There’s no denying it - it’s a stressful time in today’s economy. We’re in a strange post-global pandemic limbo where gas prices are astronomical and we’re on the edge of our seats wondering if our student loans might have any chance of being forgiven. Some of us may have gone on a whim and purchased a lottery ticket, hopeful that we might be the lucky winner of a multi- million (or billion) jackpot.
Didn’t win the lottery? Even if you didn’t become an overnight millionaire, the odds are in your favor that you still need an estate plan. Are you one of the lucky few (very, very few) who did win the lottery? You also need an estate plan, and you can find out how to spend your lottery winnings the smart way here.
This guide will talk about why and how to establish an estate plan so that you can feel more empowered regarding your personal finances and much more.
Keep reading to learn:
Why Everyone should have an estate plan
Tupac, Amy Winehouse, Prince, Aretha Franklin. What do all these celebrities have in common? They all passed away without a Will, creating challenges for legal officials and family members to determine how to divide up their estates. As you might imagine, controversy and family in-fighting ensued.
Many individuals mistake estate planning as an activity for the rich and the famous, and it’s not their fault. The popular media often only tells high-profile stories about estate planning mishaps and controversies. However, absolutely everyone over the age of 18 should have an estate plan in place.
The key reason for this is “intestacy.” When someone passes away without a Will, it is said that they died intestate. When this applies, state laws determine what should happen to that person’s assets and minor children. State laws may or may not work out in your favor, but you have no control because you are no longer of this world. This can be a scary thing, especially for individuals with loved ones that they wish to provide for and those who want to leave a legacy.
Having an estate plan in place is the only way to control the outcomes of what should happen to your estate, including your assets and personal belongings. Not only that, it’s the only way to nominate a Guardian for your dependents, including your pets. In addition, estate planning has some unique applications that may surprise you, such as arranging for your future health care.
The next section goes over important estate planning documents that will give you a better idea of the power of estate planning.
What is Included in an estate plan
There are many estate planning tools available at your disposal, and each is represented by a legal document that you put together. This can be done with the help of an estate planning attorney, but many consumers are finding it easier and more affordable to work with an estate planning platform like the one offered by Trust & Will.
Estate planning is designed to be highly customizable to help meet each individual’s unique set of needs, circumstances, and desired outcomes. Although we could go over at least 20 different estate planning tools and documents, today we will briefly go over the 5 core components that most people will want to include. (Click on the link to learn about them in detail!)
If you’re not sure where to start, start with the Will. The Last Will & Testament is the foundational estate planning document that everyone should have no matter what. This document lists out your assets and personal belongings and specifies who should be inheriting them (your beneficiaries.) You can also use this document to express your end of life wishes, such as funeral and memorial services. Last but not least, you can nominate your Guardians for your children and/or pets.
2. Beneficiary Designation
A beneficiary designation isn’t technically an estate planning document, but it’s a critical part of your planning process. Beneficiary designations typically come as a part of certain financial accounts, such as bank accounts, retirement accounts, and life insurance policies. Your financial institution will request and sometimes require that you name a beneficiary for your account should you pass away. When they receive notice of your death, the institution will transfer your account (and the assets held in it) to your designated beneficiary. This happens outside of the probate process and thus these accounts are not included in your estate. You should be careful to keep these updated and make sure you don’t include any conflicting beneficiary designations in your Will and/or Trust.
3. Living Will
A Living Will might sound like it has something to do with your assets, but its function is very different from the Last Will & Testament. A Living Will actually has to do with your wishes if something were to happen to you when you are still alive, but unable to make or communicate your decisions. This could be an instance when you are medically incapacitated or perhaps even stranded on an island. Your Living Will typically addresses instructions for your medical care, but can also address operations that you’d need to continue on in your absence, such as childcare or for your business.
4. Health Care Proxy
You’ll also want to set up a Health Care Proxy in adjunct to your Living Will. This is a document that allows you to appoint a trusted individual to act on your behalf in the context of medical decision-making. If you were ever to become medically incapacitated, such as due to a serious illness, coma, or other injury preventing you from making or communicating your own decisions, your Health Care agent can do that for you. You’ll also authorize them to access your medical records and discuss your health care arrangements with your medical team.
5. Power of Attorney
Last but not least, be sure to include a Durable Power of Attorney in your estate plan. Similar to your Health Care Proxy, this document allows you to appoint a trusted individual to act on your behalf. Instead of health care decisions, your POA is authorized to manage almost any aspect of your personal life, such as paying your bills, taking out insurance policies, and even running your business on your behalf. A POA ensures continuity in your life in the rare chance that you become unavailable in the short-term or long-term.
The benefits of having an estate plan
You may have already begun to notice the myriad of advantages of having an estate plan thus far. By securing your assets and property, you can make sure that your loved ones are provided for when you pass away. Further, your estate plan can make sure you’re protected in case you ever become incapacitated. You can legally authorize your trusted loved ones to make medical, personal, and business decisions on your behalf and ensure continuity during a time in which you are unavailable.
There are other direct and indirect advantages associated with planning your estate. For starters, estate planning allows you to reduce taxes that are taken out of your estate. Federal and state taxes and reduce the size of the estate that you can pass down to loved ones. By implementing certain strategies, such as designating beneficiaries and moving assets to a Trust, you can minimize taxes and sometimes avoid them altogether.
Last but not least, there are psychological benefits that come from estate planning. You yourself can enjoy some peace of mind knowing that your assets and future are secured. Further, your estate plan can alleviate stress from your family members. If you were to become medically incapacitated or pass away, it will be a difficult time for your grieving loved ones. The added and urgent pressures of dealing with your estate can create a lot of stress, especially in the face of confusion and uncertainty. Your loved ones will be thankful when they found out that you set out clear instructions, guidelines, and expectations through your estate plan.
The importance of updating your estate plan regularly
Setting up your estate plan is a commendable hurdle to overcome, but many individuals fall into pitfalls by forgetting to keep their plans up-to-date. As we change and evolve throughout our lifetimes, so should our estate plan. Our plan should be a representation of our current life, such as our relationships and assets. Leaving your plan outdated can render it ineffective at the time of your passing.
It’s best practice to review and update your plan at least every few years. However, be sure to pull out your plan and evaluate if any changes are needed any time you experience an important life event, such as a death, birth, marriage, divorce, buying a new house, moving to a new location, etc. You and your family will thank you later for staying on top of things.
Create or update your estate plan today
If you’ve been wondering when you should create your estate plan, the time is now. Even if you didn’t win the lottery, you should still be taking action by starting your estate plan. Although a sudden cash windfall is a great motivator to get started, you don’t need a ton of assets or property to make estate planning worthwhile.
As you hopefully learned today, estate planning is so much more powerful than one might think. Of course it can be used to pass down your riches, but you don’t need to be wealthy to have an effective estate plan. If you are over the age of 18, then you should have an estate plan, regardless of your age or income level. It’s all about protecting yourself and your loved ones in a number of unpredictable scenarios. Because these scenarios are unpredictable and could potentially happen at any time, it’s the reason why you should get started right away. Don’t worry — you can always start with the basics and build upon your estate plan over time.
At Trust & Will, we’re here to help keep things simple. You can create a fully customizable, state-specific estate plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our different estate planning options today!
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Trust & Will is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice.