Afraid of Death? Focus on The Paperwork When Planning Estates

February 27, 2013 Posted In Estate Planning,Firm News

There are many reasons why Coloradoans fail to adequately plan for the end of their lives, chief among them being the topic of death. If you’re skittish when it comes to talking about what will happen when you die, chances are good that you don’t have an estate plan in place. Or perhaps you have a parent with whom you’re afraid to discuss the inevitable. It’s natural to feel reluctant about raising the topic, but it might help if you focus on the technical logistics, specifically, the effective transfer of your loved one’s property and assets.

Most people know that it’s a good idea to have a will that dictates who should get specific heirlooms, property and money from a person’s financial accounts. But vague ideas are not enough when it comes to estate planning. Failing to fill out the necessary paperwork could leave you and other heirs in a financial bind. If the thought of death scares you, consider the other of life’s two certainties: taxes.

Here is one example: An elderly Colorado woman whose daughter had been helping manage her accounts suggested they put the daughter’s name on the accounts. After the woman died, the daughter inherited the balance in the accounts, which amounted to $500,000. The problem was that the woman had siblings with whom she wanted to share the money, but she could not distribute their shares without paying taxes on it. Had the mother and daughter consulted an estate planning attorney or financial planner beforehand, they could have learned how to avoid that tax penalty.

This is a common problem among families who are uncomfortable talking about death and what that means for the family financially. IRAs, 401(k)s and other investments can often be transferred to heirs without tax penalties, provided they are properly configured often by writing a transfer-on-death clause. But the clauses have to be in place before the estate holder dies.

Once you draft this paperwork, which should start with a will, but also take into account retirement accounts and other existing investments — it’s important to revisit it every few years. The beneficiary you named on a 401(k) 10 years ago may list someone who isn’t in your life anymore, and even a more recent will won’t override that designation.

Talking about death isn’t easy, but focusing on something as routine as paperwork can make the conversation much easier.

Source: CNBC, “How to Prepare Financially Before a Loved One Dies,” Paul O’Donnell, Feb. 11, 2013

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