The month of June was one of great personal loss for me. I lost a good friend and my dad in the span of weeks. I’d watched both of their health struggles leading up to their deaths. I’m still grieving. As I grieve, I also have to work with family to settle Dad’s affairs. We’ve met challenges because he simply wasn’t organized. My dad should have been better organized, especially with me as his advisor. But, hindsight is 20/20. The purpose of this isn’t to air dirty laundry, but to let you know that there are very real issues. Though we don’t want to prepare, we must. It’s a cautionary tale. If we treat our wealth and finances as a constant taboo, and keep the information from our family members, then there are bound to be problems.
I’ve watched clients lose loved ones, and I’ve had clients pass away. Settling their estates is never easy for their families, even when they are organized. There’s always a bad surprise or something that’s harder to handle than expected. But, when families talk to each other and stay organized, it can alleviate the tough business that comes after death; and that’s a huge help for loved ones who are grieving. Dealing with an estate can complicate or delay the grieving process. Believe me. I know from personal experience.
It’s always been easy for me to say “this is what you need to do to prepare” to a client. However, very few people take that advice because they either don’t want to take the time to do it, or they don’t want to think about their own mortality. We don’t wake up in the morning and think “I want to prepare to die today.” But, we should all do that at least once, and then periodically revisit that preparation to make sure it’s up to date as our families, lives, and assets change. We aren’t preparing to die. We’re preparing our families so that they can grieve in a way that is healthy, and so that they have few worries, in the event of our deaths. It’s an act of love.
I have personal stories, and I have advice, all based on my own experience.
Make sure your beneficiaries are up to date, and make sure your beneficiaries know. Any time you open an account or buy an insurance policy (annuity or life insurance), follow up with the institution that holds the account a few months later and ask them how your beneficiaries are listed. Every time you have another child or your beneficiaries change, update them with EVERY account. Pay attention to your adult kids’ name changes, such as in the event of marriage or divorce. Pay attention to your own life changes.
Many of my clients have heard the story I tell about the man who went on vacation, was young and in great shape, had a heart attack while swimming at the beach, and drowned. He was on vacation with his girlfriend of three years. She had to get his body back to the US for his funeral. When his family went to settle his estate, his ex-wife was still listed as his beneficiary on his retirement account. They’d been divorced for five years and he’d never updated his beneficiary on his employer 401(k). His beneficiaries were up to date in my system, but most of his assets were in his employer plan. The assets in the plan went to the ex-wife.
A few weeks ago, my siblings and I were trying to get to a type of insurance policy our dad held. We each had to call and request our beneficiary paperwork separately. When I called, I was told I wasn’t listed as a beneficiary. It turns out my sister wasn’t listed either. There are three kids. There were two beneficiaries listed. One was our younger brother. Who was the second if not me or my sister? I finally told my sister “We need to ask them to pull up the original paperwork. I have a feeling someone put it into their system incorrectly.” We called about ten times before we reached someone who’d reference the original paperwork from years ago. There were three beneficiaries on the original document: me, my sister, and my brother. Three, not two, and no one else besides us. If we’d returned my brother’s claim paperwork only, without asking the right questions, my brother would have received 50%, and the other half would have been reserved for an imaginary person. Now, we are able to make the claim as three people who are entitled to thirds.
This leaves me with the next piece of advice: Communicate. Either talk to your family or have some document that lists what you have, where it is, and who the beneficiaries are on the account or policy. Having a will is non-specific and is not enough. Make sure at least one person has all the details in writing; or at least put it into writing, save it, and let someone know where the document is located. Make sure you include the beneficiaries and splits so people know to ask questions. Going through this process, I found a term life policy that he purchased through a professional association. He never told us he had it. If I hadn’t run across the statement, we’d have no idea. You can use the Respire Wealth Financial Organizer or any other checklist you choose, just use something.
Have a Durable Power of Attorney and let that designated person know ALL of your business. Dad’s hospitalizations started in November. He passed away in June. This week I found a letter regarding a term life insurance policy he held through the American Dental Association (he was a dentist). I was surprised. I called the insurance company to ask them to send out claim forms. He didn’t pay his premium that was due in January because he was in the hospital. The waiver of premium rider on the policy expired last year when he turned 60. I was his power of attorney. I didn’t know about the policy otherwise I could have paid it for him in one phone call. He’d paid premiums for that policy for God-knows-how-many years. The customer service rep on the phone said that we are welcome to submit the claim forms and his hospital records along with a letter, but that she didn’t think it would work out. We won’t know until we try, but the odds are not in our favor.
Those are my cautionary tales so far as I go through this experience. Make sure you’re organized, for your loved ones’ sake, and stop treating your wealth and assets with secrecy.
Here’s the advice I have always given before having this experience:
Review your beneficiaries on everything, often. Sometimes when employers change retirement plan providers the beneficiaries don't transfer. Also, paperwork is sometimes processed incorrectly, or your personal circumstances change.
Retirement accounts and employer plans bypass probate and are one of the fastest account types to distribute to beneficiaries.
Retirement accounts and employer plans should always be rolled into inherited IRAs or else the beneficiary will owe income taxes. Those income taxes can cost the beneficiary a massive chunk of the inheritance.
Make sure you set retirement accounts up to automatically distribute Required Minimum Distributions.
Annuity companies will try to keep the beneficiaries’ money by encouraging the beneficiaries to start policies of their own. It doesn’t have to stay with the annuity company.
Joint Tenants with Rights of Survivorship accounts (such as bank accounts or non-retirement investment accounts) can typically still be used after death.
Individual (non-retirement) and Tenants (Tenancy) in Common accounts will be frozen until probate begins and an estate account can be established.
Prepare to have to wait a month or more to get an estate account open to begin paying bills.
Prepay funeral costs or designate a portion of a life insurance policy to pay funeral costs.
If you don’t have one already, put money aside in a joint account designated as Joint Tenants with Rights of Survivorship with a trustworthy loved one. Make sure there’s enough money to cover expenses related to home and property for at least a couple of months.
If the deceased had debt obligations, those debts can be settled by the remaining assets in the estate. DO NOT settle those from inherited retirement assets or life insurance where a beneficiary was listed. The debts are the obligations of the estate, not the obligations of the beneficiaries or heirs. Retirement accounts and most life insurance bypass probate and shouldn’t be used to settle debts of the deceased.
Complete the Respire Wealth Management Financial Organizer one time and review it annually. Make sure your loved ones know where to find it. Even if you work with a different advisor, the organizer is free to you to use.
Have a will and let your family know where it is. Revisit your will every few years to make sure it covers all of your current assets and is still structured appropriately.
Have a probate attorney lined up. Even with a will, you’ll need one.
List a successor trustee on all trusts (in case something happens to the trustee).
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