What do Aretha Franklin and Prince have in common besides their phenomenal music talents and their music legacy? Neither one had estate planning documents in place when they died, leaving a mess to be untangled by heirs and legal professionals.
If you’re like the majority of our clients, putting an estate plan in place or reviewing the one you have is not a high priority. Why is that? Maybe it’s because it requires thinking about a time in the future when you won’t be around to enjoy the life you have today. Maybe it’s because you don’t feel you have accumulated “enough” wealth to worry about leaving to others. Maybe it’s because you haven’t been able to decide who you trust to take care of your children or financial affairs if you are seriously ill or die - and it’s easier to ignore than to address.
Whatever the reason, if you are at least 18 years old, putting an estate plan in place that makes clear your wishes is an important aspect of your financial plan.
Start with powers of attorney. When we hear or read the words “estate planning” we often think about wills. There are two or three documents that comprise your powers of attorney.
- Your health care power of attorney describes who you want to make decisions on your behalf in the event that you are seriously ill or hurt and cannot make decisions about your own health care.
- Your financial power of attorney states who you want to take care of your financial affairs and make financial decisions on your behalf if you are incapacitated. This power of attorney will list what decisions can be made and by whom. It’s important to name a backup (think: “Plan B”) both for your medical power of attorney and for your financial power of attorney in case the person you named can’t serve. Remember that you want to name individuals who know and understand you well and who will do their best to make decisions as you would want them made.
- Your advance medical directive, sometimes referred to as a living will, spells out what treatment(s) you would or would not want to have if you can’t communicate your wishes yourself. A Do Not Resuscitate (DNR) order is a separate document that informs medical professionals not to resuscitate you if you go into cardiac arrest.
Your will lays out what you own, to whom you wish to distribute your physical belongings as well as your financial assets, how you want your final expenses and estate taxes paid, who will be your executor (oversee the management and distribution of your estate) and any charitable bequests. If you have children under the age of 18 you also need to name a legal guardian who will care for the child(ren) and possibly another person who will manage the child(ren)’s financial affairs.
If you have significant assets, have been married more than once, own property in multiple jurisdictions and/or your financial situation is complex, you may want to explore incorporating a revocable trust into your estate plan.
If you have specific wishes regarding who you want to receive a particular item (e.g., an antique table, a favorite pair of earrings, etc.), don’t assume that it will end up with the right person. Include this information as a list in your will or your revocable trust. So long as you are capable of making your own decisions, you will have the opportunity to revise your estate planning documents to reflect who and what is important to you.
If you elect not to make a will, please know that the state in which you live essentially has one for you. So take the time to make your desires known formally. I recommend sitting down with an attorney who specializes in estate planning to do it well. Review your most recent estate planning documents at least every 3-5 years, whenever you experience a significant life event or when the estate planning laws change so that your written documents still reflect your intentions. If you move from one state to another, update your documents so they conform to your new home state’s laws.
Know that these are all legal documents and must be in writing to be effective. If you’re not sure where to start, visit the Aging with Dignity’s Five Wishes website, https://fivewishes.org.
Your Beneficiary Designations
Some of your assets – life insurance, employer-sponsored retirement plans, and IRAs for example – are transferred by contract to the beneficiaries that you designate in writing to the companies with which you do business. It’s critically important that you review these assets annually to make sure that 1) you have named beneficiaries for each and 2) that the beneficiaries you have names still reflect your intentions. Employer-sponsored retirement plans and IRAs typically require you to name your spouse your primary beneficiary unless he/she waives the right to be named the primary beneficiary.
Storing Your Estate Planning Documents
Keep your estate planning documents together. Several good choices include storing them in a 3-ring binder or in a file drawer clearly marked as Estate Planning Documents. Give the individuals you name as your power of attorney a copy of the document(s) that apply to them so they’ll have them at hand if needed. If you have a financial advisor, giving that person a copy of your documents will help assure that you have access to them when you need them on short notice.
Keep an inventory – and update it annually – of your assets and your relationships, including bank and investment accounts, your advisors (attorney, accountant, financial advisor) and the location of important documents. Peace of mind will follow if you follow these simple guidelines.
Judy L. Redpath, CFP®, AIF® is Founder of VISTA Wealth Strategies LLC located at 12020 Sunrise Valley Drive, Suite 180, Reston, VA 20191. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, a member firm of FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products and services offered through VISTA Wealth Strategies LLC or CES Insurance Agency. She can be reached at (703) 295-9322 or at [email protected]. California Insurance License #0C18895.