If you answered yes to this question, then you need to pay attention to estate planning. Nearly everyone has an estate—regardless of how large or small. It’s made up of everything you own—home, car, savings account, investments, etc. And one of the costliest and most disruptive things you can do to your family is leave your estate completely unprepared.
I’ve been very lucky to have lost only a tiny number of family members or close friends to untimely death. That’s pretty remarkable considering that I come from a large Midwestern family that includes—not counting spouses—11 aunts and uncles, 51 first cousins, and way too many second cousins to tabulate. Aside from an uncle and a toddler cousin who both passed away before I was born, as well as one cousin who died unexpectedly at the age of 39—with no estate planning strategies in place—all of my other family members have lived enviably long productive lives and passed away in old age. I’ve been equally blessed never to have lost a single one of my closest friends.
But many people—actually, most Americans—aren’t so lucky. They know the pain and shock of losing—to accidents, illness or suicide—family members and/or friends who are too young to die. Usually, when we lose someone unexpectedly—or at a very young age—we always tell ourselves that we need to remember what’s important. We should make plans for our estate and live life to the fullest. But then we tend to go right back to “managing” our lives in the same old haphazard way.
I’m a Miami Marlins fan, and—in that long-distance way that we do when a famous figure whom we admire and have enjoyed watching dies abruptly and tragically—I mourned the sudden passing of the young pitcher Jose Fernandez. But we lost many more beloved celebrities and sports figures this year—Prince, David Bowie, Muhammad Ali, Arnold Palmer, Florence Henderson, John Glenn and just this week George Michael and Carrie Fisher just to name a few. It’s been a rough year.
The financial advisor in me can’t help but wonder how the loved ones left behind will be taken care of. Did they have wills? Did they lay out exactly what they wanted to happen with their assets?
Let’s talk about the estate planning documents they hopefully had in place if they had sought financial and legal advice upon making it big. Did you know that there are basic estate planning documents that we all should have in place to protect our loved ones when we die or become incapacitated? They include a will, a durable power of attorney and advance directives.
A will lays out, in writing, who you want your money and belongings to go to after you die. But more importantly, it defines the guardian for your minor children and the guardian for your money after you die. These should be two different people to create a “checks and balances” to make sure the money is spent properly.
A durable power of attorney, on the other hand, provides directions on how your assets should be handled if you become incapacitated or unable to make decisions while you are still alive. This is an extremely powerful document that allows someone to act immediately on your behalf—so think very carefully about who you trust enough to receive that important authority. You should consider having your attorney hold the document only to be used if something happens to you.
An advance directive is a document that outlines what you want regarding your health care rather than your finances. In other words, how you want medical decisions made should you not be able to make them yourself. There are three types of advance directives—living wills, healthcare surrogate designations and anatomical donation. You can learn more about them at http://www.floridahealthfinder.gov/reports-guides/advance-directives.aspx.
In The Ultimate Financial Plan, authors Jim Stovall and Tim Maurer remind us that the most important estate planning tool of all is our beneficiary designations. That’s right. Believe it or not, the beneficiaries we name on our 401ks, 403bs, IRAs, Roth IRAs, 529s, life insurance policies, etc., supersede our will. So no matter who you name in your will to receive your assets, the beneficiaries you have designated in your plan documents take precedence. As a matter of urgency, my suggestion to you is to look closely at the beneficiaries you’ve designated (a good year-end task to address), and then make sure that they are what you still want. This is especially true if you’ve recently gone through a divorce and no longer want your spouse to get the assets in your retirement account upon your death. Way too many divorced people forget to do this.
To prepare the documents—and to help you think through all of the aspects of each—it really pays to seek the advice of an experienced estate planning attorney. Unless you own a business or have complex financial dealings—in which case you may need additional documents—the will and needed directives should be fairly straightforward.
Melissa Gannon, CDFA(R) is a Financial Planner with Castle Wealth Management.