Estate Planning Essentials

How many of you reading this have an estate? If you think you have an estate, then please keep reading – this should be you and everyone else reading this. That is, everyone has an estate.

Many individuals believe that to have an estate they must have a certain amount of “stuff”, net worth, income, social status, etc. Furthermore, these same individuals may feel estate planning involves complex documents, high legal fees, considerable time. While this may be true for some estate plans, it’s not always the case.

Additionally, many individuals feel that estate planning involves planning for incapacity or death. Although not pleasant to discuss, planning for one’s incapacity or death is an important part of their overall financial plan.

Having these discussions before incapacity arises (a possibility) or death occurs (a certainty) can help ease the stress for loved ones dealing with these situations of and when they happen. It may also help prevent arguing and discord among relatives who may act based on what they think you wanted versus what you actually want.

Besides planning for incapacity or death, estate planning can also involve the distribution of assets when people are alive and well. Many individuals need estate planning regarding gifting, philanthropy, taxation, etc.

Almost everyone needs some type of estate plan. The simplicity or complexity will depend on the vicissitudes pertaining to each individual or family.

The following is a list of some estate planning essentials that you may consider for your overall financial plan. Of course, it’s highly recommended you seek the advice and assistance of competent financial professional and or an attorney to help draft documents and align your estate plan to your overall financial plan.

• A will. A will is a legal document that allows you to choose which individuals get your possessions when you die. For parents, wills are imperative as they will determine who will become guardian of children if the parents pass away while the children are minors.

Dying without a will (called dying intestate) can be problematic. Without a will, the state of the deceased individual will determine distribution of assets, guardianship for minor children, etc. It can be a mess. A will can ensure that your wishes are carried out.

For parents: consider having discussions with those individuals you feel you’d want as guardians for your children. Make sure they are in agreement and want to undertake this huge responsibility.

• A trust. A trust is another legal document that ensures that some type of property (called corpus) is administered in a certain way (generally your intentions) according to the verbiage in the trust.

Some of the more common types of trusts involve trusts for minor children. If parents pass away, they pay leave money to children to ensure financial stability for their upbringing. However, minor children are likely not going to be able to handle financial matters. A trust will have the money set aside for the children (the beneficiaries) but managed by an individual (the trustee) whom the parents deemed financially fit to distribute and use trust assets for the children.

Other types of trusts may be necessary depending on the situation. These involve special needs trusts for parents of special needs children, spendthrift trusts (to limit or prevent wasteful spending by beneficiaries), and charitable trusts (to carry out charitable intentions).

Lastly, trusts avoid the publicity of probate – which means that when your will is going through court, it becomes public knowledge.

• Powers of Attorney. Powers of attorney are documents designed to allow an individual to act on your behalf – generally in the event you cannot act on our own behalf.  The two most common powers of attorney are powers of attorney for property and powers of attorney for health care.

A power of attorney for property allows an individual to make financial decisions for you. This may include paying bills, financial transactions, etc. This power may be granted right away (when you’re fully capable of making said decisions) or may be “springing” which means the power is granted when you become incapacitated.

A power of attorney for health care allows an individual to act on your behalf regarding medical decisions. In the event of your incapacitation, this document allows an individual you’ve chosen to make decisions for you regarding treatment, procedures, and, should the situation be that dire, whether to remain on life support.

If you’re feeling uncomfortable reading this, imagine the discomfort a family faces with these decisions without this document in place.

• Other advanced medical directives. Additional documents to consider include living wills, do not resuscitate orders (DNRs), and organ donation. Living wills provide a guide to the doctors or your power of attorney for health care regarding how you’d want to be treated medically and whether you would want to remain on life support.

Do not resuscitate orders tell medical professionals to not take life-saving measures – depending on the medical condition and per your wishes.

• Beneficiary designations. One of the easiest ways to estate plan is via your beneficiary designations on your life insurance policies, retirement plans (401k, IRAs, etc.), annuities, and investment accounts.

Naming beneficiaries allows you to determine who receives those assets in the event of your death. Like trusts, beneficiary designations avoid the publicity of probate.

A beneficiary designation can also work congruently with trusts. In other words, an individual can name a trust as their beneficiary on their life insurance (say, if they have minor children) and the trust then receives the life insurance proceeds and the trustee distributes the proceeds to the beneficiaries per the language in the trust.

If you’re considering an estate plan or believe that your current plan needs updating (e.g. after a life event such as marriage, divorce, a birth, a death, etc.), talk to a financial professional and or your attorney. There are several do-it-yourself websites available, but to quote Abraham Lincoln, “He who represents himself has a fool for a client.”