We've spent the past fewl blogs talking about the importance of taking care of your family after you're gone. That's the essence and value of estate planning.
Now, let's examine some additional methods of taking care of your money -- and your loved ones.
If you want to relieve your family of the burden of making life-sustaining treatment decisions in the event of your mental or physical incapacity, you should consider a living will. Under it, you can make those decisions in advance as a living will stipulates the medical and health care instructions to be carried out should you be on life support. A power of attorney must be named in conjunction with a living will.
Assign power of attorney.
If you become physically or mentally incapacitated, the execution of a properly drafted Durable Power of Attorney can be good protection for your family. It lets you appoint whoever you want to handle your business and financial affairs in the event you are unable to do so at any time.
You can also appoint somebody to make health care decisions on your behalf by executing a Health Care Power of Attorney. This document allows you to provide instructions to your appointed agent regarding basic health care decisions.
Choosing a Power of Attorney
Designating a power of attorney (POA) for your retirement account helps insure that actions will continue even when you are unable to provide direction to your plan administrator. To avoid any confusion or doubt as to the actions that are permitted under the POA, you may want to list all the actions it covers, such as:
• Providing direction for investments.
• Requesting distributions.
• Making contributions.
• Changing beneficiary designations.
That’s because financial institutions are more likely to accept a POA for a certain action or set of actions if it clearly indicates what’s allowed. Here are a few useful questions and tips to keep in mind to help you go through that process. Ask yourself if:
• The POA is durable or non-durable. The difference is that a durable POA stays in effect after you, the account owner, are determined to be legally incompetent. A non-durable POA, on the other hand, ceases to be in effect.
• Does the POA clearly state that it covers the retirement account or retirement account transactions? If so, are the types of transactions listed?
• Is the POA still in effect?
• Does the financial institution or plan administrator have a copy of the POA? And, if so, have they acknowledged that it satisfies their requirements?
• Have you designated a POA that will help ensure your person of choices makes appropriate decisions for applicable transactions? If not, the courts may designate a “guardian” or “conservator” to handle your affairs and this may not be the person you’d have picked.
Choosing a Beneficiary
While designating a POA is important, it’s also important to designate a beneficiary for your retirement account. That’s because, unlike your other assets, your retirement account (and life insurance policies) is not governed by your will. Instead, the people who inherit these assets are those you have on record at the time of your death as your beneficiaries.
If you fail to provide these designations to your plan administrator or financial institution, like a POA, they will be determined according to the default provisions of your plan document:
• For qualified plans, the default provision is usually your surviving spouse.
• For IRAs, the default provision is usually your surviving spouse or estate. If you’re not survived by a spouse, some accounts will designate your children.
To make sure that your assets go to the people you want, it’s imperative you provide a designation of beneficiary form during the estate planning process—while you’re alive to do it. Here are a few useful questions and tips to keep in mind to help you make your beneficiary designations. Ask yourself if:
• The designation is current or has it been updated for recent events, like divorce, death, marriage and birth?
• Does your plan administrator or financial institution have a copy of your designation of beneficiary forms? (This is especially important since many financial institutions won’t accept them after your death.)
• Is your “customized beneficiary designation,” if you have one, acceptable? If you’re not sure, ask for a written acknowledgement.
• Are the options available to your beneficiaries consistent with your estate planning needs? For example, will they have to take immediate distributions or can they stretch them over time?
The trick to designating Living Wills, POAs and Beneficiaries is keeping things clear and simple. This will ensure that your estate planning objectives will be seamlessly fulfilled.