26 Jan Money Matters: Estate Planning Basics—and Why You Should Act Now
Getting your affairs in order can be daunting—but worth it
By Pat Olsen
When Victoria Pelletier, 46, a managing director at Accenture, and her wife divorced in 2010, Pelletier “gave her everything,” she says. During their marriage, the executive had borne two children, and post-split had tried to persuade her former spouse to draw up a will. But she did not, and in 2013, after a second bout with cancer, died intestate (without a will). Then Pelletier’s ex-wife’s daughter from a previous marriage attempted to secure the money from her mother’s estate for herself, though Pelletier had already been quite generous with her stepdaughter.
Although her ex’s negligence resulted in “massive turmoil,” Pelletier says she managed to negotiate and reach a settlement. Now remarried and rebuilding her personal wealth, the executive recently updated her own will and created a trust.
Defining the terms
It’s important to understand those two instruments if you are to plan wisely for what happens with your assets when you pass away. Estate planning can involve several tasks, including both making a will and setting up a trust.
Here’s how Investopedia defines them:
- A will spells out wishes regarding the care of your children as well as distribution of your assets after your death.
- A trust is a document in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts provide legal protection for the trustor’s assets to ensure the assets are distributed according to the trustor’s wishes. They can also save time, reduce paperwork, and, in some cases, avoid or reduce inheritance or estate taxes.
As Pelletier’s experience shows, if you die without a will, the burden is on your survivors to surmise what your wishes might have been, which can lead to family strife. “Often we see family situations unfold that we want to avoid, and we want to protect our loved ones,” says Andréa Maddan, a lawyer in private practice in New Jersey who specializes in estate planning and small business. “Women want to make sure our affairs are in order.”
The skinny on wills
Although there are several types of wills, the most common is a simple will, also called a testamentary will because you sign it in the presence of witnesses.
This legal document (1) specifies how your assets are to be distributed after your death, (2) allows you to appoint an executor to oversee that your wishes are carried out, and (3) may dictate the care of minor children, including who will be their guardian. Those are the minimum items to be addressed when creating a simple will, but there are other items you may want to consider.
Kleo Curry, a financial advisor and certified financial planner at UBS who works with clients on estate planning, says, “One thing people typically do not always address in their will is their personal assets, the things that have sentimental value. Who’s going to get the pictures and the cookbooks that have been passed down from generation to generation? Who will get the pearls?”
And don’t forget Fido. Curry adds, “People laugh when I say this, but arranging for pets is also important. Pet ownership increased dramatically during the pandemic, and informal arrangements aren’t sufficient. You want a written plan in place for your animal should you become incapacitated or pass away.”
Curry suggests you also think about leaving directions for digital assets in your will and any trusts, and even in your power of attorney. “Digital assets include images, social media, and Spotify, for example,” she says. In addition, you need to think about things like cell phone access and bank accounts that are accessed online. Curry advises creating a “digital inventory” that includes passwords to give to the attorney handling your estate plan, who will then add a “digital assets clause.” Digital assets is a relatively new and multifaceted area; your estate planning professional will be able to explain the details.
Inheriting money from your family can be a big help in life, yet traditionally, Black women have not been so fortunate. In 2018, Black women were the heads of 27 percent of Black households, more than twice the percentage of “all women” who were heads of household, reports Blackdemographics.com. And Black Americans’ median and mean wealth is 15 percent less than that of white families in the US, according to a 2019 survey by the Federal Reserve. That puts women of color who are heads of household in a bind, as they usually have to begin from zero, having rarely inherited much.
Passing assets on to children and grandchildren is how multigenerational wealth is built. Kleo Curry notes that some Black female heads of household are seeing their income and assets increasing, but these “may not be accounted for if the women don’t have an estate plan. This may be first generational wealth, and it’s important to make sure their legacy is protected and passed on to their heirs,” she says.
A matter of age
If you are coming hard on age 40 and don’t have a will in place, now is the time. “[Or] you may need to update it, depending on your circumstances, such as whether you have become single, married, a parent, or a homeowner,” Andréa Maddan advises. “Whenever your situation changes, you want to review your will to ensure it is still consistent with your wishes.” Also consider the case in which the executor can no longer serve, or your children are no longer minors.
If you’re closer to 60, there is more urgency. You may have gotten divorced or widowed and need to change beneficiaries. Or an executor may have passed away and you need to appoint another one. You may want to add grandchildren. If you have a trust, you may want to update that as well. And if you have no will at all, it’s time to address that situation.
Even if you haven’t experienced any major changes in your life, no matter which age group you’re in, you should revisit your will every five years or after any major life event, Maddan says.
Beware of “gotchas”
There are several things to be careful about when it comes to wills. Here are a few:
- Your most recent will is the only one the court will honor. Keep it in a safe place and, ideally, have your lawyer or another preparer keep a copy. Tell people you trust, especially your executor, where the current copy is.
- Different states have different laws about wills and inheritance. “If you move to another state,” Maddan says, “it makes sense to check with an attorney there to see if your will still stands or is still sufficient for your purposes. Depending on the state’s tax and probate laws, you may need to consider some different strategies.”
- Do your best to protect your heirs from having to go through probate. Investopedia defines this as the “legal process that occurs when a person dies that involves [a court proceeding] the validation and administration of their will.” Maddan notes, “Because probate can be very costly and time-consuming, you want to try and avoid having your family go through it.” A trust, which can help you do that, is a way to provide some ease for your family, who are already grieving.
Decision-making and trusts
The major investment websites offer a wealth of information for understanding trusts. The Charles Schwab website, for example, explains that trusts are used to transfer property and hold assets for minors. Victoria Pelletier indicates that they can also help minimize taxes. And Maddan says, “A trust is a way of protecting your assets and controlling them in a specific way to achieve your goals. It can be a way of avoiding probate, but simply having a trust doesn’t avoid probate altogether. Assets must be properly accounted for and titled as owned by the trust.”
Are you overwhelmed yet? Don’t worry, you are not alone. Estate planning can take time, and—given how critical the process is—you want to fully understand the decision tree and make the right choices for you. One way to ease the burden and ensure your wishes are fulfilled is to hire a financial planner.
“There’s a misconception that there’s a certain level of wealth needed to work with a CPA, financial planner, and estate planning attorney,” says Curry. “If an individual is working and has some level of assets and is paying taxes, it’s to their advantage to work with professionals with this expertise. Tax laws are con-stantly changing.”
It’s understandable to feel anxiety or a sense of urgency after learning about tasks involved in estate planning. But once you complete them, you can rest easy knowing your loved ones are taken care of. DW
Pat Olsen, who is based in New Jersey, writes about business, health, and technology.