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Getting Your Estate Plan In Order

Editor’s Note: This article is adapted from “What Estate Planning Documents Do I Need?”, Chapter 12 of The High Achiever’s Guide to Wealth. Pick up your own copy here to read more on this topic, and many others.

Getting your financial life in order is among the most popular New Year’s resolutions. Even if you aren’t the resolution type, January is a great time to take stock of projects you have put off for too long.

For many people, writing a will and developing an estate plan are tasks that hang around on to-do lists for months, or even years. After all, few of us are eager to sit down and think seriously about our own death. A study from Caring.com reported by AARP found that as of 2017, 78% of millennials lacked even a basic last will and testament. In contrast to the excitement of financial tasks like planning to purchase a home or saving for a major vacation, estate planning can seem morbid or frightening, especially for young adults. But that does not mean it is not vital.

Not everyone avoids estate planning out of fear, of course. Others put it off because they feel they have not amassed enough wealth to make such plans necessary. Or they may feel they have plenty of time to consider plans in the future. But accident and illness can cut a life short at any age, and there are compelling reasons to make a plan even for relatively small estates. The start of a new year is a great time to finally begin a plan, or to review an existing plan to make sure it is up to date.

Why You – Yes, You – Need A Will

Not everyone’s estate plan needs to be complex. But everyone should have a will. A last will and testament is the primary document that governs how your assets are distributed during a process known as probate. During probate, your estate will pay off debts, distribute assets and deal with any final tax obligations, all under court supervision. Probate happens with or without a will, but a properly written will is the best way you can shape the process to follow your wishes.

When someone dies without a will, they are considered to have died “intestate.” In this case, the state’s probate court will distribute the person’s assets. While laws vary state to state, in most cases the decedent’s assets will go to close relatives in a predetermined order. Surviving spouses, children and parents are usually near the top of the list, with more distant relatives following if closer relatives do not exist. If the deceased has no blood relatives, property generally reverts to the state. If you wish to leave any of your assets to someone who isn’t related to you, or to charitable causes, a will is essential. Dying without a will also means the probate process is likely to take longer and be more expensive for surviving family members.

If you are the parent or guardian to minor children, a will is truly critical. If children lose both parents, or had only a single custodial parent in the first place, the court will decide who takes custody in the absence of a valid will. My colleague Melinda Kibler has written at length about the importance of carefully designating a guardian for your children. A will is the primary tool to ensure that your guardianship choices have legal force.

How To Create A Will

Depending on the complexity of your estate, you can hire an attorney to prepare a will, or you can write it yourself. If you take the DIY route, you may use software designed to walk you through the process or you may compose a will from scratch. Either way, you should take care to comply with your home state’s rules to ensure your will is valid. In general, your will should be typed rather than handwritten. Once it is complete, sign and date it. You should generally have two witnesses sign and date it, too; these witnesses do not need to know the will’s contents. In most states, having the will notarized is optional, but doing so can help the document hold up in court.

The contents of your will depend on your situation, and these considerations extend beyond the scope of this article. But one matter no one should neglect is the choice of an executor, who will handle the many tasks related to administering your estate. This role is important and difficult, so don’t choose a spouse or a sibling merely as a way to demonstrate your close relationship. Select someone trustworthy, organized and who has the capacity to take on weeks – or months – of administrative work. You may also want to pick someone who lives near you, as the executor will need to be present for certain court proceedings and other tasks. Whoever you choose, be sure to make them aware of your plans and ask if they are willing in advance.

Here are a few other do’s and don’ts to keep in mind when creating your will.

DO:

  • Establish your identity and domicile (your primary, permanent home)
  • Revoke any former wills
  • Name an executor
  • Name guardians for any minor children
  • State how you want any debts or taxes associated with your estate to be paid
  • Confirm your wishes for any living trusts you’ve established

DON’T:

  • Include conditions for gifts (for example, “My son will receive $1 million if he is married and owns a home at the time of my death”)
  • Try to leave assets or property to a pet – instead, name a new caregiver and make that person the beneficiary of assets meant to provide for the pet
  • Make arrangements for a beneficiary with special needs; a special needs trust is often a better way to arrange for such an individual
  • Include detailed instructions for your funeral or memorial service
  • Express your wishes for any assets that pass outside of probate, such as an individual retirement account

Once you create a will, it is important to keep it current. Some major life changes that may prompt you to change your will include marriage, divorce, the death of a loved one, the birth of a child, the purchase of a home, a move to a new state or country, or a major change in your financial circumstances. You should also update your will if you start a new business or nonprofit entity. And, of course, you may simply change your mind about how you want to distribute your assets among your beneficiaries. A good rule of thumb is to review your will about once a year or when you experience a major life milestone.

Beyond Wills

If you have only one estate planning document, a will is most important. But you may want to consider a few other documents, depending on your needs and wishes.

Advance Health Care Directives

Just as a well-written will makes your wishes clear when it comes to your assets, an advance health care directive provides legal instructions for your medical care in situations where you are unable to make or communicate your own decisions.

A living will is one type of advance directive. In it, you describe which life-sustaining procedures you do or do not want in certain circumstances. A common example is a do not resuscitate (DNR) order; while these orders can stand alone, they are also a common component of living wills. You may include your preferences for end-of-life pain management and organ donation, too. When done correctly, a living will can save your loved ones from having to make difficult decisions or from seriously disagreeing with one another over those choices. The more thorough and detailed you make your instructions, the less likely it will be that your loved ones will be forced to make a decision without knowing what you would have wanted.

You can also designate a proxy health care agent by granting medical power of attorney. You should trust this person to fulfill your wishes regarding medical care and procedures, regardless of his or her own emotions. Most people choose their spouses, parents or siblings to serve in this role, though your proxy does not need to be a relative. Like executors, proxy health care agents should always know that you’ve designated them in advance, and you should give them the option to accept or reject the role.

Memorial Instructions

I mentioned in the section on wills that you should not include directions about your funeral arrangements in the will itself. That does not mean you should not consider leaving such instructions. This sort of document is seldom legally binding, but assuming your executor and other beneficiaries are in a position to do so, they are likely to take your wishes into account. You may want to specify how you would like you remains to be handled, or note that you would prefer a charitable donation to flowers, for example. Making some plans in advance can also save your loved ones stress while they are mourning.

Depending on your circumstances, you may even wish to make some of the financial arrangements for the funeral or other expenses. The deceased’s estate typically covers funeral and burial costs, assuming there are sufficient assets available. Ideally, you should set aside savings to cover funeral expenses so you do not saddle your grieving family with a hefty bill. If you already have a burial plot or other prepaid arrangements, it is important to document this for your executor, too.

Trusts

With or without a will, the probate process is public. A properly structured estate plan can allow for some alternative, more private methods of distributing assets. Trusts are one way to secure such privacy. A trust can also offer you more control of how assets pass to your beneficiaries. There are many types of trusts for different situations and goals, and their details are beyond the scope of this article. Despite their reputation, trusts are not only for the ultra-rich; they can be useful tools for people with relatively modest estates. Properly structuring a trust, however, is a task that should involve a professional. If you decide to set up a trust, or if you have connections to an existing trust, be sure that your executor has access to the relevant information, including all trust documents and contact information for trustees.

Personal Records

You should keep the documents I’ve mentioned, as well as other important personal records, somewhere your executor can access them without your help. In some cases, it may not be practical to store items like your birth certificate, driver’s license and financial documents in one central location. Including an accurate indication of where to find the originals or copies will often be sufficient as long as you keep such information current. Don’t forget to build in emergency access to your password manager or to make a reference document that will let your executor access your important online accounts.

You should store your estate planning documents in a secure location. Consider investing in a fire- and water-resistant safe or locked container. At least one family member or the executor should know where the safe is located, and have a key or the combination. Alternatively, you may keep your documents in a safe deposit box. In addition to a key, make sure your executor is on the list of people authorized to open the box. This will save time in the event of your unexpected death or incapacity.

Once you have set up a comprehensive estate plan, revisiting it can become an annual routine. As your finances become more complicated, you may want to consult a professional adviser, either once or on an ongoing basis. Or maybe you will remain comfortable handling the plans yourself. Either way, getting started with your estate plan is the hardest part. But knowing that your loved ones are prepared for your death, at least in a financial and logistical sense, can offer real peace of mind. Not a bad way to kick off a new year.

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