SHOW NOTES: 2020-10-08 MiM

Last Week’s Question of the Week: How many people collected Social Security benefits in the United States as June 2020? 64 million or 100 million?

ANSWER: 64 million.

HOST: I know your topic today covers estate planning, but please first explain to us how estate planning intersects with financial planning and what we should know?

KLAAS FINANCIAL: While we are always trying to focus on the “how to retire better” on our show, we also feel it is important to always look at what financial planning encompasses. We believe that a financial planner should act like the quarterback of a football team. That planner really needs to be in tune with and interact in all areas of a person’s financial life including but not limited to; Investments, Estate Planning/Wills, Trusts, Taxes, and Insurance (Life/LTC/Health).

What should you expect from your financial advisor? We believe that you should consistently review your financial or estate plans because as life changes reviews can help keep your goals and portfolio working together. There are many benefits of partnering with an advisor/quarterback who can focus on your entire financial plan and perhaps fix some areas where your defense line may be weak.

HOST: So, tell us what we should be doing with regards to our estate plans. Does everyone need a will?

KLAAS FINANCIAL: This is a very, and often neglected area that people overlook.
Disclaimer: We are not estate planning attorneys; however, we do work with attorneys to help coordinate plans for our clients. You should consult your own attorney for what makes sense for your own situation.

This is an interesting fact: A recent study by found that 68% of all Americans do not have a will, although most respondents believe it is important to have one.

Usually when people hear of estate planning, they think one of two things; estate planning is only for people of sizeable wealth or estate planning is only about Wills and Trusts.

Today, we want to shed some real light on this topic. Almost everyone upon their death has likely accumulated some assets, whether it be investments, real estate, or other real property. It is important that upon your death, that you leave detailed instructions as to how you wish the remaining assets are to be distributed and to whom. Those instructions ideally will be specified in either a will or trust. Hence, estate planning is for everyone who owns or possesses things of value. And remember, if you don’t have instructions, the state you live in does, and to die Intestate means that you have died without directions, hence the state will dictate how your property will be divided and distributed which may not be how you wished it to be done.

Basic differences between trusts and wills: Both are useful estate planning devices that serve different purposes, and both can work together to create a complete estate plan.

  • A will goes into effect only after you die, while a trust takes effect as soon as you create it. It directs who will receive your property at your death and it appoints a legal representative to carry out your wishes.
  • A trust can be used to begin distributing property before death, at death or afterwards. A trust is a legal arrangement through which one person (or an institution such as a bank or law firm) called a “trustee” holds legal title to property for another person, called a “beneficiary.” And Trusts can help you avoid probate.

Probate is the legal process that takes place after someone dies in order to prove the deceased’s last will and testament and carry out the deceased person’s estate, which may include resolving debts, selling assets, or distributing any remaining assets to heirs.

  • If you name beneficiaries and have a trust in place, many times your estate can avoid probate.
  • The biggest reason most people want to avoid probate is that it can get costly, and honestly take a lot of time. We have seen probate last a few months on up to several years.
  • The longer probate is open there are likely going to be attorney fees involved, so many probated estates may be paying 3-5% or more of the estate. The cost of probate is dependent on the complexity of the case. In Wisconsin, the average probate is about 4-5%, with attorney fees being about half.
  • It is important to review your beneficiary designations and how they fit into your overall estate plan. Remember this fact: often beneficiary designations put on specific accounts will eclipse whatever your Will or Trust says.

HOST: How important are Power of Attorney documents?

KLAAS FINANCIAL: Estate planning is not only about Wills and Trusts which directs how those assets and your instructions should be carried out after your death, but equally important is having the proper Power of Attorney documents in place while you are still alive.

Essentially “Power of Attorney” documents allow a person (the principal) to decide in advance whom they trust and want to act on their behalf if they become incapable of making decisions for themselves. The person who acts on behalf of the principal is called the agent. There are two main types of POA: medical and financial.

A medical POA (also known as healthcare POA) gives a trustworthy friend or family member (the agent) the ability to make decisions about the care the principal receives if they are incapacitated.

A financial POA gives an agent the ability to make financial decisions on behalf of the principal. It is common to appoint one person to act as an agent for both financial and healthcare decisions, but in some situations, it may be wise to separate the two.

Remember the difference between being a beneficiary is that this only comes into effect at the death of someone versus the POA document which comes into effect while the person is still living (typically in an incapacitated state). Which is more likely, incapacitation or early death?

HOST: Once we have estate planning documents in place, is there a need to update them later?

KLAAS FINANCIAL: Yes, you should review and if necessary, update your beneficiaries, your will, and trust documents regularly. While many of us understand the importance of preparing a will or trust, many fail to update a will or adjust beneficiaries when circumstances change. Births, deaths, and divorce can dramatically alter your transfer plans, so it’s important to ensure that your will and trust reflect your intentions. Review these documents with your estate attorney, and also consider any health issues that may warrant changes to your estate plan. Review how your assets such as your home, and your investments are titled to make sure that they match with your overall estate plan and objectives.

HOST: Since estate planning is so important why don’t very many people actually take the time to do it?

KLAAS FINANCIAL: The most common reasons typically are that most people think it will be difficult and/or expensive or honestly, they say they just haven’t had time to get around to doing it. And many say they don’t want to think about death.

We would recommend that our listeners make sure they do get this done. We are often asked if someone can do this on their own, or should they seek an attorney? We would normally prefer an attorney to make sure things are done properly. However, you can do it on your own but we would want you to take very special care that everything is accurate to your wishes and properly signed.

This Week’s Question of the Week: What percentage of Americans do not have a will? Is it 68% or 48%?