Commentary

Myth Busting Common Estate and Retirement Planning Misconceptions: WHAT

Authored by summer associate Audrey McElrath.

This article is the first in a multi-part series on the value of legal guidance and services for estate and retirement planning and will address myths regarding the WHO, WHAT, WHEN, WHERE, WHY, and HOW of these topics. Estate and retirement planning affect not only wealth protection, distribution upon death, and building generational wealth, but retirement, healthcare in situations of reduced capacity or incapacity, end-of-life decisions, and funeral preferences.

In this article, I address common myths about WHAT estate and retirement planning involve.

WHAT?

Myth: “Retirement planning” means having a 401K, or at least some sort of retirement account. “Estate planning” is executing a will. I’ve done those things, so I am all set.

Having a 401K or a retirement account is a great first step in planning for retirement. Executing a will is also a good start to estate planning. However, there are valuable additional legal tools that can make plans for incapacity or end-of-life clearer, more manageable, and allow you to preserve your autonomy during these periods. These tools will:

  • Help you articulate your wishes;
  • Help honor your wishes;
  • Inform your loved ones of your wishes; and
  • Allow your loved ones to honor your wishes by mitigating the complexity of either process and minimizing opportunity for confusion, conflict, and costs.

Estate Planning

Let’s say you have a will. Well, it’s better to have something than nothing! Or perhaps you do not yet have a will, but you plan to write one. While this is a good start, estate planning encompasses far more than just the drafting and execution of a last will and testament.

Estate planning often includes the drafting and execution of not only your last will and testament, but also your advanced medical directive and power of attorney.

Depending on your situation, estate planning services can also include the following:

  • Final Arrangements Power of Attorney (to name the individual(s) you prefer to handle your final arrangements);
  • Testamentary Trust (to be incorporated into your last will and testament);
  • Revocable Living Trust;
  • Irrevocable Trust;
  • Special Needs Trust (for loved ones supported by government programs such as Medicaid or Supplemental Security Income); or
  • Transfer on Death.

When the instructions contained in these tools are not prepared in advance nor investigated before your passing, estate administration after your passing can be more cumbersome, time consuming, stressful, and costly (including in terms of missed opportunities to reduce expenses) than necessary for loved ones.

For example, with regards to estate administration[1] following your passing, after establishment of the validity of your will with the probate court, your personal representative[2] has the legal duty to: (1) take inventory of your assets; (2) complete accountings of your property; (3) pay for funeral arrangements to the extent they are not pre-paid; (4) distribute tangible personal property; (5) satisfy debts to your creditors; (6) manage ongoing expenses such as utilities; (7) sell or transfer real property; (8) pay your taxes, and (9) more. This can be a lot to manage in your absence and without sufficient guidance. Additionally, many of us are no stranger to the potential for interpersonal, family challenges that can complicate all of the above in the midst of grief.

In these ways, and others, estate planning in advance can have multiple benefits for you and your family.

Retirement Planning

Having a 401K or an IRA is a great first step in your planning for retirement. However, as with estate planning, retirement planning goes beyond setting up a retirement account, as it has more to offer you and your loved ones as you anticipate one day leaving the workforce.

First, it is important to understand that retirement planning aids estate planning. Where estate planning encompasses the distribution and transfer of your assets, payment of taxes, and satisfaction of debts at death, an effective retirement plan:

  • Optimizes retirement savings and expenses upon retirement, both for your personal care and for your family’s care;
  • Minimizes taxes, depending on whether the size of your estate triggers certain estate taxes; and
  • Maximizes assets passing to your beneficiaries at death.

In other words, retirement planning includes deciding how your property and healthcare will be handled upon retirement, incapacity, and/or when facing end-of-life care. It is a valuable step in gaining self-assurance about navigating the retirement phase of your life with greater financial security, as well as reassuring your loved ones that you have a plan in place should you seek continuing care in assisted living or a retirement community, require full-time care in a nursing home, or become dependent on their care.

ThompsonMcMullan Trusts, Estate, and Elder Law Attorneys

An experienced attorney will be able to counsel you on the above decisions and can provide guidance on when, in addition to legal advice, it may be beneficial to engage other professionals, such as a financial advisor, regarding financial investment or taxes. For professional guidance on estate planning or retirement planning, contact our experienced attorneys at ThompsonMcMullan today.

Next Up: WHO – Are Estate and Retirement Planning relevant to me? WHEN – I can wait until I’m older and ready to retire, right? WHERE – Can’t I just find documents online?

[1] Estate administration: The distribution of assets, satisfaction of debts, payment of taxes, resolution of the deceased person’s legal obligations, and management of remaining ongoing expenses by the personal representative of the deceased person following their death.

[2] Your personal representative will either be someone named in your will or someone qualified by the court to oversee the administration of your assets and payments of debts to creditors at death.