Sometimes in life we are forced to deal with unexpected events. In estate planning, we set out to create the customary control documents to address what is to happen with one’s estate when they pass. Those control documents are typically the Will, Revocable Living Trust (“Trust”), Durable Power of Attorney, and Advanced Health Care Directive. Those control documents control the passing of the assets in the estate, but they do not necessarily cover everything that needs to be done upon the sudden, unexpected passing of a loved one.
I recently met with a spouse who conveyed to me that she and her husband had done their estate planning, but she is not involved in the family finances and did not have a clear understanding of what they owned, or what would need to happen should she be faced with the sudden, unexpected passing of her husband. Her Trust set forth the assets that were transferred into the Trust, but she was not sure what that really meant or what she was supposed to do if she was faced with the unexpected passing of her husband. She and her husband had done the planning to put into place the control documents for the estate planning which laid out a basic roadmap of their estate, but those control documents did not tell her what to do in case of a sudden, unexpected passing of her husband.
I set out to go through their estate and provide her some guidance on how she could do some additional planning with her husband to give her some piece of mind. The key to this additional planning was communicating with her husband and becoming more knowledgeable in their affairs. If she was not interested in becoming more involved in the family financial affairs and becoming knowledgeable about them, she should at least discuss them with her husband and create a notebook that details what the various family assets are and what would need to be done when faced with the sudden, unexpected passing of her husband.
First, I recommended that she become involved in the family finances and payment of bills. This would give her some familiarity with their income and expenses. Who was being paid and when the various bills are due.
Second, I informed this spouse that their Trust set forth their bank accounts; where they were located and their account numbers. Not being involved in the family finances, she did not understand why there were various bank accounts and what each account was for. From my records, I informed her that these bank accounts were regular checking, savings, rental and investment accounts. I advised her that, in the notebook, she should make notes as to each account and what it is used for.
Third, I informed her that their Trust held their residence and rental properties. With respect to the residence, I advised her that her notebook should contain a reference as to who their property insurance broker was and his contact information and that payment of the bills would get her familiar with the amounts due and when throughout the month. She should also become familiar with when the property taxes are due and how much they are. With respect to the rental properties, I advised her to obtain copies of the leases and ascertain when the rents are due, how paid, what accounts the rents are deposited to and the various expenses associated with the rental properties.
Fourth, I informed her that their Trust held various interests in LLCs and corporations. Her notebook should contain an explanation of what the investments were and have copies of the Operating Agreements, corporate documents, and any Buy-Sell Agreements. She should become familiar with those investments and whether there are any monies received from those investments, where to deposit those funds, and are there any bills that need to be paid with respect to those investments.
Fifth, I informed her that we were aware of life insurance policies, but the beneficiaries of the policies were not primarily the Trust, but her personally as the primary beneficiary and the Trust as the secondary beneficiary. She should put in her notebook a description of the policy and who the brokers are. In all likelihood, the broker will contact her upon her husband’s passing but having this information in the notebook will provide her more information regarding the family’s finances and help with her future planning.
Sixth, I informed her that we were aware of retirement accounts that listed her as the primary beneficiary and the children as the secondary beneficiaries. These retirement accounts were not put into the Trust. I advised her that she should include in her notebook where the retirement accounts are located, their account numbers, and who the financial advisor was that maintained the accounts.
Seventh, I inquired with her about the family’s medical insurance and whether it was provided by the husband’s employer. She advised that the medical insurance was provided by the employer. I informed her that she would qualify for the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) continued coverage upon her husband’s passing for a period of time and then she would need to obtain her own insurance. Assuming Obamacare is then in effect, she could obtain her own replacement insurance once the COBRA coverage expired. I advised that her notebook should contain the name of the Human Resources employee she should contact to obtain the COBRA coverage.
Lastly, I advised her that she and her husband should discuss what the financial plan should be if he should pass unexpectedly. How much money would the spouse receive in life insurance and what sort of income could be generated by her after his passing, whether from investments, liquidation of assets, or obtaining employment? Should the house be paid off, should she downsize to a small residence to conserve funds, would she need to obtain employment? If there was not enough money in life insurance to avoid having to obtain employment, could they afford more life insurance? These issues require a discussion between the spouses and possibly the assistance of a financial planner.
In outlining the above to this concerned spouse, I emphasized the key was a discussion with her spouse and becoming familiar with the household finances. Her peace of mind in planning for an unexpected event would come from the knowledge she generates by becoming familiar with what they have and what needs to be done. It is always traumatic dealing with the loss of a spouse, especially when it is sudden and unexpected. However, that trauma can be reduced from the peace of mind of knowing what needs to be done in that unfortunate circumstance.