When it comes to estate planning, many people make the mistake of thinking that it’s only for the wealthy. But the reality is, if you have assets like a home, bank account, life insurance policy, or business, you should have an estate plan. If you have dependents like a spouse, children, elderly parents, pets, or a non-profit you support, you should also have an estate plan.
Most importantly, if you have any interest in controlling how your affairs would be handled if you were ill, incapacitated, or worse, you should have an estate plan.
In short, everyone needs one.
An estate plan is an umbrella term for a set of documents and directives that describe how your assets, property, and affairs should be handled during or after your lifetime. Depending on your situation, you may need some or all of the typical components, including:
Will: This legal document explains how you want your assets to be distributed after your death and names an executor to carry out your wishes.
Power of attorney: If you become unable to make choices for yourself, a power of attorney grants legal and financial decision-making authority to someone you have designated.
Living will: Also called an advance healthcare directive, this document outlines your specific wishes for end-of-life care, so your family never needs to guess your preferences about resuscitation or other medical treatments.
Healthcare Proxy: Also called a medical power of attorney, this legal document appoints someone to make medical decisions on your behalf.
Guardianship designation: If you have minor children, this document outlines your choice(s) for their legal guardian(s). You may also designate guardians to care for your pets.
Estate tax strategy: Depending on the size and complexity, it may be beneficial to work with a qualified tax professional and estate-planning attorney to understand how current tax laws could affect the transfer of your assets. These professionals can help design an estate plan that reflects your wishes and ensures that all applicable legal and tax requirements are properly addressed.
Trusts: A trust is a legal entity that holds and distributes assets to the beneficiaries you designate in a manner of your choosing. Assets within a trust bypass the probate process, which we discuss below. There are several types of trusts and structures including trusts that can hold and distribute funds to you during your lifetime and retirement as well as to your beneficiaries afterwards. Discuss your needs with a trust and estate attorney.
Letter of intent: Though not a legally binding document, this may help the executor of your estate distribute sentimental items and understand your wishes for funeral arrangements or celebrations of life.
Beneficiary designation: If you hold a 401(k) or other retirement account, life insurance, or other policies, you have likely designated your beneficiaries directly within your accounts. It is prudent to review these designations periodically, especially after trigger events such as the birth or death of a family member, a marriage, or a divorce.
Business Succession Strategy: If you own a business, it’s important to designate someone specific to take the helm in the case of your unplanned absence or once you retire. Creating a comprehensive succession strategy will ensure business continuity and provide the comfort of knowing your company will continue operating according to your vision and values.
Estate plans take the guesswork out of a situation that is already emotionally charged. They ensure your assets are distributed the way you want, family disputes are avoided, taxes are handled efficiently, and your legacy matches your intentions.
Without an estate plan, your wishes may not be honored, taxes may take a huge bite out of your beneficiaries’ inheritance, and your medical and end-of-life wishes may not be abided. Furthermore, your assets will all be subjected to the probate process, which will be further complicated if you die intestate (without a will).
Probate is a legal procedure, supervised by a court, in which beneficiaries are notified, an executor assigned, your estate assessed, debts paid, a final tax return filed, and your assets distributed. It can be a lengthy, costly, and a public process. Without a will, and depending on the state in which you reside, the probate process will distribute your assets according to intestacy laws instead of your wishes. Avoid this unpleasant scenario by drafting, signing, and having your will witnessed and notarized. Keep a copy somewhere safe and give a copy to your lawyer or intended executor.
When you peel away all the particulars, there are two very simple reasons to have an estate plan in place:
The things you’ve worked hard to accumulate will go to the people you intend
The people you love will not have undue stress, uncertainty, and red tape to deal with
If you’ve just started accumulating assets, create an estate plan: it’s not too early. If you have amassed wealth and have people or projects to take care of, create an estate plan: it’s not too late. No matter where you are at this moment, you currently possess the information necessary to start planning now, preparing for tomorrow, and making your wishes clear.
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
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