The following post comes from Gary Foreman at partner site The Dollar Stretcher.
It’s a subject that none of us wants to think about. Young or old, we don’t want to think about our own death. Adding money to the mix only makes it worse.
So let’s do something today that we don’t want to do. Let’s evaluate your estate planning and see if it’s adequate for the job. For the record, I’m not an attorney, and this isn’t meant to be legal advice. I’ve been a financial planner and often referred clients to get legal advice. This is meant to do the same.
First, let’s create working definitions for a couple of commonly used terms…
- Estate refers to what financial and physical assets you own (or partially own) at the time of your death.
- Estate planning is the planning you do before your death to make sure that your wishes are followed after death.
- A will is the most commonly used document to make your wishes known to those who survive you and any appropriate government authorities.
You’ll need to decide what you want your estate plan to do. Someone will need to be named the “executor” (or boss) of your estate. They’ll assume the responsibility of executing your last wishes. That person does not need to be a lawyer. Any adult with good judgement will do. Often a family member is chosen. But you may want someone from outside the family like a lawyer or bank to do the job.
You’ll want something that will provide instructions on how to distribute your financial assets and physical property. You may want specific items to go to designated persons. Or you may want to make it clear that certain persons are to be excluded from any inheritance.
If you have children, you’ll want to specify who you want to raise your kids. Remember that they’ll need someone to take care of them both physically and to manage their finances until they reach adulthood. Quite often minor children are left financial assets in a parent’s estate.
You’ll also want to consider whether any estate taxes could apply. If so, you may be able to take steps to reduce the tax burden your heirs will face.
OK, now that we’ve spent some time thinking about what we want to happen after we’re gone, let’s talk about how we make sure that it does happen.
In most cases the primary document is a will or “last will and testament.” A will is a very specific document. It’s not a list of items with names next to them that you keep in your safe deposit box.
A will is a legal document that contains certain elements that are required by state law. While none of these elements is difficult, failure to include them could invalidate the will. And, to complicate matters, each state has slightly different requirements. Make sure that your will is legal in your state. And have it rechecked if you’ve moved to a new state since it was written.
Many single adults think that they don’t need a will. Typically they’re wrong. Without a will, it take could months to have someone assigned to sell a car owned by the deceased or pay any bills. There could even be a problem finding someone to pay funeral expenses.
Another common misconception is that married couples can solve the problem by putting everything into joint accounts. Unfortunately, not everything can be titled jointly (think of jewelry or home electronics). And even if everything is held jointly, what happens if both spouses die in an accident?
Dying without a will can leave a real mess. State law will determine who is the executor and how your property will be distributed. That might not produce the results you want. For instance, in some cases law dictates that some inheritance goes to children before the surviving spouse.
It’s especially important for unmarried couples. State laws are a patchwork. In some places, they recognize commonlaw marriage the same as one registered with the state. In other places, a life-long live-in partner is accorded no more rights that a complete stranger.
State laws are also problematic for couples in a second marriage. You may think certain assets that you brought into a second marriage should go to the children of your first marriage. The state might think otherwise.
Bottom line? Just about everyone who has reached adulthood should have a will.
Being frugal, it’s tempting to want to write your own will or buy a form where you just fill in the blanks. Normally, I encourage do-it-yourself efforts. But in this case that could be a mistake. Remember that if something isn’t done right no one will know until after you’re gone and can’t correct it. A small mistake could be very costly. This might be one of those cases where hiring a professional is good money management.
That doesn’t mean that you can’t shop around to save some money. And, if you’ve already thought about what you want your estate plan to accomplish you’ll reduce the number of hours the attorney will spend preparing your will. That will save you some money.
Finally, you’ll want to make sure that your executor has access to a copy of your will when you die. They will need it as proof that they can make decisions for you. Give them a copy of the will, or, if you’d prefer that they not see it, give a copy to your lawyer and let the executor know who the lawyer is. Don’t put the only copy in your bank box. The bank will not let the executor enter just because they say they have a right. The bank will require proof. And that proof is locked in your box.
Planning for your estate does not need to be expensive. Unless your financial or personal affairs are complicated, getting the documents prepared isn’t that expensive. But it is important.
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