Retirement plans (401(k), 403b, Simple IRA, etc. are synonymous with retirement planning. Often when people are asked do you have a plan for retirement, they will respond with, “yes, I have a 401(k).” Today I want to move past the savings aspect of a retirement plan and touch on another facet of retirement planning called estate planning. Everyone knows they need to have money to retire, but what happens to your assets when you pass? What happens if you can’t make medical decisions for yourself or financial decisions? This is where estate planning comes in and allows you to make those decisions beforehand, while you are still able. The following items are a beginning point for estate planning.
What to know
1 – Do you have a will and power of attorney for health care, and power of attorney for property? Every person should have these essential estate planning documents. A will helps to direct assets in the event of your passing. A health-care power of attorney is designed to allow you to choose an agent to act on your behalf if you become unable to make your own decisions. A power of attorney for property, you select an agent to act if you are incapacitated and can’t sign a tax return, make investment decisions, make gifts, or handle other financial matters. One side note to your health-care power of attorney, make sure that it addresses the Health Insurance Portability and Accountability Act. This governs what medical information doctors can release to someone other than the patient.
2 – Do you need to change any beneficiaries, guardians, or others named in your documents? This is critical, life happens, which means change happens. Keep the people listed in your documents updated and make changes as necessary.
3 – With any beneficiary designation, understand the policy when one beneficiary dies before the others. If you want the share of the assets to pass by blood line – to the deceased’s children, for example – you may need to put in language specifying per stirpes (distribution of assets will be divided up among the deceased beneficiary’s living children equally if they passed before the asset owner). If that is not in place, the remaining assets may simply be divided up between the surviving beneficiaries.
4 – Do you have heirs with special needs? Don’t assume typical estate documents help such an heir. Seek out a financial advisor and attorney who specialize in this planning to craft a plan for those heirs to be taken care of.
5 – Often a parent names a child on a bank account so the child can access or use the money if the parent can’t act. Understand that if you name your child as a joint owner on an account, the money passes to that child no matter what your will dictates. The child splitting the money with someone else constitutes a gift, though one probably not subject to gift tax now that gifts of less than $5.34 million aren’t taxed. Still, think carefully so you keep the family peace after you are gone.
6 – Do your heirs know where to find all important information? Let someone know the password to the app where you keep all your passwords – you must remember digital assets now too.
We appreciate the opportunity to associate and serve each of you. If you ever have any questions regarding your retirement plan, we are here to help. You can reach out to us on social media, phone, email, or in person. May you all enjoy the sun and warm weather in safety this summer.