Key Family Estate Planning

Great estate planning can save time, money and emotional pain for your family but take very little time to create.

An estate plan should not be intimidating. It’s simply an organized list of wishes for your friends or family to follow if something happens. You can have an estate plan for your money, children, your health, your charitable wishes or even your animals. Below you’ll learn what is included in an estate plan.

Before you start drafting documents or calling an attorney, simply think through what you’d like to happen when you die. We know it’s hard to think about but believe us, it’s a lot harder for those you love to guess at what you wanted, then you just taking a few minutes to write it out.

The two major things you need to decide is who will raise your children and what will happen to your money. There are a lot of other things a good estate plan can do but those are the two most important. Once you decide those, then you can start to put the pieces of a strong estate plan together.

• Writing a Will
• Power of Attorney
• Ensuring Proper Care
• Life Insurance
• Trusts

Writing a Will

A will is a legal document of final wishes. It can say where you want your assets to go and who cares for any minor children when you pass. To make sure that your wishes go unchallenged, you want to create a testamentary will (just a fancy term saying people witnessed you signing it). If you don’t have a will when you die, the courts will determine how your assets are split up and who raises your kids, which is not ideal for anyone.

Tips to Know:

• If you write a will yourself, make sure that an attorney looks it over to ensure proper wording and that it abides by your state’s laws.
• If you’re looking for a free option, Freewill is a non-profit company that allows you to draft a will for free in as little as 20 minutes.
• Without a will, who raises your children and what happens to your money will be determined by the state you live in probate system and those details are contingent on the inheritance laws of your state.

Power of Attorney

Power of attorney is when you give someone the authority to manage your affairs when you are incapacitated. It’s like having someone speak on your behalf or make decisions for you legally. This is important as it ensures your wishes are carried out when you can’t carry them out yourself, and it makes it easier for your loved ones to make decisions on your care without going through your state’s judicial system.

Tips to Know:
Being married does not give your spouse power of attorney. If you have not granted someone the power of attorney, the state will choose who will be your guardian. This could be a close relative, but the only way to guarantee who will manage your affairs is through granting someone power of attorney.

A power of attorney can either be general or specific:

• General– you designate a person to manage all of your affairs
• Special– you can designate different people to manage specific aspects of your affairs (medical decisions, financial decisions, etc.)

Springing power of attorney often makes sense because it only becomes effective once something happens and is powerless until that event (like you dying) happens.

Ensuring Proper Medical Care

If you are injured and can’t make decisions for yourself, having a healthcare directive (a.k.a. medical directive) gives someone the ability to make healthcare decisions for you. There are two major parts to a healthcare directive: a living will (your healthcare instructions) and a healthcare proxy (the person you want to carry out your instructions).

A living will covers things like a “do not resuscitate order” or how long you want to stay on life support. A healthcare proxy is who makes the final call on questions like this if it happens.

Tips to Know:

Your healthcare proxy cannot be your primary physician (unless related by blood or marriage), an employee of the healthcare facility you receive treatment from, or your conservator.

Each state has different requirements for healthcare proxy eligibility so be sure to check yours

Trusts

Trusts are a way to organize or own your assets with a specific list of instructions on how they are given away, managed or spent. The are created by a fiduciary relationship where someone (called the grantor) gives his assets to the trustee to distribute according to the grantor’s wishes either during his lifetime or upon his death. Trusts are a smart way to avoid your assets going to probate (and being publicized) and can also avoid some taxation and potentially creditors.

Tips to Know:

• Grantor (settler): the individual or entity who creates the trust
• Trustee: the individual or entity who enacts the wishes of the trust
• Beneficiary: the person receiving the assets from the trust
• There are multiple types of trusts that can be created. Here are a few of the more common ones:
• Living trust – trust that allows the grantor to pull funds for their own use. Upon death, the trust will transfer to the beneficiary.
• Testamentary trust (most common) – created by the grantor which will provide benefits to the beneficiary upon the grantor’s passing.
• Revocable– the grantor maintains ownership of the trust and can choose to change it at any time. Living trusts can be revocable but often become irrevocable upon your death.
• Irrevocable– the trust can’t be changed. This is often used to remove something permanently from your estate before your death which can sometimes minimize your estate taxes owed at death. Living trusts can be irrevocable, and testamentary trusts are always revocable.

Life Insurance

Life insurance can help cover current expenses, pay for existing debts, or covering funeral costs. It’s a smart way to make sure that after death your family has the cash they need to pay for things but don’t have to sell real estate or investment accounts or business interest before they actually want to.

There are two primary types of life insurance: term life insurance (coverage for a specific time-period) and permanent life insurance (coverage that doesn’t expire as long as premiums are paid).

Tips to know:

• • Here are some key terms that are helpful to understand the differences in life insurance policies:
  • Premium: what you pay each month or year to have the coverage
  • Death Benefit: the amount of money paid to your beneficiary when you die
  • Policyholder: the person who owns the policy
  • Beneficiary: the person who receives the death benefit when the policy holder dies
    • • If you are the primary provider for your family, life insurance is crucial. There are two ways to determine how much coverage you need:
      • Have at least 15x your current annual income in coverage (death benefit)
        • Example: salary of $100,000 a year x 15 years = $1.5M of coverage
      • Or a more precise way is to add up your liabilities (debts, estimated funeral cost, goals for your family like college) and estimate how much you want to provide for how many years for your family
        • Example: debt of $500,000 + $15,000 funeral + 2 kid’s college $200,000 ($100,000 each) + 10 years of $100,000 income = $1,715,000 of coverage
  • Permanent life insurance (which lasts until you die), though more expensive than term, is a good option for those who want to leave an inheritance, charitable gift or may have a large estate tax liability. Some permanent life insurance also has something called cash value that allows you to take out what you’ve paid and potential growth in a tax advantageous manner.
  • Term life insurance (which expires) is a good option for those that want a low cost option to provide for their dependents for a period of time and don’t want life insurance in later years.

  Key Take Aways

  Estate planning can help lower the stress of your passing by giving your loved ones clear instructions to follow, providing financial support through life insurance, and avoiding the public nature and expense of the probate court system. Once you have your estate plan in place, most of the hard work is done, and you can rest with the knowledge that your family will be provided for when you’re gone but it is smart to update it once very 3 years.

  Disclaimer: This post is for informational purposes only and is never to be taken as advice or a recommendation. Talk to a tax or legal professional to determine how this information best applies to your personal situation.