Do you think estate planning is for the rich? Do you think you are too young to be thinking of estate planning? Well there are seven simple steps anyone who cares about their family needs to take to simplify your estate after you die. And yes everyone will die it is just unknown when. Will you be prepared when you do is one of the important questions that needs to be addressed. So let’s look at the seven simple steps that everyone regardless of net worth or age needs to do to establish some simple estate planning. For a few of these steps it may be a wise decision to consult a legal professional in your state to ensure that it is done properly and legally.
- First everyone needs a will to ensure that their assets will go where they wish them to go. In a will you will name an executor who will oversee your estate, distribute your assets according to your instruction in the will and pay your debts and estate taxes of there are any. If you die without a will and are married with children in most states your spouse will receive half your estate and your children will split the remaining half. If you are single the state will divide your assets to your living blood relatives. When someone dies without a will their assets are divided based on your state’s laws of intestacy and will most likely go through the probate process.
If you do not wish to have a will and you do wish to avoid probate a revocable living trust can be used to pass your assets to your heirs. But do not rely solely on a trust as you still need a will for many important matters and it is the building block on which your estate plan is made. Trusts are a good planning tool if you have minor children and wish them to inherent your assets and a trust will name a trustee to manage the assets and disburse them to your children according to the terms of the trust. But a trust cannot name who should be the guardian of your children a will does that. If you do not name a guardian in your will a judge will decide who will watch over your minor children and you need to ensure that their future is determined by you and not a judge. And in the event you do not use a trust to leave your assets to your minor children a judge will appoint someone to oversee the assets until the children become of age and can inherent the assets themselves.
- This is a very simple way to help establish your estate plan and that is to name beneficiaries on all accounts that allow that designation. If you name a beneficiary you do not need to list this asset in your will and it will not have to go through probate and will pass directly to the person who you name as the beneficiary. Certain assets may be passed directly to named individuals if you use such tools as right of survivorship or payable-on-death in place of your will. Using these tools will simplify your estate and minimize the assets that will have to pass through probate in the event you do not use a trust. Here is the part you really need to pay attention to and adhere to when you do use these tools and that is to keep the person you named current and up to date. If you are married chances are your spouse is the named beneficiary. But what happens in the event you get divorced? Your now ex-wife is still the beneficiary unless you take the time to change it. So stay current on this.
- Most of us will not need to worry about federal estate taxes but for a small percentage it is a reality. If you are married you may leave all of your assets to your spouse and there is an unlimited exemption for spouses on estates. And in the event you do have a rather large estate the first $5.25 million may be estate and gift tax free and you may double that for married couples to $10.5 million provided you do some simple estate planning beyond what I am discussing here. But beware as there are fifteen states and the District of Columbia that have estate taxes that may be different from federal estate taxes so consult a professional where you live in order to be compliant and do some basic estate planning to minimize estate taxes.
- Here is another simple estate planning tool that anyone can and should do and that is to simply leave a letter detailing your wishes that may not belong in a will. If you have a certain way you wish to be buried or how you want your funeral this is the way to accomplish that goal. Also items with sentimental meaning can be left to individuals in a letter provided you give it to someone you trust. But be aware these letters may not be considered a legal document where you live but chances are your family will want to follow your instructions so it is best to leave them in a detailed letter.
- Everyone should have a durable power of attorney to protect them and their interest while they are still alive. Should you need assistance or become incapacitated you need a durable power of attorney to give legal rights to someone you trust to watch over your financial and medical needs while you are unable. If you use a simple power of attorney and become incapacitated a judge will appoint someone as a conservator or guardian for your affairs. A durable power of attorney will avoid this and the person you wish will undertake that role. The person you name has to be someone you trust to carry out your wishes so give this a lot of thought. And remember a family member may not be the best person to do this as history is riddled with stories of family members doing what is in their best interest and not that of the person who drafted the power of attorney. One way to avoid this situation is to name co-trustees so one person does not have complete control.
- In the event you need medical attention and are not able to make decisions for yourself you need a living will and a medical durable power of attorney to ensure your wishes are adhered to. A living will established what medical treatment you wish to get in the event you are not able to make the decisions and a medical durable power of attorney designates the individual who will ensure your wishes are followed by the medical staff attending to you. Also make sure you address Health Insurance Portability and Accountability Act (HIPAA) requirements or your medical information may not be relayed to your appointed designee.
- And the final and hopefully simple step is to organize your files and digital files for easy access in the event you die or become incapacitated. All important paperwork that your trustee or executor will need has to be make available to them and accessible.
Depending on the complexity of your estate you may want to seek professional assistance for some of these steps such as wills, trusts, durable powers of attorney and living wills. Do not go the cheap route on these items as this is a very important part of your plan and you want to make sure your wishes are followed. A very basic estate plan does not need to be expensive and can be done for between $1,200 and $2,000 depending on where you live, what you need done and who you have do the work. Shop around as not all lawyers are the same and as the saying goes you will get what you paid for or at least I hope you do. Look at your situation and do some proper planning for your estate. And no it is never too early to plan and in fact I encourage everyone to do just that.
