Estate Planning is crucial for protecting the life you’ve built and passing on a meaningful legacy. An array of elements go into building a thoughtful estate plan, from the attorney drafted documents to investments, real estate, insurance and more. While everyone’s estate needs are different, I’ve found in my +30 years of experience that most investors should be aware of three additional steps they could take:
- Name a trusted contact
- Designate a co-trustee
- A frozen living trust
1. Name a trusted contact.
The financial exploitation of seniors and vulnerable adults is a critical problem — and a serious estate planning concern. Should an advisor become concerned that their client may be a victim of suspicious activity or potential fraud, they need to be able to contact someone to check on their wellbeing. This “trusted contact” can provide general information to the advisor or even get in touch with the individual. By designating a trusted contact, you authorize your advisor to contact that person for limited reasons.
A trusted contact is someone your advisor can contact if:
- They are unable to contact you due to health, or other circumstances.
- They receive unusual requests or activities indicate a health issue or fraud.
Many estate plans fail to name a trusted contact. This person does not have oversight or power of attorney over your accounts, but they can be a safety net for your estate plan. If you are ever unavailable, your advisors, accountant or estate attorney will need a way to get information to you. Without this detail in place, your advisors may be unable to inform you of important actions you may need to take.
For example, a financial advisor notices suspicious activity on a client’s account. The advisor needs to alert someone of the account activity. But, the client had a medical emergency and has no trusted contacts. So, the advisor can’t act — risking further damage to the client’s financial account.
Utilizing a trusted contact for your estate plan can help you avoid this type of situation. The person you name can be a family member, friend, or even a neighbor. The goal is that you trust this person and feel comfortable with them helping you keep contact with your advisors.
2. Designate a co-trustee.
A thorough estate plan often includes a trust. But, a trust without a co-trustee in place can be like going boating without a co-captain. Should something happen to you (the captain) during your outing, everybody aboard risks being stranded, since no one else can steer the ship.
Co-trustees are people that you designate on your trust who can make decisions and support account management. They are typically a trusted family member. The goal is to protect you should you become unable or unwilling to handle day-to-day account functions.
Some people may think that having a power of attorney (POA) is enough to protect your estate. However, this thinking can be risky, since POAs have limits on what they can do, such as being unable to make financial or legal decisions when used with a living trust. Co-trustees could be able to fill administrative roles and help to further protect your estate goals. If you feel that this could be necessary for your estate plan, discuss the topic with your estate attorney to see if it is appropriate for your situation.
3. Avoid the hassle of a frozen living trust.
In my experience, two factors become a setback to settling an estate after the death of a spouse/partner with a living trust:
- The freezing of the accounts, which means they no longer are active
- The surviving spouse/partner’s inability to access the funds in the “frozen” account
All living trusts must have a tax-ID number for identification and to report income to the IRS for tax purposes. In the trusts I have seen, people have used the social security number of the husband or the partner designated with financial affairs. If this person dies first, some banks and brokerage firms will freeze that account until the surviving spouse/partner opens a new account with their tax-ID number. As a result, the old account’s funds become unavailable when the person most needs them.
A way to avoid this scenario is to open an account in the name and tax-ID of the other spouse/partner. By doing so, they can access funds in case of their spouse/partner’s untimely death. Another strategy could be to discuss with your attorney about acquiring a separate tax-ID number for your living trust that is separate from each trustee.
Bottom line: Be aware that some banks and brokerage firms may freeze your trust account upon the death of the first spouse/partner. Have a discussion with your estate planning attorney about a strategy to work around this obstacle.
The Takeaway
No matter if you’re still building your financial foundation or are in retirement, estate planning is always a critical element of sound wealth management. We can work with you to find the right path for your unique financial life — while coordinating our support with your trusted legal and tax advisors. Call us today at (619) 713-5950 to start the conversation. We’re ready to help!