Spring Cleaning for Your Estate Plan: Is Everything in its Place?

market commentary

Many of us are “celebrating” the warmer weather this time of year by sweeping away dust bunnies and vacuuming behind the couch. Spring cleaning has been part of our annual rhythm for centuries, from ancient religious traditions to scrubbing coal soot off the walls in Victorian times.

In your financial life, tax time is like spring cleaning. You go through your income and outflow, expenses and windfalls, and make sure everything is in its place. This time of year is great for meeting with your advisor or tightening up your strategy as well as making sure your estate plan is in order from top to bottom.

Let’s look at some estate planning corners that need dusting this time of year.

Contribution Plan Catch Up

In our last newsletter, we discussed retirement plan contribution catch up. Tax season is a great time to make these contributions, especially if you want them counted toward 2018 instead of 2019. Your retirement contribution plans – Roth IRA, 401(k), etc. – need those last minute contributions depending on your yearly tax strategy.

Most retirement plans stipulate that you have to be over 50 years old and have certain amounts that are designated for each type of contribution plan. Small amounts can help you to catch up on contributing years you may have lost in the past. See our last newsletter for details on how to avoid leaving money on the table.

Another detail to keep in mind is that your retirement contribution funds end up as part of your estate plan. Intentionally designating a beneficiary, and keeping this name up to date, will get your hard-earned money to the right person when the time comes.

Click here to download our free resource, “Estate Planning Simplified”

Who is Your “Family”?

It’s helpful to remember your desired estate plan is not automatic. The idea of a judge pounding a gavel and seamlessly dividing your estate among your family members is from the movies, not real life. In reality, your estate would pay an executor to settle your affairs with the court, taking the fee out of your assets. The whole probate process is public record as well, so if you don’t want your nosy cousin knowing how much was in your bank account, then it’s best to have your estate in order ahead of time. Preparing your estate plan is highly intentional and should be done with an experienced advisor and estate planning attorney on hand, especially in regard to businesses, high net-worth assets and other more complicated situations.

There is a default flow to the distribution of an estate, but you have to keep in mind that “family” is a complex organism and even more complex in recent years. Without a plan in place, your estate usually flows to your spouse and/or your children. The exact division and details of this vary per state. However, your stepchildren (if not adopted), no matter how long you’ve raised them and how close you are, would still not be considered your legal children and could be excluded.

Second marriages are more than commonplace in the U.S. Forty percent of marriages are not the first for at least one partner, and 20 percent of marriages are not the first for both partners. Blended families are very common, which can complicate estate plans immensely.

Click here to download our free guide on financial planning for your family

What’s Your Relationship Status?

“Marriage” is also more complex in recent generations. Cohabitation is rising in popularity, with the number of young and middle-aged couples in the U.S. living together before marriage doubling in the last few decades. Yet a “common law” marriage or cohabitation without being legally married wouldn’t count in the event of default estate distribution because of death. The estate, in this case, would actually go to the legal spouse, if there still is one, however estranged the relationship might be.

The LGBT community also needs to be aware of legality in regards to estate plans. Same-sex marriage is now recognized nationally since the Supreme Court decision in 2015. However, because the decision is so recent, common law or cohabitation situations can be more prevalent in this community. Meeting with an advisor can help lend some clarity to the future and give you confidence as the culture is in flux.

Family is a dynamic concept in our country as well as the rest of the world. Relationships are never straight forward, and many laws and structures are changing to recognize that fluidity.  Your advisor can help you work through different scenarios of what the future could look like, and help you take charge of that now according to your relationship structure.

The Modern Family Example

An example of why estate planning is important: After two years of serious dating, John and Jane move in together. Both have had previous marriages, and each brings a tween-ager into the mix. Both kids have a good relationship with their other parent, and adoption by the step-parent, in this case, isn’t appropriate.

After five happy years, John dies unexpectedly despite fairly good health, without an estate plan in place. His substantial estate – he was an early investor in Facebook or Amazon – is there without a plan. Because he never finished legally divorcing his ex-wife, his estate goes to her and to his son Darrin. John’s 401(k), which was healthy and rolling over nicely, will now go to his ex as well.

He and Jane had made plans to put Jane’s daughter through an Ivy League school debt-free and to start Jane’s hobby business as an added source of income. Now, those aspirations have evaporated, despite the emotional attachment and shared history they have behind them. Putting together an estate plan can bring clarity to situations like this.

Powers of Attorney

Also, keep in mind that the Durable Power of Attorney for Healthcare, a document which designates your decision-maker in regards to end-of-life and other healthcare decisions, is not the same document as a Will or trust. Your advisor and estate planning attorney can help you arrange these healthcare documents and include them in your estate plan.

Your Durable Power of Attorney for Finance would also be included in an estate plan, and this directs your loved ones on financial decisions in the event of your incapacity or death. The same person can be designated for both POAs, but keep in mind that both of these documents are just part of the overall picture.

Do I Need a Trust?

Discuss your estate plan with your Carson advisor and team of professionals to find out if a trust is right for you. If so, you may want to designate a corporate trustee such as Carson Private Trust. Unlike family members or friends who have their own lives and can have their own health issues, a corporate trustee like Carson Private Trust does nothing but administer trusts and will handle all of the day-to-day responsibilities associated with being trustee so you don’t have to burden a child or other individual with this momentous task.

Spring cleaning can feel overwhelming, especially with regard to your finances and estate plan. The cluttered corners and forgotten dust of life make it impossible to know where to start. Your advisor can help you make a plan, and prioritize what needs attention today and what can wait. You’ll be surprised at how, if you take just one room at a time, you and your advisor can make an overwhelming job manageable.

For a comprehensive review of your personal situation, always consult your legal advisor. Neither Cetera Advisor Networks LLC, nor any of its representatives may give tax or legal advice.

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Contact Us

Stay Connected

Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Get Started