Creating and Funding Estate Plans [Video]

Today we are going to talk about something that not many people like talking about, which is creating and funding estate plans. 

So, what is an estate plan, how do you fund it, and make sure you know all of the pieces to get that plan in place? 

What is an Estate Plan?

When we think about an estate plan we think about the documents. Normally, these are documents like a Will, which says who you want to inherit assets when you pass away. Next is a trust, this gives more details for how you want assets to be passed on. And then there is a Power of Attorney (POA), which says who you want to make decisions for you. 

When are These Documents Used?

The POA document is used when you are still alive, the only thing is you can’t make decisions for yourself. Think about times when you are unconscious, maybe you’ve been in an accident or you are getting surgery. Whatever the case, for a period of time you can’t make decisions for yourself and you need someone else to. 

A Will and a Trust are documents that are used after you pass away. This is where you can leave instructions for who you want to inherit assets and how you want them too. Maybe you are going to say over a period of time, or at a certain percentage over the years. This is where you get very specific. 

What Information Do You Need?

Once you have this plan in place, it becomes time to fund it. As you are getting your plan in place, your attorney needs some information. A lot of these pieces they will have, but let’s review. Here are some common accounts that you might have: a checking account; an IRA or Roth IRA; maybe you have an individual or joint account used for your investments; maybe you have life insurance; and most employees have a retirement account like a 401k. These accounts are pretty common. We want to look at this list because it is important once we get our plan in place. 

Let’s step back. We have our documents created, we have a few things you have to have prepared.  First thing you want to think through is who you want to act to get your plan fulfilled how you want it. Who is going to actually sign the paper and make the decisions? 

Then you also need to let your attorney know your net worth. This is important because they need to know the size or amount of assets. Somewhere around $4 million to $5 million, estate taxes come into play and you might want to make some changes. So net worth is something you will need to calculate. You may have never done this, but we have videos explaining how to calculate your net worth and how to update that net worth every year. A net worth statement is something you want to give to your attorney so that they know what accounts and balances you have. That way they know how to make the best plan for you. 

What does Funding Estate Plans Look like?

Now we will move onto putting your plan in place, which means funding your estate plans. Part of your plan will be funding your trust. You might have a trust document that is written and says what you want to happen. But if there are no accounts titled in the name of the trust, it won’t happen (or may take a very long time). We need to fund our trust, which very simply means to rename accounts in the name of the trust. Instead of myself holding my accounts, the trust does. It might be the “Michelle Smalenberger Revocable Living Trust.” A trust is a non-person entity that holds assets instead of a living person. 

So, what does funding this trust actually mean? We have our trust created, we need to retitle and rename our accounts in the trust name. Let’s go one by one so you can think about how you can do this yourself.

Accounts You Should Look At

A checking account can be tricky to name as a trust. When you have to sign paperwork on a regular basis, you don’t want to always have to prove that the trust is yours. You should leave your checking account as an individual or joint, so we won’t name this in the trust. 

The IRA is an individual retirement. It must have your individual name attached to it. It actually already goes to the beneficiary. So instead of renaming, we need to think through who we want the beneficiaries to be. So we don’t need to put this in the trust. 

An individual or joint investment account doesn’t have beneficiaries, so these are accounts that can go in the account. So instead of me having my individual account, we rename it in the name of the trust. It’s money for long term use, we don’t need to interact with it on a daily basis, so this is a great account to put in the trust. Now we have named an account to be titled the name of the trust. Now as you are going through this, you might find you have a couple accounts and maybe its time to consolidate those. You can watch our video on that right here! 

Life insurance is also something that has a beneficiary. So this is not something that we commonly name in the trust. There are complex situations in which this might need to be named under the trust. This is where that net worth statement could come in handy, but for this situation, we are just going to go by beneficiary. If you need to rename your life insurance, you want to make sure you are working with an advisor to be sure you are doing it correctly. 

The 401(k) plans also have a beneficiary directly named. These will actually just go by who you list as the beneficiary when you pass away. So this doesn’t need to be listed in the trust. 

Why Should You Fund Your Trust? 

Once you rename the appropriate accounts in the name of the trust, these accounts will go to your listed beneficiary, and it will transfer smoothly. We need the trust to get these accounts to our beneficiaries. But with an IRA, life insurance, and 401(k) plans, we directly name beneficiaries so those go directly to them. And again, if you are in a situation where a trust is needed, you want to be sure you are working with your estate planning attorney or financial advisor to help you. At different levels and amounts, you need to be strategic about your beneficiaries. But today, we are just talking about what documents you need and how to fund them. 

What’s Next for Your Estate Planning?

And the last step is giving those documents to the people that need to have them. This is very simply you give them a copy or you might want to let them know where a copy is. You might keep the originals where they have access to them. Another great video we have is checking who your beneficiaries are. It’s very important that you always know who is listed on those accounts. 

If creating and funding estate plans is something you are working on and all these details feel overwhelming, reach out! We would love to have a conversation to see how we can help you.