Many people believe estate plans are only for extremely wealthy families who are looking to reap tax benefits. Or they may delay estate planning because they are young. Others do not understand why an estate plan is important in the first place or feel it’s too morbid a topic. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.
What if you become incompetent and unable to manage your own affairs? Without a plan in place, the courts will often select someone to take on this role. As part of setting up an estate plan, you can choose that person yourself through a legal document called a durable power of attorney.
This individual serves as your agent or attorney-in-fact. They will have the power to make decisions on your behalf if you become unable to do so. Depending on your preferences, this may extend to handling your financial affairs or your medical care.
No one expects to face a serious accident or illness, but it can happen to anyone at any point in their lifetime. Ensure you have entrusted someone in your life to serve in your best interests if you can no longer communicate your own wishes.
Read more about the importance of establishing a power of attorney.
If you have minor children, who will raise them if you were to pass away suddenly? Without a plan, a court will make that decision. Creating an estate plan means being able to nominate the guardian of your choice.
Your kids also could face unnecessary burdens if you have not executed your estate plan. For example, you may have one minor child and another who has reached adulthood. You may assume the elder sibling will be able to protect the younger one, but that isn’t always a given. Read about what happened to actor Anne Heche’s children after she passed away in an accident.
Who will inherit your money, real estate, and any heirlooms after your death? If you die without a will, your assets pass to your heirs according to your state’s laws of intestacy. Your family members (and perhaps not the ones you would choose) will receive your assets without the benefit of your direction.
You likely want to have decision-making power over who will eventually get your hard-earned assets, and when and how they receive them. Nevertheless, more than two-thirds of Americans still have not created a will.
In your will, you also can appoint someone you trust to serve as the executor of your estate. An executor can be an individual or an institution, such as a bank. They become responsible for carrying out your wishes after you have died. For example, the executor must ensure that your loved ones receive the assets you have allocated to them and that your estate pays any taxes it owes.
What if your family is the result of multiple marriages? Sixteen percent of children in the U.S. currently are a member of a blended family, according to Census data.
Having an estate plan helps ensure that a spouse or ex-spouse treats your children from different marriages in the same way. By planning ahead, you have the opportunity to determine what goes to your current spouse and to any children from a prior marriage or marriages. (Learn more about what blended families may need to think about regarding estate plans.)
If your child has a serious disability, you need to plan for their future. This doesn’t only mean planning for who would care for them if they require ongoing support. It also involves making sure they’ll be able to maintain access to any public assistance programs on which they may have come to rely.
If your child receives benefits through a program like Medicaid or Supplemental Security Income, for instance, you'll want to ensure they can continue to depend on them. But to stay eligible, their income and assets generally cannot exceed a certain limit. Receiving an inheritance could mean they no longer qualify for these benefits and may have to use their inheritance money to pay for their care.
With the assistance of an estate planner, you may opt to set up a supplemental, or special, needs trust for your child. This estate planning tool can help your child remain eligible for certain means-tested government benefits for years to come. They can then use the funds you place in this type of trust to pay for non-covered expenses.
With a special needs trust, you’ll also need to appoint a trustee. Be sure to work with a professional in your area who has experience with special needs planning.
Would you prefer that your assets stay in your own family? If you do not have an estate plan, your child's spouse may wind up with your money if your child passes away prematurely. Likewise, if your child divorces their current spouse, half of your assets could go to the spouse.
One strategy for avoiding this is establishing a trust. A trust can help ensure that your assets will remain with your loved ones and, for example, pass to your grandchildren. Numerous types of trusts exist, so consult an estate planner to determine what would best suit your specific situation.
Without you, would your spouse and children be able to survive financially? One element of a solid estate plan is life insurance.
If you pass away, the income replacement that your life insurance policy would provide could prove essential to the loved ones you leave behind. Your family may then be better equipped to maintain their current living standard and you'll have peace of mind knowing that they will enjoy financial security.
If at some later point you no longer feel life insurance is necessary, you can sell it as part of a life settlement and use the funds to cover other costs, such as health care expenses.
Do you have an individual retirement account (IRA) or similar retirement savings account? Your estate plan process should include naming the loved ones in your life whom you want inheriting those funds. Keep in mind that these designated beneficiaries may change throughout your lifetime. You may welcome grandchildren along the way, or have a falling out with a family member, for example.
In part, this is why updating your estate plan on a periodic basis is crucial. It can help ensure that the distribution of your retirement plan funds reflects your current wishes. With a plan, you can choose the optimal beneficiary, and even avoid burdensome tax consequences for your heirs.
If you own a business, even a small business, you should work with an estate planning attorney to develop a succession plan. For example, failing to name a successor puts your family at risk of losing control of the business. Take time to decide who will own and control the business after you. Put strategies in place that will help your successors flourish.
Probate is the court process your estate could face after your passing. In some cases, you cannot avoid it. However, if you have thought through your estate plan, you may be able to save your heirs a great deal of time, money, and heartache.
Without a plan, your estate may encounter delays and excess fees (depending on the state), and your assets will also be a matter of public record. With a plan, you can structure things to avoid probate entirely.
Your dog, cat, horse, or other companion pet may mean the world to you. Should you no longer be able to care for them, you might assume your family members would take on this responsibility.
Unfortunately, this is often not the case; your loved ones may not have the money or the inclination to do so. With an estate planner, you can include a clause in your will specifying your pet's future needs and caretaker as well as explore options funding like a pet trust.
Whether you haven’t yet started your estate plan or need to review and update it, contact an estate planner for guidance. Find a qualified estate planning attorney near you today.
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