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Crisis Makes Estate Planning More Urgent

Christine Benz outlines must-have documents for your estate plan.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Creating or updating our estate plans very often falls to the bottom of the to-do list. However, Morningstar's director of personal finance, Christine Benz, suggests that we use this crisis as a reason to look at our documents and make sure everything is in place that we need. Today we're going to talk about a few key issues that should be top of mind.

Christine, thank you for joining us today.

Christine Benz: Susan, it's great to be here.

Dziubinski: Now, the current crisis that we're in the midst of is, first and foremost, a healthcare crisis. So maybe we should start there. What are some important healthcare documents that we should have in place as part of our estate plans?

Benz: Absolutely. So at the top of the list would be naming someone to serve as power of attorney for healthcare, and the basic idea is that you're entrusting someone you trust to make healthcare decisions on your behalf if you're unable to do so. Everyone needs a power of attorney for healthcare. Regardless of your financial circumstances, regardless of your level of wealth, it's absolutely crucial that you legally document who you want to make these decisions on your behalf.

It's also worthwhile for everyone to have what's called a “living will,” and the idea there is that you are spelling out your attitudes to healthcare, to life-extending healthcare. So you should have that living will. You should share it with the person who is your power of attorney for healthcare to make sure that he or she is aware of your attitudes toward life-extending care.

Dziubinski: Now let's pivot over to the financial side of things. What are some of the documents that are essential there?

Benz: Well, here again, power of attorney is important. And you have two powers of attorney: one for healthcare, one for financial matters. And they don't need to be the same person, but you're delegating responsibility for carrying out your financial affairs to someone if you're unable to do so. So those are absolutely crucial.

Having wills is also important, where you are laying out what you would like to happen to your assets and your other possessions if something should happen to you. And finally, beneficiary designations tend to be really underrated when it comes to estate planning. Many people don't recognize that even if they've gone to the trouble of creating expensive estate plans with the help of attorneys, the estate plans are oftentimes overridden by what they have laid out in their beneficiary designations.

So it's absolutely crucial to take a look periodically at your beneficiary designations. I recommend a once yearly review of those. Sometimes if you've changed investment providers, they might not necessarily have poured it over. Or perhaps you've had a change in your own family situation where the person you wanted to be your beneficiary in the past might not be appropriate anymore. So make sure that you're periodically revisiting those designations and keeping them up to date. They're super-important.

Dziubinski: And what about parents who have minor children?

Benz: Absolutely crucial. So you want to make sure that you have named guardians for those minor children. And make sure that your guardians are aware of your thoughts, make sure that they're comfortable with the potential obligations that could come along with the honorific of being named a guardian.

Another thing that I think about, Susan--and this might seem kind of small in the scheme of things--but to pet owners who have animals in their lives, I think you want to think through who would serve as caregivers for those animals if, for whatever reason, you were unable to take care of them, either short-term or long-term. I think it's wise to line up who would be the guardians for any pets in your life.

Dziubinski: And what about trusts, Christine? Who needs them these days?

Benz: Well, 15, 20 years ago, trusts were sort of a standard prescription for even moderately affluent couples, especially they would set up these A-B or bypass trusts. Now, the estate-tax exclusion is really high. It's over $11 million per person. That means that married couples would need to have $23 million in assets together to be subject to the estate tax.

But nonetheless, I think that parents of minor children, in some cases, may want to investigate trusts, particularly given that the Secure Act, which passed through Congress in late 2019, did away with what's called a “stretch IRA.” So it's something to investigate. If you're sitting down with an estate-planning attorney to talk about firming up the rest of your documents, you might ask whether a trust might be appropriate for your situation.

Certainly for people with special-needs individuals in their lives, they too may investigate whether a trust may be appropriate. Very often, that is the right answer for families with special-needs children.

Dziubinski: Lastly, Christine, you think that now is also a good time for us to look at some of our nonlegal financial documents. What do you mean by that?

Benz: Right. As you know, Susan, we've talked about this idea of having a master directory, and the basic idea is that you're creating a spreadsheet or some document like that, where really you're outlining your major financial relationships. So the brokerage firms and mutual fund companies that you have accounts at, what your account numbers are, any individuals you deal with at these institutions--lay that out in a document.

You want to keep it very secure because of course this is information that could be very valuable in the case of identity theft or some other situation like that. So if it's an electronic document, you want to go to the trouble of password-protecting it or encrypting it. If it's a physical document, you certainly want to keep it under lock and key.

And from a practical standpoint, I created one of these master directories, and I also created a little bit of a narrative along the lines of, "I have these four accounts," and just to sort of spell out the basic framework of our financial plan, just because that master directory might be just a little bit difficult to get your head around as a standalone element. I think having a little bit of a narrative discussion can also be helpful if you have the time to go to the extra trouble.

Dziubinski: Well, Christine, thank you for your time today and for helping elevate this further up on our to-do lists than maybe it's been, and giving us the direction that we should take with it. We appreciate it.

Benz: Thank you so much, Susan.

Dziubinski: For Morningstar.com, I'm Susan Dziubinski. Thank you for tuning in.