Our firm maintains relationships with financial and tax advisors in order to assist us in answering complex questions in these areas of your estate planning. The following article was written by our friend Brian Kuhn of PSG Clarity and titled “Your Legal Documents Are Done, Now What? – A Financial Planner's Perspective”. Brian has graciously allowed me to reprint the article here. For all of your financial and retirement planning needs, please contact Brian at [email protected] or visit his website at www.psgclarity.com.

Your Legal Documents Are Done, Now What? – A Financial Planner's Perspective

Mapping out an extensive estate plan can be a large undertaking and you should be congratulated on taking steps that many households avoid for fear of the stress or difficulties involved. It requires an understanding of the size and complexity of your various assets, how those assets will change over time, how you intimately feel about close relatives and those far away, both geographically or otherwise. You have put in writing thorough instructions about your medical care, assigned family members or friends to important tasks in your future, and laid out your last wishes in the event of your future decline in health. Hopefully some of those family members and certainly the estate attorney were present to guide you through the process and you have reached the final steps, having signed a myriad of documents while in the presence of multiple people as necessary for court approval and now have received your personal stack of them for safe keeping. You are all done correct? Unfortunately by no means are you done. Especially if the documents you have just created include the establishment of a trust, or the possibility of a trust in the future is written into your will, the work must continue for a little longer. Ask any attorney, including the one you just worked with, what the biggest mistake people make in their estate planning is and other than not doing planning at all you might hear the words, “They never funded their trust”.

Upon the release of stress that goes along with finalizing documents sometimes people feel these extra steps aren't necessary or their confusion surrounding just how it is done stops them from doing anything. How do you fund something that only exists on paper? The answer often comes in the form of more paper. As a financial planner I often find myself at this intersection of trust and other legal document creation, and implementation to the assets. So below I've listed out 6 types of assets and one universal scenario that is important to consider at this step in your estate planning process. Or if the documents were drafted long ago and these steps weren't taken perhaps it's useful to consider the information below and revisit your plan.

Individual Accounts

An investment of mutual funds or stocks or even a savings account at the bank doesn't need to be in a tax deferred account like an IRA. You can just own these investments in your name through their accumulation over time following monthly investments, inheritance or the sale of a property for example. The person who owns the investments would simply see their name on the statements as they come in the mail. By only seeing your name however this may indicate that if you passed away the account would become an estate account subject to probate. It is actually very easy to either change an account like this to the ownership of your new Revocable Living Trust, or to name that trust as the beneficiary of the account through what's called a TOD form which stands for Transfer On Death registration.

Joint Accounts

Similar to the type of account above but it is owned by two people. The question on this type would be should it be retitled into the trust or should it remain that the survivor would be the sole and complete owner? Is the joint account currently a rights with survivorship or tenants in common meaning each owner has unique rights over their half of the assets?

IRAs & 401(k)s

One individual by definition is the owner of this form of account. This is really a relationship with the IRS more so than a type of investment, with the items that dictate its value being chosen with the money inside the relationship, like stocks, bonds, annuities or CDs for example. The question typically regarding trusts and beneficiary designations is what should the order be. Should the non-owner spouse be the primary beneficiary, or at the death of the owner should the assets funnel through a “Retirement Account Trustee” language that has been built into the document? If the spouse is the primary beneficiary should then the trust be the contingent or is the IRA a particular asset that is all right to go directly to the children? Or possibly even a combination of the two due to one child being fit to inherit assets and another needing trust oversight?

Roth IRAs

Roths have all the same questions as the IRA section above however due to their favored tax status they have an extra consideration. Because distributions out of the Roth are tax free and usually balances are on the smaller side, should this account pass differently than others?

Life Insurance

There is term life insurance which is typically for specific timeframes like while you are working or while you still have a mortgage balance. Then there is permanent insurance possibly for covering burial costs, potential estate taxes, or simply assuring there is a legacy passed on. Should all of these policies have their beneficiary changed to the trust? Is the trust a living trust or irrevocable trust sometimes referred to as an ILIT?

Annuities

One of the most difficult decisions regarding possible change of ownership due to an estate planning process is with annuities. Annuities are an instrument that can accomplish a variety of goals but is just that – an instrument. The ownership will still dictate some of the planning from an estate perspective. Is the annuity account within an IRA? If so that might answer many of the questions per the summary above. If not than many other questions arise. Will changing the owner disrupt any living benefit riders that currently exist? Is the annuity owner driven or annuitant driven meaning whose life dictates possibly payouts? Refer to a combination of your advisor, the insurance company, and the attorney to assure this is set up correctly.

All Assets

Regardless of the asset or insurance you have, it is likely you drafted a Power of Attorney document naming an agent to step in to make important decisions for you in certain circumstances. This POA document might also be what's referred to as a Durable POA meaning it is effective the moment you sign it. If that is the case your attorney might recommend you provide this document to some or all of the accounts above so they can place it on file and be aware of the selected agent's powers in the future. This would save time and possibly delay due to push-back by the institution if they have any questions about the document ahead of time.

The information above isn't meant to be advice regarding specific actions to take as that would be relevant to your circumstances and would be received by your legal counsel. Bring this article to them. You might be very glad you did.

Thanks to Neil Tyra and his staff for the opportunity to guest post on this important topic. If you have any questions feel free to contact his office or mine.

Brian Kuhn CFP® is a financial planner with PSG Clarity – A Division of Planning Solutions Group. He is located in Maple Lawn MD in Howard County and accepts clients throughout the Maryland and DC area. Click on www.psgclarity.com for more information or call 301-543-6035.

Securities offered through Triad Advisors, Member FINRA / SIPC.  Advisory Services offered through Planning Solutions Group, LLC.  Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC.