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How a Financial Advisor Can Ease the Pain of Settling an Estate Thumbnail

How a Financial Advisor Can Ease the Pain of Settling an Estate

The pain of losing a loved one can be even harder to work through when you're tasked with settling their estate. As you're sorting through complex legal and family issues, you also have to worry about fulfilling your loved one's last wishes and ensuring that their legacy will live on.

I hope this overview of settling an estate can help folks who are grieving work through the essentials as quickly and efficiently as possible. I also hope anyone in our audience who doesn't have an estate plan in place will understand how important it is to get your affairs in order and how a financial advisor can help at every stage of the process.

1. Understanding the Basics of Estate Settlement

In legal terms, an estate is everything that an individual owns, including money in banking and investment accounts.

An estate plan is a series of legal documents that explains how you want your estate to be managed and/or dispersed after you’re gone, and how you would like to be cared for medically if you are not able to speak for yourself due to incapacitation.

These documents include:

  • Last Will and Testament, which outlines your last wishes and explains how you want your estate to be distributed to your heirs and any other beneficiaries, such as charitable organizations.

  • Power of Attorney authorizes someone you trust to act on your behalf while you’re still alive if you are incapacitated or unable to make decisions. Be aware that your designee only has power of attorney while you are still alive.

  • Healthcare Directive dictating how you would like to be cared for if you become incapacitated.

  • Living Will designates a person to be in charge of making important medical choices on your behalf if you are unable to. This person might use your healthcare directive as a guide, or you can explain the thought process you want your designee to go through to aid in their decision-making.

  • Living Trust for those who may have a more complex situation or wish to keep their situations private.

    At Keen Wealth, we also encourage folks to work on a Legacy Plan that passes along everything you've gained over the years that's truly priceless: lessons learned, memorable experiences, and hopes and wishes for future generations.

    If you work with your financial advisor, attorneys, and tax professionals on a comprehensive estate plan, there's a much better chance that your heirs will avoid lengthy probate, which is a court-supervised process of settling an estate. Probate is part of the public record and can take months or even years, depending on the state of residence, the complexity of an estate, questions surrounding the validity of estate planning documents, and any legal disputes.

    In most states, the responsibility of settling an estate will fall to the courts if the deceased doesn't have an estate plan in place. That's when things can get messy, even in a family where folks generally get along. Please save your loved ones that additional heartache and hassle.

    2. The Role of the Executor

    The estate plan I outlined above grants someone you trust with power of attorney while you are still alive. You should also name an executor of your estate, who takes on the fiduciary responsibility to carry out your final wishes after you've passed. If you have a trust in place, you would have named a trustee to fill both these roles. For the purpose of this blog, we will refer to the post-mortem duties as those of an executor but keep in mind that a trustee would perform nearly identical duties.  Your executor will work closely with your financial advisor, attorney, and tax advisors to settle debts and distribute your assets as outlined in your will.

    Choosing an executor is a personal decision. You need to identify someone you trust who is capable, organized, level-headed, and self-aware enough to know when they need help from a professional. Don't default to your spouse or your oldest child if that person doesn't fit the bill. And while you're under no legal obligation to do so, if you explain to your loved ones who will oversee settling your estate and why, there's a much better chance of everyone respecting your choice and moving past hurt feelings.

    Another way you can make your executor's job easier is to show them where you've stored your estate planning documents, as well as important legal documents like your Social Security card, bank records, and passwords to your online accounts. I would also recommend introducing your executor to your financial advisor and attorney so that they know who to contact when the time comes.

    3. Gathering and Valuing Assets

    After you're gone, your executor will need to gather your estate plan and take account of your assets. In addition to personal items, the executor will also need to access financial accounts, property records, tax records, physical stock certificates, and safes or safety deposit boxes. Again, organizing these essentials ahead of time will make a complicated process a little bit easier for your executor.

    Once all your valuables are accounted for, your executor will need to determine their worth for tax purposes. Things like jewelry, art, real estate, and vehicles may require professional appraisal. Your financial advisor should be able to put your executor in touch with reliable appraisers. At Keen Wealth, we also use extensive checklists throughout this process to help executors make sure they aren't overlooking any property that needs to be assessed and/or distributed.

    4. Paying Debts and Taxes

    The executor will need to settle the estate's debts before beneficiaries can receive their inheritance. That means paying off credit cards, mortgages, and any other outstanding bills. The executor should also make sure they close all the deceased’s accounts and cancel subscriptions and recurring charges -- everything from streaming services to utility autopayments.

    While the rules around estate taxes can vary from state to state, according to the IRS, most "simple estates" won't have to file a federal estate tax return. Executors who are settling larger, more complicated estates should consult a financial advisor and CPA who can help them minimize potential tax liabilities for both the estate and its beneficiaries.

    5. Distributing the Remaining Estate

    Next, the executor will distribute assets per the last will and testament.

    Again, legal requirements will vary between states. There are also different rules for different assets. For example, as we've discussed on our podcast, there have been recent changes to how beneficiaries can inherit and take distributions from retirement accounts. Those distributions could also create income that the IRS will consider taxable, which might also be true for things like real estate or collectibles that appreciate after they are inherited.

    Communication between the executor and beneficiaries will be very important at this stage. The executor needs to be very clear and transparent about how the process is proceeding and how last wishes are being fulfilled. Dispersing assets often takes longer than beneficiaries are expecting, especially if an estate can't avoid probate. For some estates, it can be helpful to set up meetings between beneficiaries and the deceased's financial advisor to explain how vehicles like trusts and charitable foundations will be protecting and managing certain assets.

    6. Closing the Estate

    Once the executor has paid the estate's taxes and distributed all assets to beneficiaries, the estate can be closed. Usually, this involves filing any outstanding tax returns and, depending on the state, presenting a report to the court that includes the estate's final balance sheet, a record of tax and debt payments, and receipts from beneficiaries. The executor may also need to request a formal release from their duties, signifying that the estate is settled and the executor has no future liability.

    Don’t Go It Alone

    Even a modest estate needs financial and legal protection. Even the most capable executor may struggle with some of their duties. And every grieving beneficiary deserves to have the space and time they need to process their feelings and assume their role in carrying on a legacy.

    Let the experts at Keen Wealth ease some of the legal and financial burdens of settling an estate so that you and your loved ones can focus on what matters most.

    About Bill

    Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

    KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

    The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

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