The coronavirus pandemic has been a wakeup call, showing us all how quickly our lives can change. Even healthy adults have gone from living their lives to coming down with fevers to being placed on ventilators in hospitals, all in the span of a couple weeks. The worst scenarios have led to untimely deaths and heartbroken families.
These events should have us all thinking about whether our estate plans are up to date. In some cases, that includes creating a plan for the first time, and yes, you do need a plan even if you don’t have many assets, particularly if you have dependent children.
Here are some of the documents you may want to review, update, or put in place depending on your personal situation and wishes.
Review Beneficiary Designations
Making sure your beneficiaries are up to date is an important first step in getting your financial affairs in order.
Check who you have named as beneficiaries for your:
- Group and Individual Life Insurance Policies
- Retirement Plans including IRA’s, 401k’s and other retirement plans
- TOD Accounts like Brokerage Accounts, Savings Bonds, and Bank Accounts
Are the beneficiaries up-to date based on your current wishes? Have you named minor children as beneficiaries without also naming a guardian or custodian for the assets on their behalf? Do your beneficiary designations coordinate with the rest of your estate plans? Have you named contingent beneficiaries if your primary beneficiary pre-deceases you?
Create a List of Passwords for Your Digital Information
In this digital world we live in today, making sure you have a plan in place for your heirs to access your electronic devices and digital records has become a core component of a well thought out estate plan.
Here is what to do:
- Start with creating a list of all your electronic devices, including smartphones, tablets, virtual assistants such as your Alexa, Echo or other devices, laptops, desktops, cloud programs that may be holding electronic files, like Dropbox, google docs etc.
- Record your login information, passwords , answers to your security questions and two factor authentication methods.
- Keep your list in a secure, preferably offline location, that is accessible by the individual(s) you have notified where to find this information if necessary.
If you own bitcoin or other digital assets, ensuring they pass to your heirs can be a little trickier than other assets because of their unique characteristics, and a such require more specialized planning.
To learn more about protecting your digital assets for your heirs click here.
Let’s review the various legal documents you may want to have in place:
What it is: A signed and dated form permitting medical providers to share your personal health information with someone you designate during a specific or open-ended time frame.
Why you need one: The federal Health Insurance Portability and Accountability Act of 1996 limits health care providers from sharing an individual’s health care data without the individual’s permission.
What happens if you don’t have one: Your providers may be unwilling to share information about your health status, treatments received, and treatment plan with your loved ones, even your closest family members.
Health Care Proxy (Living Will for Healthcare)
What it is: A document that describes your healthcare wishes, such as whether you want to be placed on life support and under what circumstances. Life support measures may include dialysis, being placed on a ventilator, being given a feeding tube, and receiving CPR. Depending on your state, a living will may instead be called a declaration, document directing healthcare, healthcare directive, directive to physicians and family or surrogates, or something else along these lines.
Why you need one: Some people don’t want to be on life support when there is little to no chance of recovery or when their quality of life would be poor and would burden their families.
Old or terminally ill patients may not want to be resuscitated if their heart stops. You may have religious or personal beliefs that affect how you want to be treated in a health care setting. In addition to life support measures, you may have wishes regarding pain medication, sacraments and blessings, modesty, diet, religious rituals, organ donation, blood transfusion, and other matters. Sometimes people who are old or terminally ill will include a DNR or do not resuscitate order in their living will.
What happens if you don’t have one: Medical professionals must do everything possible to save and prolong your life. Your loved ones might be faced with agonizing decisions over whether to keep you on life support because they don’t know your wishes. It’s one thing to tell your son that you don’t want to be kept alive if you’re in a vegetative state, but does he know what you mean? Spell out your wishes in writing: “Take me off life support if I have no awareness, no cognitive function, and little to no chance of recovery.”
Durable Power of Attorney
What it is: A document that gives someone permission to make financial decisions on your behalf if you become incapacitated.
Why you need one: So someone can access your accounts to pay your medical bills, pay your mortgage, and handle other significant financial obligations. You don’t want to get out of the hospital only to find your house is in foreclosure, or end up in a subpar medical facility when you have the money to pay for better care. You can specify what decisions you want this person to be able to make. Granting someone durable power of attorney for your finances does not automatically mean they have the authority to sell your house, cash out your 401(k), and change your beneficiary designations.
What happens if you don’t have one: A court will appoint a guardian or conservator to manage your finances. This person might not be the one you would have chosen, and they might make poor decisions with your money. The court process will also mean delays in accessing your money and placing private matters into the public record.
Transfer on Death Designations (TOD)
What it is: Instructions to your financial institution about who should receive your cash or securities when you die. These instructions supersede your will and trust. You can set up these designations online in just minutes for each of your financial accounts: checking, savings, certificate of deposit, IRA, 401(k), health savings account, etc. You’ll need the name, date of birth, address, and (ideally) Social Security number of your beneficiaries.
Why you need one: Transfer-on-death or payable-on-death designations keep your assets out of probate.
What happens if you don’t have one: Your beneficiaries will not get your assets until they go through probate, which can take months (or longer) and costs money. Learn why so many people want to avoid probate.
What it is: A legal document specifying who should receive your assets and personal possessions after you die, and who you want to be the guardian of any minor children you may have.
Why you need one: To avoid what can be a lengthy and costly probate process, and to minimize strife among family members. The requirements for a will to be valid and enforceable vary by state. Arguably, even a will that is not legally enforceable is better than nothing because it might help your surviving relatives understand and carry out your wishes.
What happens if you don’t have one: Your assets will go through probate, and state intestacy law will determine who gets what. Worst-case scenario, your property goes to relatives you don’t like or, if no relatives can be found, to the state. If you have minor children, the probate court will decide who will care for your children, with no input from you.
What it is: A way of holding and managing assets on a beneficiary’s behalf. If the trust is a revocable living trust, you can modify it or dissolve it during your lifetime.
Why you need one: Trusts do not go through probate, so any assets you place in the trust, such as your house and your other assets, will not go through probate when you die. In addition trusts allow you to control the timing and amount of distributions of the assets you place in the trust and help to protect the assets for your heirs from judgements, lawsuits, divorce, and even or poor judgement or money management skills.
What happens if you don’t have one: Your assets will go through probate, costing your heirs time, money, and privacy. Also, if you establish a trust but don’t actually transfer any assets into it (this is called funding the trust), before you die, any assets intended to fund the trust will l need to pass through probate first, before making their way to the trust., defeating one of the main purposes of establishing a living trust in the first place. You will need to retitle your assets so that the trust is listed as their owner rather than you.
The same is true for your health care power of attorney and financial power of attorney. Who is your second choice if your first choice isn’t available?
Estate planning in a time of social distancing
You will likely need a notary, witnesses, or both to make many of the above documents valid and enforceable. Because of the pandemic, new ways to handle these matters are coming about or ramping up, such as online notary services. Notary services may also be available at your local bank or UPS store. However, you may want to call ahead and ask about their availability, as well as about the health precautions they’re taking before you take the risk of catching or spreading the virus by entering a confined public space where you’ll have to interact with other people.
Many people put off estate planning because they are afraid of doing it wrong. But the worst thing you can do is to not make any plan at all.
Even if you create documents and don’t have them witnessed or notarized, as long as your family knows that you’ve made these documents and knows where to find them, they will be able to do a better job of following your wishes than they will be able to do without knowing what you want.