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The most loving thing we can leave behind at the end of our life is an estate plan well documented in an estate binder. 

This topic is challenging because no one wants to think about mortality. However, it’s critical that we do. Think of it as the kindest gift we can leave for those that we love when we pass. Let me illustrate this with two stories. 

An estate binder can be a three-ring binder, an accordion file box, or a plastic filing container. It does not matter. What matters is that you include all of theses pieces so that your loved ones can focus on grieving their loss and not fighting over possessions.

A Story About the Need for an Estate Plan

We moved into our home and there was a couple that lived across the street. We quickly learned that they had just become empty nesters. The husband worked from home, and they held Wednesday night dinners with friends at their home. We didn’t know them well, but they were friendly. 

About three months after living here, we noticed that there was a giant boat in their driveway. It made us scratch our heads a bit because it was the beginning of summer, and the boat didn’t move. We also noticed we didn’t see our neighbors coming and going, nor were Wednesday nights as busy at their house. Then a “For Sale” sign went up.

We found out from another neighbor that the couple across the street had become guardians to high school-aged boys, whose parents had passed away in a car accident. Immediately our hearts sank. Talk about two families whose lives have been turned upside down. 

I realized that the other family must have had an estate plan because our neighbors were not related by blood to the boys that they became guardians for. The couple that passed never expected to leave their high school age boys behind, but that was what happened.

We hope that we will live to be old, with grown children before we pass; however, that is not promised. This is why the phrase “hope for the best, plan for the worst” exists. 

Failing to Have an Adequate Estate Plan Tears Families Apart

When people pass, it’s an overly emotional time for many left behind. The grieving process is challenging and complex. 

Here is an example illustrating why an estate plan is still critical, even when you’re’ older. 

I recently heard a story about a family who had to clean out their grandma’s house during the pandemic. Grandma had five children and left one of her children as Executor. That person, according to other family members, took that responsibility to an extreme. This individual created their own system to allow people to pick items, but it wasn’t viewed as equitable by some. 

Not to mention that the Monday following everyone having to pick up belongings that some of the individuals tested positive for COVID, the family dynamics are now in ruins over how grandma’s items were split. 

This is just one example of why one of the most loving things to do is leave behind an estate plan with legally document final wishes.

binders stacked on top of one another

11 Items to Include in an Estate Binder

Wills

If you are not sure where to start, start with putting together a will. Your binder should have a will for each adult in the household. A will is a document that details:

  • Guardian: Who will become the guardian(s) of children
  • Conservator: Who will manage money for heirs if they are under the age of 18
  • Executor: Who will make sure estate taxes are paid and assets distributed appropriately

A few things to think about executing a will properly

There are a significant number of online tools for creating a will. At a minimum, have a local attorney review your document to ensure the wording is legal in your state. Each state’s estate planning laws vary.

Ensure that all parties named in the will are willing to act in the capacity that they are named. This will minimize the likelihood of someone contesting the will and ensuring that wishes are carried out per the will. It is better to know now that someone doesn’t believe they should be Executor, so that someone else can be named in the will, instead of the replacement being left up to state laws.  

Additionally, again to minimize the likelihood of someone contesting the will, ensure that the signing of the will is witnessed by at least two other individuals and notarized. Banks typically have notaries on staff. 

Trust Documents

This is the one item on the list that might be skipped.

Having a trust was extremely Vogue for a while; however, in the financial planning world, the rule of thumb currently is that a trust is not needed unless an individual has more than $5 million or $10 million in net worth as a couple. 

If you are certain you’ll pass before 2026, then the limits are even higher. The Tax Cuts and Jobs Act of 2017 increased the estate tax exemption to $11 million for an individual and $22 million for a couple. This exemption expires in 2026, and the exemption will revert to $5 million for an individual or $10 million as a couple. 

There are exceptions to these above rules of thumb.  They include, among others, having a special needs child or needing to limit a child’s ability to access funds until a certain age, real estate is owned in several states, or your state estate tax exemption is lower than your net worth.

Bottom line, if you are on the fence about whether you need a trust or not, talk with an attorney as you will need one to set it up properly. Any trust documents need to be included in your estate binder. 

letter on a table

Letters

This is hard. But we can do hard things. If something happens, loved ones need to know your final wishes. Leave letters to those whom you think need your words if something happens unexpectedly. 

For instance, in our estate binder, we wrote a letter to the individuals we named guardians for our girls. Writing that letter was challenging and emotional, and I hope it never sees the day of light. We picked these individuals for many reasons, and I know that they would do a fantastic job if they have to serve in the role. But it was important to me that I offer words of support and encouragement because their path will be tough.

These letters don’t just have to be for people named in the will—they could also be for people not included in the will. There are people who think they may have been the better choice to serve in this role or that role; however, giving them words in writing about why you made individual choices could provide them with closure. 

Ultimately, the letter might deter them from contesting the will. The time spent on that letter will save your loved ones a lot of strife and perhaps your estate a lot of money.

Account Listing

The job of the Executor of an estate is to gather all assets and pay any liabilities (such as taxes) and then make sure the remaining assets are transferred appropriately. This job is not easy, especially in today’s society, where people have accounts at many different places. 

The Executor could end up running around town (really the internet) for weeks trying to piece it all together. Take time to sit down and list all bank accounts, savings accounts, investment accounts, credit accounts, etc. This can save them a lot of time retracing your steps, and allow them to get down to work much quicker. 

Digital Assets List

I wish I had a better name to call this because the term digital assets makes me think of things like photos. A digital asset list is simply a listing of all account log-ins and passwords and other records you want others to be able to locate. This is so appropriate individuals can access bank accounts online, social media accounts, email accounts, and more. 

I’ve shared this in a previous post; however, it’s crucial here, too. One student who took a course from Dr. Thia’s passed away. His dad came to her and asked her if she knew how to recover passwords, specifically his son’s financial software for managing money. Dr. Thia made phone calls and sent emails; however, she and the father could not get the passcode detail. It made the father’s job incredibly challenging to make sure he had a full picture of his son’s financial picture. 

A digital assets list includes account details, password information, and also any wishes you would want. Like, if you want your social media accounts taken down. 

Additionally, remember a digital assets list is only helpful if it is accurate. It is so common that we forget our passcodes and need to set a new one. 

Contact List

Social media and phone contact lists only go so far. Provide your Executor with a list of key contacts. Consider who and how you want people to be notified of your passing. Think of business professionals, like a car insurance agent, a tax advisor, or a veterinarian, who you want others to be able to communicate with. 

Financial Power of Attorney

A Financial Power of Attorney is nominated to take care of finances while an individual is alive. So, this is not the same as an Executor. 

Let’s use an example from this pandemic: A significant number of individuals were hospitalized, and some were in a coma. At that point, a Financial Power of Attorney would be responsible for taking over that person’s finances and managing their property. They would be responsible for paying bills and making sure their home is maintained.

If the person recovers, they would then be given back the responsibility of their finances and managing their property. If the worst-case happens, the Financial Power of Attorney’s job is theoretically complete at the time of death, and the individual’s Executor is now responsible. In practice, there would likely be a handoff of responsibilities if two different people are named in these roles. 

Again, there are several websites that you can create a Financial Power of Attorney document. Always have an attorney review it and ensure the signing is witnessed and notarized. 

Medical Power of Attorney

Medical Power of Attorney is similar to a Financial Power of Attorney, but simply gives someone the authority to make medical decisions if a person cannot make medical decisions for themselves. This document should be in the folder, so your key people will have the ability to act on your behalf. 

keys

Copies of Keys

Keys are the bane of my existence. I have keys to things that I have no clue about. It is vital that support people have access to what they need.

Keys might include a copy to:

  • Your home or other properties you own
  • Your business
  • Your cars
  • Your safe 
  • Your safety deposit box 

Social Security Card, Marriage License, Birth Certificates

These items are critical to your estate. Keep them in your estate binder. Your estate binder should be in a fire-safe place, locked, and by having them in your estate binder, you will know where they are if you ever need to use them. 

Details on How to Split Personal Items

Finally, this ties back to the story about cleaning out grandma’s house above. The last thing you want is for your loved ones to fight over stuff while emotional about your passing. If you have specific items you want to go to particular people, you can include this in your will. If you have a wish for how items are split, make sure to leave details about that in the estate binder for your Executor.

In the grandma’s situation, the Executor listed every item, and people put their name next to things they wanted. Then the Executor did a random selection for who got which item. To me, that seems a bit unreasonable because what if someone doesn’t get an item at all? Or worse, what if the Executor made sure they “won” their items of preference. I could see how this could hurt relationships, which is likely what grandma did not want to happen.

A Few Final Thoughts on Estate Binders

Think very carefully about the individuals you choose. Make sure they will put you above their priorities and make sure that they don’t have an undue vested interest. 

For instance, I worked in financial regulation. One thing we often audited for was financial professionals being named as trustee on family trusts. This is not illegal; however, there have been a significant number of instances where financial advisors have used their power as trustee to increase their wealth and not the beneficiaries of the trust. 

Your estate binder is only as good as it is updated. If you change banks or credit card companies, move your life insurance to a different carrier, or update passwords, your estate binder needs to be updated. Set a time at least once a year to update your binder and ensure that it’s accurate. 

It may seem scary to tell people how to access your safe; however, if you don’t trust your Executor or Power of Attorneys into your safe, they probably shouldn’t hold these positions. You can’t afford to choose people you only trust 85% of the time. They need to know the documents exist, their roles, and where to find the records if they need to access them. 

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Dr. Thia, MPower Co’s Director of Education, has authored and instructs MPower Co’s online financial course called Richer Retirement. The course covers several topics, including estate planning. It covers the topics above and more in further depth.

Email MPower Co at info@mpowerco.com to be notified when Richer Retirement is enrolling students in early 2021.

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