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Estate Planning: It’s Not Just About the Money

The coronavirus pandemic put a spotlight on estate planning: More than a quarter of all Americans with a will got one because of COVID-19.1

However, estate planning—of which a will is just one small part—is about more than bequeathing your assets; it’s about ensuring your financial and nonfinancial wishes are executed both during and after your lifetime.

“Yes, creating an estate plan can help reduce taxes and ensure your assets are distributed according to your wishes after you pass away—but living wills, trusts, and especially powers of attorney can also provide guidance for your heirs should you become mentally or physically incapacitated,” says Benjamin Fernandez, a senior trust consultant at Charles Schwab Trust Company. “Think of it as a symphony, with each estate planning instrument playing its own unique part.”

Here, Benjamin and three other Charles Schwab professionals weigh in on how to protect your assets—and wishes—going forward, using four foundational estate planning tools.

1. Powers of attorney

Everyone needs to consider establishing powers of attorney. For example, if you’re not able to handle your affairs, who’ll manage your investments? Who’ll pay your bills? Equally important, who will be able to make health care decisions should you become unable to do so?

Powers of attorney come in four principal forms—each of which gives your designated agent a different level of control:

  • General, in which the designated person or persons can perform almost any act the principal can, from opening accounts to selling assets. A general power of attorney typically expires when the principal becomes incapacitated, revokes the power of attorney, or dies.
  • Limited or special, in which the designated person or persons can act on behalf of the principal only in certain areas, such as selling a home.
  • Durable, in which the powers granted to the designated person or persons typically persist even if the principal becomes incapacitated. Durable powers of attorney can be general or limited/special in scope.
  • Springing durable, in which the designated person or persons can perform almost any act the principal can—under specific circumstances, such as when the principal becomes incapacitated.

“Creating powers of attorney for financial and medical decisions is part of the basic foundation of any estate plan,” says Theresa Le, a senior trust consultant with Charles Schwab Trust Company. “None of us ever expects to become incapacitated—but it’s possible, so you should be sure to designate trusted individuals who can manage your financial and medical affairs in your stead.”

Even married couples should think about designating powers of attorney for financial and medical decisions. “A lot of married couples assume the healthy spouse will be able to take over when the other becomes incapacitated, but that’s not always the case,” Theresa says. “For example, if you need to sell a home that’s titled jointly and your spouse is incapacitated, you will need a power of attorney in place to act on your spouse’s behalf.”

When it comes to medical affairs, a spouse is typically able to make decisions for you without a power of attorney in place, but it may still make sense to designate one. “Older couples, in particular, may want to designate an adult child who can help make tough medical decisions, either in conjunction with dad or mom or in lieu of them should both become incapacitated,” Benjamin says. “Plus, naming multiple powers of attorney can help ease the emotional burden that a sole power of attorney might otherwise feel.”

2. Trusts

A revocable living trust allows you to retain control of your assets during your lifetime—as well as determine how the assets will be distributed after you pass. What’s more, assets placed in a trust bypass probate, the time-consuming and potentially costly legal process used to validate a last will and testament (see No. 4).

“If you have concerns about your beneficiaries receiving money in a lump sum—which is what happens with beneficiary designations (see No. 3)—you may want to create a trust, which can specify how and when assets are to be distributed,” says Shirley Raaen, a financial planner for Schwab. “Particularly for minors or adult children with credit or spending issues, a trust can provide protection for your assets and your heirs.”

If you do create a trust, be sure to designate a successor trustee—be it an individual, a professional, or a combination thereof (see “Perfect strangers,” below)—who can step in to manage the trust’s assets if you become incapacitated and after you pass away.

“When it comes to trusts, a power of attorney designation alone isn’t enough because it may be limited in scope and will end when you pass,” Benjamin says. “Naming a successor trustee ensures seamless management of your trust assets in the event you’re unable to perform the duties yourself.”

3. Beneficiaries

Naming beneficiaries to certain accounts is one of the easiest and most efficient ways to pass on assets to your heirs after your death.

“Most financial institutions allow you to designate beneficiaries online,” Theresa says. “With just a few clicks, you can ensure financial assets are passed on per your wishes—without going through probate.” (Review and update the beneficiary designations on your Schwab accounts.)

Generally speaking, assets that let you assign beneficiaries or similar designations include:

  • Bank accounts (via a payable-on-death designation)
  • Certain taxable accounts (via a transfer-on-death designation)
  • Life insurance policies and retirement accounts
  • Real property in some states (via a transfer-on-death deed)

“With such designations in place, the asset can transfer to your heirs without delay,” Theresa says.

Indeed, beneficiary designations override even your will, which is one reason you’ll want to review them regularly, especially after a major life event. “The last thing you want is to inadvertently leave money to the wrong person, such as an ex-spouse,” Theresa says.

4. Wills

 “If you don’t a last will and testament, the state decides who gets what after you’ve passed,” says Bob Barth, a Schwab wealth strategist.

What’s more, a will can designate guardianship for a minor child (or other dependents, such as a special-needs family member), so creating one is a must for parents and other guardians.

Even if you don’t have minor children, you can use a will to stipulate who will receive your personal effects, such as furniture, jewelry, or your prized book collection. “With families—and especially blended families—a will can help avoid a lot of headache over who gets what,” Theresa says.

Don’t delay

Whatever instruments you use, Theresa encourages everyone to put a plan in place sooner rather than later.

It’s easy to procrastinate when it comes to matters of life and death, to say nothing of sharing financial information, which in many families is considered taboo,” Theresa says. “But once clients go through the process, I can always sense from them an immense feeling of relief knowing that a plan is firmly in place.”

1Stacy Francis,“Op-ed: More people are creating wills amid the pandemic,”, 10/05/2020.

Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Charles Schwab Trust Company and Charles Schwab & Co., Inc. do not provide legal or tax advice. Consult with your legal counsel and tax advisors about your particular circumstances.

Charles Schwab & Co., Inc. (“Schwab”) is affiliated with Charles Schwab Trust Company (CSTC), the corporate trustee for Schwab Personal Trust Services (SPTS). Schwab may introduce clients to CSTC but does not evaluate whether SPTS is appropriate for each client or recommend SPTS for any particular client. It is the client’s responsibility to ensure that CSTC meets his or her trust needs and to conduct any due diligence that may be required before engaging CSTC.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.


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