According to one survey, 67% of Americans have no estate plan, which may reflect an aversion to thinking about dying or getting gravely ill. However, neglecting estate planning may lead to significant consequences in the long run, especially for those with families. To ensure your estate plan meets your needs and wishes, review this family financial planning guide for the six fundamental components of family estate planning.
1) Drafting a Will
A will is a document stating who will receive your estate or assets and how much each beneficiary will get when you die. In select cases, wills are not necessary. If you pass away without one, the state will be in charge of distributing the resources and, most likely, give them all to your children, which may have been your plan anyway. A will becomes more important if you have specific instructions regarding asset allocation or would like to donate to a non-profit organization.
Wills are not only created to prepare for death. Some people write living wills — also called a medical power of attorney or advance directive — if they develop a severe illness or experience a debilitating injury and can no longer make decisions on their own. A key distinction between the living will and general will is that the former allows family members to make medical decisions on your behalf.
2) Naming Beneficiaries for Separate Assets
While wills encompass a large part of your wealth, some assets fall outside their jurisdiction. For example, annuities, retirement accounts, and life insurance follow beneficiary designations. If these assets have no beneficiary, the court may need to step in and decide who gets the money. For this reason, these accounts should have a primary beneficiary and contingent beneficiary in case the first person cannot receive the benefits.
3) Establishing a Trust
If the people inheriting your estate are young children or adults with special needs and cannot manage money alone, consider setting up a revocable trust. The trust is run by a trustee who oversees it for your heirs until they reach an age where they can handle finances responsibly, such as their mid-20s.
If you prefer not to initiate a trust, you can obtain a life insurance policy instead. Life insurance does not incur income taxes and does not require the sometimes stressful probate process.
4) Durable Power of Attorney
Whether you create a will, set up a trust, or both, having a designated agent to act on your behalf following your death or incapacity is critical for your wishes to come to fruition. The durable power of attorney is a document stating that this agent can make legal decisions, conduct financial transitions, and perform similar tasks as you would.
5) Letter of Intent
While not legally binding, letters of intent help detail exactly how you want a specific asset handled after your die or become incapacitated. It is particularly valuable if the court finds your will invalid as it provides a guide for distributing your wealth to your family. You may also include special requests in the letter of intent, such as how you would like your funeral to proceed.
6) Guardianship Assignment
Most wills and trusts have a provision for guardianship, but not always. Therefore, people with young children and those thinking about having kids should select a guardian in case they die or become debilitated unexpectedly.
As with the healthcare power of attorney, the designated guardian should be a family member or friend who shares your views, but also someone with sound finances who can afford to raise children. Perhaps most importantly, it should be someone who wants to support the children and show them the affection they need. Naturally, you need a backup in case the initial guardian cannot assume the role.
Navigate Family Estate Planning with Park Place Financial
Estate planning is a crucial aspect of family financial management, but it can be challenging to determine the best course of action without some guidance. At Park Place Financial, our team of certified financial planners (CFPs) has the expertise and resources to help you create a personalized and flexible estate plan. Our in-house estate planning specialist will collaborate with you to determine the best techniques for achieving your objectives and guide you through the various documents associated with estate planning, like wills and trusts.
At Park Place Financial, our goal is to provide clients with professional advice that serves them long-term. Contact us today to learn more about family law and estate planning, or schedule your complimentary financial checkup.