Estate planning tends to be on many people’s “someday” list. Let’s face it, no one enjoys preparing for the day when we are no longer around. However, if this process is not addressed before that unfortunate day comes, our loved ones can be left in a very difficult situation.
Why is an Estate Plan Important?
A good saying to remember is, “Plan your estate or the state will plan it for you.” When no directive from the deceased exists, their property will enter a process known as probate. From here, state law will be applied to properly distribute property to our loved ones. However, without a proper plan in place, probate can become extremely lengthy, expensive, and stressful for our loved ones. This has a tendency to cause disagreements between heirs and can quickly devolve into a horrible experience for everyone involved.
Should I get an Attorney Involved?
It is a good idea to at least sit down with an attorney and explore your options. Probate laws vary from state to state, and oftentimes resources online simply can’t take you the whole 9 yards. For example, a beneficiary deed in Colorado can allow you to avoid probate completely for a given piece of property. Whereas another state may still require this transfer of property to be overseen by the court. Understanding variables like this is imperative for making the process as smooth as possible.
1. Draw Up a Last Will
Creating a last will is typically the first step in planning any estate. This document will name an executor to oversee the probate process. It will also instruct the court on how exactly your property will be dispersed. While a last will does not eliminate the need for probate, it will streamline the process significantly. With a last will in place, time and cost of the probate process can be reduced dramatically.
2. Discuss the Option of a Living Trust
A living trust can be an excellent option for some individuals. An attorney in your area will be the best person to discuss this with. Typically a living trust is used in cases where business equity needs to be dispersed or for high net-worth individuals with complex estates. Not only does a living trust make complex estates easier to distribute, it can be used to avoid probate altogether. In this document, a personal representative will be identified and this person will be in charge of distributing your property similar to the executor of a last will.
3. Draft a Medical Directive
All too often health difficulties strike without warning. In many cases the victim is put in a state that renders them unable to make decisions regarding their medical care. What’s worse is that these decisions can be highly time-sensitive. Rather that trusting bureaucratic processes to get a decision made regarding your health, put together a medical directive. This document will name a decision maker, chosen by you, that will be able to act quickly with your wishes in mind.
4. Give a Trusted Person Financial Power of Attorney
Similar to medical decisions, often times financial decisions need to be made when a person is simply incapable. By taking the time to name a person with financial power of attorney, these decisions can be made swiftly when time is of the essence.
5. Name a Beneficiary Wherever Possible
There are many types of policies and accounts that carry the ability to name a “transfer-on- death” beneficiary. These include bank accounts, investment accounts, life insurance policies, and more. The main objective here is to avoid the probate process when transferring the value within these accounts. Often times a death comes with significant costs and making funds to cover that cost immediately available can reduce stress significantly for what already tends to be a difficult time.
6. Get a Life Insurance Policy
For many people, this step comes as a given. However, 40% of Americans do not have a life insurance policy. If you’re in this camp, consider getting a policy. This is a quintessential case of better late than never. Your beneficiaries will thank you as the funds that tend to come with these policies are often crucial for our loved ones.
7. Start a Funeral Cost Fund
If you’ve ever lost a loved one you know what your first priority is after the loss occurs; time to grieve. Unfortunately for many people, this is simply not an option at first. Finding a way to cover the cost of a funeral ends up on the shoulders of our loved ones when they’re already flattened by a difficult loss. If this money is already set aside, our family will have the latitude to focus on their emotional needs first.
8. Educate Yourself About Estate Taxes
Estate tax laws vary from state to state. This is another part of the estate planning process where an attorney can be a big help. This step becomes exponentially more important for high net-worth individuals. An adept attorney can save your heirs significant cost by properly planning through this step.
9. Write Your Last Wishes
Last but certainly not least is your last wishes. These wishes can range from the pragmatic to the sentimental. Last wishes often cover subjects like organ donorship, burial/cremation preferences, etc. However, they can also include messages to loved ones or anything else you can think of. Last wishes are a great way to put a bow on the dreaded process of planning your estate.