Organizing your personal and financial affairs now is important. If you were to become incapacitated or die, planning ahead can make sure your estate is disposed of in accordance with your wishes, and help avoid legal complications. To help make sure you’re prepared, take these four steps now.
1. Get organized
The shortest distance between two points is a plan. The best way to get organized is to inventory your financial and legal life. This includes everything from listing your banking and credit accounts to understanding your insurance coverage and updating contact information for your legal and financial professionals. To streamline your planning, consider consolidating your assets and working with a single financial advisor.
2. Get the necessary legal documents
Many people think of estate planning as limited to disposing of assets at death. However, it is also advisable to plan for the ongoing management of your affairs in the event of incapacity. Typically, durable powers of attorney and living wills are used for this purpose.
- General durable power of attorney
A durable power of attorney for general or business purposes will designate someone to act for you (an “attorney-in-fact” or “agent”) to manage day-to-day financial affairs. An agent under a power of attorney can have authority to act upon assets in your name, and may be authorized to receive income, write checks, pay expenses and manage other day-to-day matters.
- Living wills and powers of attorney for healthcare decisions
A living will or healthcare directive provides your general healthcare instructions to your doctor if you become incapacitated and unable to make healthcare decisions for yourself. If you have specific wishes with respect to certain medical procedures (e.g., your desire concerning the administration of certain life-sustaining procedures or life support systems if you are terminally ill), you should consider signing a living will or healthcare directive.
You also need to appoint someone to carry-out your wishes. A durable power of attorney for healthcare (or healthcare surrogate) appoints someone to act for you to make healthcare decisions if you become incapacitated and unable to make these decisions for yourself. Your agent for healthcare decisions need not be the same person designated as your agent for general (or business) purposes.
- Last will and testament
Everyone should consider having a will, even someone with a limited number of assets to transfer. Without a will, the laws of your state determine how your assets are distributed and who administers your estate. A will allows you to name your beneficiaries and to designate a personal representative to handle the transfers.
Your will disposes of assets held in your individual name. Your will does not dispose of any assets that pass at your death by operation of law. For example, your retirement plan assets pass to the person(s) named on your beneficiary designation. Any property you own with another as “joint tenants with right of survivorship” passes automatically to the surviving owner.
- Revocable trust
Some people might consider a revocable trust. A revocable trust is a legal arrangement where you, as the grantor or settlor, transfer title to property to a trustee to be managed on your beneficiaries’ behalf (which is you while you are living). Your trust is “revocable” because you can change or revoke it at any time during life.
Unlike a will, any assets transferred to a revocable trust during the grantor’s lifetime are not required to go through probate at your death. Your trustee will hold or distribute your trust assets according to the terms of the trust agreement. By avoiding probate, your assets may be available for your beneficiaries quicker and the assets will not be subject to the publicity or costs normally associated with the probate process. If you own real estate in another state (e.g., a vacation home), you avoid a separate probate proceeding in that state by having a trust own the property.
3. Coordinate the legal documents and your beneficiaries and account ownership
Your Trust only transfers assets it owns, the Will only transfer assets that fall into probate. Make sure the joint owners, payees on death and beneficiaries on your life insurance and retirement accounts are in line with the desired result and work with instead of against the legal documents.
4. Get a team
Keeping up with all the income tax laws is hard enough, add in how often they change and how much busier ours and our children’s lives are and staying informed and prepared becomes difficult. Now that you’ve gotten organized and put the legal documents in place, think about the team you’ll want to help you if you become incapacitated and your children if you die. Your loving and smart child doesn’t necessarily have the time or skills to make sure your Retirement Minimum Distribution (RMD) is on time and the right amount or whether the amount of cash in your accounts is going to be enough to pay for your care, temporary or long term.
TIAA can help you understand how to get organized, coordinated and stay on track and prepare for your incapacity or death. Your advisor can be there for your agents, trustees and heirs. Call us today at 888-211-3868.