Estate Planning tends to get a bad wrap.
Either it’s viewed as relevant to only the rich and famous, or people avoid it all together because it involves considering one’s own mortality.
However, both the perception of, and attention given to, Estate Planning needs to improve because it’s extremely important.
So, what is an Estate Plan? It’s simply a collection of legal agreements created to accomplish two goals:
- First – to ensure that your property and assets are left behind in a way that you wish.
- Second – to specify who can make health and other general decisions for you if you were to become incapacitated and could not advocate for yourself.
This is all good for you, but it’s also extremely beneficial to those who will be dealing with some very difficult decisions and circumstances in the event you are unable to care for yourself or when you pass away.
Creating these legal agreements seems daunting but the process of establishing a strong estate plan is not that complicated. And, once it’s in place, you can rest easier knowing that a plan is in place to provide clarity to your loved ones during a time of emotional heaviness.
If you’re looking to get your estate plan in order, here are four basic documents that you should consider as part of your plan.
Last Will and Testament
A Last Will and Testament is the foundation of any estate plan.
Among other things, it gives you the opportunity to decide (and put in writing) what will happen to all of your property and possessions in the event of your death. Who gets the ’67 Corvette? What about mom’s wedding ring?
It also names guardians for any minor children, makes your wishes known regarding funeral and burial arrangements, and can protect your loved ones from unnecessary confusion and conflict.
In creating your Last Will and Testament, you want to think through these three major questions:
- Who do you want to have your stuff?
- Who do you want to oversee the carrying out of your wishes as expressed in your will?
- If your children are under the age of 18, who will take care of them if you’re gone?
A Healthcare Power of Attorney and a Living Will are known as Advanced Directives. In the event that you are unable to make your own healthcare decisions, a Healthcare Power of Attorney allows you to designate an adult to make those decisions on your behalf.
For parents of college age children, it’s extremely important that their children have these documents in place prior to going off to school.
Without the proper documents, parents will find themselves unable to access proper information regarding their children’s health.
If you should you be in a permanently unconscious state or terminally ill, a Living Will is a document that allows you to express your wish to have no life-sustaining treatment administered, to have such treatment withdrawn if already administered, and to permit you to die naturally should you be in a permanently unconscious state or terminally ill.
Power of Attorney for Finances
A financial power of attorney is a legal instrument that gives authority to another person to manage your finances in the event you are unable to do so.
A financial power of attorney can give broad or limited authority and can become effective immediately or upon your incapacity.
Without a financial power of attorney, if you become unable to make decisions for yourself, your family will have to seek a guardianship, a costly and time-consuming proceeding.
The legal requirements of a valid financial power of attorney have changed in recent years, i.e. digital assets and electronic communications. Hence, if you have an old financial power of attorney, it would be wise to have it reviewed by an experienced elder law attorney.
A living trust is a revocable trust which goes into effect during a person’s lifetime.
A properly funded living trust will avoid probate. Avoiding probate can be really important as the probate process is often a costly (average cost of probate in Ohio is 5% of net value) and time-consuming process.
With a living trust, you can maintain control of your assets and manage them during your lifetime, while arranging for a quick and easy distribution of your property according to your wishes at death.
This is really important to families with younger children because if the parents pass away while the children are still minors, a living trust allows the parents to protect their children from inheriting their share of the assets once they turn the age of majority.
In addition, a living trust can also provide an orderly management of your financial affairs by a trustee, should you become incompetent.
When Should you Update Your Estate Plan?
You need to keep these documents updated and current. If you undergo a major life event, you may well want to revisit with your estate planning lawyer to see if this life event requires changing your estate planning documents.
Here are some examples of common major life events that might warrant a change:
- Moving to another state
- Selling or buying land
- Birth or adoption of a child or grandchild
- Marriage or divorce
- Large increases or decreases in the value of assets, such as investments
- Purchasing a home or other large assets
- If you or your spouse receives a large inheritance or gift
- Illness or disability of your spouse
If you don’t have these basic documents in place already, consider meeting with a qualified estate planning attorney to get your documents in place.
Establishing a well-designed estate plan is important and can provide tremendous relief to you and to those you care most about.
Steve Custenborder is a Legacy Planning Advisor at Wealthquest – a Cincinnati based financial planning and wealth management firm that offers a full range of financial services under one roof, for one simple fee.