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Did you know that 60% of Americans don't have a will?
This means more than half of us risk having our hard-earned assets distributed by state laws rather than our own wishes.
It's like building a beautiful home for decades, then handing the keys to a stranger who decides who gets to live there. If you're approaching retirement and haven't updated your estate plan recently, you may be missing critical protection components which could end up costing your family thousands in taxes and legal fees down the road.
Most people think they've got their estate planning covered with a simple will. But, according to a national survey byCaring.com, while 33% of Americans have a will, over 80% of those individuals are still missing at least one critical estate planning document.
This gap could create a "protection illusion" - the false sense of security that leaves families financially and emotionally vulnerable during some of life's most challenging moments.
Although a will might specify the beneficiaries set to inherit assets, something many don’t realize is that this document only takes effect after death, lacking protection during the event of incapacitation. For example, even a married couple can come across financial unknowns in the event of one of the spouses becoming incapacitated. If the incapacitated spouse has no way to access bank accounts or investment accounts solely in their name, the other spouse may have to go through legal proceedings in order to access that money. This of course could take time especially during those critical first few months of this life altering change.
The essential protection that many families do not realize they should have in place can come from two key incapacity planning tools: a healthcare proxy (medical power of attorney) and a durable financial power of attorney.
These documents allow you to name trusted individuals to make healthcare decisions and manage your finances if you become unable to do so yourself.
The statistics about incomplete protection aren’t just concerning—the situation could potentially be devastating for one’s heirs.
While you might think your estate plan has you covered, a significant change in legislation has quietly altered the rules of the game.
In 2019, Congress passed the SECURE Act, which completely transformed how retirement accounts are inherited.
If your estate plan hasn't been updated since, a hunk of your hard-earned retirement savings could be headed to the IRS instead of your loved ones. It’s important to note that this type of planning requires regular maintenance as laws change and life circumstances evolve.
The SECURE Act eliminated the "stretch IRA" strategy, forcing many beneficiaries to empty inherited retirement accounts within ten years of the original account owner’s death.
This accelerated timeline could potentially push heirs into higher tax brackets and cost them thousands in taxes. Being that the landscape is constantly changing, let’s take a look at the 5 most common documents we come across when completing Estate Planning Reviews. First on the list is a comprehensive will. Some may consider this to be the foundation of one’s plan.
This is essentially a blueprint that helps guide the construction of your legacy.
Your will can help to distribute assets, designate guardianship for minor children, and provide instructions for digital assets and sentimental items to prevent family disputes. The second item to consider is an advance healthcare directive or living will.
This document serves as your voice when you cannot speak, as it can outline your medical treatment preferences.
Without these instructions, family members might disagree about your wishes during already stressful situations, creating unnecessary conflict. Third is a healthcare proxy which designates someone to make medical decisions when you are unable to do so.
This person becomes your medical advocate, ensuring your wishes are followed rather than defaulting to state-mandated procedures.
Selecting someone who understands your values regarding medical care is like choosing a trusted navigator to stand by your side in rough waters. The fourth tool to consider is a durable financial power of attorney which allows your chosen agent to handle financial matters during any period of incapacity.
This document acts like a financial safeguard, preventing accounts from being frozen and ensuring bills can continue to be paid. Finally, consider trust documents appropriate for your situation. With the SECURE Act's changes, various trust structures have become increasingly important for retirement account planning.
A properly structured trust can act like a protective container, preserving assets while directing their use in accordance your wishes. Standard revocable living trusts help avoid probate, while specialized trusts focus on addressing particular needs.
A few examples of specialized trusts could include a marital trust which can assist with estate tax planning to defer tax liability until the surviving spouse’s death.
A spendthrift trust which can help to protect financially irresponsible beneficiaries from financial mismanagement.
A special needs trust which can provide support individuals who are disabled, without jeopardizing government benefits.
Or a business trust, which can help to facilitate succession planning or reduce tax liabilities. By reviewing these five documents and understanding how they might pertain to you, you can help to account for your goals and wishes, focusing on what matters most.
The Final Word:
It’s important to note, and keep top of mind, that your Estate Plan is just like your life, is not necessarily static.
Things change, laws evolve, and you should review your plans on a regular basis.
Reviewing your documents every couple of years or after major life events like marriages, divorces, births, or deaths can help you to stay on top of things. Estate planning reviews can bring you confidence in your overall planning process. A current, comprehensive plan can help to empower you to control your legacy.
Thanks for reading!
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
Rockline Wealth Management is not associated with Medicare or any governmental organization. All information presented is believed to be factual at the date of publication.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information, and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.