Often when we hear the hear the term “estate planning” we immediately focus on the word “estate,” which conjures up an image of a mansion amidst rolling hills, something that we don’t have, and therefore we don’t need to worry about, right? Wrong! As we wrote about a few months ago, estate planning is important for everyone regardless of wealth or age.
Estate planning is the practice of setting forth your wishes when you’re alive (in the case you become mentally or physically incapacitated) and setting forth your wishes of how your assets should be used once you die.
Even if you don’t feel like you have a lot of money, you probably have an opinion about how it should be used or, more importantly, who can access it upon your death.
So now that we’ve established estate planning is important you might wonder what you need to get in order. We recommend that clients have the following five estate planning terms in order:
A will is a legal document that allows you to manage how your assets will be dispersed, as well as name an executor of you estate and guardians for your minor children. If you don’t have a will, a judge might decide on your behalf, so it’s important to make your wishes clear.
A beneficiary is someone who is entitled to receive proceeds from accounts such as life insurance, retirement accounts, financial accounts, etc. As with your other assets, if you don’t name a beneficiary, it could be decided in court upon your death. Also, many mistakenly believe that whoever you name in your will trumps the designated beneficiary, but it’s more typical that the named beneficiary will override who you name in your will.
Therefore, you’ll want to review who you have designated as your beneficiary every year, particularly if you’ve experienced a life change, such as marriage or divorce. If your ex-spouse is still listed as your beneficiary he or she will get your money upon your death, even if that’s not your intent.
A Durable Power of Attorney
This document legally names and empowers someone to act on your behalf financially if you are physically or mentally unable to do so. The person of your choosing will have the power to transact real estate, enter into financial transactions and make other legal decisions as if he or she were you.
Advance Medical Directives
Advance Medical Directives let others know what medical treatments you would or would not want if you are unable to do so. Advance Medical Directives include a Living Will, which lets your wishes be known for possible healthcare decisions, a DNR (Do Not Resuscitate Order) and a Healthcare Proxy (also known as a Healthcare Power of Attorney). Your Healthcare Proxy makes healthcare decisions on your behalf if you’re incapacitated and may or may not be the same person as your power of attorney.
A Letter of Instruction
A Letter of Instruction is an informal document where you can provide information about financial and personal matters upon your death. You can utilize this document to lay out where your assets are located, if you have any household accounts or automatic payments set up and a list of your passwords so your executor can quickly access your accounts. You should also consider including login information to personal accounts, such as your computer, social media and credit cards.
Having your affairs in order and organized is one of greatest gifts you can give your family.
At Legacy, we have many strategic partners, such as estate attorneys and CPAs, who are experts in helping families navigate the important process of getting their affairs in order. Let us know if we can help you!
(Note: The names of the above estate planning terms can vary from state to state, so be sure to consult with a legal professional as you embark on estate planning.)