Last week, my wife Sue and I had a 20-minute unpleasant conversation. Not that we disagreed; rather, it was because both of us knew that we needed to quit procrastinating and finally update our-end-of-life documents.
Nearly two decades ago, we met with a lawyer to do our will and estate planning that required setting up credit-shelter trusts. Back then, only $600,000 per person was exempt from estate taxes; today it is whopping $5.43 million each. Obviously, the nearly $11 million current estate-tax exemption for a married couple is not a problem for us, nor is it for 99 percent plus of all Americans. Our old credit-shelter trusts are totally irrelevant.
Even though we have talked about seeing a lawyer for several years we have done nothing. Why? I think it is a double whammy: (1) Thinking about our ultimate demise is discouraging to say the least. (2) The whole process, with its legalistic language and complications, makes most of us feel stupid. (I still remember how dumb I felt after reading our 1990s trust documents.)
End-of-life- planning is complex, encompassing a whole range of necessary documents ranging from the simple to the complex. For example, one simple question is: Does your spouse or other heirs know your account numbers, passwords, etc. to access your investment accounts when you die?
Fortunately, T. Chris Clark, a local author from Winston-Salem, spent six years creating “The Household Financial Record Book.” It provides a workbook format hard copy that is a user-friendly way to list all your financial assets and even antiques, collectibles and heirlooms. It can be purchased at amazon.com for $15.99.
While we have been avoiding our visit to an estate lawyer to deal with complex business issues and our need to set up a trust so that our two beach condos at Atlantic Beach cannot be sold (we want our great and great-great grandchildren to enjoy them someday), we have done a good job making sure our investment account beneficiaries and health care documents are up to date.
All IRAs (and insurance policies) can be left directly to beneficiaries so that they will bypass probate. By listing “per stirpes” on the beneficiary form, the children of the beneficiary automatically inherit if the listed beneficiary has died first. Completed transfer on death (TOD) forms also bypass probate and are the preferred way to leave heirs money directly from taxable accounts.
If you inherit an IRA, from anyone but a spouse, you should do a “stretch IRA,” taking yearly distributions over your lifetime (based on your age) starting the year after his/her death. If that is not done, then the account must be completely withdrawn within five years. Spouses can treat inherited IRAs as they would their own IRA, or they can leave it as an inherited IRA. If the inherited IRA is not converted to the spouse’s own IRA, there are no required minimum distributions (RMDs) until the deceased spouse would have reached age 70½.
Besides the financial issues, we all need to consider our wishes for end-of-life care. Last month, on a trip to Iceland, we became friends with a doctor and his wife from California. We were talking about health POAs (health care powers of attorney) and how worried my wife Sue was that she wouldn’t “die with dignity.”
The doctor was adamant: Health POAs are sometimes ignored because relatives often insist that “everything possible must be done” to keep the patient alive. He said doctors are afraid of lawsuits if they don’t comply. He argued that it’s critical to make sure your closest kin know what you want.
We are big believers in hospice and the incredible caring services it provides. Both Sue’s father at age 95, and her mother at 99, died peacefully at home, using hospices services. Winston-Salem is indeed fortunate to have one of the nation’s best hospice programs.
Typically, with the nearly $11 million estate tax exemption for couples, very few people now need trusts. However, we will probably set up two — one to maintain our beach condos — and one for a 10-year-old grandson that will be a beneficiary from my IRA because his father died in 2011.
Given the inevitability of death, it behooves all of us to do proper planning to make it easier for our heirs. Easy to say but often difficult to do!
*Dr. Hungerford is not an attorney and does not practice law. The ideas are intended to be a basis for discussion with an attorney.
**Originally posted in the Winston-Salem Journal.