top of page
  • brad1469

Estate Planning Essentials

Updated: Apr 23

What do palm readings, a crystal ball, and tarot cards have in common?

They are methods of trying to divine the future. Humanity has a long and creative history of trying to predict what has yet to come. Planning—financial planning and estate planning—take a different approach. Instead of trying to anticipate (which really means guessing), planning can help you prepare for a range of possibilities.

An estate plan are measures and directions to ensure your family and financial goals are taken care of once you die. Examining your estate plan is an important part of the financial planning process. Financial planning looks at your complete financial picture now, and in the future. Estate planning looks at what comes after death or incapability.

The topic of estate planning covers a lot of ground. Recently, we posted a series of articles that break down pieces of this broad topic. This article is a wrap up of the concept of estate planning, and the individual pieces of the process.

As always, we recommend using an estate planning attorney to help guide you through the process.

What’s in an Estate Plan

What is in an estate plan can vary, but there are four main elements. The first piece of estate planning is perhaps the most familiar—drawing up a will. Nearly half of Americans over 55 don’t have a will. A will is arguably one of the most important pieces in estate planning.

A will allows you to name your beneficiaries. It also assigns your worldly goods to the person you want to have each item or asset. Your will also provides direction for minor children, pets, and appoints an executor to carry out your wishes. If you die without a will, your estate is settled based on your states probate laws.

You can read more about wills in this article, Wills: Planning for Those You Leave Behind.

Don’t Forget Your Digital Assets

One part of your estate that may be forgotten when writing your will is your digital life. The way we pay bills and interact with others evolved with the digital age. A digital asset consists of all your online accounts and devices.

The average American has around 27 different online logins. Working people tend to have close to 200! Over half of bills are paid online, and over three-quarters of adults use email. Without an inventory, passwords, and direction, trying to clean up and close your digital life after death will likely be a monumental mess.

You can read more about planning for your digital life in this article, Your Digital Estate: Planning for Your Digital Assets.

The second element is advance directives (or advance care planning). Do your loved ones know your wishes in the event of a medical emergency? Only 25 percent of Americans have legal documents to direct their end-of-life care. Planning for these “what-ifs” are an important part of your estate plan. The two main pieces of this element of estate planning are a health care power of attorney (POA) and a living will.

These documents ensure you have a say in your medical care, even if you cannot communicate these wishes.You can read more about advance care directives in this article, Advance Care Directives: Preparing for the Unknown. The third element is a financial power of attorney. Financial POAs, like health care POAs, come in many types. Regardless of the variety, they allow you to appoint someone to care for your financial matters while you are still alive. If you become incapable of paying your bills, this document in your estate plan ensures your bills will be paid.

You can read more about the different types of POAs in this article, The POA Variety Pack: Which Power of Attorney is Right for You?

The final element of an estate plan is a trust. When you hear “trust”, you may immediately think “trust fund.” That term tends to inspire visions of mansions and wealthy families. But you don’t have to be rich to have a trust. A trust is simply a legal vehicle that holds and manages your assets. For some people, a trust can minimize the hassle and fees loved ones might face when inheriting assets. A trust can also minimize taxes and spare heirs from probate court.

When you create a trust, you can:

  • Say where your assets go

  • Determine when your beneficiaries have access to your assets

  • Save estate taxes and court fees

  • Protect your assets from your beneficiaries’ creditors

  • Determine who gets a beneficiary’s portion of your assets in the event of their death

  • Avoid long court processes

While these all sound like great things, a trust isn’t appropriate for everyone. If you have one heir who is inheriting everything, a trust could very well be overkill. An estate planning attorney can help you determine if you need a trust.

Types of Trusts

There are many types of trusts. Here is a very brief rundown of some of the more common types to help you understand the jargon.

  • Revocable Trusts, often called a living trust, are created during your lifetime and can be changed or revoked by you at any point.

  • Irrevocable Trusts cannot be altered or revoked after its creation. Typically, a revocable trust evolves into an irrevocable trust upon death.

  • Charitable Trusts benefit a charity or the public in general. These trusts are established as part of an estate plan to lower or avoid estate and gift taxes.

  • Special Needs Trusts are set up for a person who receives government benefits so as not to disqualify them from such government benefits. “Special needs” in the case of trust have a specific legal definition.

  • Testamentary Trust is contained in a last will and testament. It provides for the distribution of all or part of an estate. There may be more than one testamentary trust contained in one will.

A Letter of Competency

At the same time you are putting together your estate plan, you might consider also obtaining a letter of competency.

Disputes between family members over the distribution of assets happen in real life even with a will. We see it all too often. Take an emotionally charged situation, stir in any hint of mental incapacity, and the resulting concoction can be toxic.

A Letter of Competency, obtained from a doctor, can reduce the ability to contest your wishes. This letter states that at the time your estate plan was drawn up you were able to make the decisions contained within the various documents. The intent is to invalidate any claims you were not mentally capable of making medical, financial, and/or legal decisions when you drafted the documents.

This generic letter is best coming from your primary care physician, preferably someone you have a history with. Sometime, such as in the event of mild memory loss, a specialist might be a preferred witness. An estate planning attorney can recommend which would provide the most accurate statement if you are unsure.

The letter should be printed on the doctor’s letterhead and contain your name, date of birth, the date you engaged the doctor, your doctor’s statements, and any relevant diagnosis.

Obtaining this letter takes minimal time and effort, just a trip to the doctor. But the time and strife it may save your loved ones is invaluable.

Revisit Your Estate Plan Regularly

Your estate plan is a living document that may need updates and amendments over time, just as an IRA or 401(K) may need beneficiary changes as children are born and family members die.

Documents like your current will, trust, and POAs should be shared with your financial advisor. In addition to another secure spot to store these documents, the information contained within allows us to assist your beneficiaries and better care for you, our client.

If you are a client and aren’t sure if we have your current documents, please touch base with us. We can send you a secure link to email them over so we can keep them with your client files. These documents are helpful when clients pass away, and vital when a financial POA is needed.

If you are a current financial planning client, and you aren’t sure if your estate plan covers all the aspects outlined in this article, Tiffany is happy to examine your estate planning documents to make sure you are as protected as possible.

0 views0 comments


bottom of page