Estate planning is an umbrella term for many different topics that fall under it. Some topics that fall under the term are wills, trusts, and powers of attorneys. With the havoc COVID-19 has wreaked on the globe, it has shown many people where their financial plan is lacking. Earlier this year I wrote about emergency funds and the importance of them, highlighted by the Coronavirus. Now that we are seeing the mortality rates of a virus that, seemingly came out of nowhere, many people are realizing the need for thorough estate planning.
An excellent place to start is to create a will! Wills can help people specify exactly how they want their assets divided and even state who they want to be the guardian of their children. If you pass away without a will, the state will make all these decisions for you. This could lead to sticky situations between family members and a prolonged division of assets. Having a will allows for many of your assets to avoid probate, which can drastically reduce estate taxes. The last thing someone wants is to have all their assets degraded by taxes! It is essential that your will is easily findable, and that people listed in the will are aware of its existence. This allows for the family to avoid estate drama as seen in many movies!
When setting up your will you will assign an executer of your will. This is a huge responsibility, so make sure that whoever it is will have the time and skillset to handle all your requests and financial burdens (i.e. an attorney ). As we touched on once before in a blog post "Inevitable Checklist", you should let your executor (and other trustworthy family members) know where you keep copies of your passwords to all social media sites, subscription sites, emails and even credit card information. That way they can ensure subscriptions are canceled (including email subscriptions), credit cards are canceled (to avoid the higher chance of identity fraud) and social medias are taken down.
Other documents that are important for estate planning are assigning Powers of Attorneys for your finances, as well as a Healthcare Power of Attorney. When assigning a Power of Attorney over your finances it is particularly important to consider their financial intelligence and trustworthiness. Alongside your healthcare Power of Attorney, you should also look at creating a living will. Living wills explain your wishes if you become incapacitated due to illness or injury. A living will can save a loved one from having to make the hard decisions regarding life-saving measures.
While wills are incredibly helpful and should be the first step in your estate plan, you can't forget about assets that pass outside of your estate, which therefore can't be part of your will. Anything that passes outside of a will must go through probate. This will delay access to these assets and tack on that pesky estate tax. A few accounts that pass outside of your estate are bank accounts, brokerage accounts, 401k's, individual retirement accounts, and even life insurance policies. It's imperative that you're reviewing these accounts and ensuring that beneficiaries or Transfer on Death designations are being setup and reviewed. A general rule of thumb is to review your beneficiaries every five years, or as any big life changes happen (marriage, children, death in the family, etc). While financial advisors aren't lawyers, they can certainly help make sure your beneficiaries are updated on these accounts and that the proper forms are being filled out. Hold them accountable!
The last large factor of estate planning is setting up a trust. A trust is beneficial for people with children or those that don't have a trusted family member or friend to assign as an executor of your estate. If you have a large estate a trust is certainly preferential over a will as it can get into more of the details of multiple properties, investment accounts, retirement accounts, etc. A trust is much like a will in that you state where assets go upon your passing but makes listing beneficiaries for accounts outside of your estate much easier, as you can assign the trust as a primary beneficiary for any account.
All in all, you can see that estate planning is as much for friends and family as it is for yourself.