Earlier this year, the app developer, NordPass, conducted a survey around online passwords. They found that the average person keeps between 70 to 80 passwords. They must memorize, write down, reset that many passwords just to function in their life online. You may ask, “why is an estate planning law firm talking about passwords?” Honestly, it is a great question. The answer to that is a relatively new term called “Digital Assets”.
Normally when we talk about assets, we only think about physical items or financial accounts. In today’s world, everything seems to be shifting online. We do not get bills in the mail; we get it automatically taken out of our accounts and never see a bill. You can always look up the bill on your online account…which leads us back to your passwords. Nearly every bank and financial company in existence provides you with an online account to access your funds…which leads us back to your passwords. Maybe you were fortunate enough to invest in cryptocurrency like Bitcoin. That is not physical, you must purchase it through an online account…which leads us back to your passwords. Many people are forgoing physical pictures and just saving them online in their own account…which leads us back to your passwords.
So, what does this mean? It means that we need to start thinking about our passwords and our online accounts as assets. They are digital assets and they need to be protected like any other asset. This is a concept called Digital Asset Management. There are services that are out there like NordPass that sell their app to help you do this, but it does not need to be that intricate. It can be as simple as writing down all your passwords. In fact, we have created a document that you can download and fill out. Of course, we have added a few other helpful pieces of information like your closest advisors, your account information and where you keep your physical documents.
We call the document A Guide to My Life: My Advisors, Digital Assets and Documents. As we tell clients, you want to leave a way for someone to step into your shoes and take care of your life if you need help. That could mean that you are stuck in the hospital from COVID-19 for 3 weeks and need to focus on recovering. Even worse, if you die, you want to make things as easy as possible for your loved ones. Having all your affairs in one place is extremely important, especially as our lives become more and more digital. Again, you are collecting digital assets and that is great because it makes your life easier, but it also makes it more difficult for your loved ones to know where everything is kept.
For this document, we suggest printing it out and keeping it in a safe place. We understand that it would be easier to make it a fillable document that you can save on your computer. Frankly, we advise against that for 2 reasons. One, if you have it saved on your computer, someone is going to have to be able to access your computer, which can be difficult if it is password protected itself, and if they do get access, they need to know what to look for and where it is. Secondly, if it is on your computer, it could theoretically be hacked into. If it is hacked, again, your entire life is on there and people you do not want to have access to it will have access to it. Instead, we suggest printing it out, filling it out with pen or pencil and then keeping it in a drawer in your desk or somewhere else that your loved ones will look (or that you’ve told them about).
Even if you decide to use some other form of tacking your digital assets and other important information, we still feel it is important and recommend it to all or our clients. Communication is key with your loved ones and digital asset management is just one more aspect of estate planning that can make life, and death, easier for your loved ones.
In our last blog, we talked about the importance of a health care directive in the context of the COVID-19 world that we are living in. Additionally, we want to talk about another part of your estate plan, the financial power of attorney. We talk about these two documents together because they are useful while you are still living, opposed to your will and/or trust which are useful after you pass away.
To be sure, COVID has made planning more prevalent for a lot of people, but that doesn’t mean that when the virus is gone, we should forget about it. COVID is top of mind for many of us, but tragedy can strike at any moment. You could be in a car accident or have a heart attack or get struck by lightning and be stuck in the hospital for months. Frankly, the cause is irrelevant. What matters is that you have planned beforehand, so that your loved ones can take care of your matters while you aren’t able to take care of them.
The financial power of attorney allows someone, called the “attorney-in-fact”, to speak and act on your behalf. Imagine you are in a car accident that leaves you with severe injuries and lands you in the intensive care unit. Unfortunately, the companies that you do business with won’t cease their operations. If you owe them money, they are still going to ask for it. Your mortgage won’t go away. Your electric bill will keep coming. For that matter, Netflix will continue to take money out of your account. What the power of attorney allows is for someone else to be able to keep paying the bill if you want or shut off the account if it is not needed.
Something that may be a bit more important than Netflix or your cable is that your attorney-in-fact can work with your insurance companies on the claim on your car. Or they can work with your disability insurance company to make sure that money continues to get paid to you. The goal is for the attorney-in-fact to keep your life moving so that when you get out of the hospital, you can go back to life and not have to dig out of past due bills or spend time where to start financially.
The reality is that tragedy does strike people. Some of us will get hit harder than others. Some of us will need to leave a roadmap for our loved ones on how you want your affairs handled if you are incapacitated. We always recommend that you plan to make sure that your wishes are considered. We don’t want people guessing what we might want or doing what they think is best for us. Their intentions are good, but what you want is what matters. Financially, a power of attorney is how you explain what it is that you want.
In the past we’ve quoted a survey from Caring.com. Each year they do a survey gauging how many people complete their will. Frankly, the results are staggering to us. This month we’re going to be focusing on younger families, and more specifically what happens to kids when their parents die. Looking at the 2020 survey that Caring.com did, only 27.2% of people they surveyed between the age of 24-54 have a will (and it’s even less in the 18-23-year-old group). This is the chosen age group as this is the group that is typically going to have minor kids. We can assume those statistics are likely the same whether you have kids or don’t. That means almost 75% of people are going to leave it up to the courts to decide what happens to kids. The question we have is, is that really what you want, or do you want to decide what’s best for your kids?
Later this month, we will tackle what happens if you don’t have a will, but first let’s talk about what your will can and should do for you in deciding your children’s future if you’re no longer here to care for them. The first thing you will want to do is determine who the guardian will be for your kids. That’s probably self-explanatory, but that just means, who are your kids going to live with and who is going to care for their physical well-being. This is probably a question that you want to consider for more than just a couple of seconds. Many times, people will want to name their parents (i.e. the grandparents) as the guardians. At first blush, that may seem to be a good choice, but you will also want to consider whether your parents WANT to have a 2,5,8, or 10-year-old living in their house full-time? Or for that matter are your parents ABLE to care for a child full-time? Grandparents love to have their grandkids for an evening or even a couple of days, but could they handle having kids on a full-time basis?
Another thing to keep in mind is the style of parenting that you have versus what a potential guardian has. You want to make sure that your kids will be raised in a way that you are comfortable with. If you are strict with your kids, you likely want someone that is also going to have rules. Lastly, and maybe most importantly, remember this decision is about your kids. It’s not about the feelings of your parents, siblings or in-laws. It’s about your kids and what’s best for them. Many times, people feel an obligation to “keep things equal”. It’s not about keeping things equal. Your kids and how well they are taken care of is the only thing that matters.
The other part to consider is the financial side of things. You may be comfortable with the person that you name as guardian handling all the money, but you may not. If, for example, you name your sister as the guardian because she is such a good caregiver for her own kids, but you wonder if the money you leave for your kids will be spent wisely, you can name another person as a trustee. There could be a lot of money that is left to your kids in the form of proceeds from your house, life insurance or retirement accounts. You want that money used to care for your kids, not for frivolous expenditures that benefit your sister or her kids. If you want to have a fail safe in there so there isn’t even that temptation, you can name a trustee.
So, what does a trustee do? Essentially, your will sets up a trust for your minor children in which they get all the money that is left to them at a certain age (maybe 18, 21, 25 or any other random age you decide makes sense). In the meantime, your kids will need money for the every day things that they encounter such clothes, sports, food, school trips, or any other number of everyday necessities. The trustee would work along with the guardian to make sure that your kids’ money is being spent wisely. In other words, your sister that is the guardian would need to check in with the trustee before they can spend the money. It’s the best of both worlds. Someone that is going to be a good caretaker for your kids, and you can be sure that you have someone that is good with money to make sure your kids are financially cared for.
Parents do everything they can to care for their kids physically and financially. There is no reason that should stop just because the parents have passed away. A will is the legal structure of a plan that goes beyond your life.
One of the two main functions of your will is to determine who gets your stuff. Now, when we say stuff that means everything from your house to your car to your business to your investments and all the way down to the $2 knick knacks you have sitting on that shelf on the wall. Some of these things will have a high value and some of them are worth mere pennies. Some of them have tons of sentimental value and some of them don’t. Your will decides how to split them up. As an aside, many of these larger items in terms of monetary value can be taken care of with the appropriate deeds and beneficiaries, but anything that is not covered by a deed or beneficiary will be taken care of in your will.
Within your will you can decide how your stuff gets split. Some people may say that they just want their possessions to be split evenly between their kids. Alternatively, you may want to treat your kids differently. Maybe one of them helped you much more than the others and you want to financially reward them. Your will is the place to do that. If you want your church or a charity to share in your wealth, you would name them in your will.
What Happens if I Die Without a Will?
Now, you may say that you just don’t care how your stuff gets split up. Honestly, your kids or heirs may not care either. Unfortunately, that’s not generally what happens. What seems to happen more often than any of us would like to admit is it starts family fights. When there is a fight, it generally doesn’t end well. You see, a fight needs to be settled by someone (ie a judge in a courtroom) and you also need to have someone fight along with you (an attorney). Both of cost time and money. All that wealth that you worked so hard to build up ends up in the hands of people other than those that you want. Those arguments may be avoided by properly writing your will within your estate plan. Yes, hiring an attorney to write your will costs money, but we can assure you that the cost for a will is less than the cost to fight over it!
So What Happens to My Stuff When I Die?
So, what goes into writing your will so that the right people get your stuff? Frankly, writing it is the easy part. Deciding the best course of action through thoughtful decision-making is the hard part. If you’re giving your wealth to your adult children, you likely know their personalities better than anyone else. It’s your responsibility to decide whether they are able to handle receiving a large sum of money or if it will be spent in ways that you don’t approve of. You can decide that they get their payout at a certain age or if they get it right away.
When you decide to write your will, this is the area that you will spend the most time on. It’s important to not only write your will, but to also do it correctly. The worst thing that you can do is not put thought into it and cause more problems that you solved. We can’t stress enough that working with an attorney (even if it’s not us) is essential. When you do, you have a resource that can draw on the knowledge of what other people have done and what tends to work the best.
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What is a will and what does it do? It sounds like such a simple question. It should be, but the details often get lost in emotional discussions such as estate planning. As a law firm, we sometimes forget that what is an everyday discussion for us and that we take for granted is not a normal thing for others to talk about. Whether you haven’t every talked about your will or you have done all of your estate planning, reviewing what a will is and what it does is a good idea.
What is a Will?
To put it plainly, a will is a legal document that answers two main questions:
- What happens to your stuff?
- What happens to your kids when you aren’t there to protect them?
Like mentioned above, we sometimes take these conversations for granted, but it can be a difficult conversation. Not only do you have to ask yourself difficult questions that you may not know the answer to, but you have to admit your own mortality. Needless to say, that’s not fun. In fact, it can be downright scary. We don’t mean to give any more excuses to put off your estate planning any longer, but we find that there is no use sugar coating it to make our clients artificially feel better. In fact, you probably should feel a bit uncomfortable in making decisions that are so consequential to the people you most love. They are difficult, but important conversations and the worst thing that we and you can do is pretend that they aren’t. It’s OK to be scared. It’s OK to even be a little intimidated. That’s where your trusted advisors come in.
How to Write a Legal Will
The right attorney will guide you through that process. Like we mentioned before, we have these conversations on a daily basis. As a client, you can and should take advantage of that. Every person’s situation is different, but there are very few types of situations that your attorney hasn’t seen. You have the ability to use that knowledge and experience to your advantage. That is why you want to be comfortable with the attorney you choose to work with. We would love to say that Kiecker Law is the best firm for everyone (and, in our minds, we are), but even if we aren’t we want you to have comfort in knowing that your wishes are going to be honored.
Writing a Last Will and Testement
So, in a very brief way, we answered the question. What is a will and what does it do? Yes, it’s a legal document and decides where your stuff goes and what happens with your kids. We just talked a little bit of the process of what it takes to write a will, but in the next couple of months we will talk more specifically about the questions a will answers. We’ll talk about how we decide who gets your stuff and some things you might want to take into consideration. We’ll talk about what happens to your kids (if they are minors) and some things you want to keep in mind while making that decision. And we’ll talk about what happens if you don’t write a will. Throughout it all, we’ll give you a few thoughts on how we do things and some things that you might keep in mind regardless of what attorney you work with.
In our last blog we talked about “THE BAD PROBATE”. This time we want to shift gears and look at “THE GOOD PROBATE”. Again, we’re not here to pull the wool over your eyes. There is no such thing as a fun probate process. There are just really painful ones and less painful ones. In fact, if done correctly, your estate won’t even need to go through probate. The correct planning and documents will transfer ownership of your possessions without any court proceedings at all.
The less painful methods have all your instructions laid out about what you want done in your estate plan. It lets your loved ones know who should get what. It lets them get more of what you have built up. And it helps them avoid court rooms. So, you may ask, what does your estate plan include and how does it accomplish these things?
Wills, Trusts, and Deeds
We talk about a will and a trust. Your will guides your executor (the person you want to handle it) to know who should get what. Don’t get us wrong, the government does have a plan set up for you, but you must go to court to get everything approved and that costs money. If you have a will, your plans are already known so a judge doesn’t have to decide whether it is fair or not. It doesn’t matter whether it’s fair, what you want to happen is the only thing that matters. You get to decide who gets what and when they get it (specifically if you have children).
In certain scenarios, you may want to have a trust. Some scenarios that could drive you needing this are the size of your estate, whether you have a special needs child or if you want to gift a sum of money to a charity in a specific fashion among other things. If privacy is important to you, a trust may keep what’s happening within your estate private so only your family (and a few select court officials) know what is happening with your affairs.
Probate and Estate Planning
As we always say, a good estate plan also includes a financial power of attorney and a health care directive. In terms of worrying about a probate, neither of these documents will have an effect, but we feel it would not be responsible for us to leave them out when discussing estate plans. They are useful tools that should be considered.
Additionally, you’ll want to make sure that you’re using the proper deeds for your real estate. A fantastic tool that you can use within real estate is a Transfer on Death Deed, or a TODD. What this type of deed will do is automatically transfer your house or any other land to the correct person or people when you pass away. Again, you don’t need to worry about going to a probate court for them to decide that what happens. It’s already known by using this document. It’s very helpful and it’s certainly less expensive than going through the probate process.
Should I Consult a Probate Lawyer?
Something that isn’t often spoken about is making sure the beneficiaries on your retirement accounts and life insurance are properly listed. Often times, people just put a name down. In all actuality, they should be working in conjunction with their will and/or trust. The language to use is specific to you and can also save a lot of headache.
Essentially, there are a lot of tools out there to help you pass along your possessions without having to deplete the value for your loved ones. We strongly encourage everyone to go through the process of planning and reviewing their planning if you have already completed it. A little bit of pain for you now will prevent a lot of pain for your loved ones later.
What is Probate? Probate is simply a legal process that any estate with an asset worth more than $75,000 must go through. Inevitably, you’re going to hear from Forbes and Motley Fool and The Wall Street Journal and your preferred regional newspaper about how horrible it can be. And, we’re not going to lie to you, many times it is horrible.
We don’t believe in pulling the wool over your eyes. We want you to make the most informed decision that you possibly can. That’s why we’re going to explain to you what can happen if you don’t do appropriate estate planning. And then we’re going to explain what you need to do to avoid making probate a difficult, expensive and painful process.
How Much Does Probate Cost?
Let’s start out by explaining the why. There is no hard and fast answer to how much probate costs. We’ve seen estimates from as low as 2% to as high as 10% of your estate.
That may not seem like a lot on it’s face but remember that includes all your assets that don’t have beneficiaries listed on them. So, that excludes things like your IRAs, 401(k)s and life insurance. What it includes though is your house, any land you own, any stocks that you own, your cars, and any of your personal property.
Again, that may not seem like a lot, but it WILL start adding up. Take for example this scenario…. the median cost of a house in the state of Minnesota is roughly $250,000. Depending on where you live that could be substantially higher or lower, of course, but we’ll use that as a starting point. Add in your two vehicles at $15,000 each and the value of your personal property (jewelry, lawn equipment, clothes, etc.) at roughly $50,000. Assuming you don’t have any bank accounts or investment accounts of any value, your estate is suddenly worth $330,000.
Between court fees, attorney fees, executor fees and various other expenses, your estate could be reduced by between $6,500 and $23,000. Now, depending on where you’re at in your life, that could have some pretty sobering effects. If you have minor kids, that means they will get that much less to support them. If you’re plan is to donate your money to charity or church, they will get that much less to do their good deeds. Whatever it is you want, the person or people that you want to benefit, will get much less benefit. Add to that, there’s always the potential of infighting about who should get what and it doesn’t lead to a pretty picture. You can calculate the size of your estate on your own and use this chart to approximate the cost of your own situation.
Probate Cost Chart
|Value of Estate||Low Range||Mid Range||High Range|
That may not be fair, but that’s the reality. This is what we call “THE BAD PROBATE”.
So, now that we have also sufficiently worried and scared you, what can you do? Like we said, it doesn’t have to be that way. Proper planning and continual planning will help to avoid some of those headaches. So, what does that mean?
Proper planning is different for every person and family. To start out with, you need to get all your estate planning documents in order. This is going to include a will and maybe a trust. A good estate plan will also include a financial power of attorney and health care directive. They won’t do anything in terms of the probate but should be included. Depending on your situation and your goals, you may also need to have a trust. Additionally, you’ll need to make sure that all the beneficiaries on your life insurance and retirement accounts.
Additionally, you should review your plan every 3-5 years to make sure it still meets your wishes and evaluate your current situation. You may or may not need to change anything, but, at the very least, you should review it.
Again, probate can be a scary process for those you leave behind. It doesn’t have to be though. Leaving instructions for what you want done should make you sleep easier at night. You can know that your wishes will be known and followed, and you can also know that you’ve made things easier on those you care most about.