Who Needs What: The Basics of Estate Planning

We have seen, personally and professionally, the impact of an untimely death.  None of us want to face our own mortality.  That’s completely understandable.  But not taking care of your affairs in a reasonable fashion could be devastating to your loved ones.  Putting them through a painful process that could be avoided seems contrary to what any of us would choose to do for our loved ones.

Similar to life insurance, pursuing estate planning for the first time is often spurred in early adulthood by life changes such as marriage or parenthood.  However, estate planning seems to fall farther down the to-do list for young people despite its importance (especially if one has minor children), and older individuals also sometimes neglect to update their estate planning documents despite significant changes in their circumstances or relationships.  As an introduction for some and a refresher and reminder for others, some basic tenets of estate planning are discussed below.

Why Do Estate Planning.  Some neglect estate planning as part of their financial life because they associate it only with those who are very wealthy and need to craft elaborate trusts to avoid significant taxation of their estate when they pass away.  However, the purposes of estate planning are much simpler and more wide-reaching than that.  Primarily, estate planning aims to ensure that any wishes you may have regarding your property and assets, guardianship of your children, and healthcare and financial decisions will be fulfilled once you are deceased (or incapacitated).  It also aims to maximize the value of assets transferred to your heirs.  Establishing trusts is just one way of transferring assets, and some of the other ways are relatively easy and free!

What You Need.  Basic estate planning documents include a will and durable power of attorney appointing someone to make financial and health care decisions for you in case you are incapacitated.  In the absence of a will, your property and assets (that do not otherwise transfer by law or contract) will pass to your heirs in the order of succession determined by the state, which may not reflect your wishes.  This could be largely avoided by establishing a trust, but even in that case, it is very important to have a will, for example, to guide the transfer of any assets that may not be in your trust at the time of death, to establish guardianship for minor children, to appoint an executor of your estate, etc. 

In addition, some people choose to prepare a living will or advanced medical directive (to specify their wishes regarding medical care if they are in an end-of-life situation) and/or a do not resuscitate order (e.g. to reject CPR in the case of cardiac or respiratory arrest).  However, there could be drawbacks to using very specific language that creates a high degree of inflexibility, essentially by making legally binding decisions prior to knowing the circumstances of the case, which is why many instead rely on the power of attorney for healthcare or designate a healthcare agent in their advanced medical directives to make decisions in the context of specific situations as they arise.

Where to Turn.  We strongly advise contacting an estate planning attorney to draft your estate planning documents, rather than attempting to write a will yourself or using any low-budget, online alternatives.  While the initial process may require a significant investment (you can expect to spend at least $1k for basic estate planning documents), the guidance and expertise of a professional could save you or your family much more (in terms of money or, worse yet, in terms of tension, infighting, and heartache) in the future.

What Steps You Can Take for Free.  As we alluded to earlier, some property and assets transfer by law or by contract at your death, rather than according to your will.  If you hold an asset or piece of property (such as real estate, a car, bank accounts, investment accounts) jointly with rights of survivorship, for example, that property would transfer to the joint owner at your death, regardless of what your will indicates and without having to pass through probate, which can be a time-consuming and expensive process.  The same holds true if you have a bank account (pay on death), investment account (transfer on death), or retirement account with designated beneficiaries.  Therefore, you can advance your estate planning efforts simply by checking the titles and beneficiaries for your assets to ensure that they are complete and accurate, based on your current wishes and relationships.  For those who are married, you will likely want to verify that your property and shared bank and investment accounts are held jointly.  For those who are single, you may want to establish your bank and investment accounts as pay-on-death and transfer-on-death accounts, respectively, so that they can pass to a named beneficiary outside of probate. 

Please feel free to call with any general questions regarding your estate plan.  We also have trusted estate planning attorney contacts with whom we can connect clients who need to have estate planning documents drafted.