Why You Need an Estate Plan!
Whether or not you realize it, you have an estate. You might be thinking of an estate in terms of the Queen of England, but it’s actually much more practical than that. Sure, she has an estate—but you do, too. Your estate is made up of everything you own: your car, your home, any real estate, checking and savings accounts, your investments, life insurance, furniture, even your personal possessions. While your estate might look different from the Queen’s, you have one thing in common with her: neither one of you can take your estate with you when you die!
Estate planning is the act of leaving a detailed instructional plan about how you want your assets to be distributed after you pass. Surveys on estate planning continue to show that procrastination is the biggest reason why people don't pursue estate planning. Women, in particular, often overlook or put off this aspect of their financial affairs as they are absorbed in taking care of other parts of their lives. It's a mistake that can lead to unanticipated financial burdens for their beneficiaries, including their children.
What is an estate plan?
Your estate plan should include all of the following:
1. Your Will
Your will is a legal document that explains who should receive which of your assets after you pass. A will also allows you to name guardians for your dependent children—which is crucial, because if you don't have a will in place, then the courts will decide what happens to your assets and your children. You can also name an executor, who will be in charge of your estate, which includes distributing your property, filing tax returns, and processing claims from creditors.
2. Power of Attorney
When you name someone to have power of attorney for you, this person has the authority to manage your financial affairs in the event that you are unable to do so. This can be difficult to think about, but it is important!
3. A Living Will
A living will is a statement of your wishes about what kind of life-sustaining medical intervention you want—or don’t want—in the event that you become unable to communicate.
4. Healthcare Proxy
A healthcare proxy authorizes someone you trust to make your medical decisions for you on your behalf. Together, your living will and your healthcare proxy make up what’s called an “advanced health care directive.”
5. A Trust
If you are concerned about how your assets will be distributed, it might make sense to put a trust in place. A trust is a legal entity that creates conditions by which assets are distributed. This can apply not only upon your death, but also while you are alive. Under certain conditions, a trust can name one or more individuals who will step into your shoes and handle your personal, financial and/or business affairs in the event you are unable to do so. A trust can also help minimize gift and estate taxes. Finally, a trust creates a cloak of privacy around your estate and its assets. In contrast, a will, if it is contested, becomes viewable by the courts and enters into the public record.
6. (Term) Life Insurance Proceeds
Money from your estate—whether it’s from bank accounts, trust assets, or property—might not be immediately available to your family and children to pay for their needs. However, mortgage payments, estate taxes, and school tuition could be due right away, or at least before the assets are distributed. Life insurance can provide money to your beneficiaries shortly after your death. Beware, however—if you have minor children and simply name them as beneficiaries on the policy, that money will be frozen until they turn 18. To make the funds accessible quickly, you must set up a trust to serve as the insurance beneficiary, with instructions about how the money is to be used.
The best way to protect your assets—and ensure that your family is properly cared for—is to take the time to create an estate plan. While it’s not necessarily an easy thing to do, it is a necessity and can offer peace of mind to you and to those you love.