Now that the ball has dropped and toasts have been made, did you make a New Year’s Resolution? While many people resolve to lose weight or to save more money, very few make it their top priority to get their estate plan in order. Even if you have an estate plan in place, situations change – babies are born, marriages are celebrated, loved ones die and divorces happen – these changes merit re-evaluating your estate plan. If you have been procrastinating about estate planning, here are some pointers to get you started.
1. Basic Documents.
At a minimum, every person should have a Last Will and Testament, Power of Attorney and Advance Directives for Health Care documents. A Last Will and Testament is a legal document that lets you decide who should receive your assets after you die. It also lets you choose your executor, who is the person that will be in charge of your estate. The executor rounds up your assets, pays any creditors, files your tax returns and then distributes your assets to who you have named in the Will. You should choose a person that you trust as your executor.
A Power of Attorney is a document where you grant your “attorney-in-fact” the authority to make financial decisions on your behalf. If you get into a car accident, who can pay your bills, talk to your insurance company, etc.? Your attorney-in-fact can step in and manage your finances on your behalf.
Advance Directives for Health Care allows you to name a health care representative to make health care decisions on your behalf if you cannot make those decisions for yourself. It can also include a living will which directs health care providers and care givers the course of treatment you wish to have at the end of life.
2. Choose a Guardian for Minor or Special Needs Children.
What will happen to your children in the unlikely event of your death? If you have not outlined your wishes in your Last Will and Testament, a Court will decide who will take care of your children. It is extremely important to have a conversation with the person(s) that you are considering choosing as guardian for your children. Will the person(s) that you have chosen be able to take care of your children? Do they have the time? Is the prospective guardian old enough or too old? If you have a special needs child, an extra added layer of thought may be required since the guardian may need to take care of your child past the age of 18. (See When Your Special Needs Child Turns 18).
3. Consider Whether You Need a Trust.
Trusts are not just for the wealthy. There are many types of trusts designed for different purposes. You may need a trust for the following purposes:
Preventing minors from inheriting property outright when they reach 18
Ensuring a special needs person will be taken care of
Preserving assets for children from a prior marriage
Preventing assets from being eroded from a person you consider a spendthrift or from creditors
For more information, see What is a Trust and What is Included and the Advantages and Dangers of Having a Trust.
4. Review and Update Beneficiary Designations.
Joint ownership and beneficiary designations take precedence over the contents of your Will. For example, if you have a life insurance policy and you appointed a beneficiary, regardless of what your will says, that beneficiary designation will govern distribution of your life insurance policy. It is a good idea to keep a list of accounts and policies for which beneficiaries have been designated and make sure your beneficiary designations coordinate with your Will.
5. Make an Asset List.
It is a good idea to keep all your estate planning documents together and to communicate its location with your executor or power of attorney. It is also a good idea to keep a list of all your assets and your passwords so that if you pass away unexpectedly, your family will know what assets you own and can gain access to your accounts. We have a free form available on our website called “Information for My Heirs” so that you can keep all this information in one place.