Have a family? Sure you do. Have some assets? Yep, you’ve done a good job of saving. Have an estate plan? Ehhh, probably not. 55% of American families do not have an estate plan in place, according to LexisNexis. In my mind, this is the most neglected aspect of a family’s financial plan.
What is an estate plan? An estate plan is a collection of documents that lay out how you want your assets and properties distributed, as well as specifying how you want your affairs taken care of in times of grief.
Sound important? It is. So why don’t more Americans have their estate plans in order? It is easy to push off estate planning because it seems like it is something that is a “down the road” item. It shouldn’t be. Most people wait until they see a family member go through hardships, many having undue anxiety and difficulties due to not having these affairs in order, to look into their own estate plan. If you leave questions unanswered, it can make a time of grief even harder for your loved ones. In this post you will find items to include in your plan and reasons why they are important. Let’s remove the guesswork surrounding your estate planning.
Wills and Trusts
A will spells out who you want your possessions and assets to go to when you die. Have children? It’s imperative that you have a will. In your will, you will want guardianship language that determines who will take care of your children in the case of the premature deaths of mom and dad. You’ll also want to have a trust set up because minor beneficiaries cannot inherit your assets. Your will should also determine who administers your estate (the executor). It is important that your beneficiary designations match up with who you chose to bequeath assets to in your will, as these designations TRUMP a will. This is one reason why it is important to review these documents at least every 5 years.
Durable Power of Attorney
In the instance that you may become incapacitated and unable to handle your affairs, you’ll want to have named a trusted person to handle your property and finances. If you need any bills taken care of, decisions on the management of your assets, or any other decisions on the property that you own, it’s important to have a durable power of attorney. This does give that individual a lot of power (no pun intended) so make sure it is someone you trust unequivocally.
Health Care Durable Power of Attorney
This will allow someone that you choose to make medical decisions on your behalf. If you become incapacitated, this person can make decisions on your medical treatments and procedures. Make sure you name someone who has similar views as you do. It would also be wise to name a backup person in case the initial person is unavailable or predeceases you.
This document is important to have not only if you become incapacitated, but if death is imminent or you are facing a permanent vegetative state. A living will allows you to make your wishes known in case you are ever in this situation. As it’s name suggests, living wills have no power after death.
Other items that may be beneficial to have in your estate plan:
- Laying out final arrangements- Do you want to be a donor? Would you like to be buried or cremated? Have you established a final resting place?
- Life insurance- Most households won’t be subject to estate taxes (current estate tax exemption is $5.45 million). If you are subject to the estate tax above that amount, which tops out at 40%, having life insurance in place can help cover the tax so that your assets aren’t diminished before passing them to your heirs.
- Spell out where to find your important documents- You’ve already spelled out who will become the executor of your estate. Make things easier for this executor by spelling out where that individual can find access to your important documents.
If you don’t have an estate plan, the state has one for you. If you haven’t gotten your affairs in order, the state will decide what is in your best interest and how you want your property and assets distributed. Also, the state will charge fees to make this happen. How does that sound? A sound financial plan takes estate planning into consideration. Work with your financial advisor and a trusted estate planning attorney to remove this guesswork from your overall plan.