When Rosemary Flanagan died two years ago at the age of 84, her family was stunned. She led an active lifestyle and showed no signs of slowing down before passing away in her sleep.
Although she was a mother to seven sons, none of them knew what to do with her estate. “I was planning on having this conversation with my mother about her estate planning, making sure that the lawyer was on board and that all of her accounts were up to date, but she died suddenly,” said one of her sons, Thomas Flanagan, 50, who lives in Chicago, Illinois where his mother also lived.
After discovering that their mother’s lawyer was no longer practicing and her will had not been updated in six years, the Flanagan family had no idea where to begin. While mourning their mother, Thomas and his siblings scrambled to find any documents that could shed light on her financial situation. It took a week to find her wallet, months to track down all of her IRAs, and more than a year to close all her bank accounts.
While death and estate planning can be a sensitive topic for families to broach, not having a plan in place can become an even bigger regret.
“There’s a big misunderstanding that estate planning is for wealthy people,” says Matthew McClintock, an estate planning attorney and spokesperson for EstatePlanning.com. “But it’s about making sure whatever you own goes where you want it to go in the most efficient way possible with the minimal amount of stress on the family,” he says.
To get started, here are three essential financial documents you need to prepare an estate plan.
An updated will or trust
The main difference between a will and a trust is that a will goes through probate, a formal legal process, to distribute your assets to those you name in your will. This process can be time-consuming and costly to your loved ones.
A trust, on the other hand, avoids probate, providing more privacy during the process of distributing your property. Trusts can cost more to set up, and you’ll still need a “pour over” will prepared as a safety net to catch any assets that may not get transferred to your trust. It would have to go through probate to administer any property not held in the trust. At the end of probate, the property gets "poured over" into the trust.
Durable power of attorney for property
This document gives someone authority over your financial affairs in the event that you’re hospitalized, disabled or incapacitated. But it’s only in effect while you’re alive. When you die, the power of attorney dies with you.
Who is the best person for this? CPA and attorney Mark Kohler recommends you appoint a close family member you can trust who is good with handling money.
When it comes to appointing someone to handle your medical directive – who would make medical decisions for you if you’re unable to communicate on your own – you may want to choose someone else in your family who you think can manage this aspect of your care.
Updated beneficiary forms on everything you own
In most cases, beneficiary forms for accounts including your 401(k) plan or IRA will override your will, so it’s important to take the time to update these forms when you’ve experienced a major life change such as a birth, death, marriage or divorce. If you can’t find the form, simply fill out a new one and print out a hard copy for your files. Certified estate planner Jean-Ann Dorrell recommends checking your forms at least once a year.
Two years later, the Flanagans are still missing some pieces to their mother’s financial puzzle, including a safety deposit box they cannot find with savings bonds and family heirlooms. Without a lawyer in the family, Thomas says it would’ve been too costly to navigate the complicated process on their own.
While you can buy a basic estate planning package online, it’s always a good idea to have a professional make sure your forms, directives, and trusts are correctly executed. If you’re hiring a professional to walk you through the entire process, you can expect to spend anywhere from $2500 to $5000.
No matter how uncomfortable the conversation might be, it’s among the most important ones you can have to spare your loved ones from unnecessary inconvenience while they grieve.
“As your circumstances change, your estate plan needs to grow and adapt as well,” says McClintock. “But the most important thing is to communicate and start somewhere.”