10 Estate Planning Basics for Defining Your Legacy

October 3, 2019

Let’s face it, estate planning — the process of designating who will receive your assets and handle your affairs after your death or incapacitation — isn’t at the top of the list for a majority of Americans. According to a recent study by Caring.com, * just 42 percent of U.S. adults currently have basic estate planning documents, such as a will or living trust.

People have all sorts of reasons for postponing estate planning. Many adults simply don’t want to think about their mortality. Planning funeral arrangements, after all, isn’t as much fun as planning a trip to Disneyland.

Others may simply believe estate planning is for the wealthy. For them, the very word, estate, conjures up vast assets and holdings far beyond what they may possess. The truth is, however, you don’t have to be Warren Buffett or Bill Gates to have an estate plan. If you have family members or loved ones or even a favorite charity you wish to endow, you should have an arrangement in place for when you pass on.

Still, others may be concerned about the expense, which for an estate plan, involving a will and trust drawn up by a lawyer, can run between $1,000 and $3,000. You could probably download and complete many of these legal forms on your own to save money, but making a single mistake could prove costly to fix. Repairing an estate plan isn’t the same as repairing a dripping faucet. In the end, working with an experienced attorney, who can provide you with critical guidance and peace of mind that your papers have been prepared properly, may well be worth the investment.

With a well-crafted estate plan, you can take care of your family, minimize taxes, keep your financial affairs out of the public domain, and, most importantly, ensure your wishes are carried out exactly as you intended.

Here are some tips for creating your estate plan, what should go in it, and why:

Inventory what you can

Your estate comprises everything you own — your home and other real estate, your car, checking and savings accounts, investments, life insurance, furniture, and all your personal possessions, from your prized set of “National Geographics” to your Pez dispenser collection.

Make a comprehensive list of these items, supported by account numbers, contact information, and key documents such as deeds and trusts. Provide an easy way for those responsible for carrying out your wishes to locate and access the information.

Make a will or testament

A will or testament is a legal document or set of instructions that declares how your property is to be distributed at your death. As part of your will, you should appoint an executor of your estate. Many people name their spouse or adult child as executor, but your choice can be any competent adult. You can also name more than one person to serve as executor.

If you still have underage children, use your will to name a guardian to care for them should something happen to you and the other parent. Also, use your will to specify your funeral arrangements. You can’t use a will, however, to distribute property held in joint tenancy or in a trust.

You can revise your will as often as you like, but be sure to date the document each time to ensure previous versions are no longer valid.

Lay out your funeral arrangements

By approaching your funeral arrangements proactively, you can draw family members closer together rather than risk driving them apart over details that were left unaddressed. However you choose to be remembered, with a formal service or a simple observance or remembrance, here are some items that you may wish to cover:

  • People to be notified about your passing
  • Funds available to pay for funeral services
  • Choice of burial or cremation
  • Obituary notice (who is going to write it?)
  • Funeral program (eulogy, writings, photos, songs, pallbearers)
  • Headstone inscription (if any)
Consider forming a trust

While a will goes through probate, with the court overseeing the administration of your will, a trust does not. Because there is no court oversight, the distribution of your assets can go directly to your heirs upon your death. And unlike a will, which becomes part of the public record, a trust is private.

Furthermore, a trust takes effect as soon as you create it while a will goes into effect after you die. Therefore, a trust can be used to begin distributing property while you’re still alive.

Ultimately, a trust works best in concert with a will. Here’s a good way to think of this relationship: A trust usually deals with specific holdings while a will deals with the sum total of your holdings. A will is also a good way to ensure that all the assets you intended to place inside your trust are put there even if you fail to retitle (changing ownership of the asset from your name to the name of the trust) them before your death. This kind of will is sometimes referred to as pour-over will.

Consider life insurance

If you don’t have heirs or you have enough money to provide for your spouse or partner, you may not need to purchase life insurance. Otherwise, you should consider purchasing an insurance policy to help cover expenses that you no longer can.

Term insurance can be surprisingly affordable, especially the earlier you purchase it in life. Your policy will carry a fixed premium over the life of the term, usually 20 years, with extension options.

Create an advance care directive

A healthcare directive includes a living will, which expresses your preferences for your health care if you’re no longer able to make medical decisions for yourself. Such an advance directive could include a do-not-resuscitate (DNR) order or instructions about organ donation.

An advance care directive can also include a medical power of attorney. This proxy, who can be a family member, friend or partner, will be responsible for making any decision for you in the event you’re unable to communicate.

Grant a financial power of attorney

A financial power of attorney permits someone you have designated to oversee your finances if you’re unable to do so.  Just as with a medical power of attorney, the person selected does not have to be an attorney.

The reason people often create both a medical power of attorney and financial power attorney has to do with the very different kinds of decisions “under consideration.” While one may have to deal with financial support, the other may have to deal with life support.

Stay in touch with your designated fiduciaries

Appointing a fiduciary such as an executor, trustee or legal guardian, isn’t a set-it-and-forget-it proposition. Conditions or circumstances may have since changed in their lives, now making them an inappropriate choice to act your personal representative. To eliminate any surprises, make sure to check in regularly with these individuals to assess and reconfirm they are up to the responsibilities you have assigned them.

Update beneficiary forms

A beneficiary named on a savings, investment, insurance or other financial account is a legally binding document that supersedes a will. Therefore, you should update your beneficiary designations after any life-altering event such as a marriage, divorce or other changes in your family situation. If you fail to do this, your asset upon your death will go to the person last-named in the beneficiary designation. Financial accounts that name a beneficiary allow the funds to bypass the probate process.

Protect your business

If you own a business individually or with others, you should have a succession plan in the event of your passing. It should address a host of considerations, such as what happens to your business interest (buy-out?) and how it should be valued.

By forming an estate plan now, you can leave your heirs with certainty instead of a crisis — peace of mind instead of having to guess and piece things together at a most difficult time. And for you, it’s a way to put your signature on a life well-lived.

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