As a former estate planning attorney, this important aspect of financial planning has always been on my radar. But, I tend to be the exception to the rule. The vast majority of people simply don’t think about creating an estate plan; it just doesn’t seem relevant or at the least not pressing.
Regardless of your life stage, there are steps you can and should be taking to establish and review your estate plan. Because each step builds on the last, it’s important to start early, get the appropriate documents in place and review often.
Find your life stage below—have you checked all your boxes?
18 and Up: “I’m an adult! If I become ill or injured, how do I want to be taken care of? Whom do I trust with important decisions?”
Checklist:
- Establish a Durable Power of Attorney: This is a legal document designed to let someone else manage all of your financial affairs for you if you become incapacitated. Even though you might not be able to make decisions now, someone you trust is taking care of your financial matters until you regain capacity.
- Create an Advanced Medical Directive (typically includes Living Will, HIPAA Authorization and Durable Power of Attorney for Health Care): In this legal document, you state your wishes about life support and other kinds of medical treatments. You also give another person permission to make medical decisions for you if you are unable to make those decisions yourself. Ideally you make the decision yourself so that your loved ones do not have to guess at your intentions. As you can imagine, making such a decision without guidance from you can haunt a loved one for the rest of their life.
Young and Single: “I finally have valuable property of my own, but who would I want to inherit (or not inherit) the property if I were to pass away?”
Checklist:
- Review your Durable Power of Attorney and Advanced Medical Directive to ensure everything is up-to-date.
- Make Beneficiary Designations: This is a legally binding description of how you want a specific asset transferred at your death. If you only have a few assets (banking account, car, retirement account, life insurance), it’s possible to efficiently transfer the assets and avoid probate simply by naming beneficiaries.
- Consider Establishing a Will: State who should inherit your property and how to pay debts and taxes. This legal document catches everything in your estate, if not transferred by titling and beneficiary designations. Without a Will, your assets, if not transferred by titling or beneficiary designation, will be distributed in accordance to State law – which may not coincide with your wishes.
Married: “My financial picture is getting more complicated. Time to review my plan to make sure my significant other is included.”
Checklist:
- Review Durable Power of Attorney, Advanced Medical Directive, Will, and Beneficiary Designations. You might currently have your parents named as beneficiaries or Attorney-in-Facts on your documents. But, now that you’re married, it’s typical to name your spouse instead. It really depends on wishes or the health status of those previously named.
Married with Children: “How do I make sure my children are taken care of?”
Checklist:
- Review Durable Power of Attorney, Advanced Medical Directive, Will, Beneficiary Designations, and Trusts.
- Establish Guardianship: If your children are under the age of 18, it’s important to name a Guardian in your Will. This will give you peace of mind knowing that your children are looked after by someone you trust.
- Consider a Revocable Living Trust: With the addition of level term life insurance to your financial plan to cover living and education costs for your children and surviving spouse upon your passing, your estate is likely large enough that a Trust should be considered. A trust addresses how your assets are used should you become incapacitated or pass away. In the case of minor children, a trust can be an invaluable tool to ensure the assets are available for their support and education without giving them full access until they are ready (e.g. avoiding a Ferrari purchase on their 18th birthday). A trust keeps your affairs private and has the flexibility to be amended during your lifetime. It’s important to contact an attorney when diving into the complexities of trust planning.
Accumulating Wealth or Wealthy: “I’ve worked hard to build my wealth, and now I want to decide my legacy and if possible minimize what the government receives.”
- Review Durable Power of Attorney, Advanced Medical Directives, Wills, Beneficiary Designations, and Trusts.
- Consider a Revocable Living Trust: As your net worth grows, if you have not already, it is time to consider establishing a Revocable Living Trust – see above. If the use of your assets by your beneficiaries is not a concern, then it may be prudent for purposes of tax planning or to ensure you are properly cared for should you become incapacitated by dementia or another illness.
- Engage in Tax Planning: Does your net worth exceed $5.45 million or $10.9 million if married? If so, when you pass away, the federal government will charge a 40 percent tax on the amount of your estate that exceeds these amounts (the IRS adjusts the exemption amounts to reflect inflation). Depending upon which state you reside, you may also be subject to state inheritance taxes. If your net worth is at or approaching these numbers, talk to a qualified ‘fee-only’ Financial Planner or Estate Planning Attorney to implement tax saving strategies.
Elderly or Ill: “I want my loved ones to be prepared. Here’s the plan …”
- Review Durable Power of Attorney, Advanced Medical Directive, Will, Beneficiary Designations, Trusts, and Tax Plans.
- Consider establishing Trust, if you have not already, to assist with administering your assets should you become incapacitated by dementia or another illness.
- Discuss your plan with your family. It is important everyone understands your intentions.
- Provide copies of your estate planning documents to those named in your plan (Trustee, Attorney-In-Fact, Guardian, etc.).
- Provide guidance on where documents can be located in case they are lost (Safe Deposit Box, Attorney, Financial Planner, etc.).
Our lives typically get more complex as we age. We grow our families, accumulate property and build our wealth. That makes it crucial to implement estate planning tools early—and review them often. There’s no better way to ensure your assets get distributed according to your wishes, making things as easy as possible on your family.
