5 Estate Planning Necessities
We work hard during our time on this planet to build a good life for -- and strong relationships with -- those we care about. Neglecting a proper estate plan has the potential to damage both.
A lack of clear direction will often cause a headache for those left behind to organize an estate. This can brew up unintended animosity, which is not the legacy most wish to leave in their wake. In addition, a neglected estate plan can lead to an inefficient distribution of assets. This can create a diminished inheritance for those you love, which is the last thing any rational human being would wish.
Why risk this happening? A proper estate plan will rectify these problems, and does not need to be overly complicated or take an extended period of time to complete. Review these five areas and your estate will be shored up in quick fashion.
1. Basic Will
Everyone needs a will, as it is the foundational blueprint of your estate plan. As your family grows, so does the importance of this document. A well-drafted will allows you to spell out the following:
- Who gets your belongings when you pass
- Guardianship of your children or any minors in your care
- If a trust is to be formed (especially for minors) when you pass
- Who will administer your estate (the executor)
It is good practice to give a copy of your will to the executor of your estate, and any other individual(s) listed therein who would have a duty to perform in the event of your passing. A funeral is not the time to surprise someone with guardianship of your child!
It's important to know that beneficiary designations for the following financial vehicles will take precedent over anything stated in your will. Makes sure to regularly review these designations so that they properly align with your wishes.
- Life Insurance Policies
- Work Retirement Plans
- Individual Retirement Accounts (IRAs)
- Pensions / Annuities
3. Powers of Attorney
In the event of a disability, there are two types of powers of attorney that need to be in place. For both, the person selected to hold the POA should be someone you trust and who shares your views.
Durable Power of Attorney: This document will give a person of your choosing the power to make financial and legal decisions on your behalf. If absent, something as simple as paying your bills can become a legal mess. In this situation, either a family member would have to go through a lengthy court process to be granted guardianship, or the court would have to step in to make decisions on your behalf.
Health Care Power of Attorney: Working in a similar fashion as the durable POA, this document gives a person of your choosing the power to make healthcare decisions on your behalf. Please note that this is for treatment where recovery is expected, different from an end of life decision (below).
4. Living Will
A rather dire topic, but important none-the-less, a living will can also be referred to as an advance medical directive. This allows you to dictate your end of life wishes (when recovery isn't in the cards) so that others don't have to make that difficult decision on your behalf.
Remember, estate planning is about making life better for those you leave behind. Don't put this burden on someone else so that they have to carry it with them for the remainder of their time.
5. List of Assets and Contacts
Does the thought of sitting down to chalk up a list of your assets sound like a frustrating task? Imagine the challenge this would (and potentially will) pose for someone other than you! Out of simple courtesy (and to avoid your executor resenting you for eternity), it is smart practice to make an inventory of all your primary assets and belongings. Noting where each item is held and to where (or whom) it should go would be another courteous, time-saving bonus.
Lastly, leaving behind the contact information for your advisor, accountant, attorney, and any other trusted professionals could also really aid in the estate settlement process. Often times, these individuals will already have a good understanding of your wishes and the family dynamic, which can save your loved ones ample hassle at a time when they're already burdened with grief.
Keep in mind that estate planning should be thought of as a last gift and a sincere goodbye to those people and organizations you love. This is part of how you will be remembered, so leave a legacy (not a mess) in which you, and your family, will be proud.