The Bus List Read online

  Your executor will have lots of responsibilities, plus a fiduciary duty (one above and beyond the norm) to fulfill their responsibilities diligently. Ideally, this person is someone you trust implicitly, is comfortable interacting with lawyers and other professionals, and lives locally. Having familiarity with your assets and beneficiaries is also a plus.

  If you don’t have a will when you die, the probate court, located within the county in which you reside, will appoint an executor for you. A family member may be chosen, but not necessarily, depending on the circumstances.

  This administrator, possibly a complete stranger, will need to get up close and personal not only with your stuff but with your beneficiaries as well. Plus, a court-appointed administrator usually ends up costing your estate more money than if you named one yourself.

  If you’re short on qualified candidates, consider naming co-executors. For instance, your prime candidate might live 3,000 miles away or lack the expertise needed for the job. Pair them with someone who can fill those voids, like a local estate planning attorney or trusted financial professional. Just remember, two people now have to agree before anything gets done, which could complicate things.

  Another option is appointing a professional that does this kind of thing for a living. Make sure they have a favorable track record and plan to be in business for a long time to come.

  Oftentimes being an executor is no fun. Dealing with angry beneficiaries, settling disputes between waring family members, and processing bunches of paperwork are often part of the job.

  For these reasons please discuss your appointment with your prospective appointee. If they’re reluctant to take on the responsibility, you want to know about it now. A named executor has the right to turn down the role when it’s game time, so be sure they’re willing and able.

  You want to consider the possibility you could outlive your named executor, which is why it’s best to appoint a backup or two now, even though you can change your choice through an amendment to your will at any time.

  This is especially true if you named your spouse as your executor or executrix. Simultaneous death through a catastrophic event is something you don’t want to dwell on, but better safe than sorry.

  The original draft of your will must be presented to the probate judge to make it legal after you pass. That makes your original will (and any amendments) valuable documents. That’s your named executor’s first job: Present the will to the probate judge and have it declared legal. Then your named executor can start attending to the rest of their numerous duties.

  Greedy wannabe beneficiaries have been known to misrepresent the facts, and that’s why the judge wants to see the original will, not a copy. We’re talking the one with the dried ink and original notary stamp (required in some states).

  You can store your will with your Bus List, but you may want to consider a more secure place. Good choices are your fireproof safe, your attorney’s fireproof safe, or a safety deposit box. Indicate its location in your Bus List, and make sure the person who retrieves your Bus List has access.

  Speaking of attorneys, you may want to consider hiring one to help you with your will. That way you can be assured it’s done right and will be declared legal. See Should I Hire an Attorney? in Part II for more information.

  Durable Powers of Attorney

  We’re almost through with the “Brains” section. Just two more brains to name.

  This chapter doesn’t have to do with your untimely death. It has to do with losing your mental capacities while you’re still alive.

  Like most of the subjects we’re broaching here, we’re talking worst case scenario: You go in for a routine operation and something goes wrong; You’re involved in a serious car accident; A form of dementia, like Alzheimer’s, Parkinson’s or chronic traumatic encephalopathy develops.

  If this happens, you won’t be able to make your own healthcare decisions or manage your finances. That’s why it’s a good idea to appoint both a healthcare brain and a financial brain. You may or may not appoint the same person for both jobs: it’s up to you to decide.

  Healthcare Brain - Given the power to make potentially gritty health care decisions on your behalf.

  Financial Brain - Given the power to perform financially related duties like paying bills, depositing checks, filing tax returns, and managing assets.

  If you don’t make these designations now and you end up in this situation, your loved ones may have to go to court to plead their case as to your medical treatment and to get access to your financial accounts.

  Grant these powers to your brains via a durable power of attorney. A “durable” power means the powers you grant remain in effect now as well as when you’re declared mentally incapacitated. A “springing” durable power means no powers are granted until your incapacitation is legally declared.

  Declaring someone legally mentally incompetent can be a time consuming venture these days with patient confidentiality laws, HIPAA, and the court system, which is why, if possible, to not include a springing power. Unless, of course, you are even the tiniest bit afraid the person named might clean you out of house and home or commit other dastardly deeds while you’re still alive.

  Obviously, granting someone a durable power of attorney without a springing power means you love them and trust them implicitly, because it grants them the right to act on your behalf both now and in the future.

  Many states give you the ability to create your own durable power of attorney, plus the means to declare the type and extent of medical care you want administered in an emergency or end of life situation. These declarations are known by different names, depending on your state of residence:

  - living will

  - health care directive

  - health care proxy

  - advanced directive

  Be aware that state-specific healthcare directives that do not include a durable power of attorney can’t provide for every medical situation and fall short of the powers granted to your appointee through a durable power of attorney. Consider executing a medical durable power of attorney in addition to your state’s directive if this is the case.

  Like your other appointed brains, it’s best to have a conversation with your healthcare and financial brains now. If your named financial brain is someone other than your healthcare brain, make sure the two brains will be on the same page and able to work together on your behalf.

  It’s fairly easy to draw up durable power of attorneys that will be legal in your state; however, because circumstances and state laws vary, I recommend doing so through an estate planning attorney who is licensed in your state of residence. That way you’re sure it’s done correctly and it’s legal. (See Should I Hire an Attorney? for a more thorough discussion.)

  If you want to do it yourself, the National Hospice and Palliative Care website at caringinfo.org is a good place to start to find out what end of life services are offered by your state. Click on your state of residence to download the appropriate instructions and forms. Another reliable free resource on durable powers of attorney and other legal matters is Nolo Press at nolo.com.

  There are also websites where you can purchase legal services and software. Be sure they are state-specific and from a reliable source if you decide on that route.

  Like your will, these original documents should be safeguarded. Note the location of the documents in your Bus List if you’re storing them elsewhere.

  Brains – Next Steps

  - Choose brains to fulfill the following roles:

  - Person who retrieves your Bus List

  - Guardian for minor children

  - Executor (Executrix)

  - Financial and Healthcare brains

  - Talk to each brain about their role, and make sure they are willing to accept responsibility.

  - Visit caringinfo.org, click on your state of residence and read about offered end-of-life services and download their “Advanced Directive.”

  - Consult with an at
torney about drawing up and executing durable powers of attorney and a will.

  - Record all information from this section, including the location of the original executed documents, in the Brains section of your Bus List.

  Bling

  This is the section where things can get complicated, but I’m not going to let that happen. The Bus List is meant to be a simple estate planning guide, so we’re only going to sweat the big stuff here.

  What are your most valuable assets? Those are the ones we need to protect. For most folks, that means retirement accounts, real estate, life insurance, and securities.

  Protect from what? We want to protect those high value assets from probate. It’s not that your state’s probate process is evil; it serves its purpose for those who haven’t done their estate planning. But that’s not you, is it?

  Avoiding Probate

  Probate can last a long time and be quite expensive, depending on the size of your estate, circumstances, and state of residence. When property is probated, it is secured, then held and released to your beneficiaries at the end of probate, which on average is years after your death.

  Worse, your estate has to pay probate fees on the value of probated assets and any management costs incurred during probate.

  That’s why you want to keep high value assets out of this state government run process. High valued assets needlessly probated could cost your estate big time and potentially derail your intentions.

  I’m not against probate. In fact, you probably want some of your assets probated. Depending on the size of your estate, you’ll need cash on hand to pay off debts, pay for funeral expenses, and for other estate expenses. Unless you have a trust set up to handle those expenses, this is most easily done through a probated cash account. (See Estate Liquidity in Part II for more details.)

  If you’ve been reading sequentially, you know you need a will to name your executor and guardians for minor children. It is also a convenient tool for bequeathing assets of lesser value and to provide your estate with liquidity in the absence of a trust.

  Having high value assets probated, however, could have unforeseen and potentially devastating consequences.

  Example 1: High Probate Costs

  Colette is an elderly widow with a single daughter Heidi, who works as a schoolteacher. Colette’s only remaining substantial asset is her personal residence, market value $650,000. Colette leaves the house to Heidi through her will. Upon Colette’s death, the house is probated. Heidi, unable to come up with the money needed to pay her mom’s probate fees, watches helplessly as the home she and her family were planning to live in for the rest of their lives is sold to pay the fees.

  Are probate fees really that high? It depends on your state of residence’s rates, but yes, probate fees can be high, especially on those big ticket items. In the above example, assuming Colette’s state of residence was California, Heidi would have had to come up with a minimum of $16,000 to prevent the sale of her mom’s house. Some states will charge you more, others less.

  Will Substitutes

  Feel free to bequeath your beer bottle cap collage, purple-velvet Doc Martin boots, and that coveted Little Pony collection through your will, but do not bequeath a valuable retirement account, life insurance, securities, or personal residence this way. Use a will substitute instead.

  Will substitutes pass assets to your beneficiaries upon your death directly without the legal rigmarole and fees associated with probate.

  Will substitutes include:

  - Beneficiary Designations

  - TODs and PODs

  - Rights of Survivorship

  - Living Trusts

  Beneficiary Designations

  Beneficiary designations are the easiest and cheapest of the will substitutes to execute. You might have already taken care of this part of your Bus List, but you may not be aware of the power of those beneficiary designations.

  When you sign up for your company’s retirement plan, take out life insurance, or open an IRA, you sign a contract with that entity for a particular financial service. Included in these contractual arrangements is the ability to appoint beneficiaries via a beneficiary statement.

  A beneficiary statement allows you to designate both primary and secondary beneficiaries. If you want to name more than one beneficiary, put names and percentage of inheritance on the primary beneficiary line. The secondary beneficiary declaration is simply a backup in case the primary beneficiary dies before you or refuses the inheritance.

  Don’t laugh. In some cases a primary beneficiary might want to refuse an inheritance. Take the case of an affluent elderly surviving spouse. She may want to acquiesce to the secondary beneficiaries, her kids, upon her spouse’s death rather than take the inheritance herself.

  Make sure all your beneficiary statements are up-to-date and both the primary and secondary lines are filled in. If you’re married, your spouse will more than likely be your primary beneficiary. Be sure and name a secondary beneficiary too. That’s what your Bus List is all about: Taking care of the big stuff and planning for the unexpected.

  What happens if you haven’t done your due diligence and the folks you named as beneficiaries are all dead when you pass? You guessed it. Those accounts are needlessly probated.

  Accounts that give you the ability to make beneficiary designations include:

  - 401(k), 403(b) and 457 Plans

  - Simple IRAs, Simple 401ks, and SEPs

  - Traditional and Roth IRAs

  - Life Insurance

  - Annuities

  - Some Checking and Savings Accounts (most don’t)

  Another important fact about beneficiary designations is they trump any contrary instructions in a will. The same goes for all will substitutes.

  Check your beneficiary statements now and make sure they are up-to-date and both the primary and secondary designations are completed.

  Often your employer, financial entity or custodian in charge of the contract will make beneficiary statements available through their website, along with the ability to edit them.

  Make copies and keep them with your Bus List. If you choose to keep your estate planning documents in another secure location, write down the location in the Bling section of your Bus List.

  Example 2: Will vs Beneficiary Statement

  Sean is a widower with three kids. Years ago, he designated his first born son Luis as the primary beneficiary of his now million dollar 401(k), but later stated in his will he wanted his 401(k) divided equally among his three children. Upon Sean’s death, the 401(k) reverts directly to Luis and Luis only, regardless of what the will said.

  Even if Luis wanted to share the million with his siblings, as the legal owner he is the one on the hook to pay any taxes; plus, sums given to siblings in excess of $15,000 per year (2020 gift tax exclusion amount) would be considered gifts, complicating matters even more.

  TODs and PODs

  Another beneficiary designation method is through a TOD (transfer on death) or POD (pay on death). Often called “poor man’s trusts” or “Totten trusts,” these documents direct to either transfer or pay out assets upon your death directly to the named beneficiary, without going through the probate process.

  There is usually little or no cost to set up a TOD or POD.

  Use PODs for cash accounts like checking, savings, or money market accounts.

  Keep in mind these types of accounts held in taxed-advantaged 401(k) type plans and IRAs are protected by beneficiary designations and do not need these protections.

  Most states allow you to create PODs on those non-contractual accounts that don’t come with the ability to make beneficiary designations. Your financial institution more than likely can provide paperwork and instructions on how to attach a POD to your account that will be legal in your state of residence.

  Use TODs to transfer securities, vehicles, even real estate in some states.

  Beneficiary Deeds

  Remember Collette and Heidi’s plight? If y
ou recall, Collette transferred her house to Heidi through a will and the house had to be sold to pay the probate fees.

  If they resided in a state that allows the transfer of real property through a TOD (also known as a beneficiary deed), Collette could have transferred ownership of her house to her daughter through this inexpensive method. They would have avoided probate and those probate expenses, and Heidi would now be enjoying Mom’s house as Collette had intended.

  You can try drawing up and recording (required in most states) the necessary documents for a legal TOD real estate transfer yourself, but only do so if you have a thorough understanding of everything involved. That’s why I advise getting the help of an attorney licensed in your state of residence who is experienced in such matters.

  Keep copies of all beneficiary statements, TODs, PODs, and beneficiary deeds with your Bus List, or write down where they’re located in the Bling section of your Bus List if you’re storing them elsewhere.

  Record the web addresses, account numbers, usernames, and passwords of all your accounts too. Update your Bus List whenever any information has changed.

  TODs, PODs, beneficiary deeds, and beneficiary designations are an effective method of transferring ownership if you don’t want the beneficiary to have access to the account or property while you’re alive, or for that matter even be aware of the inheritance prior to your death.

  Rights of survivorship is another will substitute that can be used for these types of accounts as well as real estate, but they work quite differently.

  Rights of Survivorship and Accounts

  Joint tenancy with the rights of survivorship is another will substitute you can use to protect non-contractual property (checking accounts, savings accounts, money market accounts, regular taxable brokerage accounts, etc…) from probate.