5 Documents to Prepare Now for Your Heirs

 

 It can be hard to distill a lifetime of accomplishments and dreams into a stack of papers for your heirs. Getting these documents together, however, will be a final parting gift for the ones you love

No one likes to think about death and end-of-life arrangements. However, being prepared for the inevitable is not only a smart thing to do, it's also a kind thing to do for loved ones.

Failing to put your paperwork in order means family or friends will have to rely on the probate court to determine the fate of your property. Depending on your state, that could entail hiring a lawyer, paying court fees and waiting for a judge to decide how best to distribute assets.

What’s more, heirs may miss out on life insurance benefits or overlook accounts because they don't know they exist. 

"If you do it right, there is additional (financial) return for your heirs,” says Travis Anderson, managing member of TBH Advisors in Brentwood, Tennessee.

That's why it's crucial for you to have important documents ready for your loved ones. Here are the 12 documents you should start preparing now:

• Will.
• Trust.
• Letter of explanation.
• List of financial accounts and beneficiaries.
• Personal inventory.

1. Will

When it comes to estate planning, a will is likely the first thing that comes to mind. This legal document lets you name an executor to carry out your wishes, heirs for your assets and a guardian for any minor children you may have.

Wills can also be used to make arrangements for pets.

"Clients frequently enjoy naming their specific pets in the will, but the provision should always include the named pets ‘and any other pets I may own at my death,’” says Lucy Marsh, a professor in the Sturm College of Law at the University of Denver. It’s a good idea to name a specific person in the will for pet care, along with a backup choice.

2. Trust

“Everyone knows the will, but the will is not the best way to pass on assets,” says Kelsey Simasko, an elder law attorney with Simasko Law in Mount Clemens, Michigan. That’s because a will still needs to go through the probate process. Instead, she recommends using a trust.

Trusts bypass probate court and also allow more control over how assets are distributed. For instance, a trust can stipulate that minor children won’t receive unfettered access to their inheritance until a specified age. That way, the money “can be used to enhance their life, not ruin their life,” Simasko says.

Even those with a trust should write a will, particularly if they are a parent to minor children. The will, rather than the trust, is where you indicate who you do – or do not – want to have guardianship.

3. Letter of Explanation

While the will or trust stipulates how assets are to be divided, a letter of explanation can provide the rationale for these decisions.

This can be especially important in instances when assets are not being divided equally. Knowing why a sibling was chosen to receive a larger share of an estate may help avoid animosity between family members.

Consider sitting down with heirs to share this information in advance.

"You can’t leave these big reveals for the lawyer,” Simasko says. If sharing this information feels awkward and uncomfortable, she suggests to her clients that they invite adult children to a meeting in her office. That way, an attorney can serve as a neutral third party to the conversation.

4. List of Financial Accounts and Beneficiaries

Maintain a list of all your finances, including bank and retirement accounts and brokerage funds. Each of these accounts can have a designated beneficiary or transfer on death provision, known as a TOD. Beneficiaries or TOD designees automatically get ownership of the asset after you pass away.

It’s not unusual for people to forget to update beneficiaries on accounts or assume they don't need to worry about beneficiaries if they have a will. However, whoever is named beneficiary receives the asset even if the will says otherwise.

For that reason, it’s important to revisit these documents regularly. “Your estate plan changes just like your life does,” Anderson says.

5. Personal Inventory

Most wills distribute personal property in broad terms, such as designating jewelry to one person and household goods to another. To ensure nothing important gets overlooked, it's also helpful to have an inventory of personal items available.

“It helps with personal effects and alleviates a lot of stress,” Anderson says. That may be especially true if you have items stored elsewhere, such as a storage unit, that your family might not know about.

In some states, a personal property memorandum can be used to indicate who should get specific items. “This is a great way for people to be able to say who is to have various small items, such as fishing poles, special bits of jewelry, special quilts, dishes, and the like,” Marsh says.

“Only tangible personal property – things you can pick up and hold (excluding money) – can be included on one of these memorandums,” Marsh adds. What’s more, the memorandum is valid only if it's mentioned in the will.