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Beyond Legal Documents-12 Planning Strategies-Good Ending-08-22.pdf

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Beyond Legal Documents-12 Planning Strategies-Good Ending-08-22.pdf

  1. 1. Beyond Legal Documents: 12 Planning Strategies for a “Good Ending” Dr. Barbara O’Neill, CFP®, AFC® Owner/CEO, Money Talk
  2. 2. Objectives  Briefly define and discuss estate planning  Briefly discuss key legal documents  Define and discuss “a good ending”  Discuss 12 key strategies beyond legal documents
  3. 3. Estate Planning is Related to Many Other Financial Planning Decisions Source: Madura, J. Personal Finance (2004), Pearson Education
  4. 4. So…What Exactly is Estate Planning? • Estate planning is the process of determining the distribution of your assets upon your death • Estate planning also includes management of your personal affairs during your lifetime, including in the event of incapacity
  5. 5. In Other Words… • You give what you have • To whom you want • When you want • The way that you want • At the lowest possible cost (e.g., taxes and administrative costs) to yourself and loved ones • And have instructions left to make medical and financial decisions if you are unable to do so
  6. 6. When Should You Plan Your Estate? Today Mental Incapacity Catastrophic Illness Death Your Planning Opportunity Will Living Will Powers of Attorney Source: Goldberg Law Center, PC
  7. 7. Benefits of Estate Planning • Provides control over asset distribution process • Provides peace of mind • Reduces income taxes • Reduces estate administration cost and delays • Reduces/avoids estate taxes • Reduces/avoids gift taxes • Provides incapacity planning
  8. 8. A Good Estate Plan • Documents that are properly drafted • Documents that are regularly updated • Assets that are properly titled • No conflicts between titles to assets and a will • Communication of wishes among family • Regularly reviewed documents
  9. 9. Why People Avoid Getting an Estate Plan? • Cost (real or perceived) • Thinking that your estate is “too small” to support the expense of planning • Fear of dying (“jinx factor”) • Uncertainty about people to name in legal documents • Uncertainty about finding legal advisors • Other?
  10. 10. Property Transfers Gross Estate Your will or state intestacy laws Non-probate transfers Jointly owned property Life Insurance IRAs 401(k)s, 403(b)s, TSP Annuities Assets with named beneficiaries Planned distributions Property titled in your name Probate Process Adapted From: Goldberg Law Center, PC
  11. 11. Common Estate Planning Tools During Your Lifetime • Power of Attorney • Gifting • Revocable Living Trust • Guardianship (encompasses all personal affairs of protected person including support and health care) • Conservatorship (limited to the management of property and financial affairs of protected person)
  12. 12. Common Estate Planning Tools After Your Death • Will • State Intestacy Laws • Joint Tenancy • Beneficiary Designations • Trusts
  13. 13. Question: What do YOU think is a “Good Ending” to a Person’s Life?
  14. 14. What is a “Good Ending”? • Dying in peace • “Niagara Falls” trajectory • “Burying hatchets,” if needed • Having advance directives • Sharing important data • Less confusion after you die • Trusted surrogates • Sharing preferences
  15. 15. 12 Planning Strategies for a “Good Ending” Some strategies are interrelated. For example…  A letter of last instruction and a separate writing list for distribution of untitled property  Communicating with heirs and preparing a financial notebook
  16. 16. Benefits of Planning Strategies • Provides personal peace of mind • Helps your personal representatives, attorney, and/or first responders • Helps your family/survivors in a time of grief/stress • May result in lower taxes and estate administration expenses
  17. 17. 1. Simplification and Downsizing • Many people have “asset sprawl” • Estate planning will ALWAYS be easier with fewer items to manage or dispose of • Action steps: – Sell unneeded possessions – Gift unneeded possessions – Donate unneeded possessions – Consolidate similar financial accounts (e.g., 401(k)s and IRAs) – Consolidate investments at a single financial institution – Limit new possessions and financial assets
  18. 18. Benefits of Consolidating Assets • Easier to track asset allocation & rebalance portfolio • May save money on account fees • Easier to calculate required minimum distributions (RMDs) • Fewer account statements and tax statements • Easier estate settlement process • Easier performance monitoring • “One stop shop” (fewer points of contact)
  19. 19. Warning: Simplification Takes Time!
  20. 20. 2. Net Worth Calculation • Assets minus debts = net worth • Provides a “status check” of your finances – Update at least annually • Easily identifies assets and debts for executor • Make a notation of property ownership method • Share with executor and trusted loved ones
  21. 21. Net Worth Worksheet https://njaes.rutgers.edu/ money/pdfs/net-worth- calc-worksheet.pdf Excel Template: https://njaes.rutgers.edu/ money/
  22. 22. U.S. Savings Bonds Inventory https://www.treasurydirect.gov/BC/SBCPrice Example: I bond returns, 2000s decade issued bonds, July 2022
  23. 23. 3. Emergency Contact Cards • Include name, address, phone number, and emergency contacts to call or text • Available for free through American Red Cross, health departments, law enforcement, or CERT (Community Emergency Response Team) • Keep in wallet, cell phone pocket, car, fridge • Make a notation about pets at home alone
  24. 24. Red Cross Emergency Contact Cards https://www.redcross. org/content/dam/redc ross/National/m4240 194_ECCard.pdf
  25. 25. File of Life With a Magnet: Keep on Your Refrigerator
  26. 26. 4. Financial “Notebook” • A “one-stop” place for financial information • It does not have to be an actual notebook or binder • It could be available on a flash drive or in the cloud • Include the following data: – Contact information for financial advisors – Information about insurance policies – Information about financial accounts (bank, brokerage) – Information about retirement savings accounts – Information about real estate – Information about debts – Information about vehicles – Location of other important papers
  27. 27. Template Form- Page 1 https://njaes.rutgers.edu/money/pdfs/important-papers.pdf
  28. 28. Template Form- Page 4
  29. 29. 5. Digital Assets Inventory What are digital assets? • Personal information that is stored electronically on either a computer or online “cloud” server account • Often provides access to financial accounts • Requires a username and/or password or PIN or two-factor authentication process to access • Can be difficult or impossible to retrieve if someone is incapacitated or passes away
  30. 30. Common Digital Asset Categories • Electronic device access • Benefit accounts (e.g., rewards programs) • E-mail accounts • Financial accounts • Online merchant accounts • Organization accounts • Photography/music accounts • Publication accounts • Social media accounts • Virtual currency accounts
  31. 31. Digital Asset Inventory https://njaes.rutgers.edu/mo ney/pdfs/Digital-Assets- Worksheet.pdf Plan B: Use a password manager program (e.g., Keeper, LastPass, 1Password) and share the password with trusted parties Planning Tip: Name a “digital executor” in your will to manage your digital property after you pass
  32. 32. 6. Beneficiary and Personal Representative Designations List • Identifies non-probate “pass through” assets • One-stop list for all beneficiary and personal representative designations • Makes it easy to track beneficiaries and update them, as needed (e.g., as a result of life events) • Helps identify gaps (e.g., lack of contingent beneficiaries) • Information gleaned from: – Legal documents: will, trust, living will, power of attorney – Life insurance policies and annuities – IRAs and employer retirement savings accounts – Other (savings bonds, POD bank accounts)
  33. 33. Beneficiary and Personal Representative Worksheet https://njaes.rutgers. edu/money/pdfs/ben eficiary- designations.pdf
  34. 34. Common Beneficiary Errors • Not naming any beneficiary • Not naming contingent beneficiaries (i.e., Plan B) • Not keeping beneficiaries updated • Thinking that beneficiaries will share assets with others
  35. 35. 7. Untitled Property Planning • Recognize the “sensitivity” of the issue • Decide what is “fair” for your family • Consider interests of family and friends • Make a written list of “stuff” and heirs • Share list with family and/or executor • Consider lifetime gifting • Consider various distribution options (no “perfect” method) – List of designated recipients (separate list, referred to in will) – Labeling items – “Prize” drawings/raffles – Family consensus and trade-offs – Lifetime gifting with stories
  36. 36. Resource • Use for items of tangible property • Can be handwritten or computer-generated • Clearly identify each piece of property • Sign and date the form • Initial/date any changes • Keep with will • Keep updated if listed property is sold or gifted Source: Colen & Wagoner, P.A.
  37. 37. More Resource Materials • Who Get’s Grandma’s Yellow Pie Plate? Video: https://www.youtube.com/ watch?v=z3NNoVRQpI8&t =629s • Who Get’s Grandma’s Yellow Pie Plate? Fact Sheet: https://www.canr.msu.edu/ uploads/files/firm/Betz/Gra ndmas_Yellow_Pie_Plate_ MT199701HR.pdf
  38. 38. 8. Letter of Last Instruction • Not legally binding, but very useful • Provides heirs with valuable information • Data and “task list” for survivors: – Funeral and/or memorial service preferences – Obituary content (e.g., tribute bequests) and distribution list – Information about prepaid funeral services – Names of people to be notified about your death – Others to be notified (SS, pension, credit cards, final employer) – Location of bank accounts, safe deposit box, etc. – Disposition of personal effects (untitled property)
  39. 39. Template Worksheet https://www.extension. uidaho.edu/publishing/ pdf/CIS/CIS0958.pdf
  40. 40. Personal Example: My “Who to Contact and What to Do After I Die List” • Contact Social Security and OPM (pension) • Contact Rutgers University personnel office • Contact attorney • Contact cremation provider; share obituary • Contact several professional associations • Cancel credit cards • Change bill pay for 3 bills tied to a credit card • Bring clothes, etc. to thrift shop
  41. 41. 9. Personally-Authored Obituary • YOU get to choose what is said about you • One less thing for heirs to do at a time of stress • You may want TWO versions – Short obituary for newspapers – Longer obituary for tribute websites • Save it electronically and share with family • Numerous online templates are available
  42. 42. Template Examples Resource: https://www.obituaryhelp.net/
  43. 43. Actual Obituary Examples “[X] got in the TARDIS and has left for places and times unknown… Expressions of sympathy may be made to MoveOn.org, or other non-profit organizations that seek to keep banks, Wall Street, insurance companies, politicians and other traditionally greedy and untrustworthy groups in line.” Some people add advice to their obituary (e.g., “make someone smile every day”) or make personal requests. For example, Sonia Elaine Todd, who died of cancer at age 38, wrote a famous obituary asking readers to do things, like forgive someone, quit smoking, and volunteer, in her honor.
  44. 44. 10. Pre-Planned and Pre-Paid Funeral • Pay funeral home now for anticipated future services • YOU get to choose details; e.g., how and where? • One less thing for heirs to do at a time of stress • Read “the fine print” very carefully – Big concern: not dying where you made the arrangements • Plan B: Letter of instruction for funeral/memorial details + a POD account for final expenses
  45. 45. FTC Resource https://www.consumer.ftc.gov/articles/0305-planning-your-own-funeral
  46. 46. 11. Lifetime Gifts and Philanthropy • Five key benefits: – Decreases taxable estate value (for estate taxes) – Can help reduce probate/administration costs – Helps with downsizing (“stuff” and financial assets) – Can watch gift recipients use/enjoy gifts – May help reduce income taxes (e.g., DAFs, QCDs) • 2022 annual gift tax exclusion: $16,000 per donee • 2022 estate/gift tax exclusion: $12.06 million per deceased
  47. 47. Estate Tax Laws Can Change! Under current law, federal estate tax rates range from 18% to 40% (taxable estates of $1 million+) Most people are shielded from tax by the basic exclusion amount Seek professional guidance with large estates and gifting transactions
  48. 48. 12. Communication with Surrogates and Heirs • It is usually best to tell family members about planned gifts to charity (no “surprises” and disgruntled heirs) • Make sure family members/surrogates know what you want (e.g., extra-ordinary care directions, burial wishes) • Make sure family members/surrogates know the location of key documents and information • Use “I” messages to describe feelings or beliefs: “I feel [emotion] when [action] occurs”
  49. 49. “I” Statement Example “I am (feel) worried when I think about the end of my life because it scares me. What I need is to know that you will carry out my wishes not to have a feeding tube or artificial life support.”
  50. 50. Other “Good Ending” Planning Strategies • Ethical Wills/Legacy Letters- Describe beliefs, ethical values, life lessons, family history, pride points, forgiveness, gratitude, hopes for the future • Legacy Videos- Self-record videos and create YouTube links and/or save mp4 video files • Legacy Books and Tools- Examples: Storyworth, Do Not Reply, Memories, Lastly, Safe Beyond • Change in Housing- Move in with family members or friends, move to a CCRC in later life
  51. 51. What Comes Next? • This talk is like a “Jersey Diner Menu” • Pick strategies that work for you • “Start small” (one strategy at a time)
  52. 52. Final Comments, Questions, or Experiences?