Organizing Your Financial Affairs

Do you know where all your financial papers are located? I am talking about your will, your bank statements, your investment portfolio, your key to your safe deposit box. Do you have the name of your accountant, financial planner, lawyer, and insurance broker written down in one place? If you died suddenly, could your loved ones find this information quickly or would they have to rip apart your house to get it?

If you don’t have a systematic way of organizing your financial documents, you are leaving an enormous headache for your family when you die. If your spouse is the one who is in charge of the finances, then you will have the headache. The time is now, when you are alive, when you are competent to handle your life, to pull together all of your financial information, the names and telephone number of your team of advisors (and you should have a team).

How do you start? Start with a looseleaf binder or a bunch of folders that you will label with the various categories of financial information. Into the looseleaf binder or folders, put your bank statements, brokerage account statements, inventory of personal property, list of credit card numbers, copies of deeds to all real estate, a list of your financial team (your lawyer, accountant, banker, financial planner, and life insurance agent), the location of your will and the name of the executor of your will, and the phone numbers of your other contacts (your boss or business partners, clergy, and physician).

The looseleaf binder or folders should be stored in a fireproof box that you could carry with you in the event of a fire or flood in your home. If you store your documents in a safe deposit box, you run the risk that the bank will seal the box upon your death until your executor gets a court order to have the box opened. You might also want to have a copy of your financial information stored with a family member or friend.

You should tell the executor and the back-up executor of your will where your financial information is stored so that in the event of a death or disaster, your loved ones are not left overwhelmed by the task of transferring your wealth in accordance with your wishes.

The Executor of Your Will

 

Your lawyer tells you to name an executor in your will. In order to decide who is best to carry out this position, you need to know what responsibilities the position has.

The executor’s job is to start the probate process with the court, gather all of your assets, pay your debts, last expenses, and taxes, and distribute whatever is left over to the persons named in your will. Additionally, your executor will notify Social Security, pension providers, insurers, financial institutions, and other entities of your death. If you have antiques or valuable collections (coins, stamps, collectibles), your executor will need to hire an appraiser to get a value for these items. If anyone owes you money, the executor must collect that debt. At the end of the distribution, the executor must be able to give an accounting to all of your beneficiaries that your wishes, as expressed in your will, were carried out.

The executor owes fiduciary duties to anyone who has an interest in the estate, and the executor must act in the best interests of the estate. For example, if an executor mismanages the estate assets, he or she can be held personally liable and may have to repay the estate for any losses.

Your spouse will probably be your first choice as your executor because that person is most familiar with your assets. Most of the time, you will have named your spouse as the beneficiary of your will and so he/she will be transferring those assets to himself/herself.

After the spouse, the usual named executor is an adult child or sibling. The executor does not need to live in the same state as you. The law does not require this person to be a legal or financial expert. Your executor must be at least 18 years old and a citizen of the United States.

Because the executor needs to be careful of the details of your plan, it helps if you choose a person who is organized, trustworthy, and good with record-keeping. Most of all, the executor must be willing to serve as executor. The person you choose should be told of your selection and given some guidance as to where to locate the records of your assets (the bank statements, brokerage account accounts, insurance policies, and safe deposit box keys).

You may be tempted to name all of your children or siblings to act as your executor. This tends to be a bad idea. If more than one person is named, they all must agree on every action taken on behalf of your estate and must sign off on all paperwork. If the co-executors don’t get along or live far away from each other, the logistics of getting anything done become difficult.

 The executor is entitled to a fee for services performed.  Under New Jersey law, the executor of an estate is generally entitled to the following commissions:

1. 6% on all estate income;
2. 5% of the estate up to $200,000;
3. 3.5% on excess above $200,000 up to $1,000,000;
4. 2% on excess over $1,000,000 or such other percentage as the Superior Court may determine.

There are different rules for commissions when there is more than one executor, or when the executor has rendered unusual or extraordinary services. In some cases family members may choose not to accept (waive) fees. However, a decision to waive fees should be made only after the legal (who will get the money) and tax (what is the cost of the lost deduction) issues are considered.

After you come up with your first choice of executor, you should name an alternate in case your first choice won’t or cannot serve. The same considerations should apply to your choice of an alternate as when you decided on your first choice of executor.

 

 

Choosing a Guardian

A guardian is the person you name in your will to take care of your children in the event you die before they turn 18. If the children’s other parent is still alive, that person will have the first right to custody of your children. Most of the time, that is your wish as well. There are circumstances where you don’t want the children’s other parent to have custody – instances of child abuse, the other parent has been absent in the children’s lives or perhaps the other parent is very ill.

In every case, though, you need to choose a person other than the children’s other parent as a back-up guardian so that if you both die together, your children will still be protected from possible family strife as to who will be the guardian.

What is the responsibility of the guardian? You can name one guardian to be the children’s physical guardian, someone with whom they will live full-time, who will rear them until they are legally an adult. You can name a different guardian to have custody of the children’s financial inheritance. If you have written a good estate plan, your children’s inheritance will be in a trust with the person you know to have good financial skills named as the trustee. Sometimes the guardian of the children and their inheritance will be the same person.

You should name only one person as a guardian, with an alternate choice if your first choice won’t or can’t serve in that capacity. If you name a couple (maybe your sister and brother-in-law), there are complications if they disagree about how to raise your children or if they divorce.

How do you decide who will be the guardian of your children? Any persons you select must be at least 18. You want someone who has good feelings about your children and who your children like. The guardian should have the energy to raise your children until adulthood (which sometimes eliminates your parents). Other intangibles include whether the guardian shares your values, both moral and religious, and whether your children would have to move to live with the guardian or can stay in their hometown, close to their friends and the familiar details of their lives. If you don’t have the financial means to raise your children, you want your choice of guardian to have enough money so that it is not a strain on your children or the guardian.

You must talk to your prospective guardians to ensure that they are willing to act as your children’s guardian. Nothing could be worse for you than the situation in which after taking so much time and care to choose someone, that person can’t or won’t take on the responsibilities of acting as a guardian.

You do not have to name the same person to be the guardian of all of your children. It is possible that your children are so different in age or temperament that two or more guardians will work better than one guardian. Or you may have children from different marriages and relatives from one marriage will be willing to be a guardian for only the children from that marriage.

If you feel that the person you have named as the guardian will provide a great home but is not very good at managing his checkbook, then you can name someone else as the financial guardian. If you are going to pick different guardians, you must ensure that they will work together in your children’s best interests.

By naming a guardian and trustee of your children’s inheritance in your will, you are significantly decreasing the possibility that your relatives will be fighting each other over your children. Without a will, a judge gets to decide who your children will live with and who will have control of your assets. Although the judge is supposed to use the standard of “best interests of the child” in making his decision, it is the judge’s idea of your children’s best interests that will decide the issue, not yours. Do you want a total stranger making that decision for you?

Many parents avoid making a will because they can’t decide on a guardian. But, remember that your decision is not written in stone. If you change your mind in two years, or five years, you can always change your will. If you are afraid of hurting a family member’s feelings, then write a letter to him/her explaining why you chose someone else. You first loyalty should be to your children and your decisions must always reflect your desire to bring them up in the way you would yourself.

Choosing a guardian is probably the hardest part of deciding how to write your will. But not deciding is also a decision. It means that you have concluded that a judge who doesn’t know your family can decide better than you can who is a better choice to raise your children. Don’t leave this decision to a total stranger. Talk to family, friends, and an estate planning lawyer about how to make this difficult choice. But remember any decision is better than no decision.