What You Need to Know About Estate Planning

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Morningstar's Christine Benz has created a month-by-month financial calendar, and for the month of August, it's all about estate planning. So, if you're creating an estate plan for the first time or haven't checked up on yours in a while, she is here to discuss some key jobs to tackle in August.

Good to see you, Christine. Thank you for being here.

Christine Benz: Hi, Susan. Great to see you.

Dziubinski: Christine, is there a particular reason that August might be a good month for estate planning?

Benz: Well, I've typically slotted it into August in my financial to-do list for the year because August tends to be kind of a sleepy month in contrast with the spring, which is tax season and year-end where we're often running around doing a lot of other things, year-end related, and we've got the holidays competing for our time. August tends to be a quieter time for many of us. Many people take vacation. And I also think the task of estate planning is something where people naturally need to do a little bit of reflection. So, I think that it's potentially a good time for people to tackle this job if they haven't done it. And I did notice also, Susan, that August is National Make-A-Will Month. So, that should be maybe an additional impetus for people to consider doing an estate plan.

Dziubinski: Now, Christine, does everyone need an estate plan? There might be some younger investors who maybe think they don't need to be concerned about this yet, or maybe other investors who don't have what they would think is a significant amount of assets who might not think they need to do any estate planning. What do you think about that?

Benz: Well, generally speaking, I would say that estate planning is most appropriate for older, wealthier people--or maybe most urgent, I should say, for older, wealthier people. Or for people who have minor children, I would underscore the importance of getting an estate plan done if that describes you. But I do think that there is this misconception that an estate plan is only for wealthy people, because estate planning is really just about laying the groundwork for your plans to go on, for your plans to be executed in accordance with your wishes if something should happen to you. So, it really does cut across life stage.

Dziubinski: And then, a related question is, over the past couple of decades, we've really seen sort of a proliferation of sort of software online tools to sort of do your own estate planning. Is this advisable? Or should people really seek out to be working with sort of a live human being on crafting these documents?

Benz: It's a good question, Susan. And these programs have gotten better and more sophisticated. So, I think it can be an economical starting point for people, especially for younger folks who have fairly minimalist situations just to get some of the basics done in a very cost-effective way. But one thing, I think, is important to point out in the realm of estate planning is that many of us have special situations in our lives, special needs or children with special needs, or blended families, or perhaps there has been a death in our family or a divorce. In that case, I think, it oftentimes can be money well spent to sit down with an attorney who focuses on estate planning. He or she can ask you questions to help you craft a plan that really does address the particulars of your life.

Dziubinski: What are the basic components of a good estate plan?

Benz: Well, the key things, I would say at the top of the list would be a will, powers of attorney for financial and healthcare matters, guardianships certainly for minor children. I would say really get on the stick if you have minor children and have not set up those guardianships. And living wills. I think of those as being really the key planks of any estate plan. And then, from there, there might be other parts of the plan that would be appropriate, but those would certainly be the basics.

Dziubinski: Christine, once we have our estate plans up and running, how often should we be revisiting or reviewing them?

Benz: Well, I would definitely use life events as a catalyst for revisiting an estate plan. So, marriages, divorces, births of children, deaths in the family. Those should certainly catalyze you to take a look at your estate plan. Oftentimes though, those are busy challenging times for all of us. So, I would put it on your list of items to review as you go through your annual portfolio review. Just ask yourself, "Well, has anything major changed in my life? Has anything major changed in terms of my financial accounts or my investment providers?" One thing that we know is that sometimes people don't make sure that their documents sync up with whatever the reality of their investments is today. So, I would put it on your annual to-do list as something just to kind of mentally reference and ask yourself whether there have been either big life changes or any big changes in terms of your financial plan or your investment plan and use those to catalyze action.

Dziubinski: And Christine, this is somewhat related and is also one of your to-do tasks for us for August, and that's to review your beneficiary designation on your financial accounts. Why is it so important?

Benz: I cannot talk about this enough, Susan, because beneficiary designations are so, so important, and it's stunning. I've talked to estate planning attorneys who have said, I've helped these people create this elaborate plan, cost thousands of dollars to set up this estate plan, and yet, the beneficiary designations did not reflect what we put in the estate plan. And people are surprised to learn that beneficiary designations will typically override what is laid out in the will. So, it's super important to make sure that those are current, those are up to date.

Here is another area where if you've changed investment providers, you may have forgotten to make sure that your beneficiary designations reflected your current reality, reflected what you wanted them to. So, check up on that. Certainly, check up on your 401(k) plan. We see this a lot where firms change providers--so, your employer may have changed investment providers for the 401(k). You may have forgotten to check up on your beneficiary designations. So, definitely put this on your annual portfolio review dashboard. You want to check those beneficiary designations annually to make sure they reflect your wishes.

Dziubinski: And you note that digital assets are becoming sort of this increasingly important aspect of estate planning. So, what are they? And what steps should we be taking to ensure that they're being handled in the way that we would like them to be handled?

Benz: Right. This is such an important topic, Susan. There have been whole books written about digital estates. There are a few key categories of digital assets. Anything intellectual property-related would count as a digital asset. So, that might be a book that you have written on your computer or music that you've recorded. Those would all be digital assets. And then, there would be social-media accounts that would fall under this umbrella as well, where people may be surprised to learn that their heirs couldn't automatically start controlling and even shutting down their social-media accounts, that there are special rules that each of these social media providers have that govern how they treat those assets. So, it's important to make sure if you're working with an attorney, if you're creating an estate plan to ask about those digital assets, make sure, especially if you have valuable ones, or even if you have sort of the plain-vanilla social-media accounts like many of us have, make sure that you've created a plan for the afterlife of those accounts.

Dziubinski: Lastly, Christine, you say now is also a good time to take a look at what you call the softer aspects of an estate plan. What do you mean by that?

Benz: Right. Susan, I've written about this topic, and we've talked about it before. But there are a lot of things that are important to an estate plan that you won't necessarily discuss with your attorney, but instead, should discuss with your loved ones at a time when everyone is feeling comfortable. And the key topics I would hit with them would be your attitudes toward life-sustaining care. So, you may have laid out some of that in your estate plan. But I would put some color around your attitudes toward life-sustaining care. Maybe your attitude is loved ones, I want you to do whatever is going to give you the most peace. But I would get specific about that with your loved ones. Get specific about what you think your funeral or memorial service might look like. Maybe again, your attitude is, I have no opinion on this, I leave it to you. Your attitude toward the disposition of your personal property; things that you find valuable, you may even want to add a rider to your will that would dispose of those personal articles that you find most near and dear. And finally, I like this idea of creating an ethical will where you impart to your loved ones your attitudes toward life, the things that you believe, the experiences that gave you most value in life. I love the idea to the extent that you're comfortable doing so of creating a document that is nonfinancial in nature, but I think nonetheless, one that your heirs, your children, grandchildren, other loved ones might find super valuable to inherit from you.

Dziubinski: Well, Christine, thank you for your time today and for your insights into this really important topic. We appreciate it.

Benz: Thank you so much, Susan.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.