This is a topic many people avoid discussing or taking any action on, because it is surrounded by the most intense emotions we will ever experience. Experiencing the deaths of loved ones or the mental anguish of just imagining what it might feel like through our fears, our emotions run deep. It is no wonder we do not want to discuss or imagine our own end-of-life.
But, while our lives do not go on forever, we can control to some degree what that experience will look like financially. We can lessen the emotional impact our loved ones will experience, make our wishes known so our legacy continues beyond the grave, or provide financial security to those who depend on us financially. The catch is that we have an unknown window of time to put the plans in place, to make this happen.
Some strategies can be implemented as soon as the documents are signed. Other strategies can take years to execute before your death. If that window closes before actions have been taken or completed, your legacy may be incomplete. But one thing is certain… you have an estate plan, whether you like it or not. You either choose to consider, discuss, and implement a plan that you control, so your end-of-life happens the way you want it to, or how the courts decide without your input. This is one of the inevitable realities of life.
This message is especially tailored to women, because your financial situations often come with unique challenges and opportunities. It is my final blog created specifically for Women’s History Month. If you’re a woman, you are likely to outlive a man by almost 6 years, according to research published in JAMA. This means that the odds are you will be left with the responsibility of making sure your family’s estate transfers to heirs in a way that you want it to. While it is a tough subject, my goal today is to empower you with knowledge and tools so you can take control of your financial journey all the way to the end, with assurance.
So, let us dive into what you need to know to secure your finances and prepare for the legacy you will leave behind.
Step 1: Why This Conversation Matters
The first step is to find the motivation to act. As just cited, statistics show that women outlive men by about six years. This means that often women are left to manage their finances alone in the later stages of life.
Additionally, women are financially challenged by:
- Income Disparities: Women frequently face wage gaps throughout their careers.
- Caregiving Responsibilities: Time taken off work for caregiving can impact income and retirement savings.
- Longevity Risks: Living longer means you will need more resources for retirement.
When it comes to couples, end-of-life decisions and leaving a legacy have two major components:
- How to transfer assets from your spouse or partner
- How to transfer assets from the survivor to heirs
The problem is that we do not know which of you will die first. Additionally, you may both have different opinions on how to transfer your assets, especially if either of you were previously married and/or have children or adult children.
These challenges are not insurmountable, and with some strategic planning and intentional decision-making, you may be able to overcome these hurdles, plan your financial future, and make sure your “stuff” goes to the people, charities, or organizations you would like it to.
Step 2: What does this conversation look like?
Now that we know how important the conversation is, let us talk about what that conversation looks like. Consider questions like:
What Are Our Shared Estate Goals?
- Do you want to prioritize supporting each other financially during your lifetimes?
- Do you want to provide for specific heirs, such as children or grandchildren, after your passing?
- Do you want to leave a portion of your estate to charities or causes you care about?
Who Should Be the Beneficiaries of Our Estate?
- How do we want to divide assets among heirs? Equally or based on specific needs?
- Should certain individuals receive specific assets, such as family heirlooms or real estate?
- Are there any beneficiaries we want to exclude, and why?
How Can You Minimize Taxes and Legal Fees?
- How will the surviving spouse's tax filing status change, and what impact will that have on income taxes?
- Are there tax implications for Social Security benefits or pensions after one spouse passes away?
- Should we explore legal tools like portability of the federal estate tax exemption?
- How can we organize and streamline our estate documents to save time and reduce legal fees for our heirs?
- Will we be subject to federal or state estate taxes, and how can we reduce those obligations?
- Do we need life insurance to cover potential estate tax liabilities?
Who Will Oversee the Distribution?
- Consider trustworthiness and availability.
- Is this someone you trust and who will accept the responsibilities?
- Also, identify multiple people, in the event your primary person or persons is or are not willing to accept the responsibilities or who predecease you.
Other questions you may want to consider include:
- What Legal Documents Do You Need?
- How Should You Title Joint Assets?
- What About Long-Term Care Needs?
- What’s Our Plan for Digital Assets?
- How Do We Communicate This Plan to Your Heirs?
- How Often Should We Review and Update Your Plan?
For more information on having this conversation, go to the resources tab on my website at milliganwealth.com and navigate to the Estate section. There, you will find other videos, articles, resources, and tools to help you with this difficult conversation. You can also connect with me to discuss this topic in greater detail relative to your specific situation.
Step 3: End-of-Life and Legacy Planning
Now, let us move on to some essential components of your end-of-life considerations.
- Create a Will and Mabe a Trust:
- A will ensures that your assets are distributed according to your wishes. It is often called the cornerstone of estate planning. If you die without a will, this is called dying “intestate,” and the state will determine what happens to your “stuff,” including your minor or dependent children. Unless you want this to happen without your input, you should strongly consider putting together a will.
- A trust might be necessary if you have minor children, complex assets, or want to avoid probate. It can also provide instructions for how your money is to be used after you are gone. If the purpose of the trust is to protect the survivor or assets and is set up correctly, whatever is held in the trust might avoid being part of the estate or subject to creditors. Planning well in advance and using trusts could help you and your spouse or partner make sure the survivor has protected access to the funds or property without having to worry about lawsuits or taxes.
- Designate Beneficiaries:
- Review and update the beneficiaries on your retirement accounts, insurance policies, and bank accounts regularly. These designations override what is stated in your will. I often tell clients to avoid putting assets in a will that have a beneficiary designation. While the beneficiary designation overrides a will, it can create confusion and might even cause your assets to transfer in a way that you did not intend.
- For many of your assets, this move alone will ensure that certain assets avoid probate. The transfer can be quick and seamless, depending on the type of beneficiary designation used.
- Set up Ownership Titling Strategically:
- Another way to avoid probate is to strategically structure ownership of your assets and property. Make sure ownership is titled properly.
- The laws and terminology are often different from state to state, and this topic is too lengthy to cover in this video, but some types of ownership are Joint Tenancy with Right of Survivorship, Tenancy by the Entirety, and Transfer-on-Death (TOD) or Payable-on-Death (POD).
- Be careful when splitting ownership with someone. Not only are you making them part owner of your property or account, but you may also be making yourself liable for any bad debts that person generates relative to that account, especially if it is a financial account. For example, if you have a joint checking account with an adult child and they write bad checks, you may be liable for covering those bad checks.
- Advance Directives:
- Establish a living will and designate a healthcare proxy to make medical decisions for you or your spouse or partner if you are unable to. This eliminates ambiguity and ensures your medical wishes are respected.
- The living will establishes what you would like to happen in certain medical situations while the healthcare proxy gives someone the authority to make medical decisions for you.
- Often, people try to make this too easy by saying that they are fine with whatever their spouse or partner decides when that time comes. However, think about how difficult and stressful that might be for your partner. Also, when there are other people involved, like children or siblings, there can be pressure and resentment for decisions that were made well after death.
- Funeral Planning:
- Consider pre-planning your funeral arrangements to save your loved ones from financial and emotional stress. Detail your wishes to avoid confusion.
- Have this talk with your spouse or partner, however stressful it might be.
- Consider searching around for a funeral home and scheduling a meeting with someone to discuss the process.
- Power of Attorney:
- Choose someone trustworthy to manage your finances if you’re ever incapacitated. This person can pay bills, manage investments, or oversee property transactions on your behalf.
- This person needs to be someone you trust greatly. However, you can put restrictions on what they are able to do with your assets. Work with your estate attorney and financial advisor to create a power of attorney that fits your specific needs.
By following the above three steps of understanding how important it is to have an end-of-life planning conversation with your spouse or partner, the types of questions you should discuss, and many of the tools used in estate planning, you should feel empowered to better make decisions about how you want your estate to transfer between you, your spouse or partner, and your heirs or charities.
Remember, financial planning is not something you have to do alone. Whether it is organizing your documents, starting conversations with your family, or seeking professional advice, each step you take builds a foundation of security and strength.
Sources:
Yan BW, Arias E, Geller AC, Miller DR, Kochanek KD, Koh HK. Widening Gender Gap in Life Expectancy in the US, 2010-2021. JAMA Intern Med. 2024;184(1):108–110. doi:10.1001/jamainternmed.2023.6041
Disclosures:
This article was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you need tax or legal advice, discuss your specific situation with a qualified tax or legal advisor.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.