Nationwide, just 42 percent of Americans have the documents that make up an estate plan, such as a will. In other words, millions of adults throughout the U.S. are walking around without any plan for who should receive their assets if they pass away, or even what will happen to them should they become incapacitated while sick.
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Few people want to think about their own mortality: that’s very understandable. But the fact is, everyone with assets needs to think about an estate plan. If you have investments, a retirement plan or even a few pieces of jewelry, you have enough assets to think about an estate plan.
Wherever you are in your financial life, the experts at Financial Freedom Wealth Management can provide the right combination of services to make sure you are on the right financial path. We specialize in helping our clients form comprehensive financial plans which include estate planning.
What’s an Estate Plan
Before we discuss the best reasons to have an estate plan, let’s define what it is.
Power(s) of Attorney
The first part of an estate plan protects you. It’s not uncommon to become incapacitated later in life by illness, such as a stroke or dementia. If that happens, who pays your bills? Who takes care of your home? Who makes decisions for your healthcare, or makes sure your end-of-life wishes are respected?
You can decide the answer(s) to those questions by setting up a power of attorney. A financial power of attorney allows your designees to pay your bills and make other financial decisions about your accounts if you become unable to do so. A medical power of attorney allows your designees to make healthcare decisions and articulates your wishes as to end of life care matters like artificial equipment to keep you alive, etc.
Both documents can be updated or cancelled at any time (as long as you are competent to make changes). Additionally, the documents can immediately be in force or can be “springing” which means they are only in force when certain things like a disability occur.
A Will or Living Trust
The second part protects your heirs and beneficiaries. A will specifies where you want all your assets to go after your death. Whether it’s a large monetary bequest, a house or your remaining retirement funds, wills specific the beneficiary, and when and how they should receive the asset.
Wills also specify how your minor children should be cared for.
A living trust is like a will, except it places the assets in a trust while you are still living.
Like most things in life, there are advantages and disadvantages of using a will versus a living trust which is why it’s so important to talk with a professional who can help determine what is best for your situation.
If you have neither a will nor a living trust, the laws of the state you live in will end up determining who receives your assets and, if relevant, who will care for your children.
Now that we’ve summarized the components of an estate plan, here are the top reasons you really need one:
1. To avoid chaos
If you either can’t make your wishes known or are no longer around, no one has any way of knowing what your wishes are without an estate plan. Whether it’s your own finances or health care, who you want to raise your children or who gets your assets, complications can ensue if your wishes aren’t known. In fact, it can be a recipe for chaos.
In the case of your finances or health care when you are still living, various family members may argue or be unsure of what to do. In the case of assets or child care after you die, the state steps in if you die intestate (without a will). State laws will determine who gets what and who will become your children’s guardian, rather than your wishes. They will name an executor (a person who sees that the will is carried out), rather than you naming one.
All wills go through a process called probate. While probate can be a lengthy process, it is almost guaranteed to be extremely lengthy – several years or more – if you die intestate. During that time, no family members or friends will have access to any assets.
Your spouse or children may be responsible for paying your bills or debts. It’s a good idea to ensure that they can do so from your estate.
Taxes on estates and assets can be complicated. An estate plan can minimize or avoid taxes.
Finally, if your wishes regarding end-of-life are not known, your assets can be eaten up with medical or nursing home bills or lawyer’s fees. You can conserve assets with an estate plan.
2. To ensure that your assets go where you want
It’s a good idea to think through the intended recipients of your assets. You may feel, for instance, that some children deserve more because of health problems or life choices. You may want some or all of your assets to go to organizations that you believe in.
If you don’t have an estate plan, state law often specifies spouse and children as beneficiaries. But if you want your assets to go to people or organizations other than that, or your situation vis-à-vis spouses and children is complicated and may be difficult for the courts to determine appropriately, your assets may not reach the beneficiaries you wanted them to reach.
The only way to ensure that people and organizations receive the assets you want them to have is to say so in a will or living trust.
3. To ensure your children are cared for as you prefer
Here, too, the courts may be bound to set up a guardianship by state law that you would not want. It may be an ex-spouse in another state when you would prefer it be a family member of yours or a friend who lives nearby. The only way to make sure is to specify your wishes in a will.
4. To avoid fighting after you’re gone
We’ve all read newspaper stories of famous families where lack of a will caused strife within a family. Without an estate plan, family members and friends can argue about who deserves what. The acrimony can split families and last for generations. The best plan to avoid a bitter fight is to make your wishes known.
5. To discuss your plans with your intended beneficiaries
Many people want to discuss the terms of their will while they’re still here. If you plan charitable donations, for instance, you may want to discuss those plans with your spouse and children to ensure they will carry on with that organization. If you plan to leave a summer house to your children, it may be comforting to think of them continuing to have fun there as the generations progress.
Consulting with a financial advisor can help alleviate the concerns you may have about financial planning and estate planning. All of the advisors at Financial Freedom Wealth Management are Certified Financial Planners™ which means we are fiduciaries and we put your needs above our own. Contact us today and start planning for your tomorrow.