Discussing what will happen to your loved one’s estate when they die is never an easy conversation, but you must understand the plan so you can be prepared when the time comes for you to manage their affairs.
Also, it’s essential to review the terms of your older adult’s will or other documents, including life insurance policies, the deed to a home, or the titles to any cars they own. There are some circumstances when a will isn’t appropriate, but other documents should be in place instead to avoid your loved one dying without a legal will, otherwise known as “intestate.”
Taking the time to do these reviews now will save possible future headaches or conflicts among family members.
Does my loved one need a will?
A will is a document that states what a person wants done with their belongings and their financial assets, as well as who will be the guardian of their minor children (if they’re still responsible for children under 18). If your loved one has a will, it ensures their decisions about what they want to be done will be carried out. Without a will, that decision-making process goes to the courts, which is not only a long process but can create problems among family members who aren’t legally able to claim what they were promised. For example, if there’s a piece of jewelry or furniture that your loved one wanted a specific person (who’s not a direct heir) to have, there’s no guarantee they’ll receive it without a will.
A will can cost from $150 for a do-it-yourself version to $1,000 and up for a lawyer’s services. If your loved one chooses a lower-cost option, make sure it’s notarized or it will be invalid.
Even with a will, however, an estate will need to go through probate, which can take months.
Is a living trust a better choice for my senior?
If your senior wants to invest in a more complete end-of-life plan, a living trust can take the place of a will. A living trust can be done as either revocable or irrevocable: A revocable trust is more flexible and can be changed during the trustee’s lifetime, but an irrevocable trust is better for minimizing taxes at the time of passing. Those with larger estates will often opt for an irrevocable trust because of the tax benefits. In either case, a trustee is named who administers the trust when the time comes. A living trust can continue after the passing of the trustee, and distributions can be made at specific times, such as a 21st birthday or at marriage.
A living trust also avoids probate. Suze Orman, the financial advisor, author and podcast host, told Parade Magazine, “If you plan to leave property to your loved ones, you should set up a [living trust] as soon as possible so that your heirs will not have to pay probate costs or experience any delay in receiving their inheritance.”
Another reason to set up a living trust is to designate power of attorney for both your loved one’s health care and finances.
“You (also) should create powers of attorney for health care and for finances, so that someone you name can make decisions for you should you become incapacitated,” Liz Weston, certified financial planner, told the Los Angeles Times. “These documents are probably more important than a will because they can determine your quality of life at the end of your days rather than just what happens to your stuff when you’re beyond caring.”
Keep in mind, however, that setting up a living trust takes time and money and should be done by a trust attorney. Expect at least 10 hours of billing for a trust that’s not too complicated.
Should I opt for a transfer on death?
For those with few hard assets – such as property, valuable art, cars or jewelry – and who have most of their money in investments and mutual funds, a transfer on death (TOD) is a good choice—as long as they meet a few criteria. It’s most useful for those who are single or widowed and have few beneficiaries and have estates that are not more than $1 million. Transfer on death avoids probate just as a living trust does, but there’s no additional expense involved with setting up a TOD; your loved one’s investment company can do it for them.
Whatever option your loved one needs to secure their estate, hire an expert, such as an attorney, accountant or financial planner, to help you with the process of setting up or reviewing existing wills, trusts or TODs. Their financial well-being and how their estate will be distributed is important for them – and you – to fully understand.