Reviewing Your Estate Plan

​​Over half of Americans do not have an estate plan. Some people believe that estate planning is only for the ultra-wealthy. Others see it as something they will get around to when they are older. Many do not even know what estate planning is. For simplicity’s sake, estate planning refers to planning what will happen when you pass away. Kinda morbid, huh? However, it is important to consider.

Many financial planners offer estate planning because your financial assets are usually a large part of passing down an inheritance. There are also major tax considerations in ensuring that you pass the most assets to your heirs and the least possible to the government in taxes. While estate planning does encompass finances, the non-financial benefits are equally, if not more, important. Here are some important considerations when creating your estate plan.

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A Will

The most common estate planning document is a will. When you pass away, your estate will go through a probate process in which the executor (whom you appoint in your will) reads through your will in a court-like setting and helps distribute the estate according to your wishes. If you do not have a will, your death will be deemed “intestate.” This means that the distribution of your estate is dictated by state law rather than by your wishes. Even if you intend to structure the disposition of your assets the same way the state would, it is still important to create a will. It serves to defuse quarrels or discrepancies among heirs (someone claiming that you promised them “x”). Also, a will establishes guardianship for your children as we will discuss further below.

Guardianship

If you have children who are still minors, you will need to establish guardianship for them in your will. Every parent wants the best for their children. You make sacrifices in life to ensure they are taken care of, but have you overlooked ensuring they are taken care of in the event of your passing? Should you not have an appointed guardian, a judge will decide who will continue raising your children. Be sure to adequately communicate with those you designate as your children’s guardians. Check in every once in a while to ensure they still have the capacity and desire to assume guardianship in the case of your death.

Special Gifts

In a will, you are able to list special gifts to be given to specific individuals. Some people opt for a simple approach; 1/3 goes to my daughter, 1/3 goes to my older son, and 1/3 goes to my younger son. However, dictating special gifts in your will may be more meaningful to your heirs. This might look like a mother leaving all of her jewelry and her wedding dress to her daughter or a father leaving a specific tool, toy, or collectible to his son. These small gestures can create personalization and consideration toward each heir and potentially eliminate quarrels over heirs laying claim to the same items.

Beneficiaries

Not everything in your estate plan is dictated by your will. Life insurance, retirement accounts, and some other investment accounts allow you to list other beneficiaries. For example, if your will left everything to your wife, but the beneficiary on your 401(k) and life insurance listed your mother, then your life insurance and 401(k) would be given to your mother and not your wife. It is important to make sure that these accounts get reviewed each time you make updates to your will to ensure that everything is in agreement. Often, old 401(k)s that were left with previous employers can be forgotten when considering your estate plan.

Living Trust

Many times, estate planning lawyers will recommend a living trust with a pour-over will as an estate planning structure. In this case, your will states that all of your assets are left to your living trust in the case of your death (instead of being left to your spouse or other heirs). Then, you will list your beneficiaries in the living trust just like your insurance policies or retirement plans (as discussed above). While you are alive, you can title your assets to your living trust. For example, instead of Jane and Joe Smith having a joint investment account in their names, they would hold the investment account owned by “The Smith Family Living Trust.”

One of the most noted benefits to a living trust structure is that the assets in your trust will avoid the probate process. This is a benefit because the probate process is expensive and time-consuming. In addition to lawyer fees, you will be required to pay for probate in each state that you own property or assets. If there are disputes among heirs or if you own property in different states, the probate process can take a long time. Also, since the probate process is public, it will be accessible to anyone at any time.

Power of Attorney

A Power of Attorney document is a legally binding document that allows someone else (whom you specify) to act on your behalf. In this document, you are able to list the specific powers you wish that person to have as well as when (or in what situations) they are able to act on your behalf. For example, you can dictate that your daughter can make financial transactions (for investments or paying your bills) if you are medically incapacitated. This document is helpful and important even if you are not advanced in age.

Advanced Medical Directive & HIPAA

While these documents are typically included in estate planning documents, they also apply to you while you are alive. An advanced medical directive is often called the “pull the plug” document. Although this is a difficult topic to consider, it is important to state your resuscitation wishes rather than leaving that decision to be made by someone close to you during a traumatic time.

​Keep in mind that your advanced medical directive can change depending on your circumstances. For example, a healthy middle-aged man may choose to have full resuscitation measures taken in case of an emergency. However, this same man battling aggressive cancer in old age may choose to limit resuscitation measures or eventually go home on hospice (which requires a Do Not Resuscitate measure in place). An advanced medical directive can state at what point in time you would like to terminate further medical intervention should you need it to survive.

A HIPAA Authorization on the other hand is a document that allows you to share medical information (but not decision-making) with another individual. This is used often between spouses or with parents of young adult children.

Instructions (Informational Planning)

Finally, it is important to leave instructions and notes for your loved ones. This time will already be emotional for your loved ones, and the last thing you would want is to introduce additional stress. Instructions can be in your will, or a simple document that someone knows to access on your passing. Some things to include in these instructions could be passwords to online accounts, a list people/ organizations to notify upon your death (life insurance companies, banks, investment representatives), burial instructions, contingency plans for small businesses that you own, where to find necessary documents, etc.

Of course there are always more complex estate planning strategies to help avoid taxes or have more control of your assets that many estate planning attorneys or financial professionals can help you consider based on your specific situation. This post is by no means comprehensive; however, I hope it gives you a starting point in making educated decisions regarding your estate.

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