Big Retirement Mistake: Boomers With No Estate Plan
Many Baby Boomers are neglecting a key part of their retirement plans — creating an estate plan.
And while death is not a pleasant thing to think about, death without an estate plan can create havoc for your surviving family members, financial planners warn.
"I think that on a list of things to do, it's at the bottom, if it even makes the list," says Nicole Hart, director of trusts and estates at Sontag Advisory, a New York-based wealth adviser.
It's important not to look at financial planning in a vacuum," says Manhattan estate planning and elder care attorney Ann-Margaret Carrozza. "Estate planning is intertwined with the financial plan."
"If you are looking at Baby Boomers, they are looking at what their cash flow will be in retirement," says Carol Kroch, managing director, wealth and philanthropic planning at Wilmington Trust in Wilmington, Del. "Can they do the things they want to do? Can they retire? Can they keep the house? They are not focused on death."
Kroch says failure to consider wills and estate planning is an ongoing problem, not just affecting Baby Boomers. "Often, it doesn't have a sense of urgency around it," she says. "People say, 'We'll deal with it later.'"
Ralph Levy, attorney with Dickinson Wright PLLC in Nashville, says there are three important considerations when you sit down to begin your will and estate plan: your property and financial assets; your children (less of an issue for retirees with grown children); and medical decisions.
"Just because you are doing good retirement planning doesn't mean you are doing good estate planning, unless you address all three areas," he says.
Some important things to remember when you sit down to get that estate plan done:
1. Clients should have two sets of eyes on every major financial document — a Financial Planner and an Estate-Planning Lawyer.
"The estate-planning focus will help protect the safety of your financial plan," she says. "They will also guard against losing your investments to liabilities specific to the over-50 population, such as long-term care expenses.
"We also need to look at estate planning to guard against losing assets in the event a second marriage doesn't work out," she says. "Forty percent of newlyweds have been married before. Second marriages are a real force to be reckoned with. The divorce rate in a second marriage is 60%. There is a real possibility of that marriage not working out. It is important to have a pr-nuptial or postnuptial agreement to create a firewall for your protection and ensure there is a safety net below which you will not fall."
2. Make sure you have a health care proxy, living will and power of attorney. "The possibility of getting sick is something everyone should be planning for," says Kroch. "I would think when people do serious retirement planning, they think about health care. They should think about having a document in place to help people make decisions.
"I don't think people think about, 'What if I can't handle my financial affairs?'" she says. "Have I named someone who can take over if I get ill and am not able to do things?"
"It allows you to express your wishes on what will happen if you can't make health-related decisions," says Hart. "It is a gift to your loved ones. It provides direction. They know what you would want and are more comfortable sleeping at night fulfilling your wishes."
"It isn't just what happens after you're gone," says Bernie Kent at Schechter Investment Advisors in Birmingham, Mich. "It also involves protecting yourself during your lifetime. A medical power of attorney is crucial if you are unable to make medical decisions for yourself. For Baby Boomers these things are just the right thing to do for their families."
3. As uncomfortable as it may be, have the discussion with your family. "You have a family business, and one child works in the business and not the other. How about a vacation home that's close to one of your children and not the other?" says Kroch. "Those things slow people down. I can't tell people which child should take their vacation house. I can tell them if they don't think it through, it could leave a bunch of unhappy people.
"Have those conversations," she says. "There may be some unhappiness and surprise. But it's really important. We tell people if you don't decide, the government will. Someone has to decide what to do with your assets when you die. Avoid a lot of controversy down the road."
People often get stuck on making decisions like who will be the executor or who will get their assets, says Hart. "It's not something staring you in the face every day. You have to bring yourself to do that and make those decisions."
4. Familiarize yourself with the laws in your state. How things convey in the event of death may differ and may not be the way you intended.
"One of the things we stress about an estate plan is everybody's got one, you're just not the one in charge — it defaults to state law," Hart says. That's not what most people want. In New York in particular, if you don't have a will and you die with a spouse and children, 50% goes to the spouse, but the rest would go to the children. More typical is everything goes to the spouse, and when the spouse dies, it goes to the kids. An estate plan lets you decide."
5. Make sure beneficiaries are updated. "Who's going to get the assets when you die? A will is only one piece of it," says Hart. "You are looking at retirement plan beneficiaries and your life insurance. They will not pass pursuant to the will. They will pass based on your beneficiary designation. Make sure they are up to date. Many times they are not. People haven't checked in 20 years, and it's not in line with your wishes."
6. Consider taxes. "Only the highest-income people need estate planning for avoiding estate taxes," says Kent. "But at the next level down you should be trying to arrange your affairs, ownership of assets and estate planning to avoid income tax."
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~ USA TODAY retirement columnist Rodney Brooks