Where There’s a Will, There’s a … Complete Estate Plan?

Q:

I’ve had a will in place for several years. My situation is pretty straightforward: Everything should go to my husband or to my niece if he’s already gone. I’m not wealthy and I just want to make things easy for my family when the time comes. But I keep hearing that a will might not be enough. Is that true? I hired a lawyer to draft it so it seems like it should be solid.

A:

This is a common – and important – question. Many people with simple situations assume a will is all they need. And if your goal is to leave everything to your spouse, it might seem like a no-brainer. But even in straightforward cases, relying solely on a will can leave gaps that create stress and confusion for your loved ones.

Let’s walk through why that is and what you should consider to help make sure your family is truly protected.

WHAT A WILL DOES AND DOESN’T DO

A will is a legal document that outlines how you want your assets distributed after your death. It can also name your executor as well as guardians for minor children. That’s a great start.

But here’s what a will doesn’t do:

• It doesn’t help if you become incapacitated
• It doesn’t avoid probate in many cases
• It doesn’t override beneficiary designations on accounts like IRAs or life insurance

So even if your wishes are simple – “everything goes to my spouse” – a will alone might not make that process as smooth as you’d hope.

THE CAN’T-MISS PIECES OF YOUR ESTATE PLAN

Even given your uncomplicated situation, a complete estate plan for you should include not only a last will and testament, but also:

• A durable power of attorney so your husband can manage your finances if you’re unable to.
• A health care power of attorney so your chosen representative can make medical decisions on your behalf. Many states automatically turn to the spouse if a patient is incapacitated. But what if he is also incapacitated or can’t be reached?
• A HIPAA authorization so your husband can access your medical information.
• Coordinated beneficiary designations so assets that aren’t controlled by your will (and yes, there are some) will go where you want them to.

Why are they so important? Here are two real-life examples like the ones our planners have seen:

• A husband had a stroke and his wife couldn’t access his retirement account to process his required minimum distribution as required to avoid steep tax penalties. Why? He didn’t have a durable power of attorney.
• A child couldn’t locate their parent in the hospital because the parent hadn’t signed a health care power of attorney with a HIPAA release.

We won’t go into the odds of experiencing a stroke, hospitalization or other similar events as you age, but suffice it to say that no one thinks these kinds of things will happen until one day they do.

BE STRATEGIC WITH YOUR ESTATE PLAN

By the way, you mentioned an attorney drafted your will. If you didn’t involve an estate planner and tax advisor, it would be smart to do that too. Depending on your financial situation, family dynamics and long-term goals – and the rules of the state you live in – there may be ways you can help save your family money or heartache.

For example:

• Are there tax implications to consider if your husband becomes sole owner of your marital assets?
• What happens if your husband remarries after you’re gone?
• If the money goes to your niece, do you have concerns about how it will be handled or whether she retains full control and ownership of it?

Even if your plan is simple, bringing in professionals can help you confirm it’s also strategic and complete. Your Edelman Financial Engines advisor can connect you with in-house estate planning and tax experts who can provide guidance and education to help as you plan your legacy.

WHICH BRINGS US TO …

Now let’s get into something you might have been hoping to avoid in your quest for simplicity: a revocable living trust.

Many people think trusts sound like the opposite of simple – complex, technical black boxes that are only for really wealthy people.

That’s not the case, though.

A revocable living trust isn’t a must-have like the other things we talked about above (although they’re usually considered especially wise if you happen to live in California, own property in more than one state or have an operating business).

But it could potentially make things easier down the line. For example:

• Assets in a revocable living trust can be available to pay any debts and final expenses much more quickly.
• The contents of your estate and how you distributed them wouldn’t be public record like they would with a will.
• It could make for a smoother estate settlement process in the event you have complicated family dynamics.

The bottom line is that trusts really aren’t as complicated or scary as they’re made out to be. Your estate attorney can help you decide whether one makes sense and set it up for you.

DON’T FORGET TO UPDATE YOUR ESTATE PLAN

Even a basic estate plan should be reviewed at least every few years. And remember to update it after major life events like marriage, divorce or changes in health.

Relocation is a big estate-planning earthquake people often don’t think of. State law dictates many aspects of estate planning. If you move from one state to another, you absolutely must review your documents to make sure everything in your estate plan is still valid and structured to get the outcomes you intended.

YOUR TAKEAWAYS

So here’s what you need to do as soon as reasonably possible:

• Meet with an estate planner and tax advisor to review your will and make sure your overall plan is strategic and complete
• Execute powers of attorney and HIPAA authorizations
• Double check you have the correct (primary and secondary) beneficiaries on file for retirement accounts and insurance policies

Your advisor is ready to help. They can connect you with in-house experts and work with your estate planning attorney. Whether your situation is simple or complex, we’re here to help make it easier.