A Basic Estate Plan in 7 Simple Steps
July 15, 2016What does your current estate plan look like today? If you said you don’t have an estate plan, you’re not alone. LexisNexis says that 55% of adults in the U.S. don’t have a will in place, but you’re also probably wrong. Here’s why: the state you call home has a plan for your estate if you die without a will, trust, or other legal documents.
If your line of thinking about your estate is “What estate??? I don’t have anything left after my bills are paid” or “I’m single with no kids” or “I’m young and just getting started in my career,” understand that everyone has an estate (regardless of wealth) and should have an estate plan to make sure your individual, family, and financial goals are met. There are a few simple steps that can help you maintain control and protect the people (and organizations) that matter most to you. Here is a simple estate planning “to do” list to get you started:
Step 1: Set goals that matter to you. What do you want your estate plan to accomplish? Are you concerned about choosing a guardian for your children or protecting your kids’ inheritance from your spouse’s next spouse (remarriage happens!) after you’re gone? Is charitable giving in your future plans? Give your estate plan more purpose and meaning by asking yourself these questions and writing down a list of the things that are most important to you!
Step 2: Evaluate your financial situation. Start by completing a net worth statement that includes a list of your assets and liabilities. Once you’ve compiled a list of your financial resources, you are in a better position to determine who should receive your assets after you pass away. This step also involves reviewing your life insurance to cover your family’s needs for income, education costs and estate expenses. Reviewing disability insurance is just as important because it provides income protection for you and your family during your lifetime. For more information on life and disability insurance coverage, including needs calculators, visit LifeHappens.org.
Step 3: Have basic documents created. Here is a list of important documents that should be part of almost every estate plan:
- Will
- Advanced healthcare directive (living wills)
- Medical power of attorney
- Durable power of attorney
This is where your estate plan gets really personal. These important documents help you state your wishes for how to distribute assets when you die, name guardians for your children, and nominate someone to speak on your behalf if you can’t in a medical emergency. Get them done before you need them because by then, it will be too late.
Step 4: Update your beneficiary designations and title assets appropriately. Many people think that once a will has been created their estate planning work is done. That’s far from the truth, especially considering the fact that your will controls ONLY the distribution of assets that are subject to probate (the formal process of paying off debts and distributing property through the courts).
Not everything transfers through probate though. Any account with beneficiary designations such as insurance policies, retirement plans, IRAs, and annuities won’t go through probate. Any jointly owned property or accounts bypass probate as well as accounts designated as payable on death (POD) or transfer on death (TOD).
Step 5: Get organized. Have you ever been late for something and spent time frantically searching your house for your keys, only to find them in your hand? Not fun! Imagine searching for a family member’s bank account information, investment and retirement account statements, will, or key to a safe deposit box without any instructions or guidance during a time of grief.
It always makes sense to get your financial affairs organized. It’s also important to keep a list of online account passwords and digital assets in a convenient location for loved ones to access just in case something happens to you. I have a red folder in my desk labeled “When I’m Gone” with that list, and my kids and a few friends know where it is. Here’s a quick resource for what to consider about your online presence as it relates to your estate plan.
Step 6: Communicate your plans to those involved in it. Discussing your intentions in advance can help avoid family conflicts and also minimize the potential for any confusion or questions regarding your true intentions. If you have a plan in place but nobody is aware of it, then your wishes may be ignored. If your plan is in place but no one knows about it, is it really a plan?
Step 7: Review your plan regularly and as major life events occur. Life will undoubtedly throw a curve ball or two our way so it’s essential to review and adapt your plans periodically. Some situations that may require updates to your estate plan include marriage, the birth of a child (or grandchild), disability, the loss of a loved one, divorce, a financial windfall, or the creation or dissolution of a family business. If any of those life events occur, be sure to break out your documents, give them a quick read and highlight areas where a change is needed.
Let’s be honest. Estate planning isn’t always the most exciting topic (it’s quite morbid actually), but it is an important aspect of every personal financial plan. Be sure to personalize your goals and take action NOW so that you have a basic plan, at a minimum, to protect your family and people you care about the most. Some of these other steps are just good solid financial behaviors (not just for estate planning) to allow you to take control of your financial life.