Learn the right way to leave a legacy for your heirs
By Tanisha A. Sykes
The last few years have been heart-rending for Michellene O. Davis, executive vice president of corporate affairs for Barnabus Health, an integrated health-care provider in New Jersey. In 2012, her parents were diagnosed with cancer. Doctors discovered a malignant tumor on her mother’s breast and a cancerous tumor on one of her father’s kidneys. After chemotherapy and radiation, her mom’s cancer went into remission, but her father, a master carpenter by trade, suffered a different fate.
“He went from diagnosis to death in three months,” says Davis. “We were told they were going to go in and remove the cancerous tumor and everything would be fine. On the day of his passing, we were discussing his discharge at 9 a.m. At 2 p.m., he was no longer with us.”
As Davis and her family reeled from the passing of their patriarch, life struck another devastating blow. Her sister, a military veteran, suffered cardiac arrest after a bout with the flu and died. “My sister left an eight-year-old daughter whom she had been raising since the child was three days old, but she hadn’t completed the adoption process, so that child no longer lives with us,” Davis explains. While her beautiful, beloved niece is in good hands with her sister’s longtime partner, it triggered Davis to stop procrastinating and take action.
“I began to talk with my family about what I wanted for my funeral services and what they should do in case medical decisions needed to be made. Once my sister passed, I immediately formalized my will, worked out a power of attorney, and made sure that my living will was in place.” As a businesswoman who is single and unmarried, Davis says she understood that she had to be definitive about what she wanted to do with her estate so her family would have the necessary guidance to carry out her wishes.
You’ve worked hard to create a secure and comfortable lifestyle for yourself and your loved ones. Now it’s time to protect those assets with a proper estate plan. Read on to learn how to do it right.
Mistake No. 1: Having no idea what your estate plan looks like. Many people put off estate planning because they assume they don’t own enough, know enough, and/or are too young or too busy. “First, have an idea of what your estate looks like and what your assets are,” says Melanie Lee, owner of Lee Law Office in Richmond, Virginia. Then, use the estate-planning checklist from AXA Advisors at us.axa.com/plan/estate/checklist to learn how to communicate your wishes, protect your family, reduce state and federal income tax, and protect your business. From there, using the worksheet at rocketlawyer.com/search.rl?query=estate+planning+worksheet, draft an estate plan document for an attorney to review.
Mistake No. 2: Realizing late the need to protect your assets. An estimated 120 million Americans don’t have an adequate estate plan in place. “If you’re getting married and bringing assets into the marriage, like an existing retirement savings account and pension, enact trusts that specifically state how you want your assets distributed upon death,” says wealth coach Deborah Owens. Yes, the discussion should happen before marriage and may get tricky if a prenup is involved, but the greatest risk to your assets is doing nothing at all.
Mistake No. 3: Thinking you don’t need a will. A big myth among unmarried women is that they don’t need a will. Not true, say our experts. “It’s very important to have a will to determine who gets what and when, and how your hard-earned legacy or assets are to be distributed,” advises Olivia H. Stoner, an estate-planning attorney at Stoner Law Office in Philadelphia. “If your estate is large enough, establish trusts as a legacy to support multiple generations, or set up some kind of trust to support your church or your alumni.” In the absence of a will, distributing your assets becomes the responsibility of the state in which you resided.
Mistake No. 4: Assuming you’re too young for disability insurance. Don’t wait until you turn 50 to buy disability insurance. More than 50 percent of the population will become disabled before age 65, says Lee. If you have the discretionary income, buy it early. “You may want to even start early with long-term care insurance, so that if you need additional assistance in later years, it is covered by insurance,” says Stoner. Taking action can determine the quality of care you receive.
Mistake No. 5: Leaving advance directives undone. Whether you are having minor surgery or suffer from a debilitating medical condition, you need to have medical directives in place so you can stipulate who can make decisions for you. “It’s not just about your money, it’s about your health as well,” says Lee. A health-care proxy and a living will are two types of advance directives. They communicate how medical decisions should be made if you cannot make your own decisions.
Mistake No. 6: Delaying creating a power of attorney. If you become incapacitated—meaning you are unable to make decisions—a power of attorney is critical. It’s a document that gives your agent (the person you choose) the authority to enact financial and health-care decisions, pay creditors, recommend a guardian, and even make end-of-life and medical treatment decisions on your behalf. Choose someone you trust, because this person will have the right to handle one issue (a specific power of attorney) or most of your personal and financial matters (a general power of attorney). “If you don’t have a power of attorney and something happens to you, then your family can’t do anything to handle your affairs unless they become a court-appointed authority,” says Stoner. For women with no husband or children, it’s even more important to have a power of attorney and a will. “If you have a spouse and children, there’s an assumption they will look out for your best interest,” says Stoner. “Otherwise, you have to rely on friendship, which makes people stop the process of appointing a power of attorney because they don’t know whom to appoint, let alone whom to leave their assets to.” There are several types of powers of attorney, depending on your needs. Discuss your options with an estate-planning attorney.
Mistake No. 7: Neglecting to transfer real estate titles after a divorce. You’ve just married the love of your life, but he still owns property with his ex-wife. If he has either moved on from the property or suddenly dies, you can only inherit his half. “I’ve had women clients who have to deal with a prior wife who is not willing to give up her half, even though it might have been agreed to as part of the divorce settlement,” explains Stoner. To avoid this situation, make that title transfer a part of the divorce proceedings, and remember, whoever owns the deed owns the property.
Mistake No. 8: Misunderstanding probate vs. nonprobate assets. All of us would like to pass on a legacy of financial wealth to loved ones without them having to go through costly probate proceedings. State law controls the process for requiring whether your loved ones go through probate or not. Probate is a legal process that involves finding and securing a person’s assets, liquidating liabilities, paying taxes, and distributing property to heirs. “Nonprobate means an asset automatically transfers to another person by contract, as is the case with an annuity, a pension, joint bank accounts, or a life insurance policy,” explains Stoner. This is also the case with assets you own jointly with your spouse or others, assets in your name only that have a payable on death or transfer in death designation, and assets owned by your revocable living trust. “Having a will is just to ensure that, if you have an asset in your name alone at death, you are directing where it should go,” says Stoner. If you want your assets to pass to your heirs without going through probate, create a living trust, which places your assets and property “in trust.” Those assets are managed by a trustee (such as an attorney) for the benefit of your beneficiaries.
Mistake No. 9: Assuming your surviving spouse will receive everything and skip probate. Since laws vary state to state, don’t assume that a surviving spouse will automatically receive everything. “If your spouse’s accounts are in his or her name only, the only way to get those accounts open is to go through probate,” says Stoner. If the property is owned in joint tenancy, if it is community property with the right of survivorship, if it is an account owned by several people, or generally, a bank account transferred to someone when the owner dies, then generally, the property goes to the surviving spouse. Bottom line: Check with your estate-planning attorney to determine how to protect your assets.
Mistake No. 10: Forgetting to update your estate plan. “Review your plans at least every three years, but always do so in the face of the five D’s: Death, Disability, Divorce, Distance [i.e., you move], and Descendants,” says Lee.
As you make plans, share your wishes with your family. Yes, it’s difficult to discuss end-of-life decisions, but leaving your family to make critical decisions about your final wishes is stressful and confusing. Tell them what you want, how it should be executed, and where to find the information to get things done.
“Everyone thinks that they are going to do an estate plan,” says Davis, the first woman and person of color to hold an executive vice president title at Barnabus Health. “If there are people in this world who you care about, do it yesterday. Otherwise, you are placing them at a significant disadvantage.” DW
Tanisha A. Sykes is a personal finance and career development expert and seasoned journalist. Follow her on Twitter @tanishastips.