup, for those that have one and for those that don’t.

In this episode...

Importance of Estate Planning [1:03]
Review and Update of Estate Plan [2:34]
Consequences of Not Having an Estate Plan [4:38]

An estate plan is an absolutely crucial part of one’s financial plan. Over a lifetime you accumulate assets—real estate, investment accounts, a classic VW van, etc. When you pass away, there needs to be an orderly way for these assets to be distributed to those people you want to receive them. An estate plan is the way to carry out your wishes. Otherwise, the state of your residence, i.e. California, Hawaii, Texas, etc, will decide how it is divided up amongst your family. And if your estate is of significant value, you’ll have a lot of people claiming to be your family.

Because estate planning is a critical piece of better planning it is one of the five financial planning domains I focus on with my clients. These five domains are investments, income (aka cash flow), Insurance, taxes, and Estate planning.

Of those five domains, estate planning is the one most often ignored and that makes sense for a few reasons. We usually have a long time before we have to worry about it so it’s easy to put it off and the second reason is that no one wants to consider their own death. It’s rather depressing. But despite these facts, it’s incredibly important that any adult who owns real estate and or has children must have an estate plan.

For those who already have an estate plan in place, I say well done! You should commend yourself for doing what far too many do not.

But even if you already have one it’s important to complete a periodic check-up of your plan. Here is when to consider a checkup:

First, When was the last time your estate plan was reviewed? If it has been ten years or more you will want to review it to ensure it reflects your current desires and circumstances and that the people who are assigned as the decision-makers are the people you still want.

The second reason to consider a check-up is if there have been substantive changes in your life or the life of your beneficiaries. For example: marriages, divorce, births, adoptions, or even challenges faced by your beneficiaries (such as health events or substance abuse) all of which can change how you might wish to distribute your assets. Additionally, moving to a new state can affect your estate plan due to differing laws, so a review is advisable when relocating.

Now if you have reviewed your estate plan and everything reflects your current desires and circumstances the next thing you need to do is ensure your loved ones know about it. Do they know where to locate the documents in the event they are needed? Do the people who will make the financial and medical decisions on your behalf, know they have that responsibility?

It would be helpful to rehearse such a scenario to see how it plays out. The military practices scenarios to ensure they have made the necessary preparations as do firemen, policemen, lifeguards, and other professionals. It would be wise to consider what would happen if you and your spouse were incapacitated and couldn’t make a decision-what would happen then. Would the person named in your durable power of attorney documents know they are making the decisions and what you wanted them to decide? This is especially relevant for those of you in the later stages of life (70s and above). An older family member of ours recently had a health event, that put our preparations to the test. For a year before we had expressed the need to get the estate planning documents in the hands of the decision makers only until this recent scare had this been remedied. It’s wise to consider the what-ifs, as painful as such a thought may be.

Now for those who don’t have an estate plan, there is work to do. Yes, you do have a default plan. In fact, every state in the United States, from Alaska to Wyoming has a default plan in place. BUT YOU ABSOLUTELY DON’T WANT it. It will take way longer and is way more expensive.

Now you may be thinking, that sounds like something I’d want to avoid. And you would be right, but as I’ve shared in previous episodes you’d be surprised by the number of people that didn’t have an estate plan when they died. Here are just a few of the famous people you would know that sadly did just that: Pablo Picasso, Sonny Bono, Aretha Franklin, Prince (the artist formally known as), and the actor Chadwick Boseman (he played Black Panther in the Marvel Studios film). He did a phenomenal job in that role. Maybe you can’t entirely fault those who died suddenly, such as Sonny Bono and The Artist Formerly Known as Prince, but Aretha Franklin and Chadwick Boseman both had longer-term illnesses and still didn’t have an estate plan. Not a lot of R-E-S-P-E-C-T for one’s loved ones.

Speaking of Aretha Franklin’s estate, her own sons had a five-year legal battle, before they were finally awarded real estate. A judge made the decision based on a handwritten will from 2014 that was found between couch cushions.

It took 44 years to settle Jimmy Hendrix’s estate. Hendrix died in 1970 without a will. Without a will, Jimi Hendrix’s estate passed to his father. When his father died in 2002, he left behind his son’s estimated $80 million estate to Janie Hendrix, Jimi’s sister, cutting out Leon Hendrix, Jimi’s brother Leon Hendrix contested his father’s will in 2004, but it was upheld in 2007. Even when there isn’t lots of money there can still be a lot of drama.

There are so many advantages to an estate plan as it allows you to name who gets to receive what, and also when they receive it and on what conditions. For example, you could say, I want money to go to my kids at 25, 35, and 45 years of age, rather than a lump sum of money at age 25. Most people in their early 20s wouldn’t make a great decision if hundreds of thousands were dropped into their lap. But without an estate plan, the State of your residence will be making all of those decisions for you because that’s the default estate plan, which isn’t great, but at least it’s better than the State assuming ownership.

You might reason - but I’m already dead, who gives a rip, let my family sort things out when I’m gone. That’s a great strategy if you want your family’s last memory of you to be one of stress, expense, and struggle and you want your legacy to include family members fighting over your fortune, however small. If this isn’t enough reasons here are three additional reasons why you need one:

First, it will take a long time without one - Even if you don’t have a huge estate like Aretha or Jimmy. Because the courts are backlogged, it can take 9 months before you can schedule just an initial hearing and likely several more years to finalize it (depending on the size of the estate and number of people who want to benefit).

Second, It’s dang expensive - Without a trust, your family would need to pay all of the legal fees, namely court filing fees and the billable hours of an estate planning attorney. It’s WAY less expensive to pay for one before.

The third and final reason you need an estate plan is that without one it is open to the public. That’s why we know about Aretha and Jimmy Hendrix's estate. It’s all played out in public. With an estate plan, it can be handled privately. But without an estate plan, your beneficiaries' names will be listed for the public to see and for the scammers who specialize in taking money from them.

In conclusion, when it comes to estate planning it’s imperative that you complete a check-up. For those that have one, well done, but be sure it reflects your current circumstances and values and that all of the affected parties are notified and aware of the location and details.

For those who own real estate or have minor children and don’t have an estate plan, get on it. You can complete these quickly and easily and inexpensively online. As you get older you can meet with an estate planning attorney to complete a new estate plan as you will have a better idea about your and your beneficiaries' situations.

Tips Tricks and Strategies

Years ago, I spoke with another advisor and asked how everything was going. He said he was in the midst of a challenging time because one of his clients in his early 50s had died unexpectedly. The good news was that this client had life insurance. The bad news was that his ex-wife from over 10 years ago was still listed as the only beneficiary on the policy, and his current wife wasn’t too happy about things. The advisor told me that he didn’t facilitate the purchase of the original policy so hadn’t thought to review that policy to ensure the beneficiaries were up to date.

Things will transfer first by title, then by beneficiary designation, and finally by probate. In this case, there was a legal battle because the beneficiary was the ex-wife and her being the beneficiary of the life insurance wasn’t a part of their divorce agreement. Needless to say, this caused a huge issue for the widow.

This is an example of exactly why we review clients' estate plans and regularly conduct beneficiary reviews. We always want to ensure everything is in alignment with your wishes, and we’ve made more than a few updates to beneficiary designations. None as drastic as the example just shared, but we’ve still made changes.

References

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Estate Plan Check Up - Ep #71

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