Estate plans are not about how much money you have. Estate plans give you an opportunity to express your wishes for yourself, your family and your assets in the event that you become ill or die.
Estate plans are an important part of your bigger financial plan. The law of intestate succession determines what happens to your personal property if you pass away without a signed last will and testament. This law is applied when financial and medical decisions need to be made when you are incapacitated. The law allows the state or the court system to decide the fate of your personal finances. No matter how many assets you have, doing an estate plan gives you the power to ensure your wishes are carried out after your death, and it also allows you to decide who will be in charge of your financial and medical decisions if you become incapacitated.
What is in an estate plan? The following elements are important to include in a basic estate plan.
Will or Trust
A last will and testament is a legal document that outlines how your property and assets will be divided after your death. It is a legally enforceable declaration of your wishes for the disbursement of your assets. If you have minor children, a will should also include the appointment of a guardian for dependents and pets along with specific instructions about their care. A trust achieves the same thing by appointing a trustee to carry out your wishes.
The difference between a will and a trust is that a will has to go through probate, which is a court proceeding that executes the document and makes it a public record. On the other hand, a trust avoids probate altogether and is handled privately without involving the court system. A trust can take effect before you die so that you can serve as your own trustee while you are alive, and then you can appoint someone else to take over as trustee after you die.
A living will is a detailed set of instructions that specify what kinds of medical treatments you would want or not want in the event that you are incapacitated. For example, if you go into a coma, a living will details whether or not you want to be kept alive on life support. A living will is typically associated with a healthcare power of attorney, also known as a healthcare proxy. The living will and the healthcare power of attorney are collectively known as your advanced healthcare directive. It’s important to have an advanced directive because it helps avoid family arguments about how to handle your care during an intensely stressful situation.
Durable Powers of Attorney
A durable power of attorney is a named person or persons who are authorized to act on your behalf if you are unable to state your wishes during a serious illness or injury. You can appoint a single person to handle everything, or you can select a different power of attorney to deal with different scenarios. For instance, you can choose your spouse to be your healthcare power of attorney and choose a sibling to be your financial power of attorney. It’s recommended that you also have backup powers of attorney in case your first or second choice is unwilling or unable to act on your behalf.
You can designate different beneficiaries outside of your will if you have already designated that person or persons in your various financial accounts, such as your bank account, brokerage account, retirement accounts, and life insurance policies. Beneficiary forms take precedence over what you put in your will, so it’s very important to keep your designations up to date. If your life situation changes from a divorce, a remarriage or death of a beneficiary, you need to update your beneficiary designations as soon as possible to make sure your wishes are followed.
There are some cases where you can split your assets between more than one person, or you can name a second beneficiary in the event that the first person you named dies before you do. If you have non-retirement financial accounts, the institution’s beneficiary form may be called a transfer on death (TOD) or payable on death (POD) form. Even if the form label is different, the outcome is the same – to designate the person who gets the money in your account after you die.
Letter of Intent
A letter of intent is a document that is left to the executor of your will that outlines all of your wishes for your assets and your family after your death, along with specific details you want to tell your family about your funeral or burial preferences. The letter of intent does not replace your will or trust because it’s not a legally binding document. It’s a supplemental document that is written in your own words and adds a personal touch for your family about your end of life preferences. The letter of intent can explain not only your logistical wishes but also your emotional ones, such as the values you want your family to carry on after you pass away.
When all your estate planning documents are completed, that’s not the end of the process. The decisions about your assets may change over time, your health situation may change, or you may experience other major life events. Check your estate plan periodically to make sure it still reflects your end of life wishes. Contact us for help with your estate plan.