In times of financial crisis, we often minimize spending and do whatever is necessary to protect our remaining assets. The irony of this protective position is that often the best way to shield your assets is by taking the time and spending the money to prepare a comprehensive estate and financial plan. It is thoughtful and preventative planning that helps us reap the advantages of the good times and weather the bad.
You may have heard the adage that if you do not plan your estate, the state will do it for you. While this may not sound so terrible when you have more debts than assets, you should reconsider the wisdom of allowing the state to make decisions for you.
If you have minor children, especially from a prior relationship, you need an estate plan. Even if you do not have significant assets, you must name a guardian for your children and direct which assets will provide for them in the event of your death.
If you want to provide for your partner and are unmarried, you need an estate plan, particularly because the state will not provide for that person.
If you want to choose who will make decisions about your finances and health care in the event you become unable to do so, you need an estate plan.
Other reasons to have an estate plan are to provide for a special-needs child, another family member, or friend; to direct who should receive family heirlooms and other personal possessions; to minimize expenses from your death or disability; to avoid probate; to provide for a pet or other animal; to make charitable donations.
You can better protect yourself, your friends and family, and your assets by making an investment in your estate plan now.
The foundation of an estate plan includes a will, trust, power of attorney for health care, power of attorney for finances, and documentation of the transfer of assets to your trust.
You may find that your financial and personal situation does not yet justify the added complexity of a trust. For example, many people have life insurance and retirement plans. The proceeds of these assets pass to the beneficiary named on the policy or plan regardless of what your will or trust says. Likewise, real estate, bank, and brokerage accounts held by you in joint tenancy with another person will pass by right of survivorship to that other person in the event of your death.
However, if you have a blended family and want to ensure that children from a previous relationship are provided for, the complexity and additional cost of preparing and administering a trust may be worthwhile. Although the law with respect to unmarried couples is emerging, you should still document your wishes through your estate plan to avoid costly disputes by family members who may not agree with your beneficiary choices. You also must utilize a power of attorney for health care to make clear who will make medical decisions for you in the event you are unable.
A comprehensive estate plan process considers whether your estate will be financially adequate to meet the needs of your beneficiaries and analyzes whether it is wise to purchase or increase your life insurance. The process should also consider the need for supplemental health, disability, and other types of insurance. Carefully analyzed and funded estate and financial plans will provide your survivors with the liquidity and flexibility to meet their needs.
A properly drafted estate plan will save you money because in making your choices clear, you can avoid pricey disputes and lengthy court processes, ensuring you have created a financial and legal safety net for your loved ones.
Rather than allowing your estate and financial plan to languish in documents on a shelf, you should review and update the plan after major life changes, such as a marriage or divorce, the birth or adoption of a child, the purchase of a home or other large-value, appreciating asset, a large inheritance or gift, or a change of beneficiaries. You should review your estate plan and financial affairs annually, such as when you prepare your income taxes.
You may be able to prepare your own estate plan, but it is best to get a second opinion and shop around for a qualified planner with whom you can partner. The team approach to estate planning is best and incorporates your financial planner, accountant, insurance broker, and other members of your financial planning team in your estate planning discussions. Often these advisors can refer you to a qualified estate planning attorney.
Estate planners can earn several certifications that designate them as specialists in the field, including certifications through state bar legal specialist qualification and membership in the National Association of Estate Planners and Councils and The American College of Trust and Estate Counsel.
Be wary of “trust mills” that promote one-size-fits-all estate planning kits. An estate plan created by the unqualified can have unintended consequences and may sometimes be worse than not having any estate plan at all.
Estates of all sizes benefit from thoughtful planning. Don’t put off protecting your family now and into the future.
