2021
May 12
The Overlooked and Misunderstood Details of Estate Planning
by Cadence WM |

Emotionally processing the death of a loved one, especially a partner, is difficult enough without the added stress of managing financial and other affairs after death.  There are a lot of details to manage in the most common and stable situations, which can easily multiply due to past divorce or same-sex marriages, or any other situation for which existing laws and paperwork do not make things easy.  There is much to think about, plan for, and manage before and  after someone dies, and we have listed some of the things that we see frequently and that some of our recently widowed clients graciously shared with us so that others may have an easier time should they find themselves in a similar situation.

Every situation has its own special details, so we were not able to create an all-inclusive list of items to help prepare you for every administrative and other need that may arise upon someone’s death.  However, these items are frequently either overlooked, misunderstood, or just generally not known, so please consider whether or not your current estate plan needs attention before it becomes impossible to change.  Though we see a lot of different scenarios, we are not ourselves estate planning attorneys and we do advise discussing the appropriate items with an attorney before making certain decisions.

Details others should know to make things easier down the road:

→ Make sure the appropriate person or people can find your legal documents, as well as contact your financial professionals.

→Would it make sense for someone else, like your intended executor/executrix or a close relative, to have a copy of your wills and trusts?

→Make sure if you have prepaid for any burial or other services that someone else knows, or that information will be available for the right person at the proper time.

→Make sure any burial wishes are easy to find and execute in a timely manner.

→Make sure there are instructions on what to do for regular household maintenance items, like dealing with fuse boxes, furnaces, or anything else someone else would have to start caring for were the primary person who deals with those items in the house to die.

→Make sure someone can log on to social media or other online accounts and close them down in the event of a death.

Administrative details that will make things easier down the road:

→Access to safe deposit boxes can be limited after death; if possible, make sure more than one person has legal access to them at all times.

→If you’ve done the work to create a trust or multiple trusts, make sure that trust is either the owner or beneficiary of the proper assets; the trusts will not work as intended if paperwork is not executed connecting the trust to the assets.

→Choose the executor or executrix of your estate wisely; that person will have a lot of paperwork to sign and a lot of details to manage.

→Consolidate the number of accounts you own and institutions you deal with if possible; every account will need paperwork to process the estate wishes after death, and every institution has its own forms and processes.

→Federal estate tax exemption limits are relatively high, but many estates may still be subject to state estate taxes, and in some states outright inheritance taxes, without proper planning.

→Remember, wills do not avoid probate, and most trusts do not avoid estate taxes.

Administrative details to make sure the right people will receive the right assets after death:

→Check the beneficiaries of all your accounts, insurance policies, and wills and trusts periodically; with divorces, deaths, and other life events, your beneficiaries may change over time but those listed on your accounts at time of death will be the ones to receive the assets.

→Beneficiaries named on accounts will take precedence over those named in trusts, and those named in trusts will take precedence over those named in wills.

→If at all possible, identify beneficiaries by social security numbers, especially on account paperwork.

→Though less common now, it used to be very common for beneficiary paperwork to allow you to choose “living, lawful children” without identifying them by name.  Make sure if you have selected this anywhere it accurately describes who should receive your assets upon death.  We have seen situations where a client would not consider someone to be their child, but the laws of the state they live in would and they therefore would receive a portion of those assets.

→The difference between “per stirpes” and “per capita” beneficiary designations matter in the event all primary beneficiaries predecease an account owner.  For example, “per stirpes” means the children of deceased primary beneficiaries would split their parents’ share among themselves, allowing for an uneven distribution among secondary beneficiaries if one deceased primary beneficiary has two children and the only other primary beneficiary is also deceased and has four children.  In this case the first two grandkids would split 50% between them for a 25% share of the total, whereas the other four grandkids would split their 50% for a 12.5% share of the total.  On the other hand, “per capita” would have ALL secondary beneficiaries of deceased primary beneficiaries receiving equal shares, so in the case above all six grandchildren would get 16.6% of the total.  Fully explaining these designations would require more words than this article allows, but use this as a catalyst for making sure that in the unlikely event all your primary beneficiaries predecease you, that your secondary beneficiaries will be receiving what you would want them to.

→When should you consider a trust?  There are many reasons people use trusts to dispense of their assets, and this list is not all-inclusive, but these are some of the common reasons we see:

  • You want to protect those assets from beneficiaries’ creditors.
  • You want to make sure your assets would go to your grandchildren instead of to your son or daughter’s potential ex-wife or ex-husband.
  • You have a special needs beneficiary and would need someone to help manage the assets, especially around securing government benefits or long-term care.
  • You have minor beneficiaries and need to identify the proper person to manage the assets for them, as well as to dictate when they can have access to what they’ll inherit.
  • When you do not think one or more of your beneficiaries should have access to all the assets immediately.
  • In general “have a trust if you don’t trust”, even if there are not substantial sums involved.

→Make sure your wills and/or trusts are up to date, especially regarding the disposition of personal items.

→Should a trust be the beneficiary of your IRA or other retirement accounts?

  • It may be a good idea if you want to protect the assets from the scenarios mentioned above, even if the protection only lasts up to ten years at this point.
  • It may not be a good idea if you do not have any special needs for post-death protection or control as your trusts will be exposed to accelerated income tax tables and potential on-going extra expenses like separate tax return preparation, among other extra on-going administrative needs.

→Remember, it’s not enough to have created a trust; the trust has to be the owner or beneficiary of the assets to actually work.

Items to consider to make sure those who would need access to cash after someone dies has it:

→Do you have a situation where someone’s credit cards are only add-on cards to someone else’s accounts and that person would lose the use of all his or her cards upon the primary credit card owner’s death?

→What bills, if any, are being paid automatically every month through a connection to a credit card, debit card, or bank account that may be frozen when someone else dies?

→Would a survivor or executor/executrix not have access to enough cash while accounts remain frozen upon death and before any life insurance benefits can be paid?

→Life insurance is a good idea to provide for cash needs if the majority of someone’s assets are relatively illiquid, like real estate.

A partial list of administrative items that will need to be managed and processed after someone dies:

→Ask to see a draft of the death certificate and any death announcements; errors are common.

→Even if a decedent’s assets all pass to a surviving spouse, you will still need to file an estate tax return.

→Vehicles in the decedent’s name will need to be retitled.

→Social Security and medical coverage entities will have to be notified.

→If the deceased had an auto lease, what are the terms, and do you have the option of continuing it or buying it out?

→For deaths that occurred in 2019 or later, non-spouse beneficiaries of retirement accounts must fully withdraw any and all assets from the accounts within ten years.

→Although the assets in a joint account, including a joint trust account, will not be frozen due to the death of one of the owners, the surviving owner will still need to complete paperwork that will put those assets in just his or her name, otherwise the account custodian would still need to have the deceased person sign any account related paperwork going forward, which of course would not be possible.

There is much to think about and address before and after someone dies, and what we have included is only a partial list of those items.  Although we could not identify every last detail, we do hope that reviewing these items will allow you to take action that would make things easier in what is usually a very emotional time.  Although the suggestions we received from clients were all different, one universal recommendation was to utilize hospice services should your situation need and allow it.  We and other professionals are willing and able to help in these difficult times, but the more work you do ahead of time, the less help your loved ones may need, and the more likely what you have worked a lifetime to accumulate will go to those you want it to.

Editors Note: This article was originally published in the February 2021 edition of our “Cadence Clips” newsletter.

Important Disclosures

This blog is provided for informational purposes and is not to be considered investment advice or a solicitation to buy or sell securities. Cadence Wealth Management, LLC, a registered investment advisor, may only provide advice after entering into an advisory agreement and obtaining all relevant information from a client. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

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Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.