Having an estate package in place is critical for anyone, but perhaps even more so for women. Women are a powerful financial force and continue to accumulate and manage more wealth than ever before. That's why it’s so important that every woman take control of her long-term financial plan (whether in a partnership or not) to ensure financial security for herself and her loved ones.
I had the opportunity to meet with Kiera Schwartz, a Senior Attorney at RBS Law in Arvada, Colo. to get answers on important questions regarding wills, trusts, and estate planning, which are key aspects of any solid financial plan.
1. What in an Estate Plan and what's the difference between a Will and Trust?
Your Estate Plan is a Road Map
It will detail your assets and any wishes that come into play if you are incapacitated and upon your death. A typical estate plan will include a Will and/or Trust, General (“financial”) and Medical Durable Powers of Attorney, Advance Directive (“living will”), and an Appointment of Guardianship if you have minor children.
The Difference Between Wills and Trusts
In your Will, you designate an executor of your estate (called a personal representative in Colorado) to handle closing your estate, liquidating your assets, and distributing them to the beneficiaries (or contingent beneficiaries) of your choosing.
One big misconception is that a Will avoids probate. This is not true. If you have assets in your individual name when you pass away, your Will is submitted to the probate court so that your executor can follow the proper administration procedures and distribute your assets according to your specific wishes stated in your Will. Understanding what probate is, how it is triggered, and how to avoid it is important when deciding how you are going to set up your estate plan.
Putting your assets into a Trust on the other hand will allow your heirs to avoid going through probate for a more private and seamless administration process. A Trust is an agreement between a person (the “Settlor”) who designates another person or entity (the “Trustee”) to manage the assets for another’s benefit (the named “beneficiaries”). A Trust can help provide for underage children or for someone not able to manage money on their own for medical or cognitive reasons or if they're financially irresponsible.
Other reasons a trust may be recommended such as client who more complex assets including out-of-state property, multiple properties (like rentals or investment properties) and business interests. They are also a good choice if privacy is desired because trusts don't require beneficiaries to file with court after a death as one does with a will.
There are many different types of trusts, the most common being revocable living trusts, testamentary trusts, and special needs trusts.
Why You Should Inventory Your Assets
To create a comprehensive road map, you also need to know what you have and how your various assets are titled. This is especially important for financial assets. We provide our clients with a resource that prompts them to list out all relevant information related to their assets, whether finances (bank accounts, retirement accounts, life insurance policies, stocks, bonds, liabilities, etc.), real property (i.e. real estate), business assets, or personal property (vehicles, collectibles, family heirlooms, pets, etc.).
A major part of “estate planning” that people don’t realize is updating your beneficiary designations. Your estate planning documents are only effective if you update your beneficiary designations after the documents are executed. We advise our clients about these updates and coordinate with our clients’ financial advisors upon request to ensure that their beneficiary designations are all updated to match their wishes in accordance with their estate planning documents.
Estate planning looks different for everyone. Your roadmap should be customized to fit your specific situation, your assets, and your specific wishes.
2. How can someone determine which is the best fit?
While I am biased as an attorney, the answer is to consult with a reputable attorney – specifically, an attorney who specializes in estate planning. It can be intimidating to approach this topic, but there are great ways to ease into the process. For example, we offer a free initial consultation where we make recommendations based on your specific situation and needs. The ultimate goal of our initial consult is to educate a potential client on their different options and provide them with the resources to make an informed decision.
3. What might happen if you become widowed and your spouse did not have a will or estate plan in place?
The (infamous) attorney answer is – it depends! Assets will flow to named beneficiaries or surviving joint owners which is usually what happens when the first spouse dies. However, for assets without a beneficiary or joint owner, there are default laws that come into play when someone dies without having an estate plan – they are called “intestate laws”. These laws vary from state to state, but they are usually very similar. Intestate laws include a variety of scenarios, so what happens will greatly depend on different factors such as that person’s familial situation and how their assets were titled.
For the most part, if someone’s legal spouse dies, everything will go to the surviving spouse, so long as they shared all their children, if they had children. If they did not have children, then the deceased spouse’s parents are entitled to a share of the estate, if the deceased spouse has surviving parents.
On the other hand, if you have a blended family, the assets are divided between the surviving spouse and the deceased spouse’s children. Non-traditional family structures are much more common, which is why it is important to understand what would happen in your specific situation without an estate plan. I always make a point to explain what would happen to potential clients who have a non-traditional family structure if they don’t have an estate plan.
"It is important for anyone, especially women, to take an active role in this type of planning to ensure that they are not going to be left with a messy situation – especially since most women outlive men."
4. Why is it important for divorced or single mothers or widows to have an estate plan in place?
It is very important for single mothers to have an estate plan in place to designate the person who would take physical and legal custody of their minor children if something happens to them. Additionally, single mothers want to ensure that (1) they decide who gets their assets, (2) they decide who administers their estate, and (3) they decide who manages their children’s assets.
Losing a spouse is extremely difficult. A spouse is usually your emergency contact and the person you name to step in and manage your health care and finances if you become incapacitated. As a widow, you will need to name a new person to do those things and make sure you have documents in place to allow someone other than your spouse to step in for you.
You will also need to make sure to update your beneficiaries and remove your spouse’s name. You want to make sure the process of administering your estate is going to be as easy as possible for the people you leave in charge upon your death.
"We always say estate planning is not for you, it is for the people you leave behind. The best way to care for your loved ones is to leave a clear road map. "
5. How often should someone review and update their estate plan?
We recommend you revisit your estate plan every three to five years, and more frequently when you are older. We typically say any major life event is a reason to reevaluate your estate plan – for example, the death of a spouse, beneficiary, or designated fiduciary, divorce, decline in health or recent diagnosis, etc.
We draft our documents with contingencies and back-ups built in, so an update is not required unless something very major happens. However, you won’t get that quality of documents from everyone – especially not DIY documents or even legal zoom.
We check in on our clients annually and encourage them to reach out to us if there is a major life event to ensure that the change is already covered by their documents or to make an update, if necessary.
If there is a change in laws that would impact our client’s estate plan, we will reach out to our clients to let them know of the change and whether an update may be necessary. We also say that tax season is a great time to do an inventory of your assets to make sure that they are incorporated into your estate plan. Property and business interests are the main type of assets that may require an update.
6. How does an estate lawyer help and what is your initial process with clients?
As I mentioned before, we offer free initial consultations, however, not all attorneys will offer our type of in-depth consults free of charge. Using a professional is always going to be better than software programs like legal zoom since attorneys can answer your questions and advise you based on your specific situation.
We highly customize our documents, which is often required based on a client’s situation – something you can’t get from a fill-in-the-blank process. We educate you on your family-specific, asset-specific, and state-specific situation. We are also not here to oversell. When it comes to estate planning, one size does not fit all.
Every attorney’s process is different. After our free initial consult, we will send the potential client a recap email that summarizes the different options and pricing that we discussed during the consult. If you move forward, we send you the engagement materials and questionnaire to get the process started.
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No investment strategy assures success or protects against loss. Investing involves risk, including the loss of principal. The information in this post is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.