It’s a nightmare no one wants to face: A loved one has passed away unexpectedly, and now you’re burdened with sorting out their affairs while you’re grieving. Situations like this are distressingly common and why we believe everyone should have estate planning documents in order. Doing so can help ease a burden on our loved ones during a trying time.
In this post, we’ll explore estate planning steps that you can take for your family’s peace of mind in the future—and yours in the present.
1. Will or Trust
A will outlines your wishes for your possessions as well as the guardianship of minor children. It is a legal document that goes through the probate process after your death. When writing a will, you’ll generally name an executor to carry out your wishes. If you die without an estate planning document such as a will, the executor ends up being the state, with the courts deciding how your property gets distributed.
You can supplement your will with a letter of instruction or intent. This is a non-enforceable document that you can use to provide information to your will’s executor, your desired funeral arrangements, and personal messages you want to convey to your loved ones.
You might also consider a trust, such as a revocable living trust. A trust is a legal entity that holds your property, and you name a trustee to manage the trust’s assets. Among a trust’s benefits, your estate will avoid probate, which can be lengthy and is public.
With a revocable living trust, you’ll generally name yourself as the trustee while you’re alive, and you maintain control of your assets. Your trust becomes irrevocable once you pass away, meaning it cannot be changed. The succeeding trustee will pay any remaining debt and bills on your estate, and allocate your assets to the beneficiaries in your trust’s formation documents.
Because they are legal documents, wills and trusts can be complicated and are not something you should take up on your own. A mistake can take your family years to sort out and end up eroding the inheritance you wanted to leave. Consider working with a financial advisor to determine which documents you need in light of your overall situation and goals, and work with an estate planning attorney to have the documents drawn up.
2. Power of Attorney
Many people have health conditions that render them incapacitated or unable to make decisions for themselves. As part of your estate planning, have documents prepared that name a person—or people—who will make decisions on your behalf if you become incapacitated.
You designate these people through a power of attorney, which can be either durable (in effect throughout your life unless you change it) or springing (triggered by an event, such as mental or physical incapacitation).
Your health care power of attorney should name someone you trust to make medical decisions on your behalf. You can also establish a financial power of attorney, which designates someone to manage your financial matters if you become unable to.
If the COVID-19 pandemic has taught us anything, it’s that life is unpredictable. Our fiduciary, fee-only financial planning firm generally advises that everyone has powers of attorney because sometimes the unthinkable does happen. And in those times, you want people you trust taking care of your financial and health decisions.
3. Advance Directives
For further peace of mind, consider drawing up a living will. A living will is a legal document that leaves instructions for the kind of treatment you would want and not want. You can give instructions on issues such as pain relief, CPR, and life support.
If you are diagnosed with an advanced illness or frailty, consider creating Physician Orders for Life-Sustaining Treatment, or POLST. This is a document that can be given directly to health care professionals, including first responders. It provides specific medical directions in an emergency.
4. Filing of Important Documents
Once you’ve created your estate plan, compile all the important documents and information—and notify your trusted family or friends where this information can be accessed if it’s needed.
You can make a list of documents and where to find them, or you can physically store all the paperwork in a single place (if so, you may want to invest in a fireproof safe).
Gather paperwork such as:
- Bank and investment account numbers and access information
- Insurance policies
- Deeds and titles to property (real estate, vehicles, boats, etc.)
- Stocks, bonds, and mutual funds
- Personal records, such as birth and adoption certificates, marriage licenses, divorce papers, and military records
It may also help your survivors if you include a master list of all your accounts and how to access them, such as email, social media, and bank accounts. This can help your executor or trustee to close them appropriately.
Estate Planning Is Not Optional
Many people make the mistake of assuming an estate plan is only for the wealthy. But if you’ve got any assets or dependents, it’s unwise to go without a plan.
An estate plan is about preparing for what happens at the end of your life: Who will make decisions for you if you become incapacitated? Where will your assets go after you die? Who will you trust to execute your estate or assume guardianship of your children or pets?
Our San Mateo and Vancouver CERTIFIED FINANCIAL PLANNER™ professionals help clients determine their estate-plan needs as part of their comprehensive financial plan. We think an estate plan is essential to sound financial planning.
Consider starting your estate plan now if you’ve been putting it off. And if it’s been a while since you updated your documents, take some time to review them for any necessary changes. It’s best to get your estate planning documents in order while you have the power to do so.
Schedule a complimentary meeting with a fee-only financial advisor to discuss your situation.