Many people think about the ultra rich when they hear the word ‘estate.’ Offshore bank accounts, mansions, private jets and more come to mind. The truth is, most people could benefit from an estate plan; it’s not just for the rich and famous.
An estate is simply everything you own, minus what you owe. It’s anything that will be paid off, disposed of, or passed down after your death. Having an estate plan means you have legal documents stating your wishes that direct what will be done once you’re gone. While there’s a lot of paperwork involved, the legal work is all done by an attorney. The cost of having an estate plan can be reasonable, especially when you compare the cost of it to how much time, money, and stress you will be saving your loved ones after your death.
If your estate is of a significant size, taxes should be a concern for you. By having an effectual estate plan, those taxes can be minimized. If your estate is more simple, you can still prevent your family from numerous headaches after your death. Estate plans can do multiple things, like setting up a trust to care for minor children, designating a guardian for them, and giving valuable or sentimental items to specific people as named in the documents.
It’s Good to Have Professional Advice
There can be a lot riding on your estate, so it can be important to have a professional help you to see what you might be missing. Even if you are savvy and want to do most of it, having a second set of eyes can only help. The problem is, many people don’t realize what’s at stake or think they’ve taken care of things they haven’t.
Take Sarah for example. She’s the CEO of a successful company she formed herself over 20 years ago. She’s got a large amount of money in her 401(k) and she’s had a life insurance policy since that same time. She’s sure her estate is in order, after all, she’s worth a lot.
But what happens when Sarah dies unexpectedly? The family finds out her life insurance policy still had her mom and dad listed as her beneficiaries on it, but they both passed years ago; her will names her ex-husband as sole heir of her bank accounts, and her current husband was never listed as a beneficiary on the house she owned before getting remarried.
Sarah was an educated, go-getter who spent her life building up her business. She was so intensely focused on running her company that she rarely thought about her growing estate. By not taking a couple hours out of her schedule and writing a check for a few hundred dollars, she caused her family a lot of heartache and gave money to a man she hadn’t seen or cared about in years.
Sarah is clearly an example of a more extreme situation, but it does show a couple of problems that could happen. Some of the most damaging are when children are involved. You may have a trusted loved one you want to care for your children in case of your death, but if you don’t have legally binding documents in place, a court might not agree with you. And then it’s too late.
Before this happens to you, set up an estate plan. Estate attorneys can help you to better define your priorities and create the right plan for you and your situation.
What Does an Estate Plan Include?
A will is a document that names who you want to care for your children or dependents in case of your death. It also states who you want to inherit some or all of your property. The document expires once your directions are completed.
A trust can fund ongoing care of any of your heirs and can continue with the disposition of any assets. This could be income for your spouse or in the event you need care for a disabled child. The document establishing a trust will survive even once the will has expired.
Health Care Directives
A health care directive is a document or documents that name someone to carry out any health care decisions for you, if you are unable to do so. Health care directives can be state specific so it is best to cover your bases and get both a health care declaration and a power of attorney for health care.
Financial Power of Attorney
A financial power of attorney is a legal document that names a person or entity to take care of your finances or property when you are not able to yourself.
When you open bank or financial accounts, you are typically required to name a beneficiary at that time. As time passes and situations change, it’s important to review who you designated as your beneficiaries and adjust them accordingly. Changes should usually occur when you get married, get divorced, have children, or make other significant changes in your life.
When updating your beneficiaries, don’t forget to change them on your life insurance policy.
It’s hard enough losing a loved one. You can make it easier by having all of your affairs in order. By creating an estate plan, you can provide for your family long after you’re gone. Once you have a plan in place, update it regularly to ensure your most recent wishes will be put in place. Not only will you feel more organized, but you can rest assured your loved ones won’t be burdened with unnecessary financial loopholes when you’re gone.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.