Wicked Simple Estate Planning

Out of the main financial planning areas recognized by the CFP board, which include Cash Planning, Risk Management, Investment Planning, Tax Planning, Retirement Planning and Estate Planning, it’s Estate Planning that seems to be the most daunting.  I’ve sat with estate planning attorneys who don’t have their own will, and talked with financial advisors who feel that this is the area they’re least comfortable with.

It may be that this perception arises from a wide swath of estate planning tools and techniques that arose in the 80s and 90s, most of them aiming to avoid estate taxation.  For quite some time, estates above $600,000 were subject to federal estate taxes and attorneys and insurance companies spent a lot of time manufacturing products and strategies to help people pass on wealth outside of that taxation.

Starting in 2018, estates beneath $11.2 Million (or $22.4 Million for a married couple) essentially aren’t subject to federal estate taxation.  Some states do levy state ‘death taxes’ at much lower levels, but many, including Maine tie their state exemptions to the federal level.  This may change, but for now, estate taxation and all of the exotic schemes to avoid it, don’t need to be on the list of most people’s estate planning concerns.

Another potential cause of ‘Estate Angst’ may well come from the probate process.  For most people who act as executor or personal representative, probate is new, seemingly complex, and often undertaken at a time of stress with the recent death of a loved one.  Probate is an orderly process intended to disburse estate proceeds fairly, but at the end of the day it is also time consuming, public and in some areas, expensive.  Avoiding probate is often one of the focuses of modern estate planning.  Fortunately, there are estate-planning techniques that are astonishingly simple and that also keep assets out of probate.


When you enroll in your employer’s retirement plan, start an IRA, or take out a life insurance policy, among other things, you fill in a ‘box’ asking you for your beneficiary information.   Whether you know it or not, you’re doing some serious estate planning when you complete this box.   Assets pass at death exactly as you specify in that box, and whether you’ve prepared a will or not doesn’t matter at all – because since you’ve designated a beneficiary, these assets do NOT go through probate (and a will is just a list of instructions to the probate court!)  Beyond the simplicity this causes, you are executing on some significant tax planning strategies by filling in that box as well.  Tax-deferred retirement plans create tax obligations for people who inherit them, but ‘designated beneficiaries’ are given more options on how to handle those tax obligations.  Spousal beneficiaries may owe no taxes at all, and non-spousal beneficiaries may be able to spread taxation over a much longer period of time as a result of special treatment afforded to ‘designated beneficiaries.’  This can result in huge tax savings relative to if someone inherited these assets from the estate.   So pat yourself on the back – by filling in the beneficiary box, you are already an estate-planning Ninja!

There are often ways of getting that beneficiary box filled in, even outside the normal retirement plan-insurance policy arena.  Many non-retirement accounts (savings  and checking accounts, mutual fund or brokerage accounts) can also be set up with beneficiary designations.  This is accomplished by changing the registration of the account to a “TOD” (transfer on death) or “POD” (payable on death) registration.   Just ask your bank, broker or advisor.

Keep in mind that since these beneficiary transfers move assets out of the estate before the Probate court, it’s important that they are reviewed and kept up-to-date.  Designations made in your will do not impact these assets at all, because the will doesn’t come into play until the probate step.


Lastly, how you own an asset can also be powerful when it comes to estate planning.  If you own an asset, say an account or a house, along with someone else, the way that asset is titled can also help with probate avoidance, at least temporarily.  By titling the asset as “Joint Tenants with Rights of Survivorship”, or JTWROS, you share ownership in an asset with someone else.  At your death, your share of the ownership goes to the other owner.  No probate. No hassle.  Very powerful estate planning that’s as easy as falling off a log.  It’s important to point out that this is very different from titling an asset as “Tenants In Common,” or TIC.  With the TIC ownership structure, if you die, your portion of ownership remains a part of your estate instead of automatically going to the other owner.  While this may be an appropriate ownership structure depending upon the situation, it’s not really an estate planning tool.

Sure, there are likely to be assets that have neither beneficiary designations nor JTWROS ownership, and at your death these will likely need to be probated… so having a will is still important, along with other things like a healthcare agent appointment and a living will.  And, if you have special circumstances or want to control assets after you’re gone, other, more esoteric, tools might be appropriate.  But for most people, their retirement plan assets, life insurance and their residence are the largest part of the estate, and paying close attention to the simple tools of “Planning by the Box” and “Planning with Ownership” puts you well down the road of having a proper estate plan.

Well done!