Spring Cleaning: Three Financial Planning To-Do Items

Spring is the time of year when we focus on organization; having that discipline to focus on those unexciting tasks that fall into the “not urgent, but important” list. In the spring, we might clean out areas like the closet, garage, pantry and basement; getting rid of the unnecessary and streamlining the useful.

In this season of organization, it is likewise a good time to focus on planning tasks that are not particularly urgent but are incredibly important. While that list could be long, this article will focus on three such tasks: (1) reviewing beneficiary designations, (2) updating critical roles and (3) empowering your people to do what you want them to do.

1. Beneficiary Designations 

In a thirty-year planning career, I cannot tell you how many times I uncovered a misalignment between clients’ plans and their beneficiary designations. Why is that problematic? First, for assets that allow beneficiary designations, the named beneficiary takes precedence over a contrary choice in a will. For example, if I have a brokerage account that names one of my children and I update my will to leave my assets to all of my children, the brokerage account will go solely to my named child (the beneficiary designation trumps the will regardless of the timing of each). Second, property that passes by beneficiary designation avoids the cumbersome and expensive post-death process known as probate. Property that passes by will does not. So, your first organizational to-do this spring is to review all your financial accounts, ensure they have a beneficiary designation (to avoid probate) and, finally, make sure under those designations, the right people are getting the right stuff.

2. Confirm You Have the Right Players

Another common planning mistake I have seen frequently over my career is that clients have stale estate-planning documents. What I’ve always found interesting is that clients assume that the risk with dated documents is that a change in the law will make their documents inert. In my experience, these laws change infrequently and immaterially; a change in the law is rarely the reason documents become outdated. The most common reason these documents no longer work as intended is a change in circumstances, especially surrounding the people clients choose to undertake important roles. In my experience, most clients prepared their first set of estate-planning documents when their first child was born. And the impetus for that timing was to name a guardian (the person who raises the child) and a trustee (the person who handles the finances) for the child.

Frequently, the next time they would revisit planning is much later, when their children are teenagers and the family is going on a European vacation (side note—the biggest gap between beliefs and statistics in my career was the difference between how dangerous people assume it is to transverse the Atlantic Ocean and the number of midair, mid-ocean catastrophes). In other words, the time that has passed since the original planning documents has been a decade or two. And it is almost always the case that the people the clients want to play critical roles in their plans (financial decisions, health care decisions, parental decisions) has changed.

I always tell clients that there is nothing more important in their planning than “the whos”—the people they choose to make their most important, sometimes life or death, decisions. So our next task this spring is to pull out our estate-planning documents, sweep off the dust, and review who are named as key players. If nothing has changed, fantastic. But if things have, set a meeting with your planning team to update your personal team. 

3. Empower Your Team to Do Their Jobs

A third common planning error I have frequently experienced is when we have a meeting with clients that we call the “fake funeral.” While clients are alive, we begin discussing the practical issues that will arise after they are gone. Some are mundane; others emotionally resonant. Examples of discussion topics:

• How do you manage your financial accounts? If online, how would your financial decision makers access usernames and passwords? 
• Where do you keep key documents such as estate planning documents, tax returns, deeds and titles? Who else knows these locations? 
• If you experience a medical emergency, where is your health care power of attorney? Does your agent have a copy? Assuming your agent is your spouse (and a common accident is a possibility), does your alternate agent have a copy? Does that person know your values, beliefs and wishes? 
• What are your beliefs and values surrounding parental decisions? Does the person you have chosen as guardian share those values and beliefs? How do you know? Do they know what you believe? 
• What are your values and beliefs surrounding money and financial decisions? Do your financial agent and your trustee know these beliefs? 

Clients who think about these questions start honing in on the insufficiency of having the correct legal documents. Let me be clear, those legal documents such as trusts and powers of attorney are critical; they need to be in place. But they are worthless if they cannot be found in a timely manner. They are inert if the power they provide is illusory because access to financial records cannot be obtained. And they lack impact if the decision maker is left guessing at what you would want: your values and beliefs.

So a third task: let key decision makers know where the legal documents are and where critical information is housed. Also, if not too uncomfortable, have conversations with decision makers to provide them the empathy necessary to act wisely. If that is too awkward, then write letters highlighting values and beliefs and how those might translate to critical decisions.

Now everyone has a spring-cleaning checklist that will make their plans more efficient, effective and human. As for that garage…