How to totally avoid Estate Planning
I’m sorry, you cannot avoid it. Estate planning is a lot like a playing hide and seek. You can hide, but eventually, it will come and find you. You might as well deal with it now and save the energy you have been using to avoid it.
Estate planning is really quite simple. Who gets what, when and how. Now, here is the hidden secret that very few people know. You already have an estate plan! Actually, the state you live in has an estate plan for you. Most states have passed laws that govern how your estate is handled should you pass away without a will in place. It determines who gets what, and if you have minor children, a judge can decide who gets custody. This may be good enough for you, as long as you agree with what the state law says. However, most people don’t like that idea. Most of us want to control who gets what, when and how. I’m going to spend some time explaining the basics elements of estate planning.
Beneficiaries. Beneficiaries are ways to pass certain kinds of assets directly to other people or entities. Beneficiaries are available on retirement accounts like 401k’s and IRA’s. Beneficiaries can also be listed on insurance products like life insurance and annuities. Transfer on Death (TOD) instructions can be put on other assets like bank accounts and non-retirement investment accounts. Beneficiary designations and TOD provisions pass the assets to the listed person no matter what the will states. This is an important point, because most people think that the will has the final word, but it does not. Be careful to keep your beneficiaries updated. There have been circumstances where a divorce happens and beneficiaries were never changed. Imagine the surprise to the new spouse when the money goes to the Ex!
Will. A will is a legal document that outlines your wishes should you pass away. You get to make decisions about who gets to carry out the instructions you left in your will(executor). You get to determine who gets your home, personal property, and other assets that don’t pass by beneficiary. Another crucial aspect of the will is to set up guardians for children or dependents if you are no longer around to care for them. Keep in mind that each person needs their own will. If you are married, the typical will passes everything to your spouse. If your spouse is not alive, then your will determines who is next in line.
Power of Attorney. This is a legal document where you give someone else the legal right to make decisions on your behalf and legally sign documents for you. This is particularly important in cases of aging parents, or incapacity due to health issues. There are general powers of attorney, healthcare powers of attorney and other specific powers of attorney that all take a legal document to put into place. Often spouses have these for each other, and parents sometimes name children as power of attorney when they begin to need help as they age.
Living Will. This is a legal document that outlines your wishes if you should ever need life sustaining medical treatment at the end of their lives. Often, folks don’t have a desire to be kept alive via artificial means if the diagnosis is terminal. The common refrain is “I don’t ever want to be a vegetable at the end of my life. If I’m ever on those machines, you just unplug it and let me go.”
Personal information summary. Think about all the information you carry around in your head. Social security numbers, lock box codes, the location of your hidden house key. In this day and age, you can include login and passwords to your banking website, 401k plan, and email accounts too. All of these things are valuable information to help manage your affairs if something should happen to you. Other items to include are an updated net worth statement, life insurance information, personal and emergency contact information.
This just scratches the surface on estate planning. This is a topic that goes a mile deep in each one of the areas that I have outlined. If you have questions, or need help getting started, Compass Financial can help.