How to Jump-Start Your Estate Plan
Key Points:
Regardless of your personal situation, having a basic estate plan in place will allow those who survive you to adhere to your wishes and smoothly handle your affairs.
Individuals who do not have an estate plan in place run the risk of leaving their personal affairs up to the direction of the court system.
Having a will, power of attorney, healthcare directive, and potentially a revocable living trust will provide the direction and powers needed to avoid court involvement and provide peace of mind for loved ones during a difficult time.
Let’s face it—thinking about what happens after we pass away is not the most pleasant subject to consider. And understandably, it tends to get pushed to the bottom of our agenda when it comes to the conversations we have with our loved ones. According to a recent survey by Wealth Counsel, 74% of Americans feel estate planning is a confusing topic and 47% believe it applies only to wealthy households¹. It’s no surprise then that only 40% of Americans have a basic estate plan or have started the process of putting a basic estate plan in place². Of that 40%, only 22% of Millennials (ages 18-38) and 36% of Gen Xers (ages 39-54) have put together a will². Contrary to what most may think, however, having a basic estate plan in place is extremely important for individuals, regardless of their age or generation.
Though we may cringe at the thought of having to discuss anything related to our untimely passing, it is important we plan for it regardless of how unlikely it is to occur. Individuals who do not have a plan in place run a major risk of leaving their personal wishes and affairs up to the direction of respective state intestacy laws³. This means that all aspects of asset transfer, guardianship, and legal representation would ultimately go through what is known as “probate court” and become public record. Having a detailed and well-constructed estate plan will help to provide the resources and framework needed to avoid these issues, allowing for affairs to be handled in a smooth and private manner. Below are some of the major documents that make up the backbone of an effective estate plan:
Components of an Effective Basic Estate Toolbox
Will – The primary purpose of a will is to give direction as to how an individual’s property will be handled at their death. A will names an “executor,” the party in charge of managing the distribution of that property. A will also provides instruction regarding guardianship responsibilities for any minor children.
Financial Power of Attorney (POA) – The financial or property power of attorney names an individual as an “agent” to act on another’s behalf should they be incapacitated. The document allows for powers that are granted to be very specific (i.e. a single transaction or account) or very broad (i.e. managing all financial decision making and affairs).
Healthcare Power of Attorney / Living Will – Despite the various names that exist, the core purpose of this document is to provide an individual’s named agent with the power to make healthcare decisions on their behalf should they be unable to do so, as well as give context and direction to their end-of-life care and quality of life.
Revocable Living Trust – Though not always included in estate plans, this document coupled with a will allows an individual (the “grantor”) the flexibility to control, stipulate, and protect their assets while creating an avenue to transfer those assets without any court involvement. We delve deeper into the value and application of various trusts in our article here.
Letter of Instruction – Not always highlighted explicitly, this document can provide further information to agents regarding relevant parties to speak with (i.e. financial advisors, attorneys and accountants); important passwords and emails; social media account access; and the location of any lockboxes and valuables. The document also provides an excellent place to list specifics surrounding burial and funeral wishes.
Tips for Starting the Conversation and Major Take-Aways
At Capstone, we feel that putting together an effective estate plan shouldn’t have to wait until later in life. Beginning the discussion can feel overwhelming and there is no one “right” way to start. Often, a life event such as a new child, or even divorce, can be a catalyst for starting the process. Talking about someone else’s estate planning missteps, such as those of celebrities like Prince or Philip Seymour Hoffman, can also be effective at breaking the ice. No matter how the conversation begins, taking those important first steps will help set the stage for creating the documents outlined above, while providing peace of mind to all involved. Putting together a will, financial power of attorney, living will/healthcare power of attorney, letter of instruction, and potentially a revocable living trust will create a road map for handling your wishes and affairs the way that you ultimately would want.
Sources:
¹https://craft.wealthcounsel.com/images/articles/Estate-Planning-Awareness-Survey-2016.pdf?_ga=2.187632940.544690766.1566483158-1649120442.1566483158\
²https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html
³https://www.thebalance.com/what-happens-if-you-die-without-a-last-will-and-testament-3505199