When you hear “estate plan,” what comes to mind? Rich aristocrats? Having tea on the lawn of a mansion?
All kidding aside, the word “estate” can throw a lot of people off. But estate plans aren’t just for the rich and famous- -- they’re for everyone. Estate plans are a series of legal and financial documents that can help protect you, your family and your belongings. If you’ve been wondering, do I need an estate plan? … say no more. You’ll find the answer here.
If you have children, a beloved pet, a home, or even a bank account, you need one. Your kids (and your four-legged friends) need you to secure their care and financial future. If something were to happen to you, an estate plan can help protect them.
We promise estate planning is actually more exciting, albeit less lavish, than it sounds. Once you’re done with creating the legal documents, you can take a breath of fresh air, knowing your family will be OK long after you’re gone. Now that’s thrilling.
What is an estate plan?
Not to sound like a textbook or anything, but here’s a quick definition. An estate plan is an organized way to manage and distribute your assets (like your money and home) after you pass away or if you’re no longer able to make decisions on your own. It can also name guardians for your kids or pets if you can no longer take care of them. Finally, in an estate plan, you can name a trustworthy person to make health care and financial decisions for you if you’re no longer able to do so.
These are heartbreaking thoughts. But the reality is, you never know what can happen. It’s much better to be prepared with a plan than to fly by the seat of your pants and/or leave loved ones to deal with things.
It’s also wise to work with a financial representative to create an estate plan. They can help you minimize the taxes you owe and ensure a smooth transition of your assets, whether it’s to a family member, friend or charitable organization. Remember, no matter where your income bracket falls, chances are you still have some money to manage. Create an estate plan now so you have control over where your assets will go one day.
The importance of an estate plan
Just look at your kids, your spouse or your closest friend. They need you, and creating this series of documents is one of the best things you can do for them. It’s easy to see why you need an estate plan.
It can help reduce their stress and eliminate the need for court disputes. It also helps ensure your final wishes are respected. For example, maybe you want to leave an inheritance to your children, donate to a charity, or protect your property. An estate plan can make this possible.
There are other lesser-known reasons why estate planning is important too. Here are a few:
- If you have minor children or fur babies, they need protection.
Estate planning isn’t just for the elderly. In fact, it’s a crucial step for any parent (or dog mom). If you have children under age 18, it’s important to name a guardian to care for them if you pass away unexpectedly. We know — it’s a difficult thought. But if you don’t name a trustworthy guardian, the courts will decide on the next best person. If you don’t designate a home for your pet, Fido could be sent to a shelter.
Aside from guardianship, your estate plan can also set aside money to provide for children. Many parents create a trust, which secures savings for children to access when they reach a certain age. It’s a way you can provide for them, even after you’re gone. It also helps make sure your children are mature enough to manage the finances they’ve inherited. - You have a blended family and want to be fair.
If you’ve remarried and have a blended family, an estate plan is critical. It can clarify which assets will go to children from a previous marriage and which ones go to children you have with your current spouse. These types of family dynamics can be complicated, so it’s even more important to get financial and legal support.
An estate plan can also help you be fair to everyone in your blended family. It can clearly designate the amount each child or spouse will receive after you pass away, preventing conflict in the courts. - You have a child with special needs.
If you have a child with special needs, you may want to do even more to protect them. For example, creating a trust as part of your estate plan can allow your child to receive proper health-care services while still qualifying for government benefits. - You own a business and want to make sure it’s taken care of.
Estate plans can protect more than just your personal finances. They can also protect your small business. In an estate plan, you can designate someone to take over your business if you die. Maybe you want to leave it to an adult child or a trusted coworker. Regardless, an estate plan can make it a smooth transition and minimize taxes when the business transfers ownership. Don’t forget — life insurance can also fund the plan, providing the resources to make your wishes possible. - You could face unexpected health issues at any time.
Life can take many turns, and some of them aren’t easy. If you experience cognitive decline, like dementia or Alzheimer’s disease, you may need to rely on a trusted person to help you make financial and health care decisions. This could also happen if you experience a debilitating accident or health issue, like a stroke, that leaves you unable to make decisions for yourself.
Sadly, these scenarios aren’t uncommon, and an estate plan is paramount should you find yourself faced with these or similar situations. Your estate plan should include a power of attorney, which designates a person who can make financial decisions for you. It should also have a health-care proxy that names someone to make medical decisions on your behalf, including decisions about your doctors and treatments.
No matter your situation, chances are an estate plan is helpful, especially if you have kids, own a home, and have some money in the bank. If you’re not sure how to create one, talk to a Modern Woodmen financial representative. At the very least, they can help explain why you need an estate plan.
The most important legal documents in an estate plan
No two estate plans are alike. Most of them, however, include certain documents, like:
- A will. This is a legal document that describes how your assets (like your savings and property) should be managed after you pass away. It also can include space for you to name a guardian to care for minor children. A will also names an executor -- a trustworthy person to manage your will on your behalf.
- A trust. Some, but not all, estate plans include a trust. A trust is an arrangement that allows a person (the trustee) to manage your assets for your beneficiaries (e.g., minor children). Trusts can be written so they are revocable (can be changed) or irrevocable (cannot be changed) after they’ve been created. Often parents create trusts if they have minor children or beneficiaries who might not be able to manage assets due to a medical condition.
- A power of attorney. This legal document names a person who will make financial decisions on your behalf if you pass away or become mentally incapacitated. It’s a pretty important document, but don’t worry. We’ll go much more in-depth about it in the next section.
- A health-care proxy. If you’re in a coma or have severe cognitive decline, a health-care proxy designates someone who will make medical decisions on your behalf. Otherwise, it can get very tricky to provide you with timely and adequate care. When creating a health-care proxy, choose a trustworthy person who knows and respects your wishes when it comes to medical care.
There are other documents that can make up an estate plan, but these are the most common. Remember, a good financial representative can point you in the right direction and help you determine what you need.
How to set up a power of attorney
A power of attorney is one of the most important parts of an estate plan. As we mentioned, it allows another trusted person (called the agent) to make financial decisions for you if you’re no longer able to handle your own affairs.
To set up a power of attorney, you should consider:
- Talking to a legal professional who specializes in estate planning.
Get a recommendation for an attorney from your financial representative or by talking to neighbors, family members or close friends. Chances are, someone you know and trust can point you in the right direction. - Choosing a specific type of power of attorney.
There are several kinds, but most people want to create a durable power of attorney. This legally binding document remains in effect if you become incapacitated. This means if you experience a sudden accident or illness, and you’re unable to make decisions, your agent will be able to step in for you. - Choosing a trusted agent.
Remember, this person will have complete control over your financial affairs, so choose wisely. Consider their morals, values and history of demonstrating maturity. Once you’ve chosen an agent, your legal professional should draft the document and outline what your agent can manage. - Consider your digital assets.
You can also give your agent access to your digital assets and property. This can include email, social media accounts, cell phone apps, online bank accounts, and online shopping accounts. Remember, after you pass away these digital assets can live forever, so it’s important to protect your legacy online. Ask your legal professional how to create a digital estate plan. Then decide if you’d like to name your trusted agent on your power of attorney or someone else.
When you’re done, you’ll sign the document and keep copies on file with your trusted agent, legal professional, and a financial representative, if you have one. Voilà! It’s as easy as that.
Planning for health-care costs
As you create an estate plan, it’s critical to plan for future health-care costs as well. According to one recent study, more than a third of Americans aged 65 and older are worried they won’t be able to pay for their health-care services next year.1 Sigh, you don’t want to be in that position.
You want your golden years to be just that – golden. You don’t want to worry about paying for health expenses. Fortunately, a little planning ahead can go a long way. So why not start now?
Estate planning, in a cinch
You have a lot to do, between caring for your family and everything else in life. Estate planning probably isn’t at the top of your to-do list. But it should be. One of the best things you can do for your loved ones is plan for the future and write down your wishes. Get started today by finding a Modern Woodmen representative near you.
This material is for your information only and is not a recommendation or offer to sell any product. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Modern Woodmen of America does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
1https://news.gallup.com/poll/393494/older-adults-sacrificing-basic-needs-due-healthcare-costs.aspx