Five Reasons You Need an Estate Plan
What comes to mind when you think about estate planning? “Something I’ll never need, something only for the rich and famous? For me, it’s like going to the dentist. I know it’s important but I can always find 100 things I’d rather be doing!” There are so many good reasons to have our final wishes laid out, but one of the best reframes I can provide is this: having an estate plan is my opportunity to be sure that those I love and care for the most are honored and taken care of to the best of my ability. As Benjamin Franklin pointed out, the only two certainties in life are death and taxes. We’ll all need an estate plan at some point.
What is an estate plan?
According to a 2021 Gallup survey, only 46% of Americans have a will. While a will is a great starting point, by itself it’s not an estate plan. A well-constructed estate plan does the following:
Name an individual(s) to administer and close your estate.
Provide instructions for who’ll inherit various assets.
Name a guardian(s) for minor children.
Name a power-of-attorney who can legally handle your finances in the event of an illness or incapacity.
Name a healthcare power-of-attorney who can legally make healthcare decisions on your behalf.
Provide end-of-life care instructions so that your loved ones aren’t guessing about what you would have wanted.
Provide for the ongoing financial care of your children and grandchildren.
Did you know you already have an estate plan?
To get you started, did you know that you already have an estate plan? Everyone does! But that’s not necessarily a good thing. An individual who passes away without a will is said to have passed away “intestate” (literally meaning “to pass away without a will”). Every state has “intestacy” laws meaning that your state has a predetermined plan for what will happen to your assets should you pass away without a will. For example, in the state of Virginia, an individual with a spouse and children is required to leave 1/3 of their assets to their spouse and 2/3 to their children. If there are no children, 100% will pass to the spouse and if they’re single, 100% will pass to the individual’s parents. If this is what that person wants, fantastic! But if this isn’t what you want, you must take action. For example, most individuals I’ve worked with want 100% of their assets to go to their spouse first, then to their children. Without setting up an estate plan, this isn’t likely to happen.
5 benefits of an estate plan:
Peace of mind for yourself and your family
Admittedly, we don’t personally benefit from most of our estate plan; we’re primarily laying out our wishes for others after we’re gone. However, we do reap a HUGE personal benefit: the peace of mind that our final affairs are in order. Spouses and children will likely also share in this peace of mind.
Express your wishes
You worked a lifetime to save and build everything you have. Why wouldn’t you take a little bit of time to think through and design a plan for how it will all be handled after you’re gone?
A well-crafted estate plan will allow you to:
Designate certain cherished family heirlooms and possessions to specific individuals who will value them most.
Determine who benefits from your life’s savings. Do you want to leave everything to your spouse, children, or both? Is there a lifelong friend that you’d like to leave a bequest to? Maybe there’s a specific church or charity which you’d like to benefit.
Set up parameters for who can access your assets and when. Maybe your children or grandchildren are minors and it would be highly imprudent to allow them to take possession of their inheritance at 18. Maybe there’s a special needs child that will need special provision.
Decide who will be your financial and healthcare decision-makers.
Protect your children
Everyone needs a will - especially those with minor children. An estate plan will help protect your children in two primary ways:
Name a guardian(s): a guardian is an individual(s) who’ll care for your children after you’re gone. It might be a grandparent, a sibling, another relative or even a close friend. Without a guardian, the courts will have to step in to decide who’ll receive this responsibility.
Provide financial protection: your guardians are also usually responsible for managing your children’s inheritance while they’re minors. But at age 18 (21 in a few states), your children take full control of the assets. This might not seem like a big deal but this could be a large amount when you add up your retirement accounts, home, life insurance, etc. One solution is to set up a trust that will still ensure your children’s needs are met but puts some guardrails around their money. For example, many parents set up trusts that distribute the balance over time as their kids age (i.e. 25, 30 & 35).
Avoid probate
Probate is the legal process through which a will is submitted to the court, proven as valid and assets are distributed to various beneficiaries. The length and tediousness of probate varies significantly from state to state but typically takes a minimum of 4-6 weeks and can take as long as 6+ months. It can also be quite expensive when you factor in attorney fees, court costs, etc.
With the right planning, you can keep most (and maybe all) of your assets from being probated, which reduces the time to settle your estate from months to a few weeks, reduces the cost of settling your estate, and keeps your estate from being part of the public record (Google doesn’t need to know any more about us than it already does!).
Protect from incapacity
We often think of estate planning as the process of protecting our loved ones after our demise, but it also protects them AND us while we’re living. More than 25% of all workers will be disabled at some point in their careers. Nearly everyone will be hospitalized at some point. The point is, almost all of us will, at some point, need someone to handle our financial or healthcare decisions for us. It might be for a few days or weeks, or even years.
Being proactive by setting up a financial and healthcare power-of-attorney lets you choose who you want to make these decisions on your behalf. Without preplanning, it might mean the courts have to get involved. I remember working with a dear couple who didn’t have these documents, whose children had to jump through enormous hoops just to be able to take care of their parents - making an already stressful situation just that much more difficult.
Now that you’re ready to move forward, you might ask, “Where do I even start?” Consider first contacting your financial planner, who will help to talk through your wishes, lay out a path to implement your plan, and refer you to an estate planning attorney. An estate planning attorney, preferably one from your home state, will put together your will, trust, power of attorney, and other documents. There are also a growing number of online companies that will put together an estate plan for you without needing to work with an attorney.
Brian Talbott, CFP®
Lead Financial Planner