Four reasons why you should have an estate plan.
An estate plan addresses issues beyond those merely contained in a final will. A proper estate plan is a collection of documents dealing with potential issues of mental infirmities and impending death (i.e., your durable and healthcare powers of attorney), as well as the documents detailing how your assets get distributed (i.e., your last will and testament or trusts). Unless you are banking on the concept of “synchronicity,” permitting your consciousness to survive indefinitely inside a machine, everyone eventually departs this life. Given that fact, here are XXX reasons you should want to decide these issues for yourself.
1) Estate plans are not just for the wealthy.
You may hear the word “estate” and immediately think of mansions and sprawling grounds, but you don’t have to be wealthy to have an estate. From a legal standpoint, an estate is simply the collection of property you own or otherwise have a legal interest in at the time of your death. Your estate may include real estate, physical personal property, intellectual property, or other assets.
Your estate plan decides who receives this property when you pass away and can be used to put reasonable controls over the distribution of the property. For example, in your will, you may require that the proceeds for a young beneficiary be put in trust until they reach a specific age or happening of a specific event such as college graduation. Without an estate plan, you have no control over what happens to your assets, and a beneficiary will take immediately as long as they are over the state’s age of majority, even if that may not be in their best interests.
That’s because the main component of estate planning is designating heirs for your assets, whether it’s a summer house or a stock portfolio. Without an estate plan, the courts apply the state’s default rules in deciding who receives your assets. Depending on your specific situation, this process may take years and result in your estate paying significant administrative fees such as professional asset valuation services that would not be required under a will. In addition, once familial relationships and asset values are established, courts often have little leeway in distributing the assets. Except for minor children, most courts do not get to weigh which of your heirs can handle the assets properly and which would squander the assets overnight, nor do the state rules usually permit the surviving spouse to get everything if that was your desire.
2) Estate plans protect the non-financial well-being of your young children.
Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unthinkable. As outlined above, wills and trust permit you to ensure your children are financially cared for, but an estate plan does more than that.
In your will, you have an opportunity to use your judgment and decide who raises your children. Without such provisions, the state’s family court will decide who becomes their guardian. Courts usually default to the closest relative that is suitable and willing to take on the responsibility. Often, this is the appropriate solution, but too frequently, family members cannot agree on who this should be, or the closest, suitable and willing relative may not be the “best” choice to raise your children.
3) A proper estate plan promotes family harmony.
I’m sure you have heard the horror stories of family warfare generated by disagreements over the correct allocation of their assets. One sibling may think they deserve more than another because they provided more care in the decedent’s final days, or one sibling may think he should be in charge of the finances even though he is notorious for racking up debt. It can get ugly and result in long court battles costs significant money to all involved.
Your estate plan can stop fights before they start. You get to choose who controls your finances until they are distributed or, in the case of a trust, who controls the trust’s investments and distributions before the trust terminates. A written document expressing your desires goes a long way toward quelling any family strife and avoiding possible long-term family fractures.
Additionally, your will provides you an opportunity to put in context the choices you made. For example, you can explain to your beneficiaries why you made special arrangements for a child with health problems, set up a trust for a child who might be better off not inheriting a lump sum, or make special provisions for your child that cared for you in your later years.
Deciding whether to divide your estate exactly equally is one of the key tasks you need to think through. And, of course, if you’ve had more than one spouse—or have children from more than one family—an estate plan is urgent.
4) Parts of your estate plan are relevant before you die.
An estate plan is more than just what happens when you pass away. An equally critical component of estate planning includes documentation in the event you become incapacitated.
A financial power of attorney allows you to name someone to help with your financial affairs if you cannot manage them yourself. Such a power may be effective immediately or conditioned upon you becoming incapacitated. The person you choose does not have to be a financial wizard, but rather that you identify someone whose judgment you trust. The person selected will then work with your various financial service providers and government agencies such as social security to take care of your financial affairs.
A health care power of attorney (or health care proxy), along with a HIPAA authorization and living will, allows someone to make health care decisions on your behalf. Both of these powers should be “durable,” which means they remain in effect during a period of incapacity.
In each of these documents, you should select a primary person to be your representative, but you should also name an alternate in the event that the first person is unable to serve.
For these and many more reasons, if you want your assets and your loved ones protected when you can no longer do it, you need an estate plan. I urge you that if you do not have a plan or your current plan is no longer relevant to the issues you face, seek out an estate planning attorney and begin the process of putting in place a plan. Your family will thank you when the time comes.