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How to Put Together Complete Estate Planning Documents and Strategies

Last update on: Aug 18 2021

Many people think they have an estate planning strateagy but really don’t. I’m not talking about the many people who haven’t done any planning and don’t have even a basic will. I’m talking about people who have taken action on their estate plans and yet have plans that are woefully incomplete. There is more to a complete estate plan than many people and even many financial professionals realize.

Of course, prime goals of an estate plan are to allocate your assets to the loved ones you want to have them in a way that minimizes time, expenses, and taxes. But there is much more to consider.

A complete estate plan addresses some additional goals. Achieving those goals re-quires some documents and other tools. I some-times call the key elements the Financial Emergency Kit. The kit keeps difficult times from becoming much worse for your loved ones and can help avoid some problems. A good estate planner focuses on these tools in the planning process, and the wise estate owner insists they be part of the plan.

Many elements of this part of the estate plan often can and should be completed even when there is difficulty deciding on the complete plan. An estate plan might be completed in stages over months for someone who has a valuable estate, owns a small business, or has other complications. There’s no reason for the decisions on difficult issues to delay completion of most important elements, such as the Financial Emergency Kit. We’ve covered the details of these elements in past visits, and those discussions are in the Archive on the members’ section of the web site. In this visit we highlights all those that form the essential elements of your estate plan.


Estate Planning Strategy #1

* A financial power of attorney (POA) is essential. This gives someone the legal authority to manage your finances and assets if you become disabled or are otherwise unable to manage your assets. If there is no power of attorney, loved ones must spend time and money to have a court appoint someone, and it might be someone you wouldn’t have picked. Likewise, when you have a revocable living trust, the trust should have a disability clause that states who will take over in case of a trustee’s disability and how the disability will be determined.

It often is not enough to simply execute a POA for it to be effective. Most financial institutions accept only their own forms and want to have the forms in their files before the owner becomes disabled. They might not accept other forms or might take time to review them before allowing transactions. Some firms also require the forms to be executed again or reaffirmed after a certain amount of time has passed.


Estate Planning Strategy #2

* Related to the financial power of attorney are the health care documents. These are essential, naming one or more people to make medical decisions in case of your incapacity. There are several choices. The simplest is the living will. It gives general instructions about which medical procedures are and are not to be used in different circumstances. Some studies show, however, that living wills have little effect. Often the doctors don’t see them until after decisions have been made, or the instructions are too vague to be useful in many situations.

A better document is the health care power of attorney. This gives an individual or group of individuals the right to make decisions. For it to be effective, all of your regular doctors must have the current document in the front of their charts along with information on how to reach the agents. Also, each agent should have a copy.

Many estate plans now combine a health care power of attorney, living will, and perhaps a letter of your preferences and call the combination an advanced health care directive. This combination allows you to give your agents and medical professionals statements of your intent while allowing them the discretion to apply that to particular circumstances.


Estate Planning Strategy #3

* Beneficiary designations need to be reviewed for the many assets not transferred by a will and the probate process. These assets include IRAs, employer retirement plans, life insurance, and annuities. For all these assets, the next owner is determined by the beneficiary designation form, not by your will. Always keep copies of these forms (which usually are a part of the account application) and review them periodically to be sure they still express your wishes and that a beneficiary hasn’t passed away. It also is a good idea to be sure each asset has contingent beneficiaries in addition to the primary beneficiary. The beneficiaries of any trusts also should be reviewed, if the terms of the trust allow beneficiary changes to be made.


Estate Planning Strategy #4

* Funeral and burial instructions take a burden off heirs. In most states, these have limited legal effect, but heirs generally follow them.


Estate Planning Strategy #5

* Other letters of instruction also can be valuable, though they also have no legal effect. If the will places property in a trust for someone’s benefit, you might write a letter to the trustee stating the reasons for establishing the trust, suggestions for the investment policy, and the standards for making distributions. If the will gives the executor of the estate discretion, a letter can provide some guidelines for the executor. An instruction letter is particularly helpful when the estate has a business, real estate, or special items such as collections.


Estate Planning Strategy #6

* Insurance policies should be up-to-date and well-organized. In addition to the usual property and casualty policies, in today’s litigious society a personal umbrella liability policy is essential low-cost protection against many possible claims. Most people should consider $3 million to $5 million of liability coverage, costing a few hundred dollars per year.

Many people overlook disability insurance. The odds of being disabled from work depend on one’s occupation and health. Most people should buy a policy that triggers coverage when they are unable to perform their current jobs. Less expensive policies provide benefits only to those who are unable to perform any job. Those policies have a much lower probability of paying benefits.


Estate Planning Strategy #7

* A cash flow plan is a big help to your executor and also when developing your plan. An estate might be valuable but have few liquid assets. Bills need to be paid while the estate is being settled, and people might be dependent on you. The executor and holder of a power of attorney should know where the liquid assets are, where income might flow from, life insurance that might pay benefits, and any other sources of cash. Medical and other insurance is another source of cash flow, especially for late-in-life expenses. Be sure you executor has the details of any medical insurance (including your Medicare information), long-term care insurance, and any other coverage you have.


Estate Planning Strategy #8

* Having a source of credit, such as home equity line or reverse mortgage line of credit, arranged also isn’t a bad idea. Loved ones might need it to pay emergency medical bills or other unexpected expenses. The alternative might be to sell valuable assets in a hurry and at an inopportune time. The fewer liquid assets you own, the more valuable this source of cash is. Other good sources of credit are no-fee credit cards with fairly large credit limits and brokerage accounts that allow margin loans or lines of credit. Verify which of these sources of cash would survive you. Some automatically terminate on your passing.


Estate Planning Strategy #9

* Entrepreneurs need a business succession plan. The plan can involve either long-term successors or caretaker managers who run the operation until it is sold or there is another long-term solution. Some business owners name key employees who can be trusted to keep the operation going. Others name a trusted outsider who knows the business generally but well enough to oversee it for a while.

The succession plan should be in writing and reviewed with everyone involved. Bankers, creditors, suppliers, and other important contacts should know about the plan and any role they would have in implementing it. Pre-paring the plan might take longer than other parts of your estate plan. Don’t delay the other elements while waiting to develop the succession plan, but be sure you are working on the succession plan


Estate Planning Strategy #10

* All of these documents and strategies should be brought together in what I call the beneficiary book. It can take any form but it contains all the items discussed, plus any other items that might be helpful to the estate executor or loved ones. It could be a three-ring loose-leaf notebook, a large file folder, or some other way of organizing these documents. It also might be a letter or other short statement that identifies all the key elements and exactly where to find them. The book is designed primarily for the executor, but it also will be useful to others if the owner becomes incapacitated. Putting the book together and keeping it up to date also can help you better manage your finances. The executor and key loved ones should know about the book and where it is stored.

Essential records that should be added to the book include recent income tax returns (both personal and business), the latest will, any trusts, insurance policies (all types of insurance), financial account statements, personal financial statements, loan documents, deeds, property titles, and a list of advisors used. Be sure to list jointly-owned property, partnerships, and other shared property. The organizational documents and other details of businesses should be included.

It might be more convenient to reference some records instead of including them in the notebook. For example, financial account statements could be kept in a filing cabinet. Then, the beneficiary book should have a section listing the accounts and where the documents can be found.

The notebook should be well-organized and up-to-date. I often refer to this as the best gift someone can leave heirs. It reduces both the cost and emotional burden of dealing with estate administration. You can start by using my workbook, To My Heirs: A Book of Financial Wishes and Instructions, available as a PDF file through the Bob’s Library tab on the website.

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