The COVID-19 Wake-Up Call: Is Your Estate Plan in Order?
Odds are, 2020 hasn’t gone the way you imagined. Life can be hard to predict, but certain aspects of a financial and estate plan can minimize your risk and make unpredictability easier to handle.
From building up your emergency savings to provide a cushion for unexpected events like a job loss, to growing your retirement accounts so you have enough income for however long your retirement lasts, you can take financial-planning steps to manage the unknown. In particular, the COVID-19 pandemic underscores the importance of getting your estate plan in order, as you never know when you might need it.
Even if it’s not your ideal topic to think about, being prepared for your eventual passing or potential to become incapacitated can shield your family members from complicated issues. It can also allow your financial and medical care wishes to be carried out the way you want.
Preparing Legal Documents for Your Estate Plan
No matter the size of your net worth, an estate plan should be part of your comprehensive financial plan. If you’ve yet to consider preparing legal documents like a will or trust, you should speak with a financial planner or attorney to see what documents you need.
A financial planner can help you prepare an estate plan based on the entirety of your financial situation and objectives, and coordinate with your attorney in carrying out the documentation and other tasks.
When preparing legal documents for your estate plan, think about issues such as:
Dividing your assets: Through areas like your will, beneficiary designations, or living trust, you can specify how you want to divide your assets among family members. In addition to planning how you want to split up retirement accounts and bank accounts, also think about assets like real estate, jewelry, and family heirlooms.
If you do not specify how you want to divide your assets, you could make your estate complex for your family to deal with. An ambiguous will could create a lengthy probate process, where your family members have to spend significant time in court.
Updating beneficiaries: As part of planning how to divide your assets, you should review any beneficiary designations you’ve made and ensure these still align with your wishes. For example, if your family has grown since the time you set up your beneficiaries for your retirement accounts or life insurance policy, you may need to add another child or grandchild as a beneficiary.
You also might want to add a contingent beneficiary. For example, if you’ve named your spouse as your primary beneficiary and if they happen to pass before they claim your assets, a contingent beneficiary could then step in to receive your assets.
Taxes: If you have a considerable net worth, you might want to minimize the estate tax your family might be subject to. As of 2020, a married couple can give family members over $23 million over their lifetimes and after they pass, without being subject to the gift and estate tax.
If you plan to pass on more than this amount, consider structures like living trusts. With an irrevocable living trust, you transfer assets into the trust and cannot make any changes after doing so. Yet those assets can be passed on outside of what’s counted toward your taxable estate. Instead, your heirs could receive money from a trust that they would pay income tax on.
You also might want to structure your estate plan to include a charitable trust. Doing so can help you pass on assets according to your wishes while potentially reducing your estate tax liability.
Because financial and tax structures like these are complex, with the rules varying by state, consider working with a financial advisor and attorney to make sure they are completed according to the law and your wishes.
Financial and medical care: Your estate plan can cover more than what happens after you pass. You can include legal documents like a living will, advance directives, and powers of attorney to help with financial and medical care decisions if you become incapacitated. Even if you can’t make the decisions yourself, assigning someone you trust with power of attorney can help you receive the care you would want.
Relatedly, you should include directions in your will for the care of any minor children you may have. If you and your spouse unfortunately pass early, your will could specify who you want to be the guardian of your minor children.
Make Sure Your Estate Plan Is in Order
If you haven’t already updated your estate plan, COVID-19 offers a wake-up call to prepare for the unexpected. Our Roseville, CA fiduciary advisory firm provides estate planning services for our clients as part of the comprehensive financial planning we provide.
We’ve seen the peace of mind that proper estate planning can provide. With an estate plan in place, you can be more comfortable knowing your family members will be taken care of according to your wishes.
Schedule a complimentary, 15-minute call with a fee-only financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.