Beyond the fact that it’s not fun to contemplate one’s own demise, what accounts for the low number? Some people are put off by the grandiose “estate planning” term, says Kerry Reilly, an estate planning attorney in Boston who works with the “financial 99 percent.”
“An estate can sound like yachts and stuff. A lot of people think there’s a minimum asset limit. The biggest misconception is: I don’t need to do this, I don’t have enough money,” she says. “I prefer to call it personal contingency planning.”
Such planning is essential, because dying without a will in Massachusetts means that certain property is subject to intestate succession laws, wherein the state disburses assets to your heirs as defined by state laws (spouses, children, siblings, parents, cousins, and so on) in predetermined amounts and percentages.
Assets for which you’ve assigned a beneficiary, such as a 401(k) or life insurance plan, won’t end up there — but non-beneficiary accounts, such as checking accounts or property, could.
“Your will tells the Commonwealth: I want this person to handle my affairs. If I have any property, I want it to go here and not there. Otherwise, assets may not be distributed in the way you want,” Reilly warns.
So even if you’re not poised to donate a wing of a library, it’s important to plan ahead. Here’s what to know:
■ Everyone needs a will. Yes, even you of the ho-hum savings account. “If you have assets that you plan to leave to another person, you need a will. It’s your letter to the world about what should happen upon your death,” says Beth Murphy, a lawyer in Millis. It should be reviewed every three to five years, or as circumstances change — say, you inherit a windfall from a long-lost aunt or have children. There is no age limit or monetary threshold. You’ll often pay at least $1,000 to the lawyer helping you with your will. A simple will — for a person with no dependents or real estate, for example — may cost far less, however.
■ Prepare to talk about tough stuff. Your initial attorney appointment — often charged as a flat fee — is likely to last one hour, Murphy says. Be prepared to discuss personal representatives, guardians for minor children, a health care proxy and powers of attorney, and any stipulations regarding people you really don’t want involved in your affairs.
“Typically, I sit down with clients and ask them questions about their family, their assets, and how they’re held. Do they own property with another person? Are there any family secrets?” Murphy says. “People get upset talking about these things and think, ‘Oh, it doesn’t matter, everyone gets along; it will be fine.’ I’ve seen the best of families fall apart not because someone is being greedy, but because everyone thinks they knew what mom wanted.” Wills spare your heirs the confusion.
■ Some assets don’t pass through a will. These include life insurance and retirement plans, in which a beneficiary is named. “A lot of problems happen with beneficiary designations because people forget to review those. They don’t realize that certain assets could be paid to people they no longer want to benefit,” says Alison Lothes, a Wellesley estate planning attorney. So check on that dusty retirement account from your first job and make sure your old boyfriend isn’t attached.
■ A will is part of an estate plan. A will is a notarized document that you’ll sign in the presence of an attorney, with two impartial witnesses — people who don’t stand to inherit your rare crystal collection. Often, it’s simply your lawyer’s office staff. In the will, you list whom should receive your possessions and funds, as well as make provisions, such as naming a guardian, for minor children. You’ll also name an executor — also known as a personal representative — and a successor to the executor, in case he or she can’t do the job. This is the person responsible for tending your assets once you’ve died. “This person steps into your shoes and handles your affairs. [They] close accounts, pay debts and taxes, and sign tax returns,” Lothes says. (Don’t panic, executors: Estate planning attorneys can advise on this.) Choose a personal representative you think will be able to act calmly and methodically, despite your death.
■ Health care proxies and powers of attorney matter, too. An estate planning attorney will typically work with you on a will but also on “permission slips,” as Reilly calls them, including a health care proxy, HIPAA forms, and durable power of attorney. “The power of attorney lets someone else handle your legal and financial matters if you are unable to. The health care proxy lets someone else handle decisions about your medical care when you aren’t able to,” Reilly says. “Think of [power of attorney] as the power of the purse, and health care proxy as the power of the person.”
■ Pick your designees wisely. Your power of attorney and health care proxy needn’t be the same person. Your power of attorney should have financial literacy. Your health care proxy should be comfortable in medical situations. Bear in mind that a health care proxy will take control only when a doctor certifies in writing that you can’t make medical decisions for yourself — it’s not subjective.
■ Name a trustee and a guardian for your minor kids — but choose separate people. The guardian is responsible for care-taking. A trustee, meanwhile, handles their funds. Murphy suggests appointing separate people for these roles.
“A trustee manages money, and a guardian cares for your children. Because a guardian is entitled to have their expenses covered, naming them as a trustee could cause a conflict of interest if they serve both roles,” she says.
Whom to choose? For a guardian, Murphy counsels clients to choose someone who parents similarly to you, regardless of their financial background. “If your estate is planned properly, you don’t need to concern yourself with their financial state — if they work a low-paying job, it’s fine. If they gamble, that’s a concern,” she says. A trustee should be someone who can manage money and assets dispassionately. “They can say no to your children when necessary. Yes, you need a car; no, it’s not going to be a Maserati,” Murphy says.
■ A will differs from a living will. A will takes effect at death. A living will, a type of advanced directive, is not legally binding in Massachusetts. However, “It’s a great help for your health care proxy. It states your wishes, such as not wanting extraordinary measures to prolong life or donating organs. It’s mainly a health care tool,” Reilly says.
■ Enlist a financial planner and a CPA. They can work in concert with your estate planning attorney, especially when the protection of funds for minor children is involved. Parents typically add revocable or changeable trusts to their estate plans, modifiable while alive and accessed by a designated trustee after death. This is a separate document that can be used in addition to a will, which specifies how homes, savings, and investment accounts should be handled for the benefit of family members. “Revocable trusts are set up to provide a system for handling property after you’re gone. They’re very useful, because most people do not want and should not leave property directly to a minor,” Lothes says.
■ More money means a different type of trust. In the cases of big money — Massachusetts residents are subject to estate taxes over $1 million — an irrevocable trust might be necessary as a tax strategy, because they remove assets from your name. “I recommend an irrevocable trust when your estate is very large and the goal is to protect your privacy, avoid probate, and reduce estate tax at death,” says Kelly Luethje, a certified financial planner at Willow Planning Group in Boston.
■ You can make provisions for your embarrassing tie collection. You don’t have to identify every single thing you own and want to give to a specific person in a will. Instead, you can simply write a separate letter or memorandum describing the particular items — mom’s diamond ring, the Neil Diamond statuette you bought in Las Vegas — specifying who should get what. Refer to the memo in the will, make sure it’s dated, and file them together. “Your will incorporates this memorandum with a phrase like, ‘I request that my wishes, as expressed in that memorandum, be followed,” Reilly says.
■ Communicate with your loved ones. Now that you have the proper documents in place, make sure your will and other documents are safely stored and easily accessible and that those given your power of attorney and named as a health care agent have copies. Your doctors should also have a copy of your health care proxy and living will, and your lawyer’s office should keep a copy on file.
Now, go live!