Most of us want our heirs to benefit from the wealth we accumulated when we pass away. But many don’t realize that the process of planning your estate isn’t just for the mega-wealthy;even those of modest means should be setting up an estate plan.
It’s easy to put this plan off. We are all so busy, and planning for the future can get put on the back burner when we are dealing with everyday distractions. The best time to start making a plan is now, and there are some key components you will need to create your plan.
What Goes Into An Estate Plan?
Each part of an estate plan works together to make sure your wishes are met when you pass and your money and assets go where you want them to go. Take your time with each part, and make updates as your wishes change.
A living will is different from a normal will. This document lays out what medical treatments you do and do not want at the end of your life. It should address issues like resuscitation, mechanical ventilation, tube feeding, and organ and tissue donation. Having these wishes clearly written down will help your family members make decisions on your behalf if you are no longer able to.
A trust will protect your assets as you pass them down to your heirs. You can name a trustee who will be in charge of passing down your assets to the beneficiaries. In this document, you can lay out exactly how you want your assets to be distributed. You could leave money to help your adult child with their mortgage, wedding expenses or student loans.
This document is a special type of last will and testament. It works hand-in-hand with your trust and can keep your family members out of probate court. A pour-over will protects any assets that you didn’t include in your living trust or will. Assets that are left behind with no direction could be subject to probate, and that can be a big headache for your heirs. By law, the assets that weren’t funded in a trust or pour-over will go to your next of kin, based on the state you live in, which can vary.
Healthcare Power of Attorney
If you are incapacitated and can’t make medical decisions, this is where your healthcare power of attorney comes in. This document names and legally empowers someone you choose to review your medical records and make decisions on your behalf. This could be anything from where you should be treated to what treatments you do and do not want. Since this person will likely be tasked with making really hard decisions, choosing a close family member or friend may be a good choice.
Financial Power of Attorney
Much like your physical health, you need someone in your corner prepared to take over your finances when you pass away or become incapacitated. You can decide how much control your power of attorney will have when accessing accounts, selling stock, and managing real estate.
What if you don’t have a plan?
Not having a plan in place will ensure that your wishes won’t be met and can put your grieving heirs through probate court. We’ve seen a lot of celebrity examples of what can happen if you don’t have a plan. Prince passed away when he was only 57 years old, and he didn’t have a will. Because of that, people started coming out of the woodwork claiming to be a wife, child, sibling or distant relative. After a six-year battle, the pop star's estate was finally settled in January 2022. When it comes down to it, planning ahead will ensure that all of your wishes are fulfilled, and your family members won’t have to worry about legal battles. That’s why we include estate planning in every plan for our clients to make sure they can make the best decisions for themselves and their families.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.