You’re Dead – Now What?

By Thomas R. Kestler

Pretty abrupt, huh? We’re all going to die, and we never know how much sand is left in the hourglass. If your sand ran out tomorrow, would you be leaving a mess for your family?

In an earlier article I discussed the need for life insurance which provides instant liquidity in the event of a premature death. Life insurance, however, is just the tip of the iceberg. What happens to the rest of your “stuff” after you die?

The role of estate planning is to simplify, as much as possible, the process of settling an estate. So, let’s start with the relatively simple parts and move on from there.

Beneficiary Designations

Some of the assets you own, in addition to your life insurance, have a named beneficiary (or beneficiaries). Do you know who they are? Are you positive? Qualified accounts like IRAs and 401k plans have a beneficiary designation. So do annuities. These accounts pass by contract at your death. They cannot be controlled by a will or trust. They also bypass the time and expense of the probate process. The rule here is to review your beneficiary designations on a regular basis – especially after major life events like family death, re-marriage, or birth of children or grandchildren.

Living Will

A living will is a legally binding document that states what treatments you want – or do not want – if you become medically incapacitated. In most cases, the documentation also includes an Advanced Medical Directive (AMD) and healthcare power of attorney (POA), appointing someone to make decisions for you any time you’re incapacitated.

Will

Your will is the backbone of your estate plan. It directs:

• Who becomes the guardian of your minor children

• How personal assets are to be distributed

• Who inherits your assets

• How debts and expenses are handled

• Who will oversee the process – your executor

When choosing an executor, use the three-Ts – Time, Training, and Temperament. The executor’s job can be very time-consuming and will require a fair level of financial knowledge. In addition, they will have to deal with the emotions and politics of a grieving family. Often, people choose a neutral corporate executor like a bank or trust company.

If you die without a will (intestate), the probate court will decide who raises your kids and who gets your “stuff”. Financial distributions are often directed by state law and may be completely different from what you may have intended. This process can also be very expensive.

Living (Inter-vivos) Trust

A living trust is frequently created at the time you create your will. This is a separate legal entity that is created during your lifetime to hold and manage your assets. You (the grantor) become the trustee to manage those assets during your lifetime and name a successor trustee to take over in the event of your death or incapacity. You also name the beneficiaries of the trust.

Most living trusts carry the tax ID number of the grantor, so accounting is simplified Assets held in the trust totally bypass the time and expense of probate. The trust process is also private, unlike the probate process which becomes public record. An important thing to remember – you must fund the trust. It is useless unless you move assets inside. You should re-title your real estate in the name of the trust (typically done with a simple quitclaim deed). Other assets like non-qualified investment accounts, savings accounts and checking accounts can also easily be re- titled in the name of the trust.

This is just a high-level view of the basics. Larger estates and complex family dynamics may call for more specialized tools. The bottom line is - get your plan in place. We never know how much sand is left in our hourglass.