Preparing for Death & 6 Steps for Estate Planning

July 2022 Newsletter | By: Ian Sachs, CFP®, CLU®, ChFC®
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Hourglass, Risk Resource

Death can be instantaneous and unexpected, or prolonged and accepted. Regardless of how it happens, facing the emotional challenges cause many of us to avoid the topic thus leaving families and businesses unprepared.

The tendency to avoid preparing for death is so visceral that even the terminally ill suppress their thoughts and feelings about dying and procrastinate life-ending planning. We resort to euphemisms about someone “passing away” or “meeting their maker.” Our discomfort with death inhibits us from having conversations and preparing accordingly.

It is not uncommon for someone who is dying to withdraw from relationships and for loved ones to find themselves retreating. Death can irrevocably disrupt families and lead to financial insecurity.

As we have become a more mobile and technologically connected society, the trend for generations of families to be geographically displaced has increased. Parents and grandparents often live in separate states which decreases the frequency and quality of personal contact. The areas of interest that previously had a more predominant role in connecting communities, such as religious and charitable organizations, community centers, and country clubs have decreased, making the topic even more challenging.

Can you recall the last conversation that you had with someone about dying, if ever? Was it productive, depressing, or even jovial? Was there a specific goal or outcome from that conversation? Death isn’t avoidable, but it is something we can prepare for.

As a financial planner, I have significant experience dealing with death and helping families prepare for it. Life insurance and proper estate planning is crucial, but only part of the equation. I try and encourage clients to have discussions with their family, friends, and business partners about their end-of-life wishes. Having a clear, definable plan allows families to focus on their loved ones when the time comes, rather than the ambiguity of what comes after.

Action Steps for End-of-Life Planning

When someone dies, the settlement of their estate is initiated. The executor of the estate will begin to carry out the directives of the deceased if they were made known. Funeral arrangements, estate distribution, future family income needs, and the ongoing care for dependents are among items that should be understood.

Settlement of even the simplest estate requires a lot of time and administrative work. For more sizable estates where federal tax is often due in cash within 9 months after death, the number of hours and complexity increases exponentially (see Estate Taxes & ILITS).

6 action steps to consider doing today:

1. Communicate final wishes. Written documents should be created so that all interested parties and potential care givers are made aware of an individual’s wishes and desires.

2. Execute a will. Individuals have the privilege of indicating how they would like to have their property distributed at death through the creation of a will or trust. Without such documents, state laws determine how that individual’s property should be distributed, and when.

3. Assign powers of attorney. In case of loss of competency, medical care and property management decisions should be delegated to another party. Very limited or general (full conference) powers can be given under a variety of scenarios. This could be a family member you trust, a family member you do not trust, or even someone who does not know you but agrees to the role to be paid. Absent such documents, the courts may appoint a guardian for you.

4. Organize and inventory pertinent paperwork. Locating papers that are necessary to settle one’s estate and to secure death benefits is often an enormous task. Documents should be inventoried and exist in multiple locations. A special section of this inventory should be devoted to advisers and assets (e.g. insurance policies, holdings of stocks and bonds, bank accounts, real estate, personal property, business assets, and estate plans).

5. Consider life insurance. There are multiple benefits that life insurance can provide, both from a tax efficiency perspective while living and for estate planning purposes once deceased.  There are many advantages to having life insurance and the protection that it provides for those who would be economically impacted from another’s death, including a spouse, minor children, and business.

6. Succession planning for the business. Individuals who have ownership in a company should have a business agreement outlining how their interest should be settled in the event of their death or permanent disability. Funding arrangements should be made to avoid the forced liquidation of ownership interest to avoid less than fair market value. This not only helps to ensure fairness for the deceased’s estate and beneficiaries, but also to bolster the business’s continuity.