An estate plan starts with a will, but that’s just the beginning. A true estate plan includes addressing issues that occur while we are living, as well as when we have passed. Everyone needs to have these plans in place, regardless of how much or little one owns.
Having an estate plan means that you and your family are prepared not just for death, but also for illness and incapacity. Distribution of your property according to your wishes, is just one part of an estate plan. Minimizing state and federal estate taxes is another. A complete estate plan addresses many legal, financial and health issues.
Investopedia’s recent article, “6 Estate Planning Must-Haves,” provides us with a list of items every estate plan should include:
- A will and/or a trust;
- Powers of attorney;
- Beneficiary designations;
- A letter of intent;
- Guardianship designations;
- Health Directives.
In addition to these documents and designations, a thorough estate plan also should consider the purchase of insurance, like long-term care insurance, income producing investments, and life insurance to pass money to beneficiaries without probate.
Let's look at each item on this checklist to make sure you haven't left any decisions to chance.
Wills and Trusts. A will or trust should be one of the primary parts of your estate plan, even if you don't have a lot of assets. Wills make certain that your assets are distributed according to your instructions. Your family will appreciate your clear direction on how your personal effects should be shared. Trusts can also help limit estate taxes or legal challenges and costly and slow court procedures.
Power Of Attorney and Health Directives. A durable power of attorney (POA) allows an agent or a person you assign to act on your behalf, if you’re unable to do so yourself during your life when it is most important. A Health Care Proxy (HCP) designates another person to make critical healthcare decisions on your behalf in the event of incapacity.
Beneficiary Designations. Some of your assets will pass to your heirs without being mentioned in your will, such as 401(k) plan assets, annuities, IRAs, etc. Therefore, maintain a beneficiary and a contingent beneficiary on these types of accounts. Likewise, insurance plans should have a beneficiary and a contingent beneficiary, because they also pass outside of a will. Your beneficiaries should be over 21 and mentally competent. These need to be updated regularly as your life changes.
Letter of Intent. This is simply a document for your executor or a beneficiary to define what you want done with a particular asset after your death or incapacitation. Some letters of intent also contain funeral details and other special requests. A letter of intent isn’t legally binding. It helps inform a probate judge of your intentions and may help in the distribution of your assets, if the will is declared invalid for some reason. These can be extremely helpful for blended families or when close friends or non-family members are selected as your executor or trustee.
Guardians/Special Needs Provisions. If you have minor children or are considering having kids, naming a guardian is very important. Be sure the person(s) shares your views, is financially sound and willing to raise your children. You should also name a backup or contingent guardian. Most people don’t understand that if you don’t name a guardian in your will, the decision is made by the court. It is possible that the court choses someone you would never have wanted to raise your children.
There may also be a need to provide for other dependent or disabled loved ones in your Estate Planning documents, such as a disabled adult child. Your Estate Planning documents can includes special provisions to set up a Special Needs Trust or Discretionary Trust for the benefit of the person who may need help in managing their inheritance. This can also include individuals who have other financial or spendthrift issues. Your documents can be customized to include those protective trusts to be created after you pass, as part of their inheritance.
Meet with one of our estate planning attorneys and prepare a complete estate plan to protect your loved ones.
Reference: Investopedia (July 16, 2019) “6 Estate Planning Must-Haves”