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Do-it-Yourself Finance, Part VII: You Are Not Immortal by Douglas Carlsen, DDS

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Dr. Bill and Jennifer have come a long way toward securing their financial future. Yet there remains one task that many of us absolutely hate to think about – estate planning. Why? Possibly due to the realization we are mortal, or maybe because it involves thinking about where all our stuff might end up or maybe it's dealing with attorneys. The fact is, estate attorneys are the good guys.

So what's the big deal now that the federal estate tax exemption is $5,250,000 per person or $10,500,000 for couples? There is so much more than taxes involved.

This article is a primer for estate planning, yet contains a lot of technical material. Find a tax attorney either through a personal recommendation or the American College of Trust and Estate Counsel at http://www.actec.org/public/roster/FindFellow.asp. If you do nothing else but have one of these lawyers set you up, you'll be fine. And do it now! Too many 60-year-olds have not designated beneficiaries and face dire consequences if they don't act quickly

Can a couple do it all on their own? Absolutely not! In 2011, Consumer Reports (CR) evaluated three electronic do-it-yourself offerings: LegalZoom, Rocket Lawyer and Quicken WillMaker Plus.1 All had limitations: outdated information, too little or too much flexibility, incompleteness or insufficient ways to handle trusts. CR did note that WillMaker Plus and Rocket Lawyer were excellent educational tools and both provided a way to speed the work with an estate attorney. By spending $25 for WillMaker Plus and filling out the forms, Bill and Jennifer found they saved quite a bit of lawyer time.

Note: Much of the following material is paraphrased from Christine Benz's 30-Minute Money Solutions, a great reference book for personal financial planning.2

To Do List:
  • Gather most recent investment statements and debt statements.
  • Fill out a Net Worth Worksheet. Find one at www.morningstar.com/goto/30minutesolutions.
  • Find three tax attorneys in your area either by colleague referral or through the American College of Trust and Estate Counsel.
  • Interview the three attorneys:
    1. Do you have experience with cases like ours? Give specifics such as blended marriage, special needs child and multiple businesses.
    2. How many estates have you settled?
    3. Do you do tax planning? This is important if your nest egg will put you into an estate tax situation.
  • Identify key individuals you trust to carry out your wishes when you are gone.
    • Executor: Normally a family member or a professional is named. This person collects all documents and assets and makes sure details are carried out properly. The executor, in particular, needs to be agile with document
    • Durable Power of Attorney: A person who will make decisions for you if you should become incapacitated and unable to manage your finances and affairs.
    • Power of Attorney for Health Care: Again, a person who is able to make decisions regarding your health care if you are unable.
    • Guardian: This person would take care of children and your spouse, if needed.
  • Your estate attorney will draft:
    • Last Will and Testament: This documents your wishes as to how your assets are to be divided.
    • Living Will or Medical Directive: If you become terminally ill, a living will details how you would like to be treated medically. This is the document that expresses your wishes regarding life support.
    • Medical Power of Attorney: This document names your Power of Attorney for Health Care.
    • Durable Power of Attorney: This document names your designation from the list.
  • Destroy previous estate documents. Keep one copy at home in a safe place. Your attorney will have another copy. Make sure your executor knows where estate documents and other important documents can be found.
  • Storage: Place the estate documents in both non-safe files and the home safe. This has a dual purpose. If the executor can't open the safe, the files will be easily found in the accordion files. If there is a fire or flood, there will be a copy in the safe.
  • Update whenever there is a change to marital, financial, beneficiary status or there needs to be a change in one of your designated key individuals.
  • Beneficiary Designations and Joint Tenants with Right of Survivorship:
    • This is a key area that many give scant attention. Most of us know that with retirement plans, such as IRAs, 401(k)s and pensions, along with life insurance policies, the beneficiary receives 100 percent of the assets with no probate involved.
    • You may also establish a transfer on death or payable on death beneficiary for your bank accounts and other brokerage accounts. Assets such as your home and brokerage accounts should be titled joint tenants with right of survivorship. These designations bypass probate.3
    • All of these designations supersede your will and make the executor's job much easier.
    • Inform your beneficiary choices before you finalize documents. One or more may have circumstances that preclude wishes to be a beneficiary.
    • Note that minor children can't be beneficiaries. The estate attorney can set up trusts to ensure the children receive any assets at an age designated.
  • Living Trusts:
    Sheryl Garrett, CFP, says:
    This is most appropriate for individuals who have complex financial or personal circumstances, such as substantial assets, a blended family, closely held business interests or property in another state. If you have a complex situation or are uncomfortable trusting your personal knowledge and judgment with such "If you do nothing else but have one of these lawyers set you up, you'll be fine. Too many 60-year-olds have not designated beneficiaries and face dire consequences if they don't act quickly." important issues, I strongly recommend that you hire a qualified estate-planning attorney to draft this document.4
    • Revocable Living Trust: You transfer your assets into the trust. You control the assets as trustee of the revocable living trust. The trust can be changed or revoked at any time and all assets go directly to your beneficiaries at the time of your death.
    • Neither wills nor revocable trusts avoid estate taxes.
    • Irrevocable Living Trust: This is totally different. You permanently, and with no chance to ever alter, give away part or all of your assets during your lifetime. Because of this, the assets are not considered part of your estate and no estate taxes will be due. This is only used when one is certain that you and your spouse will never run out of money.
    Dr. Bill and Jennifer have declared the other as beneficiaries of all their retirement accounts and have each other listed as transfer upon death for bank accounts and their cash brokerage accounts. They are listed as joint tenants with right of survivorship on their home deed.
    They are considering setting up a revocable living trust to properly distribute assets to their children should both Dr. Bill and Jennifer die before their children reach adult age.
  • Funeral Instructions:
    • Please let your loved ones know of your wishes. For them, this is an important gift. Write a simple letter describing memorial service wishes, cremation or burial and any other wishes. Family feuds and guilt do not belong after losing a loved one. Keep the letters with all your estate documents.
    • Also, funeral home staff are quite skillful at upselling products to grieving people. Keep the funds for your family rather than give the funds away to sales personnel.
    • Both Dr. Bill and Jennifer have written detailed instructions for memorial services.

References
  1. "Write your own will?" CR Money Advisor, July 2011, page 1.
  2. Christine Benz, 30-Minute Money Solutions, 2010, John Wiley and Sons, Inc., Hoboken, NJ.
  3. Sheryl Garrett, CFP, Personal Finance Workbook for Dummies, 2008, Wiley Publishing Inc., Indianapolis, IN, page 167.
  4. Ibid, page 168.
Author's Bio
Dr. Douglas Carlsen has delivered independent financial education to dentists since retiring from his practice in 2004 at age 53. For Dentists' Financial Newsletter, visit www.golichcarlsen.com and find the "newsletter" button at the bottom of the home page.

Additional Carlsen Dentaltown articles are at: www.dentaltown.com. Search "Carlsen." Videos available at: www.youtube.com/user/DrDougCarlsen. Contact Dr. Carlsen at drcarlsen@gmail.com or 760-535-1621.
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