One For The Money

• What happens without an estate plan? [01:38]
• The memory you leave [03:53]
• Keeping the plans updated [06:35]
• The importance of communication [07:53]

Estate plans are a critical component of better financial planning and, ultimately, a better life. We accumulate assets, real estate, investment accounts, vehicles, and more throughout our lives. When we pass away, there needs to be an orderly way for these assets to be distributed to the people we choose. Without an estate plan, the state of residence makes those decisions in public and after many extra expenses. 

While it may seem obvious that you would want to avoid having the state in charge of your assets, a surprising number of people don’t have an estate plan when they die. Perhaps we wouldn’t entirely fault those who died suddenly, but even many with longer-term illnesses don’t plan for their estate. 

When I open a retirement account for clients, naming a beneficiary is required. Bank accounts can also have beneficiaries. However, certain assets such as houses, cars, and jewelry do not have a way to assign a beneficiary. That’s where an estate plan comes in. It allows us to name who receives what, when they receive it, and under what conditions. For example, we might want our children to receive their inheritances in portions throughout their lives rather than a lump sum when they’re younger and possibly less disciplined. Without a plan, the state will be making all of these decisions.

I recently heard an estate planning attorney describe the challenges of not having an estate plan in California. Without an estate plan, the process takes a long time. Currently, the courts are backlogged, causing people to wait for an initial appointment for up to nine months. Then the family would need to pay a filing fee to open the proceedings, run a notice in the local newspaper, wait another several months for a final hearing, and pay another court fee to close the case. In addition to those expenses, the hourly fees charged by the lawyer can cost thousands of dollars. 

I was at a webinar where the presenter shared the story of how an elderly couple had moved to Florida. Years later, the wife passed away, and their grown children decided they would move their father back north to be closer to his family. His children made all the necessary changes to facilitate the move, changing bank accounts and mailing addresses for investment accounts. After he passed away, the family went through their father’s things and were elated to find a $500,000 life insurance policy. When they contacted the insurance company, they were informed that, sadly, the insurance policy had lapsed and was worthless. Despite their father paying for the policy for several decades, payments were missed because of the closed bank account. Sharing details of an estate with the responsible party is essential to one’s wishes being carried out.

Years ago, I spoke with another advisor going through a difficult time because one of his clients had died unexpectedly. Thankfully, the client had a life insurance policy. Unfortunately, his ex-wife from over ten years ago was still listed as the beneficiary, and his current wife wasn’t happy about it. Since the advisor didn’t facilitate the purchase of the original policy, he hadn’t thought to review it to ensure the beneficiaries were up to date, and no one knew about the policy to have it updated. This example illustrates why we review clients’ estate plans and regularly conduct beneficiary reviews for accounts and life insurance policies. We always want to ensure everything is in alignment with current wishes.

• Estate Planning Basics - Fidelity
• 10 Famous People Who Died Without a Will | LegalZoom