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Are You and Your Clients Making These Estate Planning Mistakes?

A recent survey by Caring.com found that only 42 percent of U.S. adults have estate planning documents in place.

The survey asked participants why estate planning documents hadn’t been established yet. Twenty-nine percent said they have no one to leave assets to, and 47 percent said they simply hadn’t gotten around to it yet, according to the AARP article, “Haven’t Done A Will Yet?”

Not Having a Will

“The biggest estate planning mistake I see people make is not having a plan at all,” Eric Roberge, CFP® professional, founder of Beyond Your Hammock, told U.S. News and World Report.

About 52 percent of U.S. adults have not made a will, according to BMO Wealth Management. A will is essential to an estate plan, but it’s not enough, writes Bob Carlson in the Forbes article, “7 Big Estate Planning Mistakes.”

Only Having a Will

In addition to a will, other documents need to be in place for an estate plan to be thorough. These include power of attorney, trusts and advanced medical directives.

Neglecting health care power of attorney is also a common estate planning mistake. A health care power of attorney is “all about you, before you die. A will is only about dividing up your property when you’re not around,” lawyer and author Sally Hurme said in the AARP article.

Without determining the person who can make decisions upon incapacity, or stating your wishes in a legal document, state or local law will determine who gets to make these decisions.

Not Updating Beneficiaries

Estate planning mistakes aren’t reserved only for clients, as Nancy L. Anderson, CFP® professional, wrote in Forbes. Anderson shared how she had divorced her husband when her children were ages 2 and 4, and changed her IRA beneficiary to her father. Twenty years later, she realized she hadn’t updated that, despite her kids being grown.

“If I’d passed away before making a change, it could have been a disaster for my family,” Anderson wrote.

Neglecting Digital Assets

This has been on the radar for a few years, but recently came to the forefront when the CEO of QuadrigaCX, a Canadian crypto exchange, died in December without giving the password to offline cryptocurrency wallets to anyone. Customers with $190 million in cryptocurrency stored with QuadrigaCX might not see their investments again. While neglecting digital assets likely won’t cause your clients’ heirs millions, this is a reminder to not ignore them.

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Ana Trujillo Limón is senior editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org, or connect with her on LinkedIn


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Digital Assets 101: How to Account for Digital Assets in Estate Plans

Digital assets are a popular topic and an ever-important aspect of estate planning with today’s digital age. Even simple accounts such as Facebook and Twitter have tremendous transferable value to beneficiaries. However, beneficiaries and clients alike believe that merely sharing a password or access gives the beneficiaries the rights to the account. Ironically, this may constitute a violation of the law if this is how a digital asset is handled in an estate. It is important to understand the transferability, the value and how to provide instructions for transfer.

When planning for digital assets in an estate plan, it is important to help your clients identify their digital assets. Certainly, the best place to start is with an inventory. Try asking them if they have some of the popular digital assets and explaining the intrinsic value to the beneficiaries. Once they have a comprehension of the value, they are more likely to identify digital assets they own. While they may not initially see value in digital asset planning, photos, videos and stories go a long way in legacy planning. Helping clients realize the value of legacy planning can assist with digital asset planning.

After taking inventory, you will have to familiarize yourself with some of the policies of a particular digital asset. Digital assets can be transferred in similar ways to normal assets. Some will allow the account holder to appoint a legacy person and some need specific language in wills or trusts to transfer the digital asset. The only caveat is that some assets (unlike liquid and tangible assets) are not considered property and simply cannot be transferred. Most of this occurs in loyalty reward programs.

One of the most popular digital assets is Facebook. The reason for its popularity is because of the memories it holds. A user can appoint a legacy sponsor to handle the account once someone has passed. The user can also choose to delete the account. The challenge here is similar to that of a beneficiary designated account, someone must be chosen prior to death. Once someone dies and Facebook finds out they memorialize the account. This basically freezes the account and provides no access. Just like setting beneficiary designations (and revisiting them), digital assets that have legacy access should have those designations set and revisited periodically.

Loyalty reward programs are equally as popular. While most are not that friendly within an estate, some have clauses that can be accounted for in legal documents. Let’s take American Airlines. American Airlines has some language in its AAdvantage program terms and conditions which does not specifically allow transfer after death, but the airline gives itself a “loophole” to transfer the miles after approved legal documents have been submitted. Accounting for specific language in estate documents can be vital in transferring a specific digital asset with significant value. This is an excellent example accounting for digital assets within a will or trust document.

Digital assets can be tricky when accounting for them in an estate plan. The key is to take proper inventory, gather some familiarity or help and account for transfer. The great news is, this is an excellent conversation starter, a differentiator in practice and a way to provide great value to your clients. In the digital age we are in, digital assets are becoming more important in estate planning. Take the time to learn how to account for them in estate plans, it will be well worth it.

 

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Scott Huff is the CEO of Yourefolio.

 


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In Estate Planning, Encourage Clients to Be Open With Adult Children

It was the morning I was to return to Denver after a weekend trip to my small Southern Colorado hometown. My mom and I were having coffee when she said, “Anita, we have to discuss some things.” She got up from the table and went over to a filing cabinet and pulled out a manila folder full of papers.

I realized what the papers were as soon as she’d sat back down. Apparently, she’d devoured the book I’d given her called The Other Talk A Guide to Talking to Your Adult Children About the Rest of Your Life.

My mom is a miracle worker with money. And as she laid out each piece of paper and explained what it was, I realized she’s managed to conduct another miracle—planning the entirety of her and my dad’s estate planning without having us do or pay for it. She’s planned out every detail of her funeral down to what seems like a party complete with a playlist. She’s written instructions as to what we are NOT to do (none of that darn crying, no obituary in the paper, etc.) and she’s even paid for it all already.

Of course, I’ll have to disobey her instructions when that time comes. I couldn’t even hold in my tears as she was explaining what was what because the thought of a world without my queen, my hero, my best friend is unbearable. But she has a way of discussing death as though it will be her last business transaction—one that she’s already put in the work for—and one that I should definitely not live in denial about.

“This is where everything is so you know when the time comes,” she explained as she put the folder neatly back in its drawer.

In editing this month’s Journal of Financial Planning—which is all about estate planning—I got to thinking about this talk with my mom and how it would be helpful if all parents would be this transparent with their kids.

So, I did some research and compiled a list of what you could do to help your clients be as open and honest with their kids as my mom was with me.

Encourage them to have the family talk. The talk I reference above wasn’t the first time my mom has sat me down to discuss this topic. I am the youngest of four children, and she’s sat all four of us down in the same manner to discuss her and my dad’s end-of-life documents and planning. On numerous occasions, she has brought the four of us together to talk about the properties and insurance policies and what will belong to whom and given us each the relevant documents.

Maybe your clients aren’t as open with their kids, but they can still sit down with their children to discuss their wishes and their end-of-life plan so that their kids can get on board. They can also discuss the financial and medical power of attorney appointment at this meeting.

Encourage them to be open with their kids about their decisions. Our mom has told us the rationale behind her estate planning decisions so we understand why certain assets will be given to certain siblings. We are all in agreement with these choices. My mom’s openness and honesty has made it easy for us to accept and honor her decisions. Plus, since she’s incredibly brilliant, her reasons for making each decision are sound.

Encourage clients to make a binder for each child. I got this idea from Bob Mauterstock at an FPA Annual Conference session he had in Boston. He encouraged the attendees to have their clients put together binders for each of their adult children so they can have all the relevant documents they need. My mom absolutely loved this idea and has also made binders for each one of us that contains all the documents relevant to whatever assets she has plans to leave us.

The emotional aspect of estate planning isn’t easy, but knowing my mom has done all of this and has kept us in the loop will make this incredibly difficult transition—both emotionally and financially—a little less intense.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org. Follow her on Twitter at @AnaT_Edits.