Where should you keep your estate planning documents?
Dear Liz: What do you do with your will or living trust once it’s created? Do you put the document in your home safe or a safe deposit box at the bank? Leave it with a friend or relative? What’s to prevent someone who has access to your property from destroying that document? I heard of such a case where the will was never found and the wrong relative took everything.
I imagine you could leave it with your attorney with instructions to ensure it is abided by upon your death. But who will contact the attorney after your death to ensure your wishes are abided by? I know the coroner won’t do it, nor a funeral home.
Answer: Definitely don’t put the original document in a safe deposit box. Once notified of your death, your bank will typically seal the box until your executor can prove they have the legal right to retrieve it — and that will be complicated if the document naming them as executor is in the box.
Keeping the original in your own safe is better than leaving it at the bank, but still not ideal if you fear someone with bad intent could access it. For most people, the best option is to leave the original with their attorney. You can provide copies to your executor and other trusted people and give them your attorney’s contact information.
There is a big difference between fee-only financial planners and fee-based financial planners. Also, look for a planner who is a fiduciary.
Be wary of advisor motives
Dear Liz: In a recent column, you discussed the difference between fee-only vs fee-based financial planners. Most of my retirement dollars are in an IRA with one of the better-known investment companies. One of the advisors with that firm has advocated for an annuity with a well-known insurance company as a component of my portfolio. So, does this affect the advisor’s status of fee-only vs fee-based, or is this person to be only on the fee-based side of the equation? Or am I just confused?
Answer: You’re confused because it’s confusing — deliberately so. Many investment companies, including the better known ones, don’t make it clear that their advisors do not have to put your best interests first. Most are held to a lower “suitability” standard that allows them to recommend an investment that isn’t as good as the alternatives, simply because it pays them a higher commission.
If you want an advisor that puts your interests ahead of their own, seek out a fee-only financial planner — one who only accepts fees paid by clients rather than commissions and other incentives. This advisor should be a fiduciary, meaning the advisor is required to put your best interests first. The advisor must be willing to state, in writing, that they will put your interests ahead of their own.
It’s especially important to check with such a fiduciary advisor before purchasing an annuity, since these are complex products with potentially significant downsides that could be glossed over by someone who’s being paid to sell you one. An annuity could be the right fit for you, or it could be an expensive mistake. Get an objective review from a fiduciary before you buy one.
A planner can help you sort it out. Also, readers ask about small estates, the windfall elimination provision.
Windfall elimination provision explained
Dear Liz: I understand your explanation of the windfall elimination provision that reduces Social Security benefits if someone is receiving a pension from a job that didn’t pay into Social Security. I am a teacher with such a pension who also worked more than 10 years in the private sector. I’d accept the explanation and the reduction if the WEP were applied in all 50 states. As you know, it is not. How is this reduction justifiable in any way?
Answer: The idea that WEP doesn’t apply in all states is a myth. WEP applies regardless of where you live. What matters is whether you’re getting a pension from a job that didn’t pay into Social Security. Some states provide such pensions while others don’t.
“If a state doesn’t provide its workers with their own pension and instead has them join Social Security, then exempting them from the windfall elimination provision is fully appropriate,” says economist Laurence Kotlikoff, president of Economic Security Planning Inc., which offers Social Security claiming software at MaximizeMySocialSecurity.com.
As mentioned earlier, WEP is not designed to take away from you a benefit that others get. Rather, the provision is designed to keep those who receive pensions from jobs that didn’t pay into Social Security from getting significantly higher benefits than workers who paid into the system their entire working lives.
That can happen because of the progressive nature of Social Security benefits, which are meant to replace a higher percentage of a lower-earner’s income than that of a higher earner.
People who don’t pay into the system for many years can appear to be much lower earners than they actually are. Without adjustments, they would get bigger benefit checks than people in the private sector with the same income who paid much more in Social Security taxes.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
